RUSSIA’S LEADING
FREIGHT RAIL GROUP
10 YEAR IPO
ANNIVERSARY
2008-2018
A DECADE OF
SUCCESS
THE JOURNEY
CONTINUES
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www.globaltrans.com
Globaltrans Investment PLC
Annual Report 2018
OVERVIEW
Highlights of 2018 2
At a Glance 4
Large Modern Fleet 6
Efficient Operational Platform 8
Established Blue-chip Client Base
and Strong Market Positions 10
STRATEGIC REPORT
Chairman’s Statement 14
A Decade of Delivery 18
Chief Executive Officer’s Review 20
Market Review 24
Business Model and Strategy 30
Operational Performance 32
Financial Review 38
Risk Management 53
Corporate Social Responsibility 60
GOVERNANCE
Board of Directors 70
Executive Management 74
Corporate Governance 76
FINANCIAL STATEMENTS
Consolidated Management Report
and Consolidated Financial Statements 84
Board of Directors and Other Officers 85
Consolidated Management Report 86
Directors’ Responsibility 96
Independent Auditor’s Report 97
Consolidated Income Statement 102
Consolidated Statement
of Comprehensive Income 103
Consolidated Balance Sheet 104
Consolidated Statement
of Changes in Equity 105
Consolidated Cash Flow Statement 106
Notes to the Consolidated
Financial Statements 107
Management Report and Parent
Company Financial Statements 174
Board of Directors and Other Officers 175
Management Report 176
Directors’ Responsibility 184
Independent Auditor’s Report 185
Income Statement 189
Statement of Comprehensive Income 190
Balance Sheet 191
Statement of Changes in Equity 192
Cash Flow Statement 193
Notes to the Parent Company
Financial Statements 194
ADDITIONAL INFORMATION
Selected Operational Information 234
Ownership 240
Corporate Structure 241
Dividend Policy 242
Definitions 245
Presentation of Financial and
Other Information 248
GRI Content Index 250
Key Contacts IBC
10 YEAR
ANNIVERSARY
LONDON LISTING
Globaltrans 2008 - 2018, celebrating the 10 year anniversary
of listing on the London Stock Exchange.
Summary of presentation of financial and other information
All financial information presented in this Annual Report is derived from the Consolidated Management Report and
Consolidated Financial Statements of Globaltrans Investment PLC (the “Company” and, together with its subsidiaries,
“Globaltrans” or the “Group”) and has been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of Cyprus Companies Law, Cap. 113 (EU IFRS). The Group’s
Consolidated Management Report and Consolidated Financial Statements and the Parent Company Financial Statements for
the year ended 31 December 2018 are included in the Financial Statements section of this Annual Report. Financial statements
for prior years can be found on Globaltrans’ corporate website (www.globaltrans.com/download-centre).
The presentational currency of the Group’s financial results is the Russian Rouble (RUB), which is the functional currency of
the Company as well as of its Cypriot and Russian subsidiaries.
Certain financial information derived from management accounts is marked in this Annual Report with an asterisk (*). In this
Annual Report, the Group has used certain “non-GAAP financial information” (i.e. measures not recognised by EU IFRS or
IFRS) as supplementary explanations of the Group’s operating performance. Information (non-GAAP financial and operating
measures) requiring additional explanation or defining is marked with initial capital letters and the explanations or definitions
are provided at the end of this Annual Report. Reconciliations of the non-GAAP measures to the closest EU IFRS measures
are included in the body of this Annual Report. Rounding adjustments have been made in calculating some of the financial
and operational information included in this Annual Report. As a result, numerical figures shown as totals in some tables may
not be exact arithmetical aggregations of the figures that precede them.
This Annual Report, including its appendices, may contain forward-looking statements regarding future events or the future
financial performance of the Group. Forward-looking statements can be identified by terms such as expect, believe, estimate,
anticipate, intend, will, could, may or might, and the negative of such terms or other similar expressions. By their nature,
forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that
may or may not occur in the future. The Group cautions that forward-looking statements are not guarantees of future
performance and that the Group’s actual results of operations, financial condition, liquidity, prospects, growth and strategies,
and the development of the industry in which the Group operates, may differ materially from those described in or suggested
by the forward-looking statements contained in this Annual Report. For a detailed description of the presentation of financial
and other information, please see the Presentation of Financial and Other Information section of this Annual Report.
Stock Exchange
London Stock Exchange plc
10 Paternoster Square, London EC4M 7LS, UK
Phone: +44 20 7797 1000
Website: www.londonstockexchange.com
Auditors
PricewaterhouseCoopers Limited
City House, 6 Karaiskakis Street,
CY-3032 Limassol, Cyprus
Phone: +357 25 555 000
Fax: +357 25 555 001
Follow us on Twitter
https://twitter.com/GLTR_news
KEY CONTACTS
Globaltrans Investment PLC
Legal address
Omirou 20, Agios Nikolaos,
CY-3095 Limassol, Cyprus
Postal address
Office 201, 4 Profiti Ilia Street, Germasogeias,
CY-4046 Limassol, Cyprus
Phone: +357 25 212 382
Fax: +357 25 503 155
Website: www.globaltrans.com
Investor Relations
Phone: +357 25 328 860
Email: irteam@globaltrans.com
Media Relations
Phone: +357 25 328 863
Email: media@globaltrans.com
Company Secretary
Ms. Elia Nicolaou
Anastasio Building, 6th Floor,
15 Dimitriou Karatasou Street,
CY-2024 Strovolos, Nicosia, Cyprus
Depositary Bank
Bank of New York Mellon
Shareholder correspondence should be mailed to:
BNY Mellon Shareowner Services
PO BOX 30170
College Station, TX 77842-3170, USA
Phone for domestic callers:
+1 888 BNY ADRS (+1 888 269 2377)
Phone for international callers:
+1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Designed and produced by fourthquarter
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
1
Globaltrans is a leading freight rail transportation group
with operations in Russia, the CIS and the Baltic countries,
and celebrates 10 years since its IPO on the main market
of the London Stock Exchange.
Focused exclusively on the freight logistics sector
in Russia, Globaltrans brings sophisticated rail
transportation solutions to its clients in the metals
and mining, oil and gas and other industrial sectors.
Globaltrans owns one of the largest fleets in Russia,
with a Total Fleet of 69,023 units.
2
Highlights
of 2018
PAGE 2
14
Chairman’s
Statement
PAGE 14
32
Operational
Performance
PAGE 32
38
Financial
Review
PAGE 38
76
Corporate
Governance
PAGE 76
“This has been an outstanding year for Globaltrans, building on a
decade of progress since we listed on the London Stock Exchange in
2008. These record results demonstrate that we can control costs,
generate cash and deliver an industry-leading operational
performance. It is this combination that allows us to invest in
business development and provide shareholders with attractive
returns while keeping our leverage low.”
Valery Shpakov, Chief Executive Officer
Read the full review on pages 20 to 23.
Globaltrans Investment PLC
Annual Report & Accounts 2018
2
This has been an outstanding year for Globaltrans, building on a
decade of progress since we listed on the London Stock Exchange
in 2008. These record results demonstrate that we can control
costs, generate cash and deliver a robust operational performance.
HIGHLIGHTS OF 2018
+20%
Year-on-year
increase in Average
Price per Trip
+7%
Increase in Owned
Fleet compared to
the end of 2017
38%
Empty Run Ratio
for gondola cars
(2017: 37%)
+17%
Year-on-year
increase in Adjusted
Revenue
+28%
Year-on-year
rise in Adjusted
EBITDA
54%
Adjusted
EBITDA Margin
(2017: 50%)
Robust operational
performance
Strong financial results
and margin expansion
• New five-year agreements with TMK and ChelPipe
• Total revenue increased 11% year-on-year
Group successfully under way and delivering benefits (1) .
to RUB 86.8 billion.
• Operational excellence maintained with Empty
• Adjusted Revenue rose 17% year-on-year to RUB 60.9
Run Ratio for gondola cars at 38%.
billion supported by strong market conditions.
• Better pricing reflected in 20% year-on-year rise
in Average Price per Trip primarily due to strong
gondola market.
• Owned Fleet increased 7% underpinning new
long-term contract wins and setting a strong
platform for 2019(2).
• Total Fleet at record 69,023 units with share of
Owned Fleet now at 95%.
• Operating profit was up 33% year-on-year to
RUB 26.9 billion.
• Cost discipline maintained despite inflationary
pressures with the rise in Total Operating
Cash Costs at 6% year-on-year.
• 28% year-on-year increase in Adjusted EBITDA to
RUB 33.1 billion with the Adjusted EBITDA Margin
expanding to 54% (2017: 50%).
• Profit for the year rose 42% year-on-year
to RUB 19.6 billion.
(1) TMK is a leading global manufacturer and supplier of steel pipes for the oil and gas industry,
operating 27 production sites in the United States, Russia, Canada, Romania, Oman and
Kazakhstan. ChelPipe Group is a leading Russian manufacturer of pipe products and provider
of integrated solutions for fuel and energy companies.
(2) Owned fleet as of the end of 2018 compared to the end of 2017. In 2018, the Group acquired
4,747 units (including 3,862 gondola cars, 481 flat cars and 404 containers) and disposed of
592 units, of which 334 were written off.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
3
The summary below covers the Group’s key financial and
operating performance indicators. These include Non-GAAP
measures that the Group believes are helpful to investors in
analysing the Group’s performance and are well understood
in the freight rail transportation industry.
The key Non-GAAP financial metrics are not a substitute for
the IFRS financial information included and discussed in the
Financial Review section of this Annual Report.
+19%
Year-on-year increase
in Cash generated
from operations (3)
RUB
12.3bn
Robust Free Cash Flow
(2017: RUB 17.0 billion)
0.56x
Net Debt to
Adjusted EBITDA
(end of 2017: 0.44x)
RUB 92.4
Total dividend per share/
GDR in respect of 2018
(+3% year-on-year) (4)
Strong cash generation
and low leverage
Attractive dividends
delivered above target
• Cash generated from operations(3) increased 19%
• The above target total shareholder payment in
year-on-year to RUB 32.6 billion.
• Free Cash Flow remained robust at RUB 12.3 billion
despite the substantial increase in Total CAPEX
(RUB 12.9 billion, up 165% year-on-year).
• Leverage held at low level with Net Debt to
Adjusted EBITDA at 0.56x (2017 end: 0.44x).
• Nearly 100% of debt is denominated in Rouble,
the Company’s functional currency.
respect of 2018 was RUB 16.5 billion or RUB 92.4
per share/GDR(4) , a 3% increase compared to the
total payment in respect of 2017.
• Payouts reflect the dividend policy and the intention
to maintain an efficient capital structure and return
excess capital to shareholders.
• Ongoing ambition to return excess capital to
shareholders with total first half 2019 interim
dividend of RUB 8.3 billion targeted (5).
(3) After changes in working capital.
(4) Including interim and special interim dividends in respect of the first half of 2018 and final
and special final dividends in respect of the second half of 2018. Global Depositary Receipt (GDR).
(5) A total interim dividend (regular and special) of RUB 8.3 billion is targeted in respect of
the first half of 2019 provided the current outlook for the sector remains broadly unchanged.
Globaltrans Investment PLC
Annual Report & Accounts 2018
4
GLOBALTRANS
AT A GLANCE
Globaltrans is a leading freight
rail group operating across
Russia, the CIS and the Baltics.
The Group operates one of the
largest, modern railcar fleets in
the region, comprised principally
of gondola and rail tank cars.
The Group provides sophisticated freight rail transportation
and logistics services to over 500 customers in key industrial
segments such as metallurgical cargoes, oil products and oil,
coal and construction materials.
Globaltrans was listed on the London Stock Exchange in
2008, becoming the first freight rail group focused on
Russia to join an international stock exchange. The Group’s
Global Depositary Receipts trade on the Main Market of
the London Stock Exchange (ticker symbol: GLTR).
Globaltrans’ operating subsidiaries
(1) All information is for 2018 or at the end of 2018, unless otherwise stated.
(2) Metallurgical cargoes including ferrous metals, scrap metal and ores.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
5
Our business pillars (1)
Large modern fleet
• 69,023 units of Total Fleet with 95% in ownership
• 11 years average age of Owned Fleet
• The core of the fleet consists of universal gondola cars (65%) and rail tank cars (30%)
• Rail tank car business enhanced by unique locomotive capabilities
Powerful operating platform
• Comprehensive coverage across rail network of Russia and the CIS
• Best-in-class logistics delivered 24/7 from single dispatching centre
• High fleet utilisation and one of the lowest Empty Run Ratios in its markets
Established blue-chip client base
• Trusted partner to major industrial groups in Russia and the CIS
• Services over 500 corporate clients across the region
• Long-term contracts underpin 60% of Net Revenue from Operation of Rolling Stock
• Strong representation in the key industrial segments:
– 22% Market Share in metallurgical cargoes(2)
– 9% Market Share in oil products and oil
Proven strategy delivering sustainable shareholder returns
• Returns-oriented model delivers growth through mix of opportunistic fleet expansion
and selective acquisitions
• Focus on shareholder returns with a dividend policy linked to Attributable Free Cash
Flow and Leverage aimed at distributing cash not used for business expansion
• Commitment to financial discipline and a strong balance sheet
Over a decade of adherence to best-in-class
international governance standards
• Listed on London Stock Exchange since 2008
• Free float represents over 50% of share register
• Experienced, well-balanced Board with four Independent Directors
Globaltrans Investment PLC
Annual Report & Accounts 2018
6
Globaltrans operates at scale and over the last decade
has invested significantly in its core business. The Group
manages one of the largest, most modern railcar
fleets in the industry.
LARGE MODERN FLEET
At the end of 2018, the Group’s Total Fleet stood at 69,023 units, split between universal
gondola cars (65% of total) and rail tank cars (30% of total). In order to retain maximum
operational flexibility and ensure business resilience, Globaltrans seeks to maintain an
appropriate balance between the size of its Owned Fleet (95% of total) and the Leased-in
Fleet (5% of total). The average age of the Group’s Owned Fleet is currently 11 years.
A vigorous, established fleet maintenance and repair programme ensures high levels of
fleet reliability, thereby improving operating efficiency and service quality for customers,
which in turn drives strong client retention.
Locomotives
Gondola cars
Globaltrans operates its own fleet of 69
mainline locomotives which haul block
trains and are principally engaged in the
transportation of oil products and oil.
69 units
<1% of Total Fleet
A gondola car is an open-top, high-sided
universal railcar designed to carry various bulk
cargoes, for example metallurgical cargoes,
coal or construction materials. Gondola cars
are the backbone of the Group’s fleet. Gondola
cars can be redeployed quickly between
different bulk cargoes in response to changes
in market demand.
44,982 units
65% of Total Fleet
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
7
69,023
units
Total Fleet
95%
In ownership
11 years
Average age of
Owned Fleet
Rail tank cars
Tank containers
Other rail cars
A rail tank car is designed to carry liquid
cargoes including oil and petroleum products,
chemicals, liquefied gas and other liquid
substances. The rail tank cars operated by
Globaltrans are principally used to transport
oil products and oil.
Tank containers are intermodal containers
used to transport petrochemicals. Intermodal
containers are designed to be shipped without
any handling of the freight itself when
changing transport modes.
20,426 units
2,040 units (1)
30% of Total Fleet
3% of Total Fleet
Globaltrans’ other railcars include
flat, hopper cars, etc.
1,506 units
2% of Total Fleet
(1) Includes petrochemical and other containers
24/7
Dispatching
centre
44,982
Total Fleet of
gondola cars
Globaltrans Investment PLC
Annual Report & Accounts 2018
8
EFFICIENT
OPERATIONAL
PLATFORM
The Group’s powerful operating
platform, built on its industry-
leading logistics and route
management systems and a
deep understanding of clients’
requirements, enables it to
deliver a best-in-class service
to clients.
A single dedicated dispatching centre manages fleet
movements, cargo shipments and route-planning
24 hours a day, seven days a week. This sophisticated
operation enables precision management of the fleet
and inbound and outbound cargo transfers. As a
result, Globaltrans benefits from improved operational
efficiencies as it can maintain high rolling stock
utilisation across the fleet and minimise Empty Runs.
Empty Run Ratio
Globaltrans’ Total Empty Run Ratio
(for all types of rolling stock), 2014-18
2018
2017
2016
2015
2014
Source: Globaltrans
Globaltrans’ Empty Run Ratio
(for gondola cars), 2014-18
2018
2017
2016
2015
2014
Source: Globaltrans
46%
45%
48%
51%
51%
38%
37%
38%
39%
38%
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
9
Gondola logistics
key illustrative routes
Kamennogorsk
Novy Port
Export
Cherepovets -2
Vorontskova
Denisovsky
Lena
Vostochnaja
Berkakit
Berkakit
Berkakit
Berkakit
Berkakit
Berkakit
Berkakit
BBerkakit
Berkakit
Zheleznogorsk
Moscow
Export
Stoylenskaya
Trubnaya
Trubnaya
Trubnaya
Trubnaya
Trubnaya
Trubnaya
Trubnaya
Trubnaya
TTrubnaya
Novolesnaya
Export
Yegozovo
Smychka
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
Chelyabinsk
CChelyabinsk
Chelyabinsk
Yuzhny
Yuzhny
Yuzhny
Yuzhny
YYuzhny
Yuzhny
Yuzhny
Ekaterinburg
Kiltchug
Belovo
Bazaikha
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
Metallurgicheskaya
MMetallurgicheskaya
Metallurgicheskaya
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
Novokuznetsk
NNovokuznetsk
Mezhdurechensk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
Novorossiysk
NNovorossiysk
Novorossiysk
Export
Export
Export
Export
Export
EExport
Export
Magnitogorsk
Bystrorechenskaya
Novotroitsk
Vladivistok
Export
Zabaykalsk
Export
Metalloinvest
cargo base
MMK cargo base
Other clients’
cargo bases
Empty Runs
Coal
Metals
Iron ore
Pipes
Crushed stone
60%
Net Revenue from
Operation of
Rolling Stock
covered by long-
term contracts
22%
Globaltrans’ Market
Share of overall Russia’s
rail transportation
volumes of metallurgical
cargoes in 2018(2)
Breakdown of Net Revenue from Operation
of Rolling Stock by key clients (1), 2018
Rosneft 23%
Metalloinvest 17%
MMK 16%
Gazprom Neft 5%
Evraz 4%
TMK 2%
UGMK-Trans 2%
SDS-Ugol 2%
Severstal 1%
ChelPipe 1%
Other (including small and medium enterprises) 26%
Source: Globaltrans
Remaining period of long-term contracts
(years, at end of 2018)
2.3
1.8
Rosneft
Metalloinvest
1.0
MMK
TMK
ChelPipe
Source: Globaltrans
4.4
4.4
Globaltrans Investment PLC
Annual Report & Accounts 2018
10
ESTABLISHED
BLUE-CHIP CLIENT
BASE AND STRONG
MARKET POSITIONS
Globaltrans is a trusted partner
to key industrial blue-chip
companies across Russia
and the CIS
The Group’s reputation is built on providing high-quality, reliable
rail logistics for its clients that improve efficiency and reduce costs.
It has over 500 industrial clients, largely in the metals and mining,
oil products and oil, and construction sectors.
Globaltrans pioneered the concept of long-term outsourcing
partnerships for leading industrial groups in Russia and the CIS,
whereby it handles a majority of the client’s freight rail logistics.
This model has proved very successful and in 2018 long-term
service contracts represented 60% of Net Revenue from
Operation of Rolling Stock.
The Group has a strong presence in a number of key industrial
cargo segments including metallurgical cargoes (22% Market
share) and oil products and oil (9% Market Share).
Breakdown of Globaltrans’ Freight Rail Turnover
by cargo, 2018 (excluding Engaged Fleet)
Metallurgical cargoes: 54%
(including ferrous metals,
scrap metal and iron ore)
Other: 7%
Construction materials: 4%
(including cement)
Coal: 20%
(including coke)
Oil products and oil: 14%
Source: Globaltrans
Globaltrans’ Market Share of overall Russia’s freight rail
transportation volumes by cargo, 2018(2)
7%
9%
Market Share of overall
Russia’s freight rail
transportation volumes
Metallurgical cargoes
(including ferrous metals,
scrap metal and ores)
Oil products and oil
Construction materials
(including cement)
Coal
(including coke)
Source: Company estimations, Rosstat
4%
3%
22%
(1) Including their affiliates and suppliers.
(2) Market Share is calculated using the Group’s own information as the numerator and information
published by the Federal State Statistics Service of Russia as the denominator.
It is defined as a percentage of the overall Russian freight rail transportation volume or freight rail
turnover and includes volumes transported by Engaged Fleet, unless otherwise stated.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
Reliable partners
11
500+
Globaltrans has over 500
industrial clients, in the metals
and mining, oil products and oil,
and construction sectors
Andrey Varichev,
General Director of HC Metalloinvest
Sergey Nenashev,
Chief Commercial Officer of PAO MMK
Alexander Nevsky,
Head of Logistics and Transport, Gazprom Neft
“Over the last six years, Globaltrans
has fulfilled 100% of Metalloinvest’s
freight transportation needs.
This longstanding partnership is a
testament to Globaltrans’ professional
management team, who have
significant experience and a deep
knowledge of the rail freight sector.
“Railway transportation is a very
important service to Magnitogorsk Iron
and Steel Works (“MMK”) as it is key to
the success of our business. It provides a
secure link between MMK and its
vendors and customers and is
instrumental in connecting our affiliated
companies across the MMK Group.
Globaltrans helps Metalloinvest to
efficiently transport its products, including
iron ore concentrate, pellets, HBI, pig iron
and steel, both domestically and for
international export.
Globaltrans’ excellent reputation and clear
focus enables Metalloinvest to overcome
any challenges we encounter, while always
ensuring we receive the highest quality of
service. Our partnership with Globaltrans
is something that we truly value.”
Globaltrans delivers our steel products to
MMK’s domestic customers, as well as
carrying a variety of our exports. Being a
reliable and efficient partner, Globaltrans
always promptly responds to our needs
and guarantees the level of services we
require. Globaltrans’ decision to expand
its gondola fleet is driving greater
efficiency in MMK’s logistics, while
ensuring our transportation
requirements are duly met.”
“Gazprom Neft has worked with
Globaltrans since 2004 and throughout
that time the Group has proven a
reliable business partner, which is
essential to a company of our size
with our requirements.
The Globaltrans team is exceptionally
professional, responsible and able to
quickly react to and manage any issues that
arise. This long-standing cooperation has
enabled us to implement a number of
measures and projects in order to improve
the efficiency of the transportation process
and reduce the delivery time of oil
products and oil. We value the high-quality
service we receive from Globaltrans and
hope to continue our mutually beneficial
relationship into the future.”
Mikhail Anenkov,
Deputy General Director, Logistics, PAO TMK
Boris Kovalenkov,
General Director of ChelPipe Group
“As a leading global manufacturer and
supplier of steel pipes for oil and gas
industry, TMK has a broad production
and marketing geography, so efficient
cargo flow management and a
guaranteed supply of rolling stock
are among our top priorities.
The five-year service contract we entered
with Globaltrans’ subsidiary in 2018 has
generated tangible benefits for us, making
rail transportation of our products much
more reliable. Globaltrans’ dependability
provides TMK with the stability we need
both in pricing terms and in effective
transportation of our raw materials and
finished products.”
“For ChelPipe Group, one of the major
domestic producers of piping products,
transportation plays a significant role in
the development of our manufacturing
capabilities.
Thanks to the contract we signed with
Globaltrans in 2018, we expect to improve
our efficiency in servicing key production
sites and ultimately reduce our
transportation costs. Globaltrans’
unconditional guarantees and ability to
meet our needs, however complex, makes
long-term planning of shipments easier
and enables us to better predict our
transportation costs. It also means we can
achieve a high degree of adaptability
around our internal processes and external
transportation needs enabling us to
respond to an ever-changing market
and economic environment.”
Globaltrans Investment PLC
Annual Report & Accounts 2018
12
STRATEGIC REPORT
ON THE RIGHT TRACK
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
13
Directors’ Responsibility
Each of the Directors confirms that, to the best of his or her knowledge, the Strategic
Report presented on pages 12 to 67 of this Annual Report includes a fair review of the
development and performance of the business and the position of Globaltrans
Investment PLC and its subsidiary undertakings, included in the consolidation taken as
a whole, together with a description of the principal risks and uncertainties they face.
By order of the Board,
Sergey Tolmachev Director
Globaltrans Investment PLC
Annual Report & Accounts 2018
14
CHAIRMAN’S
STATEMENT
Dear Shareholders,
It was my great privilege to be appointed
Chairman in the year that marks the 10th
anniversary of Globaltrans’ listing on the
London Stock Exchange. As one of the
founders of the Group, I think it is fitting
that I start my report by looking back at
the success we have achieved over the
past decade.
More than 15 years ago, we had a vision
to create a new type of freight rail
transportation group that would set new
standards for the industry and be the
partner of choice for Russian businesses.
Moving freight cargo is a complex
operation requiring substantial resources
and a high level of expertise to meet
customers’ requirements for round-the-
clock flexibility, speed and punctuality.
From the very start, we knew that the
delivery of superior returns depended
on having a top-flight entrepreneurial
management team, best-in-class logistics,
modern assets, and a clear service
proposition. Our success has made
Globaltrans the market leader in providing
innovative freight solutions in Russia and
the CIS. The entrepreneurial spirit and
single-minded focus on our stakeholders
that defined Globaltrans in its early days
remains very much at the heart of the
business today.
A decade of delivery
Over the last decade, we have delivered
consistent value to our shareholders,
proving our ability to outperform through
the ups and downs of the economic cycle.
Fundamental to our success has been our
concentration on profitable growth
combined with rigorous cost control and
effective capital allocation. Since the IPO,
we have made sizeable investments in our
fleet. Our Total Fleet is now not only more
than two and a half times larger than it was
10 years ago, but it also has a far wider
geographical footprint, with higher quality
assets and greater capabilities. The impact
this has had on the business can be seen in
the five-fold increase in the Group’s
Adjusted EBITDA since 2008 (1).
Frankly, our performance since our IPO has
been outstanding, and so it is also pleasing
to report that the Group excelled in 2018
delivering a record set of results. Revenue,
operating profits and earnings per share all
increased and our solid cash flow meant
that shareholders again benefitted from
strong cash dividends. We secured our
operational objectives too, diversifying
our customer base, signing new long-term
partnerships and expanding the fleet to
meet the growing demand for our services.
Dividend
Our enhanced dividend policy, first
introduced in 2017, continues to deliver for
shareholders. The Group’s robust free cash
flow and low leverage means we can provide
shareholders with strong returns while also
meeting the demands of our growing
business. The Group has returned over
RUB 39.5 billion or RUB 221.3 per
share/GDR in dividends to shareholders
in respect of the last three years (2)..
Attractive shareholder returns remain a
priority for the Group with the intention
to return any excess capital not required
for business development to shareholders.
In respect of 2018, shareholders received
generous dividends with a 3% year-on-year
increase in aggregate distributions
(including interim, final and special dividend
payments) of RUB 16.5 billion or RUB 92.4
per share/GDR. This equates to 159% of
Attributable Free Cash Flow for the year and
aligns with our capital allocation strategy
(1) In RUB terms.
(2) Includes total dividend payments (interim, final and special where applicable) in respect of 2016,
2017 and 2018 financial years.
“More than 15 years ago,
we had a vision to create
a new type of freight rail
transportation group that
would set new standards
for the industry and be
the partner of choice for
Russian businesses.
Moving freight cargo is
a complex operation
requiring substantial
resources and a high level
of expertise to meet
customers’ requirements
for round-the-clock
flexibility, speed and
punctuality.”
5X
Increase in Adjusted EBITDA
since IPO in 2008 (1)
RUB 221.3
Total dividends per share/
GDR paid in respect of the
last three years (2)
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
15
A DECADE OF
DELIVERY
“Over the last decade, we have delivered
consistent value to our shareholders,
proving our ability to outperform through
the ups and downs of the economic cycle.”
Sergey Maltsev Chairman, Chief Strategy Officer, co-founder and shareholder
Globaltrans Investment PLC
Annual Report & Accounts 2018
16
CHAIRMAN’S STATEMENT
continued
which envisages regular dividends in line
with our dividend policy as well as special
dividends paid in order to ensure Globaltrans’
capital structure remains efficient.
This year has begun well and, provided the
current outlook for the sector remains
broadly unchanged, the Board is targeting
a total interim dividend (regular and special)
of RUB 8.3 billion for the first half of 2019
as we continue to focus on delivering strong
shareholder returns alongside a robust
overall performance.
Board and governance
It has been a year of transition for the Board.
In April, I took over as Chairman from
Michael Zampelas who now serves as
Senior Independent Non-executive
Director and Chairman of the Nomination
Committee. I would like to express the
Board’s gratitude to Michael for his tireless
leadership over the last five years and we
look forward to his continuing contribution
to the Board.
Our focus on effective governance has,
over the last decade, been instrumental in
supporting consistent value creation for
shareholders. As a Board, we are fully
committed to maintaining the Group’s
high standards of corporate governance.
We actively monitor all aspects of the
business and work closely with the
executive team. We aim to promote a
culture of openness and transparency in
all our stakeholder dealings. The Board’s
activities are covered in more detail in the
Governance section on pages 68 to 81 which
sets out our governance framework and the
work of the Board and its Committees.
Summary
Over the past decade, Globaltrans has
grown rapidly to become the partner of
choice for Russian industry. We have set
new standards of reliability, flexibility and
customer service and been a strong voice
in the development of a competitive rail
freight sector in Russia. Our approach
continues to set us apart and should deliver
further growth opportunities for the Group.
Rail remains the principal means of
transporting industrial cargoes in Russia.
Given its economic importance,
modernisation and expansion of the
network will continue to be a priority for
the government. This will benefit the freight
sector as better and larger rail infrastructure
will facilitate more cargo flows. In addition,
improved overall rail competitiveness and
long-term plans to increase production of
key industrial commodities such as coal and
metals will drive greater freight volumes
and boost demand for freight transportation.
These factors mean that the long-term
fundamentals of our industry continue to
remain very solid.
Our 2018 performance was the strongest
in our history and the Board is confident
that the Group remains well-positioned
to continue its successful development
in 2019 and beyond.
In closing, on behalf of the Board, I want
to thank all our employees for their hard
work and dedication in making 2018 so
successful for Globaltrans. We look forward
to working together to deliver another
successful decade for all our stakeholders.
Sergey Maltsev
Chairman,
Chief Strategy Officer,
Co-founder and shareholder
“Our 2018 performance was the strongest
in our history and the Board is confident
that the Group remains well-positioned
to continue its successful development
in 2019 and beyond.”
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
17
RUB16.5bn
Total dividend in
respect of 2018 (1)
(+3% year-on-year)
RUB8.3bn
Total dividend targeted
in respect of H1 2019(2)
Dividends
Enhanced dividend policy
Depending on the actual Leverage Ratio of the Group at the end of each financial year and subject to
applicable laws and regulations, and the Articles of Association of Globaltrans, the Board (3) will
recommend paying dividends in the amounts of not less than the following proportions of Attributable
Free Cash Flow of the Group for such financial year:
Leverage Ratio Dividends, % of Attributable Free Cash Flow
Less than 1.0x Not less than 50%
From 1.0x to 2.0x Not less than 30%
2.0x or higher 0% or more
The full version of the dividend policy (as adopted by the Board on 31 March 2017 and amended on 24 August 2018)
can be found in the Additional Information section of this Annual Report or on the corporate website:
www.globaltrans.com
Dividend history
(RUB per share/GDR(4) , in respect of related financial year/period)
Declared after approval of
enhanced dividend policy
89.65
92.40
44.80
44.85
45.90
46.50
39.20
22.20
22.28
18.86
12.41
10.34
4.42
2009
2010
2011
2012
2013
2014-15(5)
2016 H1 2017(6) H2 2017(7) H1 2018(8)
H2 2018(9)
Source: Rosstat
(1) Including interim and special interim dividends in respect of the first half of 2018 and final and special final dividends in respect of the second half of 2018.
(2) A total interim dividend (regular and special) of RUB 8.3 billion is targeted in respect of the first half of 2019 provided the current outlook for the sector
remains broadly unchanged.
(3) The Board reserves the right to recommend to the general meeting the dividend calculated on a reasonable basis other than described in this Annual
Report in its sole discretion. The factors that the Board should consider include, but are not limited to: (i) the Group’s needs for business development and
strategy implementation purposes; (ii) financial resources for business expansion; (iii) any adverse changes in the regulatory, economic and market environment;
(iv) the ability of the Group and its subsidiaries to meet their obligations as they fall due; (v) the availability of distributable reserves at the Group and subsidiary
level and (vi) other factors considered important by the Board in light of the current circumstances, including maintenance of the Group’s credit ratings.
(4) Prior to 2016, dividends on Globaltrans shares/GDRs were declared and paid in US Dollars, thus the amounts in Russian Roubles are presented for
informational purposes only and calculated at the Central Bank of Russia’s official exchange rate for the Russian Rouble as of the date of the Annual General
Meeting that approved the respective dividend. From 2016, dividends on Globaltrans shares/GDRs are declared in Russian Roubles and paid in US Dollars.
(5) The dividend declared in 2016 related to both the 2014 and 2015 financial years.
(6) Including interim and special interim dividends.
(7) Including final and special final dividends.
(8) Including interim and special interim dividends.
(9) Including final and special final dividends.
Globaltrans Investment PLC
Annual Report & Accounts 2018
18
Formed in 2004, the following 15 years of successful business
development has delivered a consistent and robust performance.
We now celebrate a decade on the London Stock Exchange.
Globaltrans was the first freight rail transportation group with
operations in Russia to have an international listing.
A DECADE OF DELIVERY
>65,000
units
Total Fleet
2013
Captive rail operator
of MMK is acquired.
Globaltrans signs
five-year long-term
contract with MMK.
A single gondola
dispatching centre
is created.
>50,000
units
Total Fleet
2012
Captive rail operator
of Metalloinvest is
acquired. First three-
year long-term service
contract signed with
Metalloinvest.
SPO is conducted
to finance ongoing
growth.
2010
Business growth
continues with
purchases of new
rolling stock and
the expansion of
Leased-in Fleet.
>37,000
units
Total Fleet
2009
Secondary Public
Offering (“SPO”)
is conducted to finance
business expansion.
50%(1) of
BaltTransServis
is acquired.
>26,000
units
Total Fleet
2008
Initial Public Offering
(“IPO”) is conducted
on the London Stock
Exchange.
Ukrainian subsidiary
is created and leasing
businesses in Estonia
are acquired.
(1) Subsequently, the Group acquired a further 10% effective economic interest
in BaltTransServis in 2011, taking its total economic interest to 60%.
Overview Strategic Report Governance Financial Statements Additional Information
>66,000
units
Total Fleet
2017
Enhanced dividend
policy is introduced
linking dividends to
Attributable Free Cash
Flow and Leverage.
2015
2016
Five-year long-term
contract signed
with Rosneft.
2014
SyntezRail subsidiary
is created to develop
rail transportation of
petrochemicals.
Intra-group reorganisation is conducted
to streamline corporate structure in
order to drive efficiency and cut costs.
Globaltrans Investment PLC
Annual Report & Accounts 2018
19
>69,000
units
Total Fleet
2018
Globaltrans celebrates
10th anniversary of its
Main Market listing on the
London Stock Exchange.
Five-year contracts signed with
TMK and ChelPipe bringing to five
the number of key clients serviced
under long-term agreements which
together contributed 60% of the
Net Revenue from Operation of
Rolling Stock.
10 YEAR IPO
ANNIVERSARY
2008-2018
Globaltrans Investment PLC
Annual Report & Accounts 2018
20
MEETING STRATEGIC
OBJECTIVES
“It has been a busy year for us, involving
some big corporate initiatives, so it is
testament to our employees that we never
lost our focus on successful day-to-day
delivery for our customers.”
Valery Shpakov Chief Executive Officer
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
21
CHIEF EXECUTIVE
OFFICER’S REVIEW
Dear Shareholders,
This has been an outstanding year for
Globaltrans, building on a decade of progress
since we listed on the London Stock
Exchange in 2008. These record results
demonstrate that we can control costs,
generate cash and deliver an industry-
leading operational performance. It is this
combination that allows us to invest in
business development and provide
shareholders with attractive returns while
keeping our leverage low.
Results highlights
Our results amply demonstrate the success
we have enjoyed as a Group during 2018.
The Group’s Adjusted Revenue was RUB
60.9 billion, which represents a year-on-
year increase of 17%. This result reflected a
very strong performance from our gondola
operations and a rebound in revenues from
our oil products and oil business.
We maintained strict control over our costs
with Total Operating Cash Costs rising just
6% despite continued solid inflationary
pressures. Underlying profitability improved
with Adjusted EBITDA increasing 28% year-
on-year to RUB 33.1 billion. The Adjusted
EBITDA Margin was 54% compared to the
50% achieved in the prior year.
At the same time, cash generated from
operations increased 19% to RUB 32.6
billion, reflecting the strong underlying
business performance. Free Cash Flow
remained robust at RUB 12.3 billion but
was lower than the prior year with the good
underlying performance partly offset by
considerably higher Total CAPEX of RUB
12.9 billion (up 165% year-on-year). This
reflected our investment in fleet expansion
during 2018 in response to stronger
customer demand and new contract wins.
The Group closed the year in a strong
financial position. The Net Debt to
Adjusted EBITDA ratio increased slightly
but remained low at 0.56 times compared
to 0.44 times as of the end of 2017,
mostly due to the significantly increased
capital expenditures.
Market overview
In Russia as a whole, industrial production
grew 2.9% year-on-year in 2018. As rail
dominates the movement of freight in
Russia, the economic performance of the
country was matched by the rail industry’s
performance. Overall Russia freight rail
turnover grew 4% year-on-year with
transportation volumes rising 2% year-on -
year, the fifth year in a row that turnover
has increased.
As in 2017, it was the bulk cargo segment
that drove the market growth in volumes,
principally the coal and metallurgical cargo
categories. Coal volumes (including coke)
grew 4% year-on-year, while metallurgical
volumes (including ferrous metals, scrap
metal and ores) posted another good
year rising 5% year-on-year. The oil
products and oil sector consolidated its
recovery with freight volumes increasing
slightly (+0.4%) compared to the
previous year.
The general pricing environment for freight
rail services remained firm, characterised
by the strong dynamics in the gondola
segment. Despite the commissioning of
additional gondola cars, solid growth in
bulk cargo transportation volumes
supported pricing in the gondola market.
In the rail tank car segment, steady volumes
and a reduction in rail tank fleet capacity
contributed to a slightly improved pricing
environment.
“Our results amply
demonstrate the success
we have enjoyed as a Group
during 2018. The Group’s
Adjusted Revenue was RUB
60.9 billion, which represents
a year-on-year increase of
17%. This result reflected a
very strong performance
from our gondola operations
and a rebound in revenues
from our oil products and
oil business.”
RUB 33.1bn
Adjusted EBITDA in 2018,
an increase of 28% year-on-year
54%
Adjusted EBITDA Margin
in 2018 (2017: 50%)
Globaltrans Investment PLC
Annual Report & Accounts 2018
22
CHIEF EXECUTIVE OFFICER’S REVIEW
continued
Our performance
It has been a busy year for us, involving
some big corporate initiatives, so it is
testament to our employees that we never
lost our focus on successful day-to-day
delivery for our customers.
We achieved a number of important
milestones in line with our business
priorities. We secured several significant
new outsourcing deals. We signed a five-
year contract with TMK, a leading global
manufacturer and supplier of steel pipes to
the oil and gas industry, and we also signed
a five-year contract with ChelPipe Group,
a leading Russian manufacturer of pipe
products. For these two companies we now
cover at least 70% of their transportation
needs, a significant increase in volumes
supported by the sizeable increase in our
fleet capacity. These new agreements
were successfully set in motion with the
combined volumes from both contracts
increasing 40% in the second half
compared to the first half of 2018.
Globaltrans was the first company to
identify how important outsourcing would
become. These agreements are the
backbone of our business demonstrating
the strong partnership-based ethos we
have with our customers. Long-term
partnerships now account for 60% of the
Group’s Net Revenue from Operation of
Rolling Stock.
Alongside building partnerships with large
international companies, another priority
has been to grow our links with small and
medium-sized enterprises (“SMEs”).
Our customer-focused model means we
can offer SMEs freight solutions that
uniquely target their needs. The SME
sector is the seedbed for entrepreneurial
growth companies and we see a good
opportunity to build lasting relationships
with these companies. Our approach has
gained solid traction over the past several
years and in 2018 our share of the SME
freight rail transport segment was 26%
compared to 22% in 2013.
In the reporting year, we managed to
achieve further solid growth in average
pricing. The Group’s Average Price per
Trip was up 20% year-on-year on the
back of a favourable pricing environment
in the bulk cargo segment and steadier
trading conditions in oil products and
oil segment, underpinned by our solid
operational capabilities and high-quality
service offering.
Operationally, we saw our business volumes
in the bulk cargo segment temporarily
under pressure. This was the result of the
deliberate substitution of expensive leased-
in capacity with newly acquired gondola
cars, as well as changes to client logistics
patterns and a reduction in average speeds
on the RZD rail network caused by ongoing
major rail infrastructure modernisation
projects. The fleet rebalancing was
completed in 2018 with significant
investments made in additional gondola
capacity to support business performance
in 2019.
Our business volumes in the oil products
and oil sector began to grow over the course
of 2018, supported by stabilised demand
and a larger fleet in operation as we
transferred some of our leased-out capacity
into operation in response to stronger
customer demand.
In 2018, we again worked very hard to
maintain our reputation for efficiency and
continuous improvement. In the reporting
year, we maintained our Empty Run Ratio
for gondola cars at the industry-leading
level of 38%, in line with the average for
the last five years.
Capital expenditures
We aim to deliver sustainable long-term
growth through the economic cycle. To
achieve this we continuously optimise our
assets in order to grow the business, deliver
for clients and maintain our operational
flexibility. In 2018 we expanded our
Owned Fleet to meet growing market
demand and to service our new contracts.
We intentionally substituted the use of
expensive leased-in gondola units with
owned rolling stock. In total, we added
4,747 units, up from our initial target of
3,900. Of these additional units, 3,862 units
were gondola cars and the balance was
made up of flat cars and related specialised
containers. The net effect of our
rebalancing is that we closed out the year
with our Owned Fleet up 7% to 65,405
units and our Total Fleet reached a record
level of more than 69,000 units. As a result,
our Total CAPEX in 2018, including
maintenance CAPEX, was RUB 12.9 billion,
165% above the previous year’s level.
“In summary, we have excellent assets, a strong
and growing customer base, a robust balance
sheet and a highly experienced management
team. Over the decade since its IPO, Globaltrans
has grown to become the leading independent
freight rail operator in Russia.”
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
23
38%
Empty Run Ratio for
gondola cars in 2018
(2017: 37%)
0.56x
Net Debt to Adjusted
EBITDA at the end of
2018 (end of 2017: 0.44x)
Sustainability
As a Group, we continue to pursue our goal
of operating sustainably and ensuring we
play a positive role in the communities
where we operate. This includes providing
a work environment that our employees
value so that they develop and grow with us.
We have again provided a report on our
Corporate Social Responsibility (“CSR”)
activities and accomplishments during the
year available on pages 60 to 67, where you
will see the significant progress we are
making in this area. You can rest assured of
our commitment to move forward to
provide even greater focus on this in future.
Outlook
This year has begun well. By expanding our
fleet during 2018 to support our new
contract wins, we have set a strong platform
as we head into 2019.
Scale in the gondola market is critical as it
enables freight rail operators to achieve
crucial efficiencies for clients and the
business. We have selectively increased our
fleet in order to meet growing demand and
our near-term priority is to ensure that we
manage our assets effectively to meet the
ongoing needs of our customers while
retaining a cost-effective operation. In 2019,
we will adapt fleet management to meet
changed client logistics patterns and
demand on the more profitable routes.
This is likely to result in an increased Empty
Run Ratio for gondola cars to over 40%
which is reflected in the commercial terms
with clients.
Given our strict returns-based criteria for
asset purchases, we will remain very
prudent in how we allocate our capital,
balancing between investing in value-
accretive assets and returning excess capital
to shareholders in the form of dividends.
Our plan for 2019 is to focus on further
development of niche projects with a
combined acquisition of about 1,500 flat
cars and specialised containers anticipated.
Gondola car investments are expected
to be limited, demand-led and subject
to prices for new rolling stock. For the
purpose of locomotive fleet modernisation,
we are also planning to purchase up to
10 new diesel locomotives over the course
of this year.
In summary, we have excellent assets,
a strong and growing customer base,
a robust balance sheet and a highly
experienced management team. Over
the decade since its IPO, Globaltrans has
grown to become the leading independent
freight rail operator in Russia. The industry
fundamentals remain strong, and as we
enter our second decade, I am confident
we can make further progress in 2019
and beyond.
Valery Shpakov
Chief Executive Officer
Globaltrans Investment PLC
Annual Report & Accounts 2018
24
MARKET REVIEW
Russia’s rail network at a glance
Russia and railways
are inseparable; the
rail network plays a
key strategic role in
connecting Russia’s
economy to world
markets and linking
parts of the country
together.
Rail plays an integral part in the movement
of freight in Russia. Russia stretches over
a vast territory from the North Pacific
to the Baltic Sea and extending to the
Arctic Ocean. It covers 17 million square
kilometres, which is more than 10% of
the Earth’s land mass. Rail transportation
is therefore a vital component of the
Russian economy.
Murmansk
B A R E N T S
S E A
Tallin
(Estonia)
FINLAND
ESTONIA
St. Petersburg
Belomorsk
Velikiy Novgorod
Petrozavodsk
Arkhangelsk
BELARUS
Bryansk
UKRAINE
Voronezh
Cherepovets
Moscow
Moscow
Moscow
Moscow
Moscow
Moscow
MMoscow
Vologda
Yaroslavl
Ivanovo
Kotlas
Ryazan
Nizhny Novgorod
Tambov
Penza
Rostov
Saratov
Krasnodar
Volgodonsk
Samara
Stavropol
TURKEY
Orenburg
Astrakhan
Makhachkala
Kirov
R
U
Ufa
Yekaterinburg
Tyumen
Chelyabinsk
Magnitogorsk
Kurgan
Orsk
Omsk
Novosi
Globaltrans operating subsidiaries,
their branches and representative offices
Russia’s rail network’s key illustrative routes
0
0
500 miles
500 km
W
TURKMENISTAN
UZBEKISTAN
KAZAKHSTAN
17mln
Russia covers 17mln
square kilometres, which
is more than 10% of the
Earth’s land mass
10,000km
Served from east to west
4,000km
Served from north to south
85,000km
Second-longest rail
track in the world
Overview Strategic Report Governance Financial Statements Additional Information
Serving the economy of the largest country
in the world by the size of territory
Moscow
Moscow
MMoscow
Moscow
Moscow
E A S T
S I B E R I A N
S E A
A
Tommot
Tynda
Skovorodino
Nadym
Korotchayevo
S
Nizhenvartovsk
S
I
Lesosibirsk
Krasnoyarsk
ibirsk
Tomsk
Kemerovo
Barnaul
Abakan
Globaltrans Investment PLC
Annual Report & Accounts 2018
25
B E R I N G S E A
N O R T H
P A C I F I C
O C E A N
S E A O F
O K H O T S K
Komsomolsk
-on-Amur
Yuzhno
Sakhalinsk
Khabarovsk
Vanino
Irkutsk
Chita
S E A O F
J A P A N
MONGOLIA
CHINA
Vladivostok
JAPAN
E
87%
About 87% of the country’s
overall freight turnover,
excluding pipeline
traffic, travels by rail
2.6tn
Overall freight rail
turnover in 2018
(tonnes-km)
1.3bn
Freight transported
in 2018 (tonnes)
1.1mln
Number of freight
railcars operating
at the end of 2018
Globaltrans Investment PLC
Annual Report & Accounts 2018
26
MARKET REVIEW
continued
Russia is a vast country with a large
economy and it is heavily reliant on the
rail transportation network to keep the
economy operating efficiently.
Its 85,000km rail network stretches from
the Baltic to the Pacific, making it one of the
largest in the world. Rail transports nearly
87% of all Russia’s freight turnover,
excluding pipelines, and is the world’s third
largest market in terms of freight rail
turnover. Its strategic importance for
Russia’s economy continues to grow which
further cements its status as one of the
world’s foremost freight rail markets.
Within this market, Globaltrans is one of
the leading freight rail operators enjoying
a strong market position and a
comprehensive operating presence
across Russia and the CIS.
Market backdrop remains
positive with further rise
in demand
• Total freight rail turnover in Russia
rose 4% year-on-year in 2018 with
transportation volumes up 2%
year-on-year.
• Bulk cargoes again drove growth in
2018 largely on the back of increased
transportation volumes of coal (up 4%
year-on-year) and metallurgical cargoes
(up 5% year-on-year)(1). Strong customer
demand and tight gondola availability
supported continued favourable pricing
conditions in the gondola segment.
• The segment for rail transportation of oil
products and oil stabilised with volumes
slightly higher than the previous year.
The market continues to benefit from
the scrappage of old capacity combined
with a very low level of new additions.
The pricing environment in this segment
improved slightly.
In 2018, the Russian economy continued its
recent steady expansion. After recording
gross domestic product (“GDP”) growth of
1.6% in 2017, Russia’s economy grew again
in 2018, expanding by 2.3% year-on-year.
This improvement was matched by a solid
industrial performance, which saw industrial
production accelerate by 2.9% year-on-year
(2.1% year-on-year increase in 2017). As a
result, Russia’s rail freight sector enjoyed
another excellent 12 months, with freight
turnover and volumes both growing
strongly. Total Russian freight rail turnover
jumped 4% year-on-year, reaching a ten-
year high of 2,597 billion tonnes-km in 2018.
Overall, the network carried 25 million
tonnes of additional cargo in 2018, driving
2% growth in freight transport volumes to
1,292 million tonnes for the year.
At the year-end, Russia’s fleet of rolling
stock comprised about 1.1 million units,
of which gondola cars accounted for 47%
of the total or around 525,000 units and rail
tank cars for 22% or around 245,000 units(2).
The share of other railcars (including flat,
hopper cars, etc.) was about 31%.
“Rail transports nearly 87% of all Russia’s
freight turnover, excluding pipelines, and is
the world’s third largest market in terms of
freight rail turnover.”
(1) Coal including coke; metallurgical cargoes including ferrous metals, scrap metal and ores.
(2) RZD, Company estimations.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
27
+4%
Year-on-year increase in
overall Russia’s freight
rail turnover in 2018
+2%
Year-on-year increase in overall
Russia’s rail transportation
volumes in 2018
Russia’s freight rail turnover, 2014 -18
(billion tonnes-km)
Russia’s freight rail transportation
volumes, 2014-18 (million tonnes)
2018
2017
2016
2015
2014
Source: Rosstat
2,597 +4%
2,493
2,344
2,306
2,298
2018
2017
2016
2015
2014
Source: Rosstat
1,292
+2%
1,266
1,227
1,218
1,227
Russia’s monthly freight rail turnover, 2017-18 (billion tonnes-km)
250
+6% +4% +4% +5% +5% +3% +5% +5% +3% +3% +5% +2%
200
150
100
50
0
Feb Mar
Jan
2017 ■
■
2018
Apr May
Jun
July
Aug
Sep
Oct
Nov
Dec
Source: Rosstat
Total Russia’s railcar fleet by car type,
at end of 2018 (thousand units)
Total Russia’s railcar fleet at year-end,
2014 -18 (thousand units)
Other railcars
(343)
31%
Rail tank cars
(245)
22%
Source: RZD, Company estimations
47%
Gondola cars
(525)
2018
2017
2016
2015
2014
Source: RZD, Company estimations
1,113 +3%
1,078
1,081
1,161
1,245
Globaltrans Investment PLC
Annual Report & Accounts 2018
28
MARKET REVIEW
continued
Bulk cargoes
drive growth
In cargo terms, the bulk cargo segment
was the best performer, benefitting from
greater export levels as global demand
for Russian commodities remained firm.
This in turn underpinned demand for
gondola cars, which are the mainstay of
Globaltrans’ operations. In bulk cargoes,
as in 2017, coal and metallurgical cargoes
retained the largest positions in terms of
volumes and were also among the biggest
contributors to market growth during 2018.
Metallurgical cargoes, which is Globaltrans’
largest cargo segment, benefitted from a
continuance of robust global and domestic
market conditions. Aggregate metallurgical
transport volumes, including the
transportation of ferrous metals, scrap metal
and ores grew 5% year-on-year to 231
million tonnes. Iron ore (including
manganese ore) and ferrous metals both
registered significant year-on-year volumes
with increases of 6% and 7% respectively,
while scrap metal was up 1%. Metallurgical
cargoes accounted for 18% of overall
Russian freight rail transportation volumes
during 2018, making it the second most
important bulk cargo segment behind coal.
Coal (including coking coal) remains
the biggest cargo by volume, accounting
for 30% of overall Russia’s freight rail
transportation volumes in 2018. Rising
global demand pushed up thermal coal
prices, stimulating Russian exporters to
increase production. This marked a
continuation of coal’s strong recent demand
dynamics. Total coal rail shipments increased
4% year-on-year to 386 million tonnes.
Construction materials (including cement)
contributed 12% of Russia’s overall freight
rail transportation volumes in 2018. Rail
shipments of construction materials actually
declined 7% year-on-year to 149 million
tonnes, largely reflecting a shortage of
available gondola cars.
In response to robust bulk cargo dynamics,
the industry expanded total gondola
capacity in 2018 by about 7%, or about
33,000 units to 525,000 gondola cars(1).
These additional units and their added
capacity were fully absorbed into operations
on the back of continued solid demand.
Oil products and oil
sector stabilised
The oil products and oil segment
maintained its stable profile in 2018
with volumes broadly flat for the period
at 237 million tonnes, an increase of
0.4% year-on-year.
Rail shipments of oil products and oil
accounted for 18% of overall freight rail
transportation volumes in 2018. Globaltrans
has been historically active in this sector
and, with a number of oil majors as clients,
it continues to be an important freight
segment for the Group.
In 2018, the market saw continued
scrappage of old rail tanks combined with
a very low level of new additions. The net
capacity decline was about 6,000 units
or 2% year-on-year, bringing the total rail
tank car fleet to 245,000 units as of the
end of reporting year (1). Furthermore,
in 2018 the rail tank market saw a slight
recovery in pricing and continued to
show signs of stability.
“Metallurgical cargoes, which is Globaltrans’
largest cargo segment, benefitted from a
continuance of robust global and domestic
market conditions.”
(1) RZD, Company estimations, net capacity change.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
29
+5%
Year-on-year increase in overall
Russia’s rail transportation
volumes of metallurgical
cargoes in 2018
+4%
Year-on-year increase
in overall Russia’s rail
transportation volumes
of coal in 2018
Breakdown of Russia’s freight rail transportation volumes by cargo, 2018
Other
Construction materials
(including cement)
Metallurgical cargoes
(including ferrous metals,
scrap metal and ores)
Source: Rosstat
22%
30%
Coal
(including coke)
12%
18%
18%
Oil products and oil
Russia’s freight rail transportation volumes by cargo, 2014 -18 (million tonnes)
Coal (including coke)
Oil products and oil
2018
2017
2016
2015
2014
386
+4%
373
343
336
327
2018
2017
2016
2015
2014
237
+0.4%
236
236
251
256
Source: Rosstat
Source: Rosstat
Metallurgical cargoes
(including ferrous metals, scrap metal and ores)
Construction materials
(including cement)
2018
2017
2016
2015
2014
231
+5%
219
217
216
216
2018
2017
2016
2015
2014
149
-7%
160
168
160
177
Source: Rosstat
Source: Rosstat
Globaltrans Investment PLC
Annual Report & Accounts 2018
30
BUSINESS MODEL
AND STRATEGY
Solid fundamentals,
clear objectives
Our vision is to maintain our
position as a leading independent
freight rail group with operations
in Russia and the CIS and the
partner of choice for blue-chip
industrial customers.
Our strategy and business model
Our strategy is to deliver long-term sustainable value creation to
our shareholders, which we believe also benefits our customers,
employees and other stakeholders. We are achieving this by
continuing to be entrepreneurial, prudent and disciplined, and
focused on innovation and efficiency while adhering to our proven
business model.
Our business model is flexible yet disciplined. Our structured
operating framework enables management to reconcile short-term
tactical decision-making with the long-term strategic requirements
of the Group.
We operate one of the largest modern fleets in Russia, enjoying
strong positions in key industrial segments. Our scale and reach
means we can service our customers’ transport needs across the
entire territories of Russia and the CIS countries. Our commercial
focus is to maintain and further develop long-term relationships with
our customers that provide them with cost-effective outsourcing
solutions and enable us to extract maximum value from our fleet.
We work hard to maintain our reputation for efficiency and
continuous improvement. Our consistent focus on operational
efficiency enables us to operate with industry-leading Empty Run
Ratio and provide a reliable service. These features together
with a deep understanding of our customers’ businesses are our
competitive advantage, helping us retain and expand our best-in-
class customer base.
Our approach to investments remains opportunistic and disciplined
and we respond to the opportunities in our industry through a
combination of careful organic growth, investments in new value-
added niches within the freight rail market and selective M&A.
We allocate our capital prudently, balancing between investments
into attractive opportunities and capital returns to shareholders in
the form of regular and special dividends.
Having a strong balance sheet is fundamental to ensuring we can
maintain our success through the economic cycle and remain flexible
in managing changes to the business and market environment.
This vision is underpinned by a core set
of common values across our business
Deliver excellence
We want to deliver excellence in
everything that we do
Value customers
They are at the heart of our business and we
work hard to exceed their expectations
Prioritise safety
Safety is our number one priority and we act
safely and responsibly at all times
Respect people
We respect the rights of all employees and
invest in their training and development
Uphold good governance
We take decisions that benefit
all shareholders
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
31
Strategic priorities
Retain a solid
business profile
Operational
excellence
• Maintain a large modern fleet
• Increase efficiency where possible
• Focus on long-term contracts
• Invest in people
• Retain core blue-chip clients
• Continue to prioritise client service
• Broaden customer base
• Focus on innovation
and technology
Maintain a strong
financial position
• Maintain a prudent approach to
capital allocation
• Retain an efficient balance sheet
Generate sustainable
returns
Promote strong
governance culture
• Maintain a disciplined opportunistic
approach to investment
• Observe international
governance standards
• Expand into new value-added
niches in the freight rail market
• Retain a Dividend Policy linked
to Attributable Free Cash Flow
and Leverage
• Return excess capital not required
by the business to shareholders in the
form of special dividends while
maintaining a strong balance sheet
• Prioritise well-balanced Board with
strong independent representation
• Ensure the business continues to
act responsibly
Key financial results (2016-18)
Adjusted Revenue (RUB mln)
Adjusted EBITDA (RUB mln)
Adjusted EBITDA Margin (%)
2018
2017
2016
60,859 +17%
52,094
44,249
2018
2017
2016
25,789
17,677
33,070
+28%
2018
2017
2016
54
50
40
Net Debt to Adjusted EBITDA
(at year-end)
Total dividend (RUB per share/GDR) (1)
2018
2017
2016
0.56
0.44
2018
2017
92.40 +3%
89.65
0.65
2016 39.20
Source: Globaltrans
(1) Total dividends (including interim, final and special where applicable) in respect of declared financial year.
Globaltrans Investment PLC
Annual Report & Accounts 2018
32
OPERATIONAL PERFORMANCE
Globaltrans continued its
solid performance in 2018
on the back of supportive
industry fundamentals.
Against this backdrop,
management’s principal
operational objective was
to carefully expand the
operating platform to meet
the growth in client demand.
At the same time, we
focused on strengthening
our client relationships by
executing as effectively as
possible and delivering a
superior service, which
helped drive incremental
growth. We added to our
long-term contract base,
and actively invested in
fleet expansion.
(1) TMK is a leading global manufacturer and
supplier of steel pipes for the oil and gas industry,
operating 27 production sites in the United States,
Russia, Canada, Romania, Oman and Kazakhstan.
(2) ChelPipe Group is a leading Russian manufacturer
of pipe products and provides integrated solutions
for fuel and energy companies.
(3) In 2018, the Group acquired 4,747 units
(including 3,862 gondola cars, 481 flat cars and
404 containers) and disposed of 592 units, of which
334 were written off.
(4) Excluding Engaged Fleet.
Robust operational performance with extended portfolio
of long-term contracts, increased average pricing and
sizeable rise in Owned Fleet
New long-term contracts are already delivering benefits
•
New five-year contracts signed with TMK(1) and ChelPipe Group(2), which are both leading
manufacturers of pipe products.
•
•
Both contracts envisage significant increases in serviced volumes to 70% of each client’s
freight rail transportation needs and perfectly complement Globaltrans’ logistics patterns.
Operations with both clients sizeably expanded since start of contracts with combined
volumes for both clients up 40% in the second half of 2018 compared to the first half of
the same year.
•
60% of Net Revenue from Operation of Rolling Stock was contributed by long-term
contracts in 2018 (Rosneft, Metalloinvest, MMK, TMK and ChelPipe Group).
Continued strong pricing
•
Better pricing reflected in 20% year-on-year rise in Average Price per Trip to
RUB 41,859 primarily due to the strong gondola market and slightly improved pricing
in the rail tank car segment.
Increased fleet underpins new contracts, setting strong platform for 2019
•
Owned Fleet increased 7% compared to the end of 2017 to 65,405 units with Total Fleet
at a record 69,023 units.
•
•
4,747 units (mostly gondola cars)(3) were acquired in 2018 compared to 1,332 units in the
previous year with all additional units put into operation during 2018.
Fleet rebalancing successfully completed with purchases of gondola cars over 2018,
more than offsetting a reduction in expensive leased-in gondola fleet. Share of Owned
Fleet rose to 95% compared to 92% at the end of 2017.
Operational excellence maintained
•
Empty Run Ratio for gondola cars stood at 38% (2017: 37%) with Total Empty Run Ratio
at 46% (2017: 45%).
•
Share of Empty Run Kilometres paid by Globaltrans rose to 89% (2017: 86%) due to
changes in logistics patterns of some clients.
Transportation Volumes and Freight Rail Turnover came under pressure (down
4% and 9% year-on-year respectively) (4) impacted by the gondola fleet rebalancing,
changed client logistics and a reduction in average speeds on the Russian Railways
(“RZD”) rail network
•
Bulk cargo volumes affected by a temporary 2% year-on-year reduction in the average
gondola fleet operated (due to intentional substitution of expensive leased-in gondola
cars with newly acquired units commissioned in 2018).
•
•
Changed client logistics contributed to a 4% year-on-year reduction in Average Distance
of Loaded Trip.
Average Number of Loaded Trips per Railcar decreased 4% year-on-year largely due to
a reduction in average speeds on the RZD rail network over the course of 2018, caused
by ongoing major rail infrastructure modernisation projects.
Improved performance of oil products and oil segment
•
The rail tank fleet in operation was increased by transferring some leased-out units into
operation and increasing the number of leased-in rail tank cars.
•
Freight Rail Turnover(4) and Net Revenue from operation of rail tank cars increased
3% and 12% year-on-year respectively.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
33
Key operational information, 2017-18
2017 2018 Change, %
Freight Rail Turnover, billion tonnes-km (excluding Engaged Fleet) 160.1 146.2 -9%
Transportation Volume, million tonnes (excluding Engaged Fleet) 91.9 88.5 -4%
Freight Rail Turnover, billion tonnes-km (including Engaged Fleet) 178.2 158.9 -11%
Transportation Volume, million tonnes (including Engaged Fleet) 101.1 96.0 -5%
Average Price per Trip, RUB 34,790 41,859 20%
Average Rolling Stock Operated, units 53,584 53,562 0%
Average Distance of Loaded Trip, km 1,720 1,644 -4%
Average Number of Loaded Trips per Railcar 26.7 25.6 -4%
Total Empty Run Ratio, % 45% 46% –
Empty Run Ratio for gondola cars, % 37% 38% –
Share of Empty Run kms paid by Globaltrans, % 86% 89% –
Total Fleet, units (at year-end), including: 66,692 69,023 3%
– Owned Fleet, units (at year-end) 61,250 65,405 7%
– Leased-in Fleet, units (at year-end) 5,442 3,618 -34%
Leased-out Fleet (at year-end) 9,080 7,627 -16%
Average age of Owned Fleet, years (at year-end) 11.1 11.0 –
Total number of employees (at year-end) 1,594 1,549 -3%
Source: Globaltrans
Breakdown of Globaltrans’ Freight Rail Turnover
by cargo, 2018 (excluding Engaged Fleet)
Globaltrans’ Market Share of overall Russia’s freight rail
transportation volumes by cargo, 2018 (1)
Other: 7%
Construction materials: 4%
(including cement)
Coal: 20%
(including coke)
Oil products and oil: 14%
Metallurgical cargoes: 54%
(including ferrous metals,
scrap metal and iron ore)
Market Share of overall
Russia’s freight rail
transportation volumes
Metallurgical cargoes
(including ferrous metals,
scrap metal and ores)
Oil products and oil
Construction materials
(including cement)
Coal
(including coke)
7%
9%
4%
3%
Source: Globaltrans
Source: Company estimations, Rosstat
22%
(1) Market Share is calculated using the Group’s own information as the numerator and information published by the Federal
State Statistics Service of Russia as the denominator. It is defined as a percentage of the overall Russian freight rail transportation
volume or freight rail turnover and includes volumes transported by Engaged Fleet, unless otherwise stated.
Globaltrans Investment PLC
Annual Report & Accounts 2018
34
OPERATIONAL PERFORMANCE
continued
New long-term contract wins
Central to the Group’s success in recent
years was the recognition that with the
further development of the industry, major
customers would require a greater degree
of strategic cooperation. We pioneered the
introduction of long-term outsourcing
contracts harnessing our wide geographical
presence, modern asset base and reputation
for operational excellence to secure our first
important contract with Metalloinvest,
a leading global producer and supplier of
HBI and iron ore products, and a regional
producer of high quality steel, in 2012.
Since then we have expanded our long-term
contracting base, as other clients have
recognised that our integrated partnership
model creates a win-win for both parties.
Consolidating transportation spend means
the client gains through greater operational
and cost efficiencies while Globaltrans
secures for itself predictable recurring
transport volumes and logistics patterns.
In 2018, we added to our reputation
announcing two important long-term
contracts in the metallurgical industry.
We signed separate five-year contracts
with TMK, a leading global manufacturer
and supplier of steel pipes for the oil and gas
industry, and with ChelPipe Group, a major
Russian producer and supplier of steel
tubes and pipes to the energy sector.
Contractually, it means that Globaltrans is
set to manage at least 70% of each client’s
total freight transport volumes compared
to about 30-40% in the past. Operations
with both clients sizeably expanded since
the start of the contracts with combined
volumes for both clients up 40% in the
second half of 2018 compared to the first
half of the same year.
Today our long-term partnership portfolio
consists of five leading businesses:
Metalloinvest, MMK, TMK and ChelPipe
Group in the metallurgical segment and
Rosneft in the oil products and oil sector.
Together, these contracts, of which the older
ones have been rolled over at least once,
contributed about 60% of the Group’s Net
Revenue from Operation of Rolling Stock in
2018. Globaltrans has earned a reputation
for providing a consistently high-quality and
reliable service, which is another important
plank of our operating model.
Overall, our 10 largest clients (including
their affiliates and suppliers) accounted for
74% of the Group’s Net Revenue from
Operation of Rolling Stock in 2018. As well
as those previously mentioned, major clients
include well-respected companies like
Gazprom Neft, Evraz, UGMK-Trans, SDS-
Ugol, and Severstal, among others.
We constantly look to expand and improve
our service offering as well as increase the
level of predictability and visibility for our
customers. Currently we service a customer
base of over 500 businesses across Russia
and the CIS. Over the last several years we
successfully increased our exposure to the
important small and medium-sized business
sector. This initiative forms part of our drive
to diversify our client base, and strengthen
the overall resilience of the business. Small
and medium-sized companies accounted
for about 26% of the Group’s Net Revenue
from Operation of Rolling Stock in 2018,
up from 22% in 2013.
Breakdown of Globaltrans’ Net Revenue from Operation of Rolling Stock by largest clients, 2017-18 (including their affiliates and suppliers)
2017 2018
Rosneft 25% 23%
Metalloinvest 15% 17%
MMK 15% 16%
Gazprom Neft 7% 5%
Evraz 5% 4%
TMK 2% 2%
UGMK-Trans 2% 2%
SDS-Ugol 2% 2%
Severstal 1% 1%
ChelPipe 1% 1%
Other (including small and medium enterprises) 26% 26%
Source: Globaltrans
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
35
Increased fleet underpins
new contracts, setting
strong platform for 2019
A key operational objective was to cost-
effectively grow the fleet to meet increased
market demand and to service the new
contract wins. We achieved this by
simultaneously increasing the number of
owned railcars and reducing the amount
of expensive Leased-in Fleet.
Over the course of 2018, we successfully
added to our fleet, giving us the capacity
needed to support our development
heading into 2019. In total, our Owned Fleet
recorded a net increase of 7% (or 4,155
units) to 65,405 units at the year-end
compared to the end of 2017. We purchased
3,862 gondola cars over 2018, bringing the
total gondola fleet to almost 45,000 units.
The Group also continued to build up its
niche petrochemical business unit, buying a
total of 885 containers and flat cars in the
period. Freight rail transportation of
petrochemicals in tank containers is an
attractive and growing niche for Globaltrans.
We identified this opportunity in 2014 and
are continually building our tank container
fleet, growing market share and expanding
our client base.
Railcar leasing remains an important part of
how we manage and adapt our fleet to meet
customer needs. However, in 2018 high
leasing rates led us to intentionally rebalance
our fleet, purchasing new units and
substituting them for expensive leased-in
gondolas. Consequently, the Group’s total
Leased-in Fleet declined by 34% or 1,824
units over the course of 2018 to 3,618 units.
This reduction was more than offset by our
active new gondola acquisition programme
during the year. At the year-end, the share of
Owned Fleet rose to 95% compared to 92%
at the end of 2017.
Scale gives Globaltrans a clear competitive
advantage. It allows us to service large clients
with complex and sophisticated logistics
across the territories of Russia and the CIS.
At the end of 2018, the Group’s Total Fleet
exceeded a record 69,000 units. Gondola
and rail tank cars make up the bulk of the
fleet, and accounted for 65% and 30% of
the Total Fleet respectively. Globaltrans’
Owned Fleet is among the most modern
large fleets in Russia with an average unit
age of 11 years (10 years for gondola cars
and 14 years for rail tank cars).
Around 90% of the Group’s Total Fleet
was operated in its core freight rail
transportation business. The balance was
mostly represented by rail tank cars leased-
out to clients in Russia and the CIS countries.
Globaltrans’ Total Fleet by type, end-2018 (units)
Owned Leased-in Total % of total
Gondola cars 44,878 104 44,982 65%
Rail tank cars 17,938 2,488 20,426 30%
Locomotives 69 0 69 0.1%
Other railcars (including flat, hopper cars, etc.) 860 646 1,506 2%
Containers (including petrochemical and other) 1,660 380 2,040 3%
Total 65,405 3,618 69,023 100%
Source: Globaltrans
Globaltrans’ Total Fleet by type, end-2018 (units)
Owned
2018
2017
2018
3,618
-34%
Leased-in
2017
5,442
Total
2018
2017
Source: Globaltrans
+4,155 units
Owned Fleet recorded a net increase
of 7% (or 4,155 units) to 65,405 units
at the year-end compared to the
end of 2017.
65,405
+7%
61,250
69,023
+3%
66,692
Globaltrans Investment PLC
Annual Report & Accounts 2018
36
OPERATIONAL PERFORMANCE
continued
Ongoing operational
excellence
Creating and sustaining a culture of
operational excellence and continuous
improvement is a must-have in a logistics
business because it improves fleet efficiency
and delivery cost recovery.
The single most important input to cost
recovery remains our ability to maintain high
fleet utilisation levels while minimising the
cost of running unloaded railcars. Empty
Runs are the biggest cash cost in our
business, comprising 46% of our Total
Operation Cash Costs in 2018. Therefore,
managing Empty Runs is absolutely crucial
for the Group’s productivity and cost
containment strategies.
Globaltrans has consistently delivered
industry-leading operational efficiency,
registering one of the lowest Empty Run
Ratios for gondola cars across the sector.
This has averaged around 38% per annum
over the last five years. In 2018, Globaltrans
again maintained its Empty Run Ratio for
gondola cars at a low level of 38% (2017:
37%). We achieved this through a relentless
focus on costs and by leveraging our logistics
expertise and knowledge of customers,
supply chains and logistics. Our key long-
term service contracts cover interconnected
cargo bases, which enables us to fine-tune
route scheduling and match inbound and
outbound freight traffic to minimise Empty
Runs. The Group’s Total Empty Run Ratio,
which covers all rolling stock types, was
kept at 46% in 2018 compared to 45%
in the previous year. Changes in the
logistics patterns of some clients resulted
in an increase in the Share of Empty Run
Kilometres paid by Globaltrans to
89% (2017: 86%).
Solid pricing
boosts revenues
Average Price per Trip in 2018 increased
20% year-on-year to RUB 41,859 on the
back of a favourable pricing environment,
underpinned by a strong market, a solid
operational base and our high-quality
gondola offering. In the rail tank car
business, pricing conditions recovered
slightly supported by relatively stable
demand and the continued net decline in
rail tank car capacity.
The Group’s Net Revenue from Operation
of Rolling Stock increased 16% year-on-year
with growth achieved across all major
segments. In the priority bulk cargo (non-oil)
segment, Net Revenue from Operation
of Rolling Stock was up 17% year-on-year.
In the oil products and oil segment, it was up
12% year-on-year.
Globaltrans’ Total Empty Run Ratio (for all types of rolling stock, 2014-18)
2018
2017
2016
2015
2014
Source: Globaltrans
46%
45%
48%
51%
51%
46%
The Group’s Total Empty Run Ratio,
which covers all rolling stock types,
was kept at 46% in 2018.
Globaltrans’ Empty Run Ratio (for gondola cars, 2014-18)
2018
2017
2016
2015
2014
Source: Globaltrans
38%
37%
38%
39%
38%
38%
Globaltrans has consistently delivered
industry-leading operational efficiency,
registering one of the lowest Empty Run
Ratios for gondola cars across the sector.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
37
Bulk cargo volumes came
under pressure, oil products
and oil slightly improving
The Group’s Average Rolling Stock
Operated stayed relatively stable at 53,562
units in 2018. There was a 2% decline in
the average number of gondola cars in
operation which was offset by an 8%
increase in the average number of rail tanks
in operation. With regard to gondola cars,
the decline was merely temporary, reflecting
the Group’s intention to reduce the number
of expensive leased-in gondola cars it
operates by replacing them over the course
of the year with newly acquired gondola
units. By the year-end, the total gondola
fleet increase fully offset the decline in
leased-in capacity. In the rail tank car
segment, the Group transferred some
leased-out units and increased leased-in
fleet of rail tank cars to support the
expansion of its rail transportation
operations mostly for its small and
medium client portfolio.
Altered client logistics patterns and the fall
in average speed on the RZD rail network
resulted in a 4% year-on-year decline in the
Average Number of Loaded Trips per Railcar.
The Average Distance of Loaded Trip also
decreased 4% year-on-year. The decline in
the rail network speed was caused largely by
a number of ongoing major infrastructure
modernisation projects.
strong demand has spurred increased
volumes. Globaltrans has a solid presence
in this sector with an overall Market Share
of 3%. In 2018, this segment represented
20% of the Group’s Freight Rail Turnover.
The combination of factors described above
negatively affected bulk cargo business
volumes in 2018, with the Group’s total
Transportation Volumes declining 4% year-
on-year and Freight Rail Turnover
decreasing 9% year-on-year.
The bulk cargo segment remains the
Group’s mainstay of operations and
contributed about 86% of the Group’s
Freight Rail Turnover in the reporting year.
•
Metallurgical cargoes (including ferrous
metals, scrap metal and iron ore) remain
the largest single operating segment for
Globaltrans with a Market Share of 22%.
In 2018, this segment contributed 54%
of the Group’s Freight Rail Turnover. The
Company has developed a number of long-
term relationships with its clients in this
sector and manages the majority of freight
rail transportation needs of many of them.
•
Coal has been the standout bulk
commodity cargo in recent periods as
•
Construction materials (including
cement) made up 4% of Group’s Freight
Rail Turnover in 2018. Globaltrans mostly
transports construction materials on
backward journeys in order to minimise
Empty Runs. The Group had a 4% Market
Share in this sector in 2018.
The business volumes in the oil products and
oil sector where the Group has a strong
profile began to grow over the course of
2018, supported by stabilised demand and
an increased fleet in operation. In 2018, this
segment accounted for 14% of the Group’s
Freight Rail Turnover. The Group’s client
base includes oil majors along with a number
of small and medium companies. On some
routes, the Company provides clients with
a unique service, transporting oil products
and oil in block trains consisting of both
owned rail tanks and locomotives. This
enables improved reliability and speed of
transportation. Globaltrans had a Market
Share of around 9% in this segment in 2018.
Globaltrans’ Transportation Volume, 2017-18
(excluding Engaged Fleet, million tonnes)
Globaltrans’ Freight Rail Turnover, 2017-18
(excluding Engaged Fleet, billion tonnes-km)
2017 2018 Change, %
2017 2018 Change, %
Metallurgical cargoes
(including ferrous metal,
scrap metal and iron ore) 45.5 45.0 -1%
Metallurgical cargoes
(including ferrous metal,
scrap metal and iron ore) 87.8 79.0 -10%
Oil products and oil 20.2 20.7 2%
Oil products and oil 20.5 21.2 3%
Coal (including coke) 10.4 9.6 -8%
Coal (including coke) 34.3 29.5 -14%
Construction materials
(including cement) 9.1 6.4 -30%
Construction materials
(including cement) 8.0 5.8 -28%
Other 6.6 6.8 2%
Other 9.4 10.7 14%
Total 91.9 88.5 -4%
Total 160.1 146.2 -9%
Source: Globaltrans
Source: Globaltrans
Globaltrans Investment PLC
Annual Report & Accounts 2018
38
FINANCIAL REVIEW
Strong financial performance,
margin expansion achieved and
low leverage maintained
•
Total revenue increased 11% year-on-year to RUB 86.8 billion.
•
•
Adjusted Revenue rose 17% year-on-year to RUB 60.9 billion
supported by strong market conditions.
Cost discipline maintained despite inflationary pressures with
the rise in Total Operating Cash Costs at 6% year-on-year.
•
Operating profit was up 33% year-on-year to RUB 26.9 billion.
•
Strict cost control alongside strong revenue growth drove a
28% year-on-year increase in Adjusted EBITDA to RUB 33.1
billion with the Adjusted EBITDA Margin expanding to 54%
(2017: 50%).
•
Profit for the year rose 42% year-on-year to RUB 19.6 billion.
•
•
Cash generated from operations increased 19% year-on-year
to RUB 32.6 billion. Free Cash Flow remained robust at RUB
12.3 billion despite the substantial increase in Total CAPEX
(RUB 12.9 billion, up 165% year-on-year).
Leverage held at a low level with Net Debt to Adjusted EBITDA
at 0.56x (2017 end: 0.44x). Net Debt rose 64% year-on-year to
RUB 18.6 billion mostly reflecting significantly increased CAPEX.
Nearly 100% of debt is denominated in RUB, the Company’s
functional currency.
+17%
Year-on-year increase in
Adjusted Revenue in 2018
+28%
Year-on-year increase in
Adjusted EBITDA in 2018
54%
Adjusted EBITDA Margin
in 2018 (2017: 50%)
0.56X
Net Debt to Adjusted
EBITDA at the end of 2018
(end of 2017: 0.44x)
“The Group delivered a record financial
performance in 2018 as strong
revenue growth and strict cost
control drove further margin
expansion. We again produced
substantial cash flows and our free
cash generation was excellent
despite a significant uplift in capital
expenditure over the year. We retained
a solid financial profile, operating with
low leverage, which in turn helped us
to distribute substantial dividends.
In 2018, we built on the success of
previous years and delivered a strong
outcome for all our stakeholders.”
Alexander Shenets
Chief Financial Officer
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
39
Results in detail
The following tables provide the Group’s key financial and operational information for the years ended 31 December 2018 and 2017.
EU IFRS financial information
2017 2018 Change
RUB mln RUB mln %
Revenue 78,081 86,773 11%
Total cost of sales, selling and marketing costs and administrative expenses (58,698) (60,004) 2%
Operating profit 20,156 26,901 33%
Finance costs – net (1,802) (1,441) -20%
Profit before income tax 18,354 25,460 39%
Income tax expense (4,534) (5,876) 30%
Profit for the year 13,820 19,583 42%
Profit attributable to:
– Owners of the Company 12,289 17,672 44%
– Non-controlling interests 1,531 1,911 25%
Basic and diluted earnings per share for profit attributable to the equity
holders of the Company during the year (expressed in RUB per share) 68.75 98.87 44%
2017 2018 Change
RUB mln RUB mln %
Cash generated from operations 27,496 32,602 19%
Tax paid (3,632) (5,766) 59%
Net cash from operating activities 23,864 26,837 12%
Net cash used in investing activities (4,028) (10,645) 164%
Net cash used in financing activities (19,171) (14,003) -27%
Non-GAAP financial information
2017 2018 Change
RUB mln RUB mln %
Adjusted Revenue 52,094 60,859 17%
Including:
– Net Revenue from Operation of Rolling Stock 49,709* 57,474* 16%
– Operating leasing of rolling stock 1,212 1,394 15%
– Net Revenue from Engaged Fleet 173* 432* 149%
– Other revenue 1,000 1,559 56%
Total Operating Cash Costs 26,303 27,894 6%
Including:
– Empty Run Cost 12,154* 12,956* 7%
– Employee benefit expense 3,426 4,367 27%
– Repairs and maintenance 3,769 3,821 1%
– Fuel and spare parts – locomotives 1,519 1,935 27%
– Operating lease rentals – rolling stock 1,634 827 -49%
Adjusted EBITDA 25,789 33,070 28%
Adjusted EBITDA Margin, % 50% 54% –
Total CAPEX 4,872 12,889 165%
Free Cash Flow 17,048 12,314 -28%
Attributable Free Cash Flow 15,517 10,403 -33%
Globaltrans Investment PLC
Annual Report & Accounts 2018
40
FINANCIAL REVIEW
continued
Debt profile
As of As of
31 December 2017 31 December 2018 Change
RUB mln RUB mln %
Total debt 16,331 25,729 58%
Cash and cash equivalents 4,966 7,130 44%
Net Debt 11,365 18,599 64%
Net Debt to Adjusted EBITDA (x) 0.44 0.56 –
Operational information
2017 2018 Change, %
Freight Rail Turnover, billion tonnes-km (excluding Engaged Fleet) 160.1 146.2 -9%
Transportation Volume, million tonnes (excluding Engaged Fleet) 91.9 88.5 -4%
Freight Rail Turnover, billion tonnes-km (including Engaged Fleet) 178.2 158.9 -11%
Transportation Volume, million tonnes (including Engaged Fleet) 101.1 96.0 -5%
Average Price per Trip, RUB 34,790 41,859 20%
Average Rolling Stock Operated, units 53,584 53,562 0%
Average Distance of Loaded Trip, km 1,720 1,644 -4%
Average Number of Loaded Trips per Railcar 26.7 25.6 -4%
Total Empty Run Ratio (for all types of rolling stock), % 45% 46% –
Empty Run Ratio for gondola cars, % 37% 38% –
Share of Empty Run Kilometres paid by Globaltrans, % 86% 89% –
Total Fleet, units (at year-end), including: 66,692 69,023 3%
– Owned Fleet, units (at year-end) 61,250 65,405 7%
– Leased-in Fleet, units (at year-end) 5,442 3,618 -34%
Leased-out Fleet, units (at year-end) 9,080 7,627 -16%
Average age of Owned Fleet, years (at year-end) 11.1 11.0 –
Total number of employees (at year-end) 1,594 1,549 -3%
Revenue
The Group’s Total revenue rose 11% year-on-year to RUB 86,773 million in 2018, largely due to a 17% year-on-year increase in Adjusted
Revenue. Net Revenue from Operation of Rolling Stock (a key component of Adjusted Revenue) rose 16% year-on-year reflecting the
continued strong market environment.
The following table provides details of Total revenue, broken down by revenue-generating activity, for the years ended 31 December 2018
and 2017.
2017 2018 Change
RUB mln RUB mln %
Railway transportation – operators services (tariff borne by the Group) (1) 44,371 48,130 8%
Railway transportation – operators services (tariff borne by the client) 31,497 35,690 13%
Operating leasing of rolling stock 1,212 1,394 15%
Other 1,000 1,559 56%
Total revenue 78,081 86,773 11%
(1) Includes “Infrastructure and locomotive tariffs: loaded trips” for 2018 of RUB 22,682 million (2017: RUB 22,508 million)
and “Services provided by other transportation organisations” of RUB 3,231 million (2017: RUB 3,478 million).
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
41
Adjusted Revenue
Adjusted Revenue is a non-GAAP financial measure defined as “Total revenue” adjusted for “pass through” items: “Infrastructure and
locomotive tariffs: loaded trips” and “Services provided by other transportation organisations”. “Infrastructure and locomotive tariffs: loaded
trips” comprises revenue resulting from tariffs that customers pay to the Group and the Group pays on to RZD, which are reflected in equal
amounts in both the Group’s Total revenue and Cost of sales. “Services provided by other transportation organisations” is revenue resulting
from the tariffs that customers pay to the Group and the Group pays on to third-party rail operators for subcontracting their rolling stock,
which are reflected in equal amounts in both the Group’s Total revenue and Cost of sales. The net result of Engaged Fleet operations is
reflected as Net Revenue from Engaged Fleet and is included in Adjusted Revenue.
In 2018, the Group’s Adjusted Revenue grew 17% year-on-year to RUB 60,859 million, primarily due to a 16% year-on-year rise in Net
Revenue from Operation of Rolling Stock along with an increase in revenues from the rail transportation of petrochemicals and from
auxiliary leasing and Engaged Fleet operations.
The following table provides details of Adjusted Revenue for the years ended 31 December 2018 and 2017 and its reconciliation to Total revenue.
2017 2018 Change
RUB mln RUB mln %
Total revenue 78,081 86,773 11%
Minus “pass through” items
Infrastructure and locomotive tariffs: loaded trips 22,508 22,682 1%
Services provided by other transportation organisations 3,478 3,231 -7%
Adjusted Revenue 52,094 60,859 17%
The principal components of Adjusted Revenue include: (i) Net Revenue from Operation of Rolling Stock, (ii) Revenue from operating
leasing of rolling stock, (iii) Net Revenue from Engaged Fleet and (iv) other revenues generated by the Group’s auxiliary business activities,
including freight forwarding, freight rail transportation of petrochemicals in tank containers, repair and maintenance services provided to
third parties, and other.
The following table provides a breakdown of the components of Adjusted Revenue for the years ended 31 December 2018 and 2017.
2017 2018 Change
RUB mln RUB mln %
Net Revenue from Operation of Rolling Stock 49,709* 57,474* 16%
Operating leasing of rolling stock 1,212 1,394 15%
Net Revenue from Engaged Fleet 173* 432* 149%
Other 1,000 1,559 56%
Adjusted Revenue 52,094 60,859 17%
Net Revenue from Operation of Rolling Stock
Net Revenue from Operation of Rolling Stock is a non-GAAP financial measure, derived from management accounts, describing the
net revenue generated from freight rail transportation and is defined as “Total revenue – operator’s services” (1) less “Infrastructure and
locomotive tariffs: loaded trips”, “Services provided by other transportation organisations” and Net Revenue from Engaged Fleet.
Net Revenue from Operation of Rolling Stock contributed 94% of the Group’s Adjusted Revenue in 2018.
(1) Defined as the sum of the following EU IFRS line items: “Railway transportation – operator’s services (tariff borne by
the Group)” and “Railway transportation – operator’s services (tariff borne by the client)”.
Globaltrans Investment PLC
Annual Report & Accounts 2018
42
FINANCIAL REVIEW
continued
The following table provides Net Revenue from Operation of Rolling Stock for the years ended 31 December 2018 and 2017, and its
reconciliation to Total revenue – operator’s services.
2017 2018 Change
RUB mln RUB mln %
Total revenue – operator’s services (1) 75,868 83,820 10%
Minus
Infrastructure and locomotive tariffs: loaded trips 22,508 22,682 1%
Services provided by other transportation organisations 3,478 3,231 -7%
Net Revenue from Engaged Fleet 173* 432* 149%
Net Revenue from Operation of Rolling Stock 49,709* 57,474* 16%
The Group’s Net Revenue from Operation of Rolling Stock increased 16% year-on-year to RUB 57,474 million* in 2018. This was a solid
performance across key business segments, with a 17% year-on-year rise in Net Revenue from Operation of Rolling Stock in the non-oil
segment complemented by a 12% year-on-year increase in the segment for rail transportation of oil products and oil.
•
•
The continued strong gondola market combined with slightly increased pricing in rail transportation for the oil products and oil segment
drove a 20% year-on-year increase in Average Price per Trip to RUB 41,859.
Average Rolling Stock Operated remained stable year-on-year at 53,562 units reflecting an average gondola fleet operated which was
temporarily lower, down 2% year-on-year, due to the intentional substitution of expensive leased-in gondola cars with newly acquired
units commissioned in 2018, while the average rail tank fleet operated increased 8% year-on-year benefitting from the transition of some
leased-out units into operation as well as an increased number of leased-in rail tank cars.
•
Average Number of Loaded Trips per Railcar decreased 4% year-on-year largely due to changed client logistics and a reduction in average
speeds on the RZD rail network over the course of 2018, caused by ongoing major rail infrastructure modernisation projects.
Revenue from operating leasing of rolling stock
Revenue from operating leasing of rolling stock, which contributed 2% of the Group’s Adjusted Revenue in 2018, increased 15% year-on-
year to RUB 1,394 million, primarily reflecting the improved pricing environment in the rail tank car segment.
Net Revenue from Engaged Fleet
Net Revenue from Engaged Fleet is a non-GAAP financial measure, derived from management accounts, that represents the net sum of the
price charged to clients for transportation by the Group utilising Engaged Fleet less the loaded railway tariff charged by RZD (included in the
EU IFRS line item “Infrastructure and locomotive tariffs: loaded trips”) and less the cost of engaging fleet from third-party rail operators
(included in the EU IFRS line item “Services provided by other transportation organisations”).
In 2018, Net Revenue from the Engaged Fleet, comprising about 1% of the Group’s Adjusted Revenue, was up 149% year-on-year to
RUB 432 million*. This was primarily driven by the improved pricing conditions and increased volumes of the Engaged Fleet operations in
the oil products and oil segment.
Other revenue
Other revenue (3% of the Group’s Adjusted Revenue), which includes revenues from auxiliary services, rose 56% year-on-year to RUB 1,559 million.
This primarily reflected a rise in revenue from the transportation of petrochemicals in tank containers on the back of the gradual commissioning
into operation of tank containers purchased in 2018 and the increase in revenue from maintenance services provided to third parties.
Cost of sales, selling and marketing costs and administrative expenses
The following table provides a breakdown of Cost of sales, selling and marketing costs and administrative expenses for the years ended
31 December 2018 and 2017.
2017 2018 Change
RUB mln RUB mln %
Cost of sales 54,609 55,154 1%
Selling and marketing costs 238 221 -7%
Administrative expenses 3,851 4,629 20%
Total cost of sales, selling and marketing costs
and administrative expenses 58,698 60,004 2%
(1) Defined as the sum of the following EU IFRS line items: “Railway transportation – operator’s services (tariff borne by
the Group)” and “Railway transportation – operator’s services (tariff borne by the client)”.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
43
In 2018, the Group’s Total cost of sales, selling and marketing costs and administrative expenses were RUB 60,004 million, an increase of
2% year-on-year, largely reflecting the factors described below.
•
•
“Pass through” cost items (a combination of “Infrastructure and locomotive tariffs: loaded trips” and “Services provided by other
transportation organisations”) remained stable year-on-year at RUB 25,913 million.
The Group’s Cost of sales, selling and marketing costs and administrative expenses adjusted for “pass-through” cost items rose 4% year-
on-year to RUB 34,091 million in 2018, which reflected:
– Strict cost control enabling the Company to curb the impact of inflationary pressures with Total Operating Cash Costs up 6% year-on-
year to RUB 27,894 million.
– Total Operating Non-Cash Costs reduced 3% year-on-year to RUB 6,197 million in 2018 with an asset-expansion-driven increase in
the Depreciation of property, plant and equipment more than offset by a decline in the Loss on derecognition arising on capital repairs
and a reduction in the Amortisation of intangible assets.
In order to show the dynamics and nature of the Group’s cost base, individual items of Total cost of sales, selling and marketing costs and
administrative expenses have been regrouped as shown below:
2017 2018 Change
RUB mln RUB mln %
“Pass through” cost items 25,986 25,913 0%
Infrastructure and locomotive tariffs: loaded trips 22,508 22,682 1%
Services provided by other transportation organisations 3,478 3,231 -7%
Total cost of sales, selling and marketing costs and administrative
expenses (adjusted for “pass through” cost items) 32,712 34,091 4%
Total Operating Cash Costs 26,303 27,894 6%
Empty Run Costs 12,154* 12,956* 7%
Employee benefit expense 3,426 4,367 27%
Repairs and maintenance 3,769 3,821 1%
Fuel and spare parts – locomotives 1,519 1,935 27%
Operating lease rentals – rolling stock 1,634 827 -49%
Infrastructure and Locomotive Tariffs – Other Tariffs 949* 892* -6%
Engagement of locomotive crews 662 795 20%
Other Operating Cash Costs 2,189 2,300 5%
Total Operating Non-Cash Costs 6,409 6,197 -3%
Depreciation of property, plant and equipment 4,962 5,111 3%
Amortisation of intangible assets 718 697 -3%
Loss on derecognition arising on capital repairs 528 377 -29%
Impairment of property, plant and equipment 111 10 -91%
Net impairment losses on trade receivables and prepayments 61 30 -51%
Net loss/(gain) on sale of property, plant and equipment 29 (27) NM
Total cost of sales, selling and marketing costs
and administrative expenses 58,698 60,004 2%
“Pass through” cost items
Infrastructure and locomotive tariffs: loaded trips
Infrastructure and locomotive tariffs: loaded trips is in principle a “pass through” cost item for the Group (1) and is reflected in equal amounts in both
the Group’s Total revenue and Cost of sales. This cost item was up 1% year-on-year to RUB 22,682 million in 2018 primarily due to an increase in
the regulated RZD tariffs which was partially offset by the year-on-year reduction of the Group’s Freight Rail Turnover in the reporting year.
Services provided by other transportation organisations
Services provided by other transportation organisations is in principle a “pass through” cost item for the Group and is reflected in equal
amounts in both the Group’s Total revenue and Cost of sales and includes tariffs that the Group pays to third-party rail operators for
subcontracting their rolling stock (Engaged Fleet).
Services provided by other transportation organisations were down 7% year-on-year to RUB 3,231 million in 2018 largely reflecting the
decreased volumes of the Engaged Fleet operations in the bulk cargo segment.
(1) Under contracts where the RZD tariff is borne by the Group, the Group has a contractual relationship with the client. The Group sets the
terms of the transactions, such as selling and payment terms and, in some cases, bears credit risk and controls the flow of receipts and payments.
Globaltrans Investment PLC
Annual Report & Accounts 2018
44
FINANCIAL REVIEW
continued
Total Operating Cash Costs
Total Operating Cash Costs (a non-GAAP financial measure) represent operating cost items payable in cash and calculated as “Total cost of
sales, selling and marketing costs and administrative expenses” less the “pass through” cost items and non-cash cost items.
The Group’s Total Operating Cash Costs increased 6% year-on-year to RUB 27,894 million in 2018 due to a combination of factors
described below.
The following table provides a breakdown of the Total Operating Cash Costs for the years ended 31 December 2018 and 2017.
2018 2017 2018 Change
% of total RUB mln RUB mln %
Empty Run Costs 46% 12,154* 12,956* 7%
Employee benefit expense 16% 3,426 4,367 27%
Repairs and maintenance 14% 3,769 3,821 1%
Fuel and spare parts – locomotives 7% 1,519 1,935 27%
Operating lease rentals – rolling stock 3% 1,634 827 -49%
Infrastructure and Locomotive Tariffs – Other Tariffs 3% 949* 892* -6%
Engagement of locomotive crews 3% 662 795 20%
Other Operating Cash Costs 8% 2,189 2,300 5%
Total Operating Cash Costs 100% 26,303 27,894 6%
Empty Run Costs
Empty Run Costs (a non-GAAP financial measure meaning costs payable to RZD for forwarding empty railcars) is derived from management
accounts and presented as part of the “Infrastructure and locomotive tariffs: empty run trips and other tariffs” component of “Cost of sales”
reported under EU IFRS.
Empty Run Costs accounted for 46% of the Group’s Total Operating Cash Costs in 2018. This cost item rose 7% year-on-year to RUB
12,956 million* in 2018. This resulted from a combination of the following factors:
•
A 5.3% year-on-year increase in the regulated RZD tariff for the traction of empty railcars and an increase in Freight Rail Turnover in the
rail tank car segment which has a higher Empty Run Ratio.
•
A logistically driven rise in Share of Empty Run Kilometres paid by Globaltrans to 89% (2017: 86%).
•
An Empty Run Ratio for gondola cars of 38% (2017: 37%) with a Total Empty Run Ratio (for all types of rolling stock) of 46% (2017: 45%).
Employee benefit expense
Employee benefit expense, which accounted for 16% of the Group’s Total Operating Cash Costs, increased 27% year-on-year to
RUB 4,367 million in 2018, reflecting a combination of the following factors:
•
Higher than inflation growth in wages and salaries.
•
Strong results and the appreciation in Globaltrans’ GDR price drove the rise in bonuses (including share-based payment expense).
•
An increase in related social insurance costs.
Repairs and maintenance
Repairs and maintenance costs, which comprised 14% of the Group’s Total Operating Cash Costs in 2018, increased 1% year-on-year
to RUB 3,821 million mainly reflecting the following factors:
•
Inflation growth in the cost of repair works, partially offset by a decline in the number of adhoc and depot repairs.
•
Significant growth in the cost of certain spare parts.
•
A decline in the number of higher cost locomotive repairs.
Fuel and spare parts – locomotives
Fuel and spare parts – locomotives expenses, comprising 7% of the Group’s Total Operating Cash Costs, were RUB 1,935 million in 2018,
27% higher than in the previous year. The increase in this cost item primarily reflected the rise in Freight Rail Turnover in the rail tank car
segment and the corresponding increased usage of locomotives which drove fuel consumption along with growth in fuel prices and inflation
in the cost of spare parts.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
45
Operating lease rentals – rolling stock
Operating lease rentals – rolling stock, which comprised 3% of the Group’s Total Operating Cash Costs in 2018, was down 49% year-on-
year to RUB 827 million, primarily reflecting an intentional reduction in the number of gondola cars leased-in over the reporting period
(down 96% compared to the end of 2017).
Infrastructure and Locomotive Tariffs – Other Tariffs
Infrastructure and Locomotive Tariffs – Other Tariffs (a non-GAAP financial measure, derived from management accounts), which is
presented as part of the “Infrastructure and locomotive tariffs: empty run trips and other tariffs” component of Cost of Sales reported under
EU IFRS. This cost item includes the costs of the relocation of rolling stock to and from maintenance, the transition of purchased rolling stock
to its first place of commercial utilisation, and the relocation of rolling stock in and from lease operations as well as other expenses including
Empty Run Costs attributable to the container business segment.
Infrastructure and Locomotive Tariffs – Other Tariffs (3% of the Group’s Total Operating Cash Costs) were RUB 892 million* in 2018,
a decrease of 6% year-on-year, mainly reflecting a decline in the cost of relocating rolling stock into and from repair and maintenance.
Engagement of locomotive crews
Costs related to the engagement of locomotive crews from RZD (3% of the Group’s Total Operating Cash Costs) increased 20%
year-on-year to RUB 795 million in 2018, largely due to a rise in the amount of engagement hours reflecting higher Freight Rail Turnover
in the rail tank car segment and the corresponding increased usage of locomotives.
Other Operating Cash Costs
Other Operating Cash Costs (a non-GAAP financial measure) include cost items such as “Advertising and promotion”, “Auditors’
remuneration”, “Communication costs”, “Information services”, “Legal, consulting and other professional fees”, “Rental of tank containers”,
“Operating lease rentals – office”, “Taxes (other than income tax and value added taxes)” and “Other expenses”.
The following table provides a breakdown of the Other Operating Cash Costs for the years ended 31 December 2018 and 2017.
2017 2018 Change
RUB mln RUB mln %
Advertising and promotion 31 38 21%
Auditors’ remuneration 56 59 5%
Communication costs 37 33 -11%
Information services 19 27 40%
Legal, consulting and other professional fees 69 70 1%
Rental of tank-containers 64 44 -31%
Operating lease rentals – office 180 183 2%
Taxes (other than income tax and value added taxes) 746 681 -9%
Other expenses 987 1,165 18%
Other Operating Cash Costs 2,189 2,300 5%
Other Operating Cash Costs, which comprised 8% of the Group’s Total Operating Cash Costs, were up 5% to RUB 2,300 million in 2018
compared to the previous year. The rise in this cost primarily reflected a decrease in Taxes (other than income tax and value added taxes),
predominantly property tax, which was more than offset by an increase in Other expenses.
Total Operating Non-Cash Costs
Total Operating Non-Cash Costs (a non-GAAP financial measure) include cost items such as “Depreciation of property, plant and equipment”,
“Amortisation of intangible assets”, “Loss on derecognition arising on capital repairs”, “Net impairment losses on trade receivables and
prepayments”, “Impairment of property, plant and equipment” and “Net (gain)/loss on sale of property, plant and equipment”.
Globaltrans Investment PLC
Annual Report & Accounts 2018
46
FINANCIAL REVIEW
continued
The following table provides a breakdown of the Total Operating Non-Cash Costs for the years ended 31 December 2018 and 2017.
2017 2018 Change
RUB mln RUB mln %
Depreciation of property, plant and equipment 4,962 5,111 3%
Amortisation of intangible assets 718 697 -3%
Loss on derecognition arising on capital repairs 528 377 -29%
Impairment of property, plant and equipment 111 10 -91%
Net impairment losses on trade receivables and prepayments 61 30 -51%
Net loss/(gain) on sale of property, plant and equipment 29 (27) NM
Total Operating Non-Cash Costs 6,409 6,197 -3%
Total Operating Non-Cash Costs were down 3% year-on-year to RUB 6,197 million in 2018. A 3% year-on-year rise in the Depreciation of
property, plant and equipment on the back of an increase in the Group’s Owned Fleet was more than offset by a 29% year-on-year decline
in the Loss on the derecognition arising on capital repairs (1) which reflected the lower number of capital repairs undertaken in the reporting
year and the 3% year-on-year reduction in the Amortisation of intangible assets.
Adjusted EBITDA (non-GAAP financial measure)
Adjusted EBITDA (a non-GAAP financial measure) represents EBITDA excluding “Net foreign exchange transaction (gains)/losses on
financing activities”, “Share of profit/(loss) of associate”, “Other losses/(gains) – net”, “Net (gain)/loss on sale of property, plant and
equipment”, “Impairment of property, plant and equipment”, “Impairment of intangible assets”, “Loss on derecognition arising on capital
repairs” and “Reversal of impairment of intangible assets”.
The Group’s Adjusted EBITDA in 2018 reached RUB 33,070 million, up 28% over the previous year.
The Adjusted EBITDA Margin expanded to 54% in 2018 from 50% in the previous year on the back of a 17% year-on-year increase in
Adjusted Revenue and a 6% year-on-year rise in Total Operating Cash Costs.
The following table provides details on Adjusted EBITDA for the years ended 31 December 2018 and 2017, and its reconciliation to
EBITDA and Profit for the year.
2017 2018 Change
RUB mln RUB mln %
Profit for the year 13,820 19,583 42%
Plus (Minus)
Income tax expense 4,534 5,876 30%
Finance costs – net 1,802 1,441 -20%
Net foreign exchange transaction losses on financing activities (237) (40) -83%
Amortisation of intangible assets 718 697 -3%
Depreciation of property, plant and equipment 4,962 5,111 3%
EBITDA 25,600 32,668 28%
Plus (Minus)
Loss on derecognition arising on capital repairs (528) (377) -29%
Net foreign exchange transaction losses on financing activities (237) (40) -83%
Other gains/(losses) – net 85 (1) NM
Net (loss)/gain on sale of property, plant and equipment (29) 27 NM
Impairment of property, plant and equipment (111) (10) -91%
Reversal of impairment of intangible assets 630 – -100%
Adjusted EBITDA 25,789 33,070 28%
(1) The cost of each major periodic capital repair (including the replacement of significant components) is recognised in the carrying amount of
the relevant item of rolling stock repaired and separately depreciated. Simultaneously, the carrying amount of the repaired rolling stock that is
attributable to the previous periodic capital repair and/or significant component replacement, if any, is derecognised and debited in “Cost of
sales” in the income statement as “Loss on derecognition arising on capital repairs” for the period during which the repair was carried out.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
47
Finance income and costs
The following table provides a breakdown of finance income and costs for the years ended 31 December 2018 and 2017.
2017 2018 Change
RUB mln RUB mln %
Interest expense:
– Bank borrowings (1,992) (1,344) -33%
– Non-convertible bond – (315) NM
Total interest expense calculated using the effective interest rate method (1,992) (1,659) -17%
Finance leases – (108) NM
Total interest expense (1,992) (1,767) -11%
Other finance costs (55) (11) -80%
Total finance costs (2,046) (1,778) -13%
Interest income:
– Bank balances 86 141 65%
– Short-term deposits 346 193 -44%
– Loans to third parties 3 1 -50%
Total interest income calculated using the effective interest rate method 435 335 -23%
Finance leases – third parties 46 42 -8%
Total finance income 481 377 -21%
Net foreign exchange transaction gains on borrowings and other liabilities 272 36 -87%
Net foreign exchange transaction losses on cash and cash equivalents
and other monetary assets (508) (76) -85%
Net foreign exchange transaction losses on financing activities (237) (40) -83%
Net finance costs (1,802) (1,441) -20%
Finance costs
Total finance costs decreased 13% year-on-year to RUB 1,778 million in 2018 largely reflecting the decline in the Group’s weighted average
effective interest rate over the reporting year.
Finance income
In 2018, the Group’s Total finance income was down 21% year-on-year to RUB 377 million, primarily due to a decrease in the interest rate
on short-term bank deposits, which was partially offset by an increase in the amount of bank balances.
Net foreign exchange transaction losses on financing activities
In 2018 the Group had Net foreign exchange transaction losses on financing activities in the amount of RUB 40 million compared to
RUB 237 million in the previous year which reflects the foreign exchange volatility on the available cash and cash equivalents denominated
in foreign currency.
Profit before income tax
The Group reported Profit before income tax of RUB 25,460 million in 2018, an increase of 39% compared to the previous year.
This was driven by the following factors:
•
•
A 33% year-on-year rise in the Group’s Operating profit to RUB 26,901 million, largely due to the factors described above.
A 20% year-on-year reduction in Net finance costs to RUB 1,441 million.
Income tax expense
Income tax expense increased 30% year-on-year to RUB 5,876 million in 2018, reflecting the 39% year-on-year rise in the Group’s Profit
before income tax, which was partially offset by a decline in the weighted average annual income tax rate for 2018 to 23.1% compared
to 24.7% in 2017. The decrease in the weighted average annual income tax rate was because dividends from the subsidiaries represented
a smaller proportion of their net profit in 2018 compared to the previous year.
Profit for the year
The Group’s Profit for the year grew 42% year-on-year to RUB 19,583 million reflecting the factors described above.
Profit for the year attributable to the owners of the Company increased 44% year-on-year to RUB 17,672 million primarily benefitting
from the positive contribution from the wholly-owned gondola business which delivered a strong performance as described above.
Globaltrans Investment PLC
Annual Report & Accounts 2018
48
FINANCIAL REVIEW
continued
Liquidity and capital resources
In 2018, the Group’s capital expenditure consisted primarily of maintenance CAPEX (including capital repairs), and the selective acquisition
of gondola cars, petrochemical tank containers and related flat cars. The Group was able to meet its liquidity and capital expenditure needs
comfortably through operating cash flow, cash and cash equivalents available at 31 December 2017, and proceeds from borrowings, issue
of bonds and finance leases.
The Group manages its liquidity based on expected cash flows. As at 31 December 2018, the Group had Net Working Capital of
RUB 2,011 million*. Given its anticipated operating cash flow and borrowings, the Group believes that it has sufficient working capital
to operate successfully.
Cash flows
The following table sets out the principal components of the Group’s consolidated cash flow statement for the years ended
31 December 2018 and 2017.
2017 2018
RUB mln RUB mln
Cash flows from operating activities 25,877 33,087
Changes in working capital:
– Inventories 106 170
– Trade receivables (79) (317)
– Other assets 859 (1,042)
– Other receivables (17) (66)
– Trade and other payables 748 263
– Contract liabilities – 508
Cash generated from operations 27,496 32,602
Tax paid (3,632) (5,766)
Net cash from operating activities 23,864 26,837
Cash flows from investing activities
Loan repayments received from third parties 11 6
Purchases of property, plant and equipment (4,872) (11,568)
Purchases of intangible assets – (0.1)
Proceeds from sale of property plant and equipment 268 410
Proceeds from sale of associates 61 –
Interest received 481 377
Receipts from finance lease receivable 24 129
Net cash used in investing activities (4,028) (10,645)
Cash flows from financing activities
Net cash (outflows)/inflows from borrowings and financial leases: (13) 5,748
– Proceeds from bank borrowings 15,710 15,197
– Proceeds from issue of non-convertible unsecured bonds – 5,000
– Repayments of borrowings (15,723) (13,128)
– Finance lease principal payments – (1,321)
Interest paid (1,944) (1,633)
Dividends paid to owners of the Company (15,014) (16,221)
Dividends paid to non-controlling interests in subsidiaries (2,200) (1,723)
Acquisition of non-controlling interests – (6)
Payments to non-controlling interests – (169)
Net cash used in financing activities (19,171) (14,003)
Net increase in cash and cash equivalents 665 2,188
Exchange losses on cash and cash equivalents (473) (24)
Cash and cash equivalents at beginning of the year 4,773 4,966
Cash and cash equivalents at end of the year 4,966 7,130
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
49
Net cash from operating activities
Net cash from operating activities rose 12% year-on-year to RUB 26,837 million, reflecting a 19% year-on-year increase in Cash
generated from operations (after “Changes in working capital”), primarily resulting from the factors described above, offset in part by
a 59% year-on-year increase in Tax paid on the back of increased taxable profits.
Net cash used in investing activities
Net cash used in investing activities was RUB 10,645 million, 164% higher than the previous year primarily due to an increase in expansion CAPEX.
Purchases of property, plant and equipment (on a cash basis) rose 137% to RUB 11,568 million due to greater expansion CAPEX (1).
As a part of the Total CAPEX (RUB 12,889 million) in the reporting year was financed with a finance lease, the related Finance lease principal
payments are reflected in Net cash used in financing activity and described below.
Net cash used in financing activities
Net cash used in financing activities was RUB 14,003 million in 2018, a decrease of 27% compared to the previous year. This was due to
a combination of the following factors:
•
•
•
•
Net cash inflows from borrowings and finance leases (2) were RUB 5,748 million (compared to net cash outflows of RUB 13 million in
the previous year) to finance the increased capital expenditures in the reporting year. As a part of capital expenditure was financed with
a finance lease, the Finance lease principal payments of RUB 1,321 million were booked in 2018. The additional related Finance lease
liabilities of RUB 2,213 million will be amortised over the next five years.
16% year-on-year decrease in Interest paid to RUB 1,633 million in 2018 due to the improvement in the Group’s weighted
average effective interest rate over the reporting year.
The increase in Dividends paid to owners of the Company to RUB 16,221 million compared to RUB 15,014 million in the previous
year reflecting the strong business performance.
Dividends paid to non-controlling interests in subsidiaries declined to RUB 1,723 million in 2018 compared to RUB 2,200 million
in the previous year.
Free Cash Flow
Free Cash Flow (a non-GAAP financial measure) is calculated as “Cash generated from operations” (after “Changes in working capital”)
less “Tax paid”, “Purchases of property, plant and equipment” (which includes maintenance CAPEX), “Purchases of intangible assets”,
“Acquisition of subsidiary undertakings – net of cash acquired”, “Finance lease principal payments” and “Interest paid”.
The business generated robust Free Cash Flow despite a significant increase in capital expenditure. The Group’s Free Cash Flow amounted
to RUB 12,314 million, down 28% compared to the previous year. This was mostly related to the following factors:
•
Cash generated from operations (after “Changes in working capital”) increased 19% or RUB 5,107 million to RUB 32,602 million
primarily due to the factors described above; and was more than offset by the combination of:
– a 165% or RUB 8,017 million year-on-year increase in Total CAPEX (including Purchase of property, plant and equipment, Purchases
of intangible assets and Finance lease principal payments) to RUB 12,889 million reflecting primarily greater expansion CAPEX; and
– a 59% or RUB 2,134 million year-on-year increase in Tax paid to RUB 5,766 million.
•
Interest paid reduced 16% or RUB 310 million year-on-year to RUB 1,633 million largely due to a decrease in the average weighted
interest rate.
(1) The Group acquired 4,747 units in 2018 compared to 1,332 units in the previous year.
(2) Net cash inflows (outflows) from borrowings and financial leases (a non-GAAP financial measure) defined as the balance between
the following line items: “Proceeds from bank borrowings”, “Proceeds from issue of non-convertible unsecured bonds”, “Repayments of
borrowings” and “Finance lease principal payments”.
Globaltrans Investment PLC
Annual Report & Accounts 2018
50
FINANCIAL REVIEW
continued
The following table sets out details on Free Cash Flow and Attributable Free Cash Flow for the years ended 31 December 2018 and 2017,
and its reconciliation to Cash generated from operations.
2017 2018 Change
RUB mln RUB mln %
Cash generated from operations (after “Changes in working capital”) 27,496 32,602 19%
Purchases of property, plant and equipment (4,872) (11,568) 137%
Purchases of intangible assets – (0.1) NM
Finance lease principal payments – (1,321) NM
Tax paid (3,632) (5,766) 59%
Interest paid (1,944) (1,633) -16%
Free Cash Flow 17,048 12,314 -28%
Minus
Adjusted Profit Attributable to Non-controlling Interests 1,531 1,911 25%
Attributable Free Cash Flow 15,517 10,403 -33%
Capital expenditure
Total CAPEX (a non-GAAP financial measure) calculated on a cash basis as the sum of “Purchases of property, plant and equipment”
(which includes maintenance CAPEX), “Purchases of intangible assets”, “Acquisition of subsidiary undertakings – net of cash acquired” and
“Finance lease principal payments” (as part of the capital expenditures was financed with a finance lease).
The Group’s Total CAPEX was RUB 12,889 million (1) in 2018 compared to RUB 4,872 million the previous year.
This higher capital expenditure primarily reflects larger expansion CAPEX in response to strong demand and in order to support the new
long-term contracts and further development of niche projects. In 2018, the Group acquired 4,747 units (including 3,862 gondola cars,
481 flat cars and 404 containers) compared to 1,332 units (including 706 gondola cars, 70 flat cars and 556 containers) in the previous year.
The following table sets out the principal components of the Group’s Total CAPEX for the years ended 31 December 2018 and 2017.
2017 2018 Change
RUB mln RUB mln %
Purchase of property, plant and equipment 4,872 11,568 137%
Finance lease principal payments – 1,321 NM
Purchases of intangible assets – 0.1 NM
Total CAPEX 4,872 12,889 165%
Capital resources
As of 31 December 2018, the Group’s financial indebtedness consisted of bank borrowings, non-convertible unsecured bonds and finance
lease liabilities for an aggregate principal amount of RUB 25,729 million (including accrued interest of RUB 225 million*).
The Group’s leverage remained low with Net Debt to Adjusted EBITDA at 0.56x as of 31 December 2018 (31 December 2017: 0.44x).
The Group’s Net Debt was RUB 18,599 million as of 31 December 2018, a 64% increase from the level of Net Debt at the end of 2017
primarily reflecting increased expansion CAPEX.
(1) The Group’s capital expenditure (including maintenance CAPEX) on an accrual basis was RUB 14,527 million in 2018 compared to
RUB 4,848 million in the previous year. The difference between capital expenditure given on a cash basis versus on an accrual basis is
principally because part of the capital expenditure was financed with a finance lease.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
51
The following table sets out the details on the Group’s total debt, Net Debt and Net Debt to Adjusted EBITDA at 31 December 2018 and
2017, and reconciliation of Net Debt to Total debt.
As of As of
31 December 2017 31 December 2018 Change
RUB mln RUB mln %
Total debt 16,331 25,729 58%
Minus
Cash and cash equivalents 4,966 7,130 44%
Net Debt 11,365 18,599 64%
Net Debt to Adjusted EBITDA 0.44x 0.56x –
Rouble-denominated borrowings accounted for nearly 100% of the Group’s debt portfolio as of the end of 2018. The Russian Rouble is the
functional currency of the Company.
The weighted average effective interest rate reduced to 7.9% as of 31 December 2018 compared to 9.4% as of the end of 2017. The vast
majority of the Group’s debt had fixed interest rates as of the end of 2018.
The Group has a balanced maturity profile, supported by the Group’s strong cash flow generation, available cash and cash equivalents,
as well as undrawn borrowing facilities in the amount of RUB 4,515 million as of the end of 2018.
The following table gives the maturity profile of the Group’s borrowings (including accrued interest of RUB 225 million*) as of
31 December 2018.
As of
31 December 2018
RUB mln
Q1 2019 2,088*
Q2 2019 1,690*
Q3 2019 2,710*
Q4 2019 1,971*
2020 5,676*
2021 6,193*
2022-2023 5,400*
Total 25,729
Related party transactions
For the purposes of this Annual Report, including the Group’s consolidated management report and Consolidated Financial Statements,
parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party
in making financial and operational decisions as defined by IAS 24 “Related Party Disclosures”. In considering each possible related party
relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions,
which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts
as transactions between unrelated parties.
Marigold Investments Ltd, Onyx Investments Ltd and Maple Valley Investments Ltd (1) are the Company’s shareholders with a direct
shareholding as at 31 December 2018 of 11.5%, 11.5% and 10.8%, accordingly (31 December 2017: 11.5%. 11.5% and 11.2%,
accordingly).
Litten Investments Ltd (2) and Goldriver Resources Ltd (3), controlled by a members of key management of the Company, had a shareholding
in the Company of 5.8% (at 31 December 2017: 6.3%) and 4.7% (at 31 December 2017: N/A) respectively.
(1) Andrey Filatov, Nikita Mishin and Konstantin Nikolaev, are co-founders of Globaltrans and are beneficiaries with regard to 11.5%,
11.5% and 10.8% respectively of Globaltrans’ ordinary share through their respective SPVs (Marigold Investments Ltd, Onyx Investments Ltd
and Maple Valley Investments Ltd).
(2) Beneficially owned by Alexander Eliseev, Executive Director and co-founder of Globaltrans.
(3) Beneficially owned by Sergey Maltsev, Chairman of the Board of Directors, Chief Strategy Officer and co-founder of Globaltrans.
Globaltrans Investment PLC
Annual Report & Accounts 2018
52
FINANCIAL REVIEW
continued
As at 31 December 2018, 55.5% (31 December 2017: 59.4%) of the shares represented the free market-float of Global Depository Receipts
and ordinary shares held by investors not affiliated with the Company. The remaining 0.2% (31 December 2017: 0.1%) of the shares of the
Company were controlled by the Directors and key management of the Company.
The following table gives a summary of transactions, which were carried out with related parties for the years ended 31 December 2018
and 2017.
2017 2018
RUB mln RUB mln
Sales of services: associate 484 –
Purchases of services: associate 116 –
Key management compensation (1) 1,058 1,912
The following table gives the year-end balances with related parties arising from sale of shares/purchases of services.
2017 2018
RUB mln RUB mln
Other receivables from related parties – 200
Accrued key management remuneration – current 524 648
Accrued key management remuneration – non-current – 115
More information is available in Note 33 to the Group’s Consolidated Management Report and Consolidated Financial Statements included
in the Financial Statements section of this Annual Report.
(1) Key management salaries and other short-term employee benefits include Directors’ remuneration paid to the
Directors of the Company both by the Company and by subsidiaries of the Group in respect of services provided to
such subsidiaries amounting to RUB 409 million (2017: RUB 130 million).
Overview Strategic Report Governance Financial Statements Additional Information
RISK MANAGEMENT
Globaltrans Investment PLC
Annual Report & Accounts 2018
53
Globaltrans faces a wide range of potential and current risks to its business. To identify, evaluate
and mitigate these risks, the Group has established a system for monitoring and controlling
uncertainties and threats that it faces. This system is overseen by a dedicated Risk Management
function. The Board of Directors has overall responsibility for the Group’s risk management.
The Board, as part of its role in providing strategic oversight and
stewardship of the Company, is responsible for maintaining a sound
risk management and internal control system. As part of that system,
the Board determines principal risks and sets respective risk
tolerance levels. Globaltrans has adopted a Risk Management
Policy that provides a consistent framework for the identification,
assessment and management and, where possible, mitigation
of risks.
The oversight of risk management is delegated to the Audit
Committee. In addition, the Board has delegated to the CEO the
responsibility for the effective and efficient implementation and
maintenance of the risk management system. The Directors,
through the Audit Committee, review the systems that have been
established for this purpose and regularly review their effectiveness.
Appropriate actions are then taken to manage the risk to an
acceptable level as defined by the Board.
Globaltrans has grouped the risks that it considers to be significant
into key categories – strategic, operational, compliance and financial
– and they are presented below. The list is not exhaustive, and the
order of the information does not reflect the probability of
occurrence or the magnitude of any potential effect. Additional risks
not currently known or ones currently considered immaterial could
also have an impact on the Group’s business, financial condition,
operational results and prospects, as well as on the trading price of
its Global Depositary Receipts (“GDRs”). Our principal risks are
monitored and assessed on an ongoing basis.
STRATEGIC: Risks that influence the Group’s ability to achieve its strategy
Risk Description Controls and mitigating factors
General economic
situation and operating
environment
The Group and its subsidiaries operate mainly in Russia, other
emerging markets and the Baltics. Emerging markets, such as
Russia, Kazakhstan and Ukraine, are subject to greater risks
than more developed markets, including significant
economic, political, social, legal and legislative uncertainties.
Moreover, the Group’s business depends on demand in the
Russian freight rail transportation market, which in turn
depends on certain key commodity sectors and, accordingly,
on economic conditions in Russia, Europe and elsewhere.
A decrease in production and demand for key commodities
in Russia, or in adjacent countries where the commodities of
the Group’s key customers are shipped by rail, as a result of
a technological shift, economic downturn, political crisis or
other event in Russia or another relevant country, negatively
impacts the Group’s business and growth prospects.
The political turmoil experienced within Ukraine and sanctions
imposed by the United States and the European Union on
Russia, and by Russia on other countries, have had a negative
impact on the Russian economy, resulted in a significant
weakening of the Russian Rouble, made it harder to raise
funding from international sources and had a negative impact
on the freight rail transportation market and the Group’s
business. The ongoing threat of further sanctions by the United
States, the European Union and other countries, and by Russia
on other countries, as well as the continuation or escalation of
turmoil in the region or in the broader political landscape, could
affect the Group’s ability to conduct its business, increase the
negative impact on the Russian economy, have a negative
impact on the demand for key commodities in Russia and
possibly increase the cost of borrowing for the Group. The
threat of sanctions against the Group’s existing customers or
any difficulties in their financial condition as a result of
worsening market conditions or otherwise may decrease
demand for the Group’s services and/or negatively impact the
Group’s logistics. In addition, the political instability in Ukraine
could have a negative impact on the Group’s business and
assets in Ukraine and/or on the ability of the Group’s
customers to carry on business in Ukraine.
Mitigation methodology involves
understanding the political and economic
uncertainties of the operating environment
and the risks faced in our business
operations. The Group’s compliance and
legal teams constantly monitor changes in
legislation and report them to the Group’s
management and Board of Directors while
the finance and business teams monitor
economic developments and do the same.
The counterparties, banks and transactions
of the Group are constantly reviewed by the
Group’s compliance and legal teams to
ensure full compliance with all applicable
legislation. Risk managers have direct access
to the Group’s key management.
The Group maintains a balanced fleet as one
of the cornerstones of its business model.
A balanced fleet (between universal
gondola cars, adaptable to the demand for
the transportation of various bulk cargoes,
and rail tank cars, which are used for the
transportation of oil products and oil)
enables the Group to adapt to market
conditions and reduces its dependence
on any one cargo flow.
In addition, the Group has entered into
long-term service contracts with several
large clients. Management assesses the
possible impairment of the Group’s tangible
and intangible assets by considering the
current economic environment and
outlook. Management believes that it is
taking all necessary measures to support the
sustainability and development of the
Group’s business in the current business
and economic environment.
Globaltrans Investment PLC
Annual Report & Accounts 2018
54
RISK MANAGEMENT
continued
STRATEGIC: Risks that influence the Group’s ability to achieve its strategy continued
Risk Description Controls and mitigating factors
Regulatory risk
and relations with
government
authorities and state-
owned enterprises
The Group is subject to regulatory risks relating to the
operation of the Russian railway transportation market and
railway industry reform. Any changes to the regulatory
environment of the Russian railway transportation market
or in other markets where the Group operates, including,
but not limited to, railway tariff regulations and technical
requirements for fleet maintenance, could negatively impact
the Group’s business, its profitability and prospects for
further business growth. Government authorities have
significant influence over the functioning of the Russian
railway transportation market. Any deterioration in the
Group’s direct or indirect relationship with government
authorities at either the local or federal level could result in
greater government scrutiny of the Group’s business and the
manner in which it conducts its operations or less effective
access to services dependent upon government authorities.
In addition, the Group relies on its relationship with and the
services (including maintenance and repairs), infrastructure
and information provided by RZD, an entity controlled by
the state. While the Group has enjoyed a good relationship
with RZD, there is no assurance it will always continue to do
so in the future or that RZD will not increase its charges for
such service provision and infrastructure use. Railway
transportation regulations in countries bordering Russia
may change, limiting the access of the Group’s rolling stock
to certain territories.
Growth strategies
Business growth can be constrained by an increase in prices
for new rolling stock and spare parts, a limited supply of long-
term funding, an increase in the cost of borrowing and/or
adverse market conditions that can have a negative impact on
the return on any investments. Although the Group takes a
conservative approach to investments, any deterioration in
the market environment may negatively impact the
profitability and payback period of investments in rolling
stock, thus limiting the Group’s return on its investments and
ability to expand its business. Alongside pursuing organic
growth strategies, the Group has expanded its operations
through acquisitions in the past, and may pursue more in the
future if appropriate opportunities arise. The pursuit of an
acquisition strategy entails certain risks, including problems
with integrating and managing such new acquisitions.
The expiration of long-term service contracts with its key
customers may also limit the Group’s growth opportunities.
The management of the Group regularly
monitors changes to the regulatory regime
of the railway transportation market in the
countries in which it operates. The Group
has a diversified portfolio of service
providers (e.g. for rolling stock repair
services), which allows it to use private
repair depots (including three in-house
repair facilities) to ensure less dependence
on RZD-owned depots, obtain higher-
quality service and minimise the costs of
that service.
RZD remains the only provider of
infrastructure and locomotive traction
services, although the Group does operate
its own locomotives in the form of block
trains (cargo or client specific Group-
operated block trains all going in the same
direction) on some routes.
The Group also continues to monitor
market liberalisation reforms to ensure that
it can take advantage of any opportunities
when they arise. The Group monitors
Federal Antimonopoly Service (“FAS”)
initiatives regarding railway tariff regulation
and also seeks to minimise its exposure to
adverse changes in RZD’s regulated tariffs
for usage of infrastructure and locomotive
traction by providing that these changes are
adequately passed on to the Group’s
customers where possible.
Any acquisition of rolling stock is matched
against projected demand for railway
transportation and the economically viable
expected payback period for such
investments. The Group cooperates with
numerous rolling stock producers in Russia
and other CIS countries without placing too
much reliance on any particular supplier.
The Group also works on diversification of
its business developing transportation of
petrochemicals and other niche projects.
Any valuation of an acquisition target is
subject to review by external advisers, and
fairness opinions are normally provided by
reputable appraisal companies to the
Group’s Board of Directors when a
transaction is considered.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
55
STRATEGIC: Risks that influence the Group’s ability to achieve its strategy continued
Risk Description Controls and mitigating factors
Competition
and customer
concentration
The Russian freight rail transportation market is highly
competitive with unregulated operators’ services tariffs.
The ongoing market consolidation is leading to greater price
competition. The risk of an irrational supply of railcars on the
market by railcar producers and/or irrational behaviour of
competitors/new market entrants may place additional
pressure on the profitability of railway transportation and
thus negatively impact the Group. Competition between
railway transportation and other means of transportation,
including, but not limited to, oil product and oil
transportation by pipeline, river and road, may negatively
impact the Group’s business volumes and profitability. The
Group’s customer base is characterised by significant
concentration: the business is heavily dependent on a few
large industrial groups and their suppliers, with its top 10
customers and their suppliers accounting for around 74% of
the Group’s Net Revenue from Operation of Rolling Stock in
2018. While the Group has long-term contracts with several
key customers, failure to extend and/or maintain the current
service contracts or for such customers to no longer have the
volume requirements they have had in the past may have a
negative impact on the Group’s operational results and
financial performance.
Locomotive
traction
The Group is dependent on RZD to issue permits allowing it
to operate locomotives and to approve its use of locomotives
for particular routes. If those routes are not in demand by the
Group’s clients, their utilisation could be lower. Furthermore,
there is uncertainty about the prospects for, and the timing
of, further deregulation of locomotive traction.
Globaltrans has significant competitive
advantages that mitigate some of the risks
of competition. These advantages include
its strong reputation for high-quality service
and reliability; its independent status; its
long-term partnership with customers; its
sophisticated operating capabilities; and its
modern fleet. The Group has long-term,
established relationships with its key
customers and their affiliates and suppliers.
In most cases, Globaltrans has become an
integrated part of their operations. Around
60% of the Group’s Net Revenue from
Operation of Rolling Stock in 2018 was
covered by long-term service contracts with
several large clients. Such contracts provide
additional stability and greater certainty
regarding transport volumes for the Group.
Globaltrans continues its focus on
expanding business with small and medium
companies to further diversify its customer
base. In 2018, the share of small and medium
companies amounted to 26% of Net
Revenue from Operation of Rolling Stock
(2017: 26%). In addition, the Group’s
marketing function regularly monitors
competitors’ business strategies, their use
of technology, their price strategies and
industry trends.
The Group has a competitive advantage in
providing freight rail transportation services
to some clients, as it operates its own
locomotives for the traction of block trains
dedicated to particular routes. By
assembling full trains composed only of its
own railcars, the Group increases the speed
and reliability of transportation for its
clients. The Group has established controls
to obtain the timely renewal of locomotive
operation licences and the respective
permits from RZD. The Group regularly
monitors the progress of the reform
relating to continuing deregulation in
locomotive traction. In addition, the
Group’s management actively participates
in the development of the required
regulation through various dedicated
industrial organisations and partnerships.
Globaltrans Investment PLC
Annual Report & Accounts 2018
56
RISK MANAGEMENT
continued
OPERATIONAL: Risks that influence the Group’s operational efficiency
Risk Description Controls and mitigating factors
Infrastructure
The physical infrastructure owned and operated by RZD on
which the Group is dependent to operate its rolling stock
largely dates back to Soviet times, particularly the rail network,
but also the railway networks and other physical infrastructure
in Kazakhstan and Ukraine. In some cases it has not been
adequately maintained, which could negatively affect the
condition of the Group’s rolling stock, performance and
business. In addition, the maintenance and modernisation of
rail infrastructure undertaken from time to time by RZD and
other factors could impact the average speed of transportation
and therefore affect the operational performance of railcars.
RZD tariffs for the use of the railway network and the provision
of locomotive services are regulated by the FAS and are in
principle “pass-through” items for the Group and other private
freight rail operators. Meanwhile, RZD tariffs for the traction of
empty railcars are in most cases a direct cost to the Group and
other private freight rail operators. Significant upward changes
in the regulated tariffs, whether as a result of annual indexation
or changes in the tariff-setting methodology, could have an
adverse effect on the Group’s business.
Practically all of the Group’s rolling stock is
insured against damage. Moreover, as a
freight carrier on the railway network, RZD
bears full responsibility for third-party losses
caused by accidents on the network. The
Group monitors its rolling stock through its
dispatch centre on a 24/7 basis and plans its
routes accordingly to optimise logistics and
minimise the risks of disruption. The Group
monitors FAS initiatives with the aim of
detecting possible changes in tariff-setting
methodology and tries to reflect relevant
changes in contracts with customers.
Operational
performance
Rising inflation in Russia, and an increase in prices for spare
parts and railcar repair works, may increase the Group’s costs,
while the Group may have limited opportunities to increase
tariffs to customers.
Employees
Customer
satisfaction
The Group’s future success will partly depend on its ability to
continue to attract, retain and motivate key employees and
qualified personnel, in particular an experienced management
team and logistics and railway experts. Competition in Russia
for such personnel with relevant expertise is intense due to the
small number of qualified individuals with suitable practical
experience in the rail industry.
Customers rely on the Group for the provision of high-quality
freight rail transportation and other related services and
expect the Group to be commercially responsive to their
needs. These include the timely collection and delivery of
cargo and availability of rolling stock, which is not always
within the direct control of the Group because it is dependent
upon RZD for locomotive traction and maintenance of
infrastructure. Accordingly, timely delivery of cargo is highly
dependent on a third party whose performance could be
unsatisfactory for the Group’s customers.
Among the Group’s key objectives are to
increase operational efficiency and to
focus on controlling and reducing costs.
The Group continuously monitors its
costs to maintain efficiency and selects
suppliers accordingly.
Adequate remuneration packages, which
are in line with or in excess of market levels,
are offered to all employees and key
managers and the remuneration of key
managers is linked to the Group’s financial
results. The Human Resources function
regularly monitors salary levels and other
benefits offered by competitors to ensure
that the Group’s remuneration packages
are appropriate.
The Group has a strong reputation for
delivering good quality, reliable and flexible
freight rail transportation services to its
customers. Customer satisfaction is one
of the key metrics that the Group’s
management monitors. Each customer is
assigned an account manager responsible
for the day-to-day relationship with that
customer. Customer feedback is analysed
and appropriate follow-up actions are taken.
The Group has a track record of high
customer retention and the majority of key
customers stay with it for many years. In
addition, the Group serves several key
clients on the basis of long-term contracts
and has recently added new contracts and
extended others.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
57
OPERATIONAL: Risks that influence the Group’s operational efficiency continued
Risk Description Controls and mitigating factors
IT availability/
continuity
Risks of terrorist
attacks, natural
disasters or other
catastrophic events
beyond the
Group’s control
Local IT specialists have introduced
solutions to maintain the availability of IT
services and ensure their recovery in case of
disruption. The IT function and Internal
Audit function monitor all IT-related
activities and performance for compliance
with IT policies and procedures.
The Group’s rolling stock is insured against
damage, and the responsibility for third-
party losses caused by accidents on the
network lies with RZD. The Group
consistently monitors any disruptive events
and applies a Business Continuity Policy to:
• Ensure the safety of employees and
human life
• Maintain continuity of time-critical
services
• Minimise disruptions to clients
and partners
• Minimise the operational, financial
and reputational impact
The Group uses specialised rail transport and logistics
software to ensure the efficiency and effectiveness of its
logistics, dispatching and rolling stock tracking services.
These systems are either licensed to the Group and then
customised to the Group’s needs or delivered to the Group
and maintained for its needs by third parties under service
agreements. The Group may potentially meet risks related to
access privileges, audit trails, authentication, authorisation,
backup procedures, business continuation, change
management (software and hardware), data integrity,
disaster recovery, infrastructure, information/data security
and cyber-attacks.
The Group’s business operations could be adversely affected
or disrupted by terrorist attacks, natural disasters (such as
earthquakes, floods, tsunamis, hurricanes, fires or typhoons)
or other catastrophic or otherwise disruptive events –
including changes to predominant natural weather, sea and
climatic patterns, piracy, sabotage, insurrection, military
conflict or war, riots or civil disturbance, radioactive or other
material environmental contamination, an outbreak of a
contagious disease or changes to sea levels – which may
adversely affect global or regional trade volumes or
customer demand for cargo transported to or from affected
areas, or lead to denial of the use of any railway, port, airport,
shipping service or other means of transport and disrupt
customers’ logistics chains. In addition, the Group may be
exposed to extreme weather conditions such as severe cold
periods and icy conditions that disrupt activities in ports that
are destination points for customer cargoes. Furthermore,
many of these events may not be covered by the Group’s
insurance or any applicable insurance may not adequately
cover any resulting losses.
The Group’s rolling stock could be adversely affected by
unlawful acts in Russia or neighbouring countries. The
occurrence of any such events may reduce the Group’s
business volumes, cause idle time for its rolling stock or
disruptions to its operations in part or in whole, subject the
Group to liability or impact its brand and reputation and
otherwise hinder normal operations. This could have a
material adverse effect on the Group’s business, results of
operations or financial condition.
Globaltrans Investment PLC
Annual Report & Accounts 2018
58
RISK MANAGEMENT
continued
COMPLIANCE: Risks that influence the Group’s adherence to relevant laws and regulations
Risk Description Controls and mitigating factors
Pending and potential
legal actions
The Group is involved in material legal actions from time to
time. Such actions may have an adverse effect on the Group.
The ambiguity of the law in Russia and CIS countries creates
regulatory uncertainty and could result in claims from
government authorities not expected by the Group.
Compliance with
sanctions
The Group functions in a number of jurisdictions, including
Cyprus, Russia, Estonia, Finland and Ukraine. In addition, the
Group has GDRs listed on the London Stock Exchange. Thus,
the Group is obliged to comply with sanction legislation
applicable in each jurisdiction as well as US, UK and EU
regulations, which may change from time to time.
Fiscal risk
Local tax, currency and customs legislation, especially in
Russia, other emerging markets and Cyprus, may be subject to
varying interpretations, inconsistencies between federal laws,
regional and local laws, rules and regulations, frequent
changes and a lack of judicial and administrative guidance on
interpreting legislation.
The Group runs its operations in compliance
with tax, currency, labour, customs,
antimonopoly and other applicable
legislation and constantly monitors any
changes in the regulatory environment.
The Group monitors its compliance with the
terms of its agreements. Standard forms of
agreements are used for transportation
services, and various controls are in place to
ensure that the terms of agreements are
adhered to. All contracts are subject to
rigorous review by all of the Group functions
concerned and to a formal approval process
prior to execution.
The legal and compliance teams of the
Group together with the external lawyers
monitor the applicable requirements in
each of jurisdictions, including US personal
and sectoral sanctions (SDN OFAC, SSI
OFAC and CAATSA), and the appropriate
controls are established to ensure that all
subsidiaries of the Group comply with
applicable regulations.
The Group has controls in place, including
highly qualified and experienced personnel,
to monitor changes in legislation and
determine the appropriate action needed to
minimise the risk of a challenge to such
treatments by the authorities. For complex
matters, the Group engages and cooperates
with external consultants and law firms.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
59
FINANCIAL: Risks that influence the Group’s financial performance
Risk Description Controls and mitigating factors
Currency risks
Currently, the Group has a negligible share of borrowings and
lease liabilities denominated in US Dollars and does not have
formal arrangements for hedging this foreign exchange risk.
The Group therefore has limited exposure to the effects of
currency fluctuations between the US Dollar and the Russian
Rouble. The Group is also exposed to the effects of currency
fluctuations between the Russian Rouble (the presentational
currency of the Group’s financial results and the functional
currency of the Company as well as of its Cypriot and Russian
subsidiaries) and the Euro (the functional currency of the
Group’s Estonian subsidiaries), and between the Russian
Rouble and the Ukrainian Hryvnia (the functional currency
of the Group’s Ukrainian subsidiary).
Interest-rate risks
The Group’s income and operating cash flows are exposed to
changes in market interest rates. These arise mainly from
floating rate lease liabilities and borrowings. An increase in
market interest rates in Russia may negatively influence the
Group’s profits.
A large proportion of the Group’s revenues
and expenses are denominated and settled
in Russian Roubles. At present, the risks
related to liabilities denominated in foreign
currency are not material and are partly
compensated for by assets and income
denominated in foreign currency. The
Group has refinanced nearly all of its
liabilities denominated in US Dollars with
long-term debt denominated in Russian
Roubles. Since 2008, the Group has taken
action to mitigate currency risks and
adjusted the profile of the borrowings in its
credit portfolio. As of 31 December 2018,
nearly all the Group’s debt was
denominated in Russian Roubles.
The Group concludes long-term borrowing
and finance lease contracts to finance
purchases of rolling stock and acquisitions of
subsidiaries. The Group borrows at current
market interest rates and does not use any
hedging instruments to manage interest-
rate risk. Management monitors changes in
interest rates and takes steps to mitigate
these risks as far as practicable by ensuring
that the Group has financial liabilities with
both floating and fixed interest rates as
appropriate. As of 31 December 2018,
nearly all of the Group’s debt was at fixed
interest rates. Management also considers
alternative means of financing.
The Group has policies in place to ensure
that sales of goods and services are made to
customers with an appropriate credit
history. Substantially all of the bank balances
are held with reliable banks.
Financial assets that potentially subject the Group to credit risk
consist principally of trade receivables, cash and cash
equivalents. Furthermore, the Group’s business is substantially
dependent on a few large key customers, including their
affiliates and suppliers. Its top 10 clients accounted for 59% of
the Group’s trade and other receivables as of 31 December
2018 and around 74% of the Group’s Net Revenue from
Operation of Rolling Stock in 2018.
Credit risk
Liquidity risk
The Group’s business is capital-intensive. The political turmoil
experienced within Ukraine and sanctions imposed by the
United States and the European Union on Russia have had a
negative impact on the Russian financial markets and have
limited the Group’s access to international sources of funding.
Any lack of available funding and potential increases in market
interest rates could have a negative impact on the Group’s
ability to obtain financing for the settlement of its liabilities or
cash to meet its financial obligations.
The Group has a budgeting policy in place
that allows the management to control
current liquidity based on expected cash
flows. These include, among others,
operating cash flows, capital expenditure
needs, funds borrowed from financial
institutions and funds raised from listed
debt instruments.
Globaltrans Investment PLC
Annual Report & Accounts 2018
60
CORPORATE SOCIAL RESPONSIBILITY
Our approach to sustainability
This section is prepared in accordance with the Sustainability Reporting Guidelines
of the Global Reporting Initiative (the “GRI”) in the Core disclosure version and the
requirements of the EU’s 2014/95/EU Directive regarding disclosure of non-financial
and diversity information.
Within this section are the key results, activities and performance
of the parent company Globaltrans Investment PLC and its
subsidiaries in the field of sustainable development for the year
ended 31 December 2018. All information disclosed in this Section
reflects activities of the Group companies included in the list for
financial reporting purposes in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European
Union and the requirements of Cyprus Companies Law, Cap. 113
(“EU IFRS”) unless otherwise specified in the text.
Globaltrans reports economic, social and environmental activities
deemed to be material and, in order to provide comparable data, most
indicators in the Section are presented for two years, i.e. 2017 and 2018.
This section covers all material topics, including results for the
reporting period and performance assessment findings.
Topics, which are not considered relevant, are not subject to
disclosure in sustainability reports according to the GRI Standards.
The overall aim is to achieve high standards in the areas of
balance, comparability, accuracy, timeliness, clarity and reliability,
as defined by the GRI Standards.
Stakeholder engagement
Communicating effectively is a vital aspect of being a successful
business. Regular engagement with its stakeholders is integral to
Globaltrans’ ability to undertake business responsibly. The Group
sees stakeholder engagement as an opportunity to initiate further
dialogue about relevant topics and thereby shape the future
development of its business and the advancement of its sustainability
agenda. The Group’s stakeholders include employees, shareholders
and investors, customers, government and regulators, media and
local communities.
The Group uses the most appropriate communication channels to
listen to its stakeholders and ensure they can access the information
they need about its policies, practices and strategic direction.
These include direct engagement with stakeholders through
meetings, presentations, roadshows and attendance of conferences.
More generally, the Group ensures that information is readily
available and released in a timely fashion so that communications
with stakeholders are as transparent as possible through media and
news announcements, conference calls, corporate website and
e-mail feedback forms.
Procedure of identifying material sustainability topics
Materiality matrix
Step 1
Identification of
material topics
Material topics were identified
through the analysis of internal
regulations and media coverage,
and review of non-financial reports
issued by peer companies.
l
s
r
e
d
o
h
e
k
a
t
s
r
o
f
y
t
i
l
a
i
r
e
t
a
M
Step 2
Prioritisation of
material topics
Step 3
Preparation of
materiality matrix
In order to develop a broader and more
fulfilled stakeholder engagement
process, the Group gathered both
external and internal feedback
(employees, shareholders, investors,
clients) on the materiality of
sustainability issues for the Group.
A materiality matrix was developed to
highlight the most significant topics for
the Group’s system of sustainability
reporting. A validity check was also
conducted on identified material topics
to ensure that all of them are disclosed
in this Annual Report.
5.00
4.50
4.00
3.50
3.00
2.50
2.50
3
15
4
13
11
1
10
8
9
7
12
Economic impact
Environmental impact
Social impact
6
2
5
14
3.00
3.50
4.00
4.50
5.00
Materiality for business
Economic impact
1 Economic performance
2 Socioeconomic development
of regions
Social impact
9 Employment, staff and
management relationship
10 Employee education and
3 Business ethics, risk management
development
and anti-corruption
4 Customer satisfaction
Environmental impact
5 Risks and opportunities posed by
climate change
6 Responsible water use and
reduction of water consumption
7 Reduction of energy consumption
8 Non-compliance with
environmental laws and regulations
11 Employee motivation
12 Diversity and equal opportunity
13 Occupational health and safety
14 Corporate volunteering
15 Charity
Source: Globaltrans
Overview Strategic Report Governance Financial Statements Additional information
Globaltrans Investment PLC
Annual Report & Accounts 2018
61
Stakeholder engagement mechanisms
Stakeholder group Mechanisms of stakeholder engagement Key results in 2018
Employees
Shareholders and
investors
•
•
•
•
•
•
•
•
•
•
•
Labour-management consultations
Engagement surveys
Corporate booklets and information boards
Networking events
Regular direct communication between managers,
teams and individuals
Career development, annual training and
performance processes
Open, effective and transparent communication
IR website
General Meetings of Shareholders
Corporate reporting and webcasts
Broker-hosted investor events, non-deal roadshows
and conference calls
Customers and
business partners
•
•
•
•
•
Face-to-face formal and informal meetings, as well as
formal consultations
Customer analytics and customer evaluation system
Conferences and forums
Customer satisfaction surveys
Transparent supply chain
Government,
regulators and
professional
authorities
•
•
•
•
Communication with regulators/policy makers about
issues affecting the freight rail transportation industry
Permits and licences
Regulatory change management
Various industry and regulatory forums
Local communities
•
•
Corporate philanthropy and charitable contributions
Community investment
Media
•
•
•
Communication with media representatives
Transparent disclosure through various channels
Press conferences and exhibitions
(1) Total shareholder payments in respect of 2018 were RUB 16.5 billion (including interim and special interim dividends in respect
of the first half of 2018 and final and special final dividends in respect of the second half of 2018).
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Social benefits and guarantees, including
medical insurance
Favourable working conditions
Salary benchmarking against peers
Zero fatalities, zero accidents and zero
cases of occupational illness
Information disclosure on a semi-
annual basis
Analyst and investor conference calls
and webcasts
Non-deal roadshows in the UK, Europe,
Russia and the US. Over 300 meetings
with investors in total
Regular dividend payments (1)
Publication of the Annual Report and
corporate social responsibility information
Two new five-year contracts signed with
blue-chip industrial companies (TMK,
ChelPipe Group)
Maintaining long-term partnerships with
clients – about 60% of the Group’s 2018
Net Revenue from Operation of Rolling
Stock was covered by long-term contracts
Customer satisfaction surveys
Customer privacy and data security
Tax obligations fulfilment
Participation at professional associations
including the Council of Railway
Operators and the Russian Union of
Transport Workers
Contribution to the socioeconomic
development
Regular contributions to various
charitable projects
Circulation of media and news
announcements
Responding to media queries
Participation in various events and
exhibitions (for example, Annual
TransRussia exhibition for Transport and
Logistics Services and Technologies)
Globaltrans Investment PLC
Annual Report & Accounts 2018
62
CORPORATE SOCIAL RESPONSIBILITY
continued
Ethics and behaviour
Globaltrans manages and organises human resources in full
compliance with the rights guaranteed by legislation as well as its
Code of Ethics and Conduct adopted in 2008. The Code states that
the Group’s responsibility is to promote responsible corporate
behaviour within its workforce. The Code touches upon important
aspects of interactions between the Group and its employees and
contains a list of core values that apply to all actions of the Group
and its employees.
Tolerance
Understanding and respecting diverse cultures and people
with different views
Impartiality
Acting objectively and professionally
The Group’s executive management meets at least weekly to discuss,
among other things, anti-fraud and anti-corruption measures.
In 2018, as in previous years, there were no reported cases within
the Group of any corrupt or fraudulent activity.
We respect and protect the privacy of personal information of our
stakeholders and comply with EU general data protection regulation,
adopted by the EU Parliament in April 2016. The Group has adopted
a Privacy policy, which is available on the corporate website
(www.globaltrans.com).
Key CSR activities
Globaltrans understands that alongside financial results, non-
financial results are also of great importance both to the Company
and its stakeholders. Globaltrans takes seriously its social and
environmental responsibilities and is committed to preventing
potential damage to the community and environment as a result
of the Group’s operations.
Respect
Key CSR activities of Globaltrans are:
Compliance with all requirements of applicable labour laws
Equality for all
Creating opportunities and a working environment that
excludes any form of discrimination
Corporate
Governance
Safety
Compliance with required rules to create a safe and
healthy workplace
All employees of the Group are required to sign an acknowledgement
that they have received, read and understood the Code of Ethics and
Conduct. Globaltrans does not tolerate any behaviour that is contrary
to these values.
The Group has also adopted an Anti-Fraud Policy that is designed
to identify and prevent fraud. The Group has established the
necessary procedures and rules for dealing with any issues and has
appointed a team responsible for the development of internal
controls and investigations. Fraud prevention measures apply to
all Group personnel. Each employee is required to understand
the types of violations that may occur within the area of his/her
responsibility and closely monitor any indications of potential
non-compliance.
Moreover, the Group also adopted a Whistleblowing Policy that
governs the investigation and reporting of improper activities,
including non-compliance with the Code of Ethics and Conduct,
and allows employees to submit concerns in a confidential and
anonymous manner. Appropriate channels have been introduced
to handle reports of suspected improper activities.
Responsible
employment
Environmental
responsibility
Investment in
the community
Economic
performance
Transparent corporate governance is
accomplished by engaging Globaltrans’ senior
management with its shareholders, maintaining
clearly defined corporate policies, undertaking
training as well as the continuous professional
development of senior management. For details,
please see the Corporate Governance section
of this Annual Report.
Responsible employment is achieved
through compliance with labour legislation,
efforts to decrease employee turnover,
ensuring a safe place of work and ensuring
a rich corporate culture.
Environmental responsibility is achieved
through minimising the adverse impact of
Globaltrans’ activities on the environment,
i.e. through more energy-efficient practices,
carbon emission reduction and recycling.
Investment in the community consists of
support provided to charitable organisations.
Economic performance, including the
generation and distribution of the economic
value created to various stakeholder categories.
For details, please see the Financial Review
section of this Annual Report.
Overview Strategic Report Governance Financial Statements Additional information
Globaltrans Investment PLC
Annual Report & Accounts 2018
63
In order to meet regulatory and stakeholders’ expectations,
Globaltrans is constantly improving the existing framework for non-
financial risk management. Non-financial risks may have a negative
impact on the Group’s internal processes, business reputation and
performance along with its ability to pursue strategic goals. The
Group’s non-financial risks are comprised of strategic, operational
and compliance risks. For details of the main risks facing the Group,
please refer to the Risk Management section of this Annual Report
and the Principal Risks and Uncertainties subsection, included in the
Financial Statements section of this Annual Report.
The internal regulations of the Group reflect its approach to
managing non-financial risks. Measures taken by Globaltrans to
control and mitigate such risks provide for the Group’s growth
both in terms of its business value and its market positions.
Headcount by companies in 2018 (at year-end)
Figure 1: Headcount by companies in 2018 (year end)
569 570
501 506
376 372
New Forwarding
Company
BaltTransServis
Ural
Wagonrepair
GTI Management
Other
subsidiaries
73
53
75
48
2017
2018
Source: Globaltrans
Headcount by gender
in 2018 (at year-end)
gender in 2018 (year end)
Headcount by age
in 2018 (at year-end)
in 2018 (year end)
Responsible employment
Our approach to HR management
Globaltrans realises that its people are one of its biggest
competitive advantages in the market. The hard work and
outstanding performance of its employees adds immense value
and is instrumental to the Group’s success.
Globaltrans manages employment and labour through
comprehensive human resources strategies and policies such as:
•
Internal code of labor conduct
•
Workplace safety guidelines and fire instructions
•
Job description
•
Code of Ethics and Conduct
•
Compensation and Benefits Policy
•
Regulations on the Protection of Personal Data of Employees
•
Regulations on Business Trips
•
Anti-Fraud Policy
•
Regulations on Contractual Work
37%
63%
23%
14%
63%
Women
Men
Source: Globaltrans
<30 years
30-50
> 50 years
Source: Globaltrans
Headcount by contract type in 2018 (at year-end)
contract type in 2018 (year end)
Permanent contract
Part-time
Full-time
37%
36%
Women
Men
Temporary contract
Part-time
0%
63%
64%
The labour practices of Globaltrans are compliant with
applicable legislation.
Full-time
50%
50%
Women
Men
Source: Globaltrans
The average employee headcount during the year remained at
the level of the previous year with 1,540 employees. However,
headcount at the end of the year decreased compared to 2017 to
1,549 people (1). The companies within the Group that employ the
most people are New Forwarding Company (36%), BaltTransServis
(32%) and Ural Wagonrepair Company (24%).
Globaltrans is committed to fostering a workplace that is safe and
professional and that promotes teamwork and trust. Hostility,
harassment and other unprofessional behaviours are not tolerated.
(1) The difference between the headcount and the average headcount is due to different calculation techniques.
The headcount is presented as at the end of 2018, while the average headcount is calculated by totalling the number
of employees on the list in each month of the reporting period and dividing this sum by the number of months.
Globaltrans Investment PLC
Annual Report & Accounts 2018
64
CORPORATE SOCIAL RESPONSIBILITY
continued
Diversity
As a business, it is imperative that Globaltrans has access to the
widest pool of talent available, selecting the best candidates based
on their ability to do the job. While the Group does not have a
formal Diversity Policy, it follows the best practice behaviours
espoused in the Group’s Core Values of Equality, Impartiality and
Respect. In that regard, the Group believes that a commitment to
diversity is critical to achieving its strategic goals. The Group values
difference and promotes respect and dignity for all regardless of an
individual’s race, colour, religion, nationality, gender, sexual
orientation, disabilities or age.
Globaltrans recognises that historically the freight rail transportation
industry has been a sector with relatively low female representation.
The Group is working to address this as part of its wider
commitment to diversity. As of the end of 2018, 37% of the total
workforce was female, with one female senior executive and two
female members of the Board of Directors, representing
respectively 11% of the senior executive management team and
13% of the total number of Directors.
The age demographics of the Group’s employees ranged from
less than 30 to over 50 years.
Training and education
Globaltrans values knowledge, skills and abilities and is committed
to helping its employees to develop and grow professionally.
Globaltrans introduced various training programmes for its
employees so that they keep up to date with and are able to
successfully manage developments in the industry as well as changes
in its business and the environment in which it operates. Globaltrans
carefully selects training and development to match the training
needs of employees at different stages of their careers and to
support them through the challenges they face. Every employee
undertakes appropriate training for his or her field of work.
Training and career development opportunities are offered across
the Group annually. In 2018, there were 350 employees who
undertook training and a total of 33,238 hours was spent on training
and career development. The amount of training hours per
employee rose by almost 22% compared with the previous year,
which Globaltrans believes is a positive trend.
Number of training hours per employee by gender
per employee by gender
2018
2017
17
13
25
21
Women
■
■
Source: Globaltrans
Men
Distribution of training
among employees by
employee categories
by employee categories
Main types of training
formats in 2018
23%
23%
77%
77%
Managers
Employees
On-site learning
On-site learning
Distance learning
Source: Globaltrans
Source: Globaltrans
As an example of the different kinds of training undertaken across
the Group, GTI Management provided training for its employees in
information security, accounting, financial management, health and
safety, BaltTransServis trained its employees in the development of
corporate culture and various skills applicable to their operations
and Ural Wagon Repair Company taught fire-safety for welders.
Motivation
Globaltrans is focused on maintaining competitive remuneration
practices and creating a favourable work environment for its
employees. Group companies understand the importance of
motivating their employees to perform at the highest level and
offer various benefits to support this. There are a range of benefits
offered to employees including medical insurance, paid child-care
leave, allowances for family emergencies, additional vacation days
and a competitive salary, all of which are continually benchmarked
against peer companies to ensure the high motivation and
morale of employees.
The Group and its subsidiaries also operate various Employee
Incentivisation Programmes for different levels of employees.
In addition to fixed salary, these programmes may include
discretionary elements based, among others things, on key
performance indicators (“KPIs”), the weighted average market
quotations of the fixed number of Global Depository Receipts
(“GDR”) and the number of years of employment at the Group.
These efforts not only help increase employees’ productivity but
also help the Group to attract and retain the best talent, which is
evidenced by staff turnover of only 18% (20% among men and
12% among women).
Corporate culture and internal communications
Globaltrans aims to create a culture that makes the Group a great
place to work. It strives to attract and retain talented people to
deliver outstanding performance and enhance the success of the
Group. One way in which Globaltrans supports its people is through
providing appropriate rewards and ensuring a rich corporate culture.
This includes developing a comfortable and engaging working
environment to increase employee motivation and ensure their
needs are being met as well as by creating a healthy environment
for any concerns to be voiced and heard.
Overview Strategic Report Governance Financial Statements Additional information
Globaltrans Investment PLC
Annual Report & Accounts 2018
65
The fundamental principles of the Group’s corporate culture,
including its core values and employee rules, are captured in its
Code of Ethics and Conduct. In order to ensure that these values and
rules are implemented correctly, some of the Group’s subsidiaries
have established an Employee Hotline to deal quickly and effectively
with any questions or concerns employees may have. The Hotline
operates on the basis that no communication may be left without
appropriate attention.
The Group also regularly holds sports, cultural and leisure events
for employees and their families. This helps to create a pleasant
working environment, increase employee engagement and
promote better cohesion.
Health and safety
Occupational safety is a fundamental part of Globaltrans’ business
and it constantly strives to reduce work-related injuries and maintain
a safe working environment. The goal is to ensure that everyone in
the Group companies, from the top managers to the individual
employees, is engaged with safety and health matters.
The Group companies ensure that all safety procedures are carried
out and that they are compliant with all policies and legislation.
To guarantee that safety compliance is met, the Group companies
have implemented the following policies:
•
Occupational safety regulation
•
Fire-safety instruction
•
Instruction for carrying out health and safety briefings
•
Instruction on pre-medical first aid
•
Workplace safety guidance for PC users
Globaltrans actively trains and educates personnel in occupational
safety to develop a culture of awareness and responsibility in the
workplace. For example, Ural Wagonrepair Company trained and
certified 10 additional employees in the field of occupational
safety in 2018.
The Group also regularly checks conditions in the workplace to
ensure that they continue to meet high standards. In 2018, around
373 workplaces were assessed across the Group:
•
166 workplaces in New Forwarding Company
•
139 workplaces in BaltTransServis
•
68 workplaces in Ural Wagonrepair Company
In 2018, due to the continued implementation of these important
practices, Globaltrans had zero fatalities, zero accidents and zero
cases of occupational illness.
Environmental responsibility
Globaltrans remains committed to the principles of sustainable
development and does its utmost to follow them. The Group is
therefore aiming to develop its business and deliver a strong
economic performance in a way that is environmentally friendly.
The Group complies with all requirements of applicable legislation,
including legally enforceable local enactments and internal
regulations. No incidents of non-compliance with environmental
laws and regulations occurred in the reporting period.
Globaltrans seeks to be an eco-friendly company with a focus on
the rational use of water, improvement of energy efficiency and
reducing paper and fuel consumption. Statistics as well as
descriptions of the activities that the Group is implementing to
reduce its impact on the environment are provided for each area
in the below paragraphs (1).
Energy usage
Globaltrans fully recognises that increasing energy efficiency and
successfully adopting modern energy-saving technologies are
central to achieving a more sustainable future. Given the particular
nature of the industry, the Group’s operations consume energy
from various sources, namely fuel (petrol, diesel, and gas) and
electricity. In order to reduce energy consumption Globaltrans is
developing effective energy management.
Total consumption of energy resources by type, 2017-18
Energy carrier 2017 2018 Change, %
Electricity (kWh) 7,628,109 7,347,827 -4%
Diesel (litres) 50,453,999 54,752,185 9%
Petroleum (litres) 280,310 250,051 -11%
Globaltrans successfully reduced its energy consumption in two
key areas in 2018 compared with the previous reporting period.
Total electricity consumption declined by 4% year-on-year, due
to a continued focus on energy efficiency and ongoing cost
optimisation efforts across the Group. Globaltrans plans to
optimise energy consumption in the future by implementing the
best green practices.
(1) As Globaltrans has begun disclosing data on resource consumption only this year, the mechanism for collecting, processing and
presenting information in the areas of rational use of water, energy and paper has not yet been fully developed. Therefore, the Company
does not yet have enough data to fully demonstrate the trends occurring in all of its business units.
Globaltrans Investment PLC
Annual Report & Accounts 2018
66
CORPORATE SOCIAL RESPONSIBILITY
continued
Use of water
The Group has carried out extensive work aimed at improving its
water management systems in recent years. While the system for
capturing and processing statistical data regarding water usage
across the Group is still under development, considerable progress
continues to be made in this area. For example, both BaltTransServis
and Ural Wagonrepair Company reported significant improvements
in their use of water in 2018:
•
•
Total consumption of cold water by BaltTransServis decreased
19% year-on-year.
Total consumption of cold and hot water by Ural Wagonrepair
Company decreased 16% year-on-year.
Globaltrans plans to improve the monitoring system to control
water quality and consumption in the future.
Paper consumption and recycling
Document production happens as a matter of course in the Group’s
activities. Globaltrans enters into a large number of contracts and
must maintain many different documents and, as a result, consumes
significant amounts of paper. In addition to this, Globaltrans’
business volumes are growing and therefore document flow and
production are increasing. However, the Group does its utmost to
reduce paper consumption and is trying to gradually make the
transition to electronic document flow (“EDF”).
Consumption per employee, 2017-18
Petrol consumption, 2017-18
(litres per employee)
2018
2017
162
-13%
183
Diesel consumption, 2017-18
(litres per employee)
2018
2017
35,553
+8%
32,890
Paper consumption, 2017-18
(kg per employee)
2018
2017
Source: Globaltrans
15
-6%
16
Recycling is among the key initiatives at Globaltrans. The amount of
paper sent for recycling by New Forwarding Company and Ural
Wagonrepair Company has increased by 60% compared with the
previous reporting period. This is an area the Company continues
to focus on improving across its other business units.
Greenhouse gas management
Rail is one of the most environmentally friendly and fuel efficient
methods of moving freight over land as large amounts of cargo
can be moved by a single locomotive. However, locomotives do
produce a carbon footprint which is why effective greenhouse gas
management is key to reducing the industry’s environmental impact.
It is important to highlight that the vast majority of locomotive
traction used by the Group is provided by OAO Russian Railways,
the only railway carrier engaged in owning and building railway
infrastructure in Russia. For context, there are nearly 11,000
mainline locomotives operated by Russian Railways.
However, Globaltrans does operate one of the largest privately owned
mainline locomotive fleets in Russia’s freight rail industry, with 69 units
in ownership (as at the end of 2018) which haul block trains and are
principally engaged in the transportation of oil products and oil.
Globaltrans has been focused on operational efficiency from the
outset, recognising that it has a beneficial impact on the environment.
The Group continues to improve logistics by reducing the number of
empty rail cars that are moved across the country. This is evident in
the Group’s operational performance with Empty Run Ratio for
gondola cars maintained at the industry leading level of 38% in 2018,
in line with the Company’s average for the last five years. In addition,
the Group’s unique ability to transport oil products and oil in block
trains using its own locomotives contributes to operational efficiency
enabling high fleet utilisation.
At the same time, the acquisition of new/relatively new rolling stock
and the effective management of regular repairs using companies
with resource-saving and environmentally friendly technologies,
enable the Group to operate a modern, well-maintained fleet. This
further contributes to operational efficiency and enables Globaltrans
to provide a higher standard of service for the clients. In 2019, the
Group plans to acquire up to 10 new modern diesel locomotives for
modernisation purposes, which will help the Company to drive
improved operational and environmental performance.
The Group’s greenhouse gas emissions from operations with
locomotives owned by the Group were 166,129 tonnes of CO2
equivalent in 2018 (1). To help manage its carbon footprint Globaltrans
will actively measure this on an annual basis going forward. As 2018
was the first year the Group was in a position to report its indirect
greenhouse gases emissions, data is only available for this year.
(1) The Group’s greenhouse gas emissions were calculated in accordance with IPCC Guidelines for National Greenhouse
Gas Inventories (2006).
Overview Strategic Report Governance Financial Statements Additional information
Globaltrans Investment PLC
Annual Report & Accounts 2018
67
It is important to emphasise that Globaltrans’ environmental
management system is currently under development and the Group
is committed to establishing an effective system for recording,
collecting and processing information in all of its subsidiaries by next
year. This will allow the Company to provide further information,
building on what has been reported here, and to more accurately
demonstrate the processes occurring across Globaltrans in the area
of ecological management.
Investment in the community
Creating long-term value for a wide range of stakeholders is a vital
part of our business. Achieving a high level of economic
performance allows the Company to invest in social and economic
development as well as to improve the quality of life for local
communities. Globaltrans seeks to support the development of the
regions where it is present by paying taxes, creating jobs and
supporting charitable organisations. How the Company creates
wealth for its stakeholders is reflected in the following table.
Direct economic value generated, distributed and retained (1)
2018
RUB mln
Direct economic value generated (2) 86,773
Economic value distributed 85,347
– Total cost of sales (excluding Employee
benefit expense) 53,704
– Total selling, marketing and administrative
expenses (including community investments and
excluding Employee benefit expense and Taxes
(other than income tax and value added tax) 1,252
– Employee benefit expense 4,367
– Payments to the providers of capital (3) 19,577
– Payments to the government (4) 6,447
Economic value retained 1,426
The Group believes that it is vital to create value for society not only
through financial operations but also from direct cooperation with
charitable organisations. Globaltrans is committed to investing in the
social sphere to improve the living conditions of local communities
and actively helps ill children and the elderly, supports cultural,
spiritual and educational activities and sponsors sports programmes,
among other initiatives. Adhering to the principles of sustainable
development is an integral part of the Group’s business philosophy
and is key to achieving its broader goals.
The key areas of Globaltrans’ charitable activities
Support
of vulnerable
groups
Support
of sports
Support
of education
Support
of healthcare
Support
of culture
This year Globaltrans contributed to various charitable projects.
Drawing public attention to the issue of child healthcare is an
important part of the Group’s charitable focus. As part of this, in
2018, GTI Management and New Forwarding Company continued
their support of the Life Line Fund, which assists children with life-
threatening illnesses.
Globaltrans also regularly supports organisations that work with
vulnerable social groups such as orphans, people with disabilities,
veterans and pensioners. The following initiatives were undertaken
in this area during 2018:
•
•
GTI Management financed the building and facility improvement
of the veterans’ organisation in St. Petersburg.
As part of its cooperation with Moscow’s public organisation to
support war veterans, New Forwarding Company contributed to
the museum exhibition honouring the 150th anniversary of the
Military communications service.
The preservation and promotion of cultural heritage is another key
area of activity for Group companies. In line with this, over the
course of 2018, New Forwarding Company provided support to the
Ekaterinburg Artistic Fund while BaltTransServis gave funding to the
International Charitable Fund “Constantine”. Both of these funds
use donations to restore monuments and promote Russian culture.
Additionally, Globaltrans plays an active role in improving the quality
of education. In 2018, its subsidiary BaltTransServis supported
various educational initiatives, for instance “The Gaidar Foundation”
that supports projects in the fields of science, culture and education
and provides support for the implementation of projects and events
for both communities and organisations.
Finally, as part of its commitment to support the development of
sports, New Forwarding Company made charitable donations to
the Fencing Federation of Russia in 2018.
(1) Information in the table is derived from the Consolidated Management Report and Consolidated Financial Statements for the year
ended 31 December 2018.
(2) Direct economic value generated includes “Revenue”.
(3) Payments to providers of capital include “Interest paid”, “Dividends paid to owners of the Company” and “Dividends paid to non-
controlling interests in subsidiaries”.
(4) Payments to government include “Tax paid” and “Taxes (other than income tax and value added taxes)”. The Company also pays
Russian Value Added Tax (“VAT”). VAT related to sales and purchases is recognised in the balance sheet on a gross basis and disclosed
separately as an asset and liability. Purchases of property, plant and equipment are shown net of VAT. Related input VAT is included in
movement in changes of working capital, within trade and other receivables.
Globaltrans Investment PLC
Annual Report & Accounts 2018
68
GOVERNANCE
4
Independent
Directors
15
Board
members
Globaltrans has continued to work diligently
over the last 10 years to ensure that its corporate
governance framework meets the highest
standards of international best practice.
The Board is committed to providing effective,
transparent and ethical oversight of the Group
so that the Board can take decisions that it
believes benefit all stakeholders, promote the
long-term interests of the Group and its
communities, and create value.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
69
Globaltrans Investment PLC
Annual Report & Accounts 2018
70
BOARD OF DIRECTORS
Globaltrans has in place a highly
experienced Board of Directors,
with the right blend of skills and
experience necessary to lead the
Group effectively. In addition
to the significant operational
and financial experience of
the Board members, the
independent Non-executive
Directors bring their own
external experience and
objectivity to the Board’s
deliberations and decision-
making process, helping to
support and constructively
challenge the Executive.
Executive/Non-executive
Board Directors
33%
67%
Executive
Non-executive
Board Gender
87%
13%
Male
Female
Sergey Maltsev
Chairman of the Board,
Executive Director,
Chief Strategy Officer,
Co-founder of Globaltrans
Appointment: Sergey Maltsev was
elected as Chairman of the Board of
Directors of Globaltrans in April
2018. He also serves as Chief Strategy
Officer having been appointed to the
role in August 2017.
Skills and Experience: Mr. Maltsev
was instrumental in the development
of the freight rail market in Russia and
has worked in the industry for over
30 years. He co-founded Globaltrans
and served as Chief Executive Officer
from 2008 until 2015 when he left
the Group. After leaving Globaltrans,
he served as Senior Vice President for
strategy and corporate governance
at OAO Russian Railways, until his
return to Globaltrans as Chief
Strategy Officer in 2017.
Mr. Maltsev was a founder member
and Chairman of the non-profit
partnership “Council of Railway
Operators”. In recognition of
his services to the rail industry,
Mr. Maltsev received the award of
“Honoured Railwayman of Russia”.
He graduated with a degree in
railway engineering.
External Appointments: N/A
Michael Zampelas
Senior Independent Non-executive
Director, Chairman of the
Nomination Committee
Dr. Johann Franz Durrer
Independent Non-executive
Director, Chairman of the
Remuneration Committee
Appointment: Mr. Zampelas
joined the Board in March 2008.
He is the Senior Independent
Non-executive Director, Chairman
of the Nomination Committee and
a member of the Remuneration
Committee.
Appointment: Dr. Durrer was
appointed to the Board as an
Independent Non-executive
Director in March 2008. He is
Chairman of the Remuneration
Committee and a member of the
Nomination Committee.
Skills and Experience: Dr. Durrer
began his career at Union Bank of
Switzerland and in 1970 founded
Fidura Treuhand AG which provides
book-keeping, auditing and
financial services.
Dr. Durrer graduated from the
University of Zurich with a doctorate
in Economics and is a member of the
Swiss Fiduciary Association.
External Appointments: Dr. Durrer
currently serves on the Board
of IMT-Dienst AG, a transport
company. He is also an executive
board member of several privately
held companies.
Skills and Experience: From 2013 to
2018, Mr. Zampelas served as Chairman
of the Board of Globaltrans. He was
Chairman and Managing Partner of
accountancy firm Coopers & Lybrand
in Cyprus from 1970 until 2001
(latterly as PricewaterhouseCoopers).
He served as vice chairman of
Eurobank Cyprus Limited from 2007
until 2018 and chaired its Audit
Committee for a period of five years.
From 2002 to 2006, Mr. Zampelas
was Mayor of Nicosia.
Mr. Zampelas is a chartered
accountant and a Fellow of the
Institute of Chartered Accountants
in England and Wales.
External Appointments:
Mr. Zampelas is an independent non-
executive director of Arricano Real
Estate Plc, a Ukrainian real estate
company, listed on the London Stock
Exchange, and chairs its Audit and
Remuneration Committees.
Mr. Zampelas is the Honorary Consul
General of Estonia in Cyprus, a role
he has undertaken since 1997.
He is also President of the Association
of Friends of the Christou Steliou
Ioannou Foundation, a charitable
foundation for children with
learning difficulties.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
71
John Carroll Colley
Independent Non-executive
Director, Chairman of the
Audit Committee
Appointment: Mr. Colley was
appointed to the Board as an
Independent Non-executive
Director in April 2013. He is also
Chairman of the Audit Committee.
Skills and Experience: Mr. Colley has
extensive experience in international
trade and risk management both in
the public and private sectors. From
2007 to 2010, Mr. Colley served as
country manager for Russia at Noble
Resources SA. Prior to that, he held
a variety of positions in the public
sector, including at the office of the
US Trade Representative and the
US Department of Commerce in
Washington, DC. He also worked for
Linkful Ltd and Noble Resources SA
in Moscow from 1992 to 1999.
Mr. Colley, a fluent Russian speaker,
holds an MA in History and a BA
in International Affairs and
Russian Studies from the University
of Virginia.
External Appointments: Mr. Colley
is currently the principal of Highgate
Consulting LLC, a global advisory
consulting company.
George Papaioannou
Independent Non-executive
Director
Alexander Eliseev
Executive Director,
co-founder of Globaltrans
Andrey Gomon
Non-executive Director
Appointment: Mr. Papaioannou
joined the Board as an Independent
Non-executive Director in April
2013. He also serves on the Audit
Committee.
Skills and Experience:
Mr. Papaioannou has more than
20 years’ experience in financial
reporting, risk management,
auditing, financial performance
analysis and taxation. In 2004, he
founded G. Papaioannou Auditors
Ltd, which provides accounting,
audit, tax and consulting services.
From 2002 to 2004, he worked
at Grant Thornton in Cyprus
and before that for
PricewaterhouseCoopers.
Mr. Papaioannou holds a degree
in Accounting and Financial
Management from the University
of Essex. He is a qualified chartered
accountant and a Fellow of the
Institute of Chartered Accountants
in England and Wales.
External Appointments: N/A
Appointment: Alexander Eliseev
joined the Board as an Executive
Director in March 2008.
Skills and Experience: Mr. Eliseev
co-founded Globaltrans in 2004 and
has played a leading role in
introducing market-based reforms
to the Russian rail transportation
market. He has spent more than
17 years in senior management
positions, mostly within the rail
sector. He also sits on the boards
of two Globaltrans subsidiaries,
New Forwarding Company and
BaltTransServis. Mr. Eliseev is a
graduate of the Russian State
Medical University, where he
studied biophysics.
External Appointments: Mr. Eliseev
is a member of the Board and
General Director of Globaltruck,
a leading freight trucking operator
in Russia, listed on the Moscow
Exchange.
Appointment: Mr. Gomon served
as a member of the Board of the
Company from 2013 to 2016 and
rejoined the Board in April 2017.
Skills and Experience: Mr. Gomon
has more than 13 years of
management experience in the
railway industry. From 2006 to 2012
he was CEO of Transoil, one of the
largest oil transportation companies
in Russia, having previously served as
CFO between 2003 and 2006.
He is a member of the boards of
two Globaltrans subsidiaries,
New Forwarding Company and
BaltTransServis. Mr. Gomon studied
economics at St Petersburg State
University and holds an MBA
from INSEAD.
External Appointments: N/A
Globaltrans Investment PLC
Annual Report & Accounts 2018
72
BOARD OF DIRECTORS
continued
Elia Nicolaou
Non-executive Director, Company
Secretary, Secretary to the Board
Melina Pyrgou
Non-executive Director
Konstantin Shirokov
Executive Director,
Head of Internal Audit
Alexander Storozhev
Executive Director,
Chief Procurement Officer
Appointment: Ms. Nicolaou joined
the Board as a Non-executive Director
in March 2008. She is the Company
Secretary and a member of the
Audit Committee.
Skills and Experience: Ms. Nicolaou
has extensive experience in commercial,
corporate and funds law. She is
currently the Managing Director of
Amicorp (Cyprus) Ltd. Previously, she
was head of the Corporate Legal
department at Polakis Sarris LLC and
also worked at C. Patsalides LLC.
Ms. Nicolaou participates in various
associations of the Cyprus Chamber of
Commerce and also sits on the boards
of other listed and private companies.
Ms. Nicolaou graduated with an LLB in
Law from the University of Nottingham,
and holds an LLM in Commercial and
Corporate Law from University College
London. She also has an advanced
diploma in Business Administration
from the Cyprus International Institute
of Management.
External Appointments: N/A
Appointment: Ms. Pyrgou was
appointed to the Board as a Non-
executive Director in April 2013.
Skills and Experience: Ms. Pyrgou is
a barrister and registered insolvency
practitioner and has practised
corporate law for over 25 years. She
is currently Managing Director of
Pyrgou Vakis Law Firm, a Cyprus-based
corporate and commercial law practice.
Previously she was Director of Legal
Services at PricewaterhouseCoopers
in Cyprus.
Ms. Pyrgou served as the Chairman of
EuropeFides Association, a European
network of accounting, audit, tax and
legal firms, from 2015 to 2016. She is
also a member of various local business
associations. Ms. Pyrgou graduated
from the University of Keele with a
degree in Law and Sociology, and also
holds a diploma in Environmental Law
from the University of Geneva. She was
called to the bar in Cyprus in 1992 and
in London (Grays Inn) in 1995.
External Appointments: Ms. Pyrgou
currently serves as a member of the
Cyprus Investments Promotion Agency
(“CIPA”). She also currently sits on the
Disciplinary Committee of the Institute
of Certified Public Accountants of
Cyprus (“ICPAC”).
Appointment: Mr. Shirokov was
appointed to the Board as an Executive
Director in March 2008. He is head of
Globaltrans’ Internal Audit function.
Skills and Experience: Mr. Shirokov
has over 12 years’ senior international
management experience. Prior to
joining Globaltrans, he worked in senior
finance roles at Mechel and as an
economist at Glencore International.
He also served as a non-executive
member on the board of Global Ports
Investments PLC between 2008
and April 2018 where he also sat on
the Audit and Risk Committees.
Mr. Shirokov graduated from the
Finance Academy under the
Russian government. He also studied
business management at Oxford
Brookes University.
External Appointments: N/A
Appointment: Mr. Storozhev joined
the Board as an Executive Director in
April 2013.
Skills and Experience: Mr. Storozhev
has held a series of senior management
roles over a 20-year career in the rail
industry and has been with Globaltrans
since the company was established.
He is Chairman of a number of
Globaltrans subsidiary boards, including
AS Spacecom, AS Spacecom Trans,
GTI Management and BaltTransServis.
He also serves on the boards of
New Forwarding Company and
Ural Wagonrepair Company, both
Globaltrans subsidiaries. Since February
2015, he has been director of
Investments and Business Development
at New Forwarding Company.
Mr. Storozhev is a recipient of the
“Honoured Transport Worker of
CIS” Award.
Mr. Storozhev graduated from the
Kiev Military Academy of Aviation and
Engineering in 1990 with a degree in
Engineering. He also holds a diploma
from the Mirbis Business School in
Moscow and a Master’s degree in
Business Administration and Finance.
External Appointments: N/A
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
73
Alexander Tarasov
Non-executive Director
Michael Thomaides
Non-executive Director
Marios Tofaros
Non-executive Director
Appointment: Alexander Tarasov
joined the Board in April 2013.
Skills and Experience: Mr. Tarasov
served as a deputy director general in
Sevtekhnotrans, a Globaltrans
subsidiary that subsequently merged
with Ferrotrans. He has held
management positions at a number
of leading Russian companies across
different sectors, with a focus on
financial management and analysis.
Mr. Tarasov graduated from the
Bauman Moscow State Technical
University with a degree in Engineering.
He also holds a degree in Economics
from the Moscow State University of
Commerce.
External Appointments: N/A
Appointment: Mr. Thomaides
was appointed to the Board as a
Non-executive Director in April 2014.
Appointment: Marios Tofaros was
appointed to the Board as a Non-
executive Director in April 2013.
Skills and Experience:
Mr. Thomaides previously served as
a director at Globaltrans Investment
PLC from 2004 to 2008 and sat on
the Board of Directors of Global Ports
Investments PLC, Russia’s leading
container port operator. He has been
a director at Leverret Holding Ltd
(Cyprus) since 2007. Mr. Thomaides
graduated from London Southbank
University with a BSc in Consumer
Product Management.
External Appointments: N/A
Skills and Experience: Mr. Tofaros
is a director of the Client Accounting
department at Amicorp (Cyprus) Ltd.
He was a financial accountant at Depfa
Investment Bank Ltd from 2004 to
2008 and a financial officer at Louis
Catering Ltd from 2003 to 2004. He
also held various positions in the Audit
department at KPMG Cyprus. Mr.
Tofaros has a degree in Accounting,
Finance and Economics and a master’s
degree in Business Studies, both from
the University of Kent. He also holds
a chartered certified accountant
(FCCA) diploma and is a member
of the Institute of Certified Public
Accountants of Cyprus.
External Appointments: N/A
Sergey Tolmachev
Executive Director,
Managing Director
Appointment: Mr. Tolmachev was
appointed to the Board as a Non-
executive Director in April 2013 and as
an Executive Director in October 2013.
Skills and Experience:
Mr. Tolmachev became the Group’s
Managing Director in October 2013.
He joined N-Trans Group in 2001 and
has held various management positions
focused on corporate finance and
treasury. He also serves on Globaltrans
subsidiary boards, including AS
Spacecom and AS Spacecom Trans.
He has extensive experience in financial
analysis and modelling. Mr. Tolmachev
graduated from Lomonosov Moscow
State University with a degree in
Mechanics and Applied Mathematics.
External Appointments: N/A
Globaltrans Investment PLC
Annual Report & Accounts 2018
74
EXECUTIVE MANAGEMENT
The executive leadership at
Globaltrans is one of the most
highly respected and
experienced management
teams in the freight rail
transportation industry in
Russia, with a proven track
record of success stretching
back over many years.
1. Sergey Maltsev
Chief Strategy Officer,
Chairman of the Board,
Executive Director,
co-founder of Globaltrans
Sergey Maltsev was elected as
Chairman of the Board of Directors
of Globaltrans in April 2018. He has
been serving as Chief Strategy Officer
of the Group since August 2017.
Mr. Maltsev has worked in the rail
sector for more than 30 years and
was instrumental in the development
of the private freight rail market in
Russia. Mr. Maltsev was one of the
founding members of the non-profit
partnership “Council of Railway
Operators” and held the position
of Chairman.
Having co-founded Globaltrans, he
served as the Company’s CEO and
member of the Board for over a
decade before stepping down in
2015. Subsequently, he worked as
the Senior Vice President for strategy
and corporate governance at OAO
Russian Railways. He is a recipient
of the “Honoured Railwayman of
Russia” award.
2. Valery Shpakov
Chief Executive Officer
3. Alexander Shenets
Chief Financial Officer
Valery Shpakov became CEO in
March 2016, having served as interim
CEO since November 2015. He
joined New Forwarding Company,
a Globaltrans subsidiary, in 2003 and
has been its CEO since 2007.
He is an experienced manager with a
track record of over 30 years in the
rail industry. He began his career in
the private sector in 1999 and has
held managerial positions at various
companies in the transport sector.
He is a recipient of the “Honoured
Railwayman of Russia” award.
Alexander Shenets has been the
CFO of Globaltrans since the Group’s
establishment and has more than 15
years of experience in senior finance
positions, mostly in the rail sector.
He is a member of the boards of
GTI Management, New Forwarding
Company, BaltTransServis, AS
Spacecom, AS Spacecom Trans
and Ural Wagonrepair Company,
all Globaltrans subsidiaries.
He holds an MBA from Lomonosov
Moscow State University.
4. Vyacheslav Stanislavsky
Deputy Chief Executive Officer,
Head of Operations
Vyacheslav Stanislavsky joined
New Forwarding Company, a
Globaltrans subsidiary, as Deputy
General Director for Operations and
Commerce in March 2010 and
became First Deputy General
Director in April 2011.
He has more than 30 years of
experience in the rail industry.
Mr. Stanislavsky is a recipient of
the “Honoured Railwayman of
Russia” award.
1
2
3
4
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
75
5. Alexander Storozhev
Chief Procurement Officer,
member of the Board,
Executive Director
6. Kirill Prokofiev
CEO of BaltTransServis
8. Sergey Avseykov
Business Development Officer
9. Svetlana Brokar
Government Relations Officer
Alexander Storozhev joined the
Board as an Executive Director in
April 2013. He has held a series of
senior management roles over
a 20-year career in the rail industry.
He has been with Globaltrans since
the company was established and
is Chairman of a number of
Globaltrans subsidiary boards,
including AS Spacecom, AS
Spacecom Trans, GTI Management
and BaltTransServis. He also serves
on the boards of New Forwarding
Company and Ural Wagonrepair
Company, both Globaltrans
subsidiaries. Mr. Storozhev is a
recipient of the “Honoured
Transport Worker of CIS” award.
He graduated from the Kiev Military
Academy of Aviation and Engineering
in 1990 with a degree in Engineering.
He also holds a diploma from the
Mirbis Business School in Moscow
and a Master’s degree in Business
Administration and Finance.
Kirill Prokofiev was appointed CEO
of BaltTransServis, a Globaltrans
subsidiary, in February 2017. Prior to
his appointment, he spent more than
seven years working in senior
executive roles in the rail sector.
He graduated from St Petersburg
State University of Economics,
where he majored in economics.
He also holds an MBA in Strategic
Management from Moscow’s
Higher School of Economics.
7. Roman Goncharov
Head of Treasury
Roman Goncharov has served as
CFO of New Forwarding Company,
a Globaltrans subsidiary, since
2005 and has over 13 years of
management experience.
He has an MBA from the Moscow
International School of Business.
Sergey Avseykov is in charge of
business development for the Group.
Mr. Avseykov originally joined New
Forwarding Company, Globaltrans
subsidiary, in 2011 as Head of the
Marketing and Development
Division. Between 2017 and 2018,
Mr. Avseykov served as acting Head
of Business Project Management at
OAO Russian Railways. In 2018, he
rejoined Globaltrans as Business
Development Officer.
Mr. Avseykov graduated from Tomsk
State University and holds a PhD in
political science from the Russian
Presidential Academy of National
Economics. Mr. Avseykov is a board
member of several RZD subsidiaries.
Svetlana Brokar joined Globaltrans
as government relations officer in
December 2018. She is an attorney
and has significant expertise in civil,
tax, commercial, corporate, finance
and railway transport matters. She
has also worked with government
departments including the Russian
Transport, Finance and Railway
Ministries. From 2009 to 2013,
Svetlana was a member of the Board
of Globaltrans subsidiary New
Forwarding Company and since
2014 has acted as in-house legal
counsel or provided it with legal
services. She also previously worked
with the non-profit partnership
“Council of Railway Operators”.
Ms. Brokar graduated with a law
degree from Kaliningrad State
University in 1985.
5
6
7
8
9
Globaltrans Investment PLC
Annual Report & Accounts 2018
76
CORPORATE GOVERNANCE REPORT
Maintaining high governance standards
Dear Shareholders,
As Chairman, I am committed to ensuring that high standards of
corporate governance are in place and consistently applied in the
boardroom and across the Group. Good governance has been a key
pillar of our business model ever since we listed in 2008 and adopted
governance principles based on the UK Code of Corporate
Governance. 10 years on, the governance template put in place in
2008 continues to support the delivery of our strategic priorities,
and we remain absolutely committed to pursuing best practice
corporate governance.
As a Board, our primary responsibility is to ensure that the Group
provides long-term, sustainable growth for its shareholders. Robust
governance structures are critical as they help ensure the trust of our
shareholders, customers and other stakeholders. Over the last
decade we have continually fine-tuned our governance approach to
keep it aligned with international best practice. Alongside this, we
have built an effective and able Board of Directors with the right
blend of experience, objectivity and independence needed to take
the business forward, protect the interests of stakeholders and
drive long-term value.
Aligned to the principles of good governance, as Board Directors we
also have to set the right culture and tone from the top. Consequently,
the Board places great emphasis on leading by example and ensuring
that the high standards and values of the Company are consistently
applied throughout the business. Our culture and values have always
been fundamental to our success, helping to underpin our business
model and guide how we engage with our employees, our customers,
other stakeholders and the wider community.
Under the leadership of the Board, the Group will continue to work
towards delivering the agreed strategy and targets for growth. In the
following pages, we set out the Group’s approach to corporate
governance and how it supports our business strategy.
Sergey Maltsev
Chairman of the Board,
Chief Strategy Officer,
Co-founder and shareholder
“Good governance has been a central
pillar of our business model ever
since we listed in 2008 and adopted
governance principles based on the
UK Code of Corporate Governance.
Our culture and values have always
been fundamental to our success,
helping to underpin our business
model and guide how we engage
with our employees, our customers,
other stakeholders and the
wider community.”
Overview Strategic Report Governance Financial Statements Additional Information
CORPORATE GOVERNANCE REPORT
Corporate governance framework
Globaltrans Investment PLC
Annual Report & Accounts 2018
77
Corporate governance policies
The Group’s policies are designed to ensure an effective and
transparent corporate governance framework. All employees are
required to comply with the guidelines contained in these policies
and procedures, and the management is ultimately responsible
for ensuring that all departments follow them.
Membership of the Board of Directors
The process for Board appointments is led by the Nomination
Committee and members of the Board of Directors are elected at
the General Meeting. Board members are nominated based on their
industry knowledge, expertise and experience in areas such as
accounting, finance, business management and strategic planning.
Globatrans’ policies include, inter alia:
• Anti-Fraud Policy;
• Appointment Policy for the Board of Directors and Committees;
• Business Continuity Policy;
• Code of Ethics and Conduct;
• Continuing Obligations Policy;
• Disclosure Policy;
• Dividend Policy (new edition adopted on 31 March 2017 and
amended on 24 August 2018);
• Policy on assessment of External Auditor Objectivity Policy;
• Policy on the treatment of the rights of minority shareholders;
• Privacy Policy;
• Risk Management Policy;
• Securities Dealing Code and PDMR Securities Dealing Code
(new edition adopted on 15 December 2017);
• Terms of Reference of Board Committees (Audit, Nomination,
Remuneration);
• Terms of Reference of the Board of Directors; and
• Whistleblowing policy.
Full details of the Group’s policies can be found on the
corporate website at: http://www.globaltrans.com/about-
us/corporate-governance/governance-policies/
Board of Directors
The Board of Directors (the “Board”) of Globaltrans is accountable
to the Company’s shareholders for standards of governance across
the Group’s activities. The Board’s responsibilities include:
• providing leadership, setting the overall strategy and ensuring
that the necessary components are in place for the Group to
meet its objectives;
• setting Group values and standards, and ensuring that obligations
to all stakeholders are understood and met;
• monitoring and reviewing the performance of the Group and
its management;
• maintaining an effective system of internal control and risk
management to safeguard shareholders’ rights and interests
and the Group’s assets;
• ensuring an effective governance framework and compliance
with relevant regulations; and
• assessing from time to time whether the Independent
Non-executive Directors continue to demonstrate independence.
The Board of Directors’ report is presented in full in the Financial
Statements section of this Annual Report.
In selecting candidates for the Board, the Group seeks to create an
effective and complementary Board whose capability is appropriate
for the scale, complexity and strategic positioning of the business.
Non-executive Directors are drawn from a wide range of industries
and backgrounds, including infrastructure, transport and financial
services, and have appropriate experience of large international
organisations. Some have considerable experience of the freight rail
industry. In addition, the Group selects Independent Directors with a
view to ensuring that the views of shareholders are represented, that
there is appropriate challenge to management and that the interests
of all stakeholders are taken into account. There are currently four
Independent Directors.
Globaltrans separates the positions of Chairman and CEO to ensure an
appropriate segregation of roles and a clear division of responsibilities.
Mr. Sergey Maltsev, as Chairman, is responsible for the overall
leadership, governance and effectiveness of the Board, agreeing
Board agendas and ensuring that all Board members play their part
to enable the Board to take sound decisions and promote the
success of the Group.
Mr. Valery Shpakov, as CEO, is responsible for the development
and implementation of the strategy set out by the Board, the
leadership of the Group and the day-to-day performance of
the business.
Alongside Mr. Maltsev, the other members of the Board are:
• Michael Zampelas (Senior Independent Director)
• John Carroll Colley (Independent Director)
• Dr. Johann Franz Durrer (Independent Director)
• George Papaioannou (Independent Director)
• Alexander Eliseev
• Andrey Gomon
• Elia Nicolaou
• Melina Pyrgou
• Konstantin Shirokov
• Alexander Storozhev
• Alexander Tarasov
• Michael Thomaides
• Marios Tofaros
• Sergey Tolmachev (Managing Director)
The Directors’ biographies are on pages 70 to 73 of this Annual Report.
In 2018, members of the Board of Directors held 18,859,256 shares
and Global Depositary Receipts (“GDRs”) in Globaltrans. Although
Mr. Zampelas and Dr. Durrer have served on the Board for 10 years
the Board of Directors still considers them to be independent.
Globaltrans Investment PLC
Annual Report & Accounts 2018
78
CORPORATE GOVERNANCE REPORT
continued
Committees of the Board of Directors
Globaltrans has established three Committees to assist the Board
and ensure transparency and impartiality in specific areas: the Audit
Committee, the Nomination Committee and the Remuneration
Committee. The Chairperson of each Committee is an
Independent Director.
Audit Committee
All Committees are advisory bodies. While these Committees have
the authority to examine particular issues and report back with
recommendations, the ultimate decision-making responsibility for
all matters lies with the full Board.
The role of the Audit Committee is to ensure the integrity of the Group’s published financial information and the effectiveness of the
internal audit function and systems of internal control and risk management, and external audit process.
Number of members
Members
Minimum meetings a year
Number of meetings in 2018
Members
and meetings
Three; two independent
•
•
•
John Carroll Colley
(Chairman)
Elia Nicolaou
George Papaioannou
Four
Seven
Responsibilities
•
Integrity of the Group’s financial statements.
•
Effectiveness of the Group’s internal control and risk management systems.
•
Relationship with the Group’s external auditors, including the audit process and reports.
•
Terms of the auditor’s appointment and remuneration.
•
Implementation of codes of conduct.
•
Assessment of the Chairman of the Board’s performance.
Issues considered
in 2018
•
•
Review of the Group’s Consolidated Financial Statements for 2017 and interim financial results for the
six months ended 30 June 2018.
Review of the external auditor’s report to the Audit Committee following its full-year audit for 2017 and
review for the six months ended 30 June 2018.
•
Consideration of the independence of the external auditor.
•
•
Review of the Group’s external auditor and terms of reappointment for 2018. The Committee
recommended reappointment of the external auditors to the Board which, in turn, proposed their
reappointment at the Annual General Meeting of the Group.
Setting terms and conditions of a tender for the appointment of external auditors for 2019, review of the
materials of the audit tender and evaluation of candidates. Selection and recommendations to the Board of
Directors of preferred and alternative options of the audit firms for appointment for 2019.
•
Review of the report of the external auditor on the audit strategy for 2018.
•
Review of regulatory announcements by the Group.
•
Review of internal controls and risk management processes.
•
Approval of non-audit services to be provided to the Group by the external auditor.
•
Review of the internal audit function and reports on its activities, and on the internal audit model and plan.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
79
Nomination Committee
The role of the Nomination Committee is to monitor and review the composition and balance of the Board and its committees to
ensure Globaltrans has the right structure, skills and diversity for the effective management of the Group.
Number of members
Members
Minimum meetings a year
Number of meetings in 2018
Members
and meetings
Two; two independent
•
•
Michael Zampelas
(Chairman)
Johann Franz Durrer
One
Two
Responsibilities
•
Preparation of selection criteria and appointment procedures for Board members.
•
Regular review of the Board’s structure, size and composition.
•
Future Board appointments.
•
Recommendations regarding the membership of the Audit and Remuneration Committees.
Issues considered
in 2018
•
Advice to the Annual General Meeting on the appointment of Board members.
•
Recommendation on appointment of Director to the Board of the Company.
Remuneration Committee
The role of the Remuneration Committee is to ensure that executive remuneration aligns appropriately with the business strategy and
that the remuneration policy remains appropriate.
Number of members
Members
Minimum meetings a year
Number of meetings in 2018
Members
and meetings
Two; two independent
•
•
Johann Franz Durrer
(Chairman)
Michael Zampelas
One
Two
Responsibilities
•
Remuneration of Executive Directors (Chairman and Executive Directors decide the remuneration for
independent members).
•
Review of the Group’s remuneration policies.
Issues considered
in 2018
•
Remuneration of key management.
Globaltrans Investment PLC
Annual Report & Accounts 2018
80
CORPORATE GOVERNANCE REPORT
continued
Board and Board Committees meetings in 2018 and the attendance of Directors
Board of Nomination Remuneration Audit
Directors Committee Committee Committee
E A E A E A E A
Sergey Maltsev (Chairman)(1) 12 10
Michael Zampelas (2) 16 16 2 2 3 3
John Carroll Colley 16 16 7 7
Dr. Johann Franz Durrer 16 16 2 2 3 3
George Papaioannou 16 16 7 7
Alexander Eliseev 16 14
Andrey Gomon 16 15
Elia Nicolaou 16 16 7 7
Melina Pyrgou 16 15
Konstantin Shirokov 16 15
Alexander Storozhev 16 16
Alexander Tarasov 16 16
Michael Thomaides 16 16
Marios Tofaros 16 16
Sergey Tolmachev 16 16
Total 236 229 4 4 6 6 21 21
External auditor
The Audit Committee manages the relationship with the external
auditor on behalf of the Board. Each year, it considers the
reappointment of the external auditor, reviews requirements of the
rotation of the audit partner and the audit firm when applicable, as
well as remuneration and other terms of engagement, and makes
a recommendation to the Board. Shareholders are then asked
to approve the appointment at the Annual General Meeting.
The Group has a formal policy on assessing the independence and
objectivity of the external auditor. It regulates the terms of
appointment of the external auditor and the nature of audit and
permitted non-audit services provided to the Group. External
auditors periodically (at least annually) provide written confirmation
to the Committee that, in their professional judgement, they are
independent of the Group. The Committee is satisfied that the
independence and objectivity of the external auditors is not
impaired, and that the external audit process remains effective.
The Audit Committee recommended the reappointment of
PricewaterhouseCoopers as the Group’s external auditor for 2018.
This appointment was approved by the Group’s shareholders at the
Annual General Meeting on 23 April 2018. The appointment of the
external auditor in April 2019 for 2019 will be based on the results of
a tender, which the Group has conducted during 2018. On the basis
of the tender, the Board has chosen PricewaterhouseCoopers and
will therefore propose PricewaterhouseCoopers for reappointment
at the next AGM of the shareholders of the Company.
Board activities
The Board meets at least four times a year. Fixed meetings are
scheduled at the end of each quarter, while ad hoc meetings are called
when there are pressing matters requiring the Board’s consideration
in between the scheduled meetings. Directors may participate in
meetings either in person or via telephone or video conference.
Board diversity
The Board does not operate a formal diversity policy with regard
to age, gender or educational and professional backgrounds.
However, in line with best practice, the Board does consider these
aspects when making new Board appointments or considering the
composition of the Board of Directors.
As at the date of publication of these financial statements, there are
two female members on the Board, meaning that females make
up about 13% of the Board. The Board of Directors range in age
from 30 to over 70 years old, with the average age being 52 years.
The Board members have the following educational backgrounds:
transportation and ports industry, accounting, economics and
financial, banking sector and legal, engineering and mechanics,
biophysics and mathematics, history, international affairs and
risk management.
The Board met 16 times during 2018 and considered 71 items.
Regular meetings
• Review of the Group’s financial and operational performance.
• Approval of the annual budget.
(1) Appointed as a member of the Board on 23 April 2018 and as Chairman of the Board on 27 April 2018.
(2) Resigned as Chairman of the Board on 27 April 2018. Served in this role since March 2013.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
81
• Review of the Group’s performance against the approved
annual budget.
• Approval of the annual and semi-annual financial statements
and the respective regulatory announcements.
• Review of the results of risk assessments.
• Approval of the Annual General Meeting agenda, including
dividend proposals and Board reappointments.
• Approval of appointments to the Board of Directors of subsidiaries.
Ad hoc meetings
• Approval of material borrowings and pledges by subsidiaries.
• Approval of remuneration of key management and
executive Directors.
• Appointment of the key management of the Group.
• Approval of dividend distribution by subsidiaries.
• Review and consideration of various business development
opportunities and major transactions.
• Approval of results of an audit tender.
• Changes in responsibilities of Board members and other matters.
The Board’s performance is assessed annually, and the evaluation
process is conducted through a combination of self-assessment and
annual appraisals. The Chairman’s performance is evaluated by the
Non-executive Directors.
Internal control and audit
The Board is primarily responsible for establishing a framework of
prudent and effective internal controls and risk management in
relation to the financial reporting process for the undertakings
included in the Group consolidation that enables risks to be assessed
and managed and financial reports to be prepared.
The Audit Committee reviews and assesses the Group’s internal
control and risk management processes.
The system of controls is designed to manage rather than eliminate
the risks relevant to the Group’s operations and, therefore, can only
provide reasonable, and not absolute, assurance against material
errors, losses, fraud or breaches of laws and regulations.
At Globaltrans, the body responsible for internal audit is the
Internal Audit Service (“IAS”). It tests the Group’s systems of risk
management, internal control and corporate governance to obtain
a reasonable assurance that:
• The risk management system functions efficiently.
• Material financial, management and operating information is
accurate, reliable and up to date.
• The actions of employees and management bodies are in
compliance with the Group’s policies, standards and procedures
and the applicable laws.
• Resources are procured reasonably and used efficiently and their
safekeeping is fully guaranteed.
• Group companies conduct their business in compliance with
applicable laws.
Every year the Audit Committee approves an internal audit plan,
which is developed by identifying the audit universe, performing
a risk analysis and obtaining input from management relative to risks,
controls and governance processes. The internal auditor regularly
reports to the Audit Committee on the progress of planned audits.
If any material internal control deficiencies are identified, they are
immediately communicated to the Audit Committee and
consequently to the Board.
For details of the main risks facing the Group, please refer to the
Risk Management section of this Annual Report and the Principal
Risks and Uncertainties subsection, included in the Financial
Statements section of this Annual Report.
Remuneration of the Board of Directors
and management
Directors serve on the Board under letters of appointment that
specify their terms of appointment and remuneration. Appointments
are effective until the following Annual General Meeting.
Remuneration levels for Non-executive Directors reflect their
expertise, time commitment, responsibilities and membership of
any Board Committees. Directors are also reimbursed for expenses
associated with the discharge of their duties.
Non-executive Directors are not eligible for bonuses, retirement
benefits or participation in any incentive plans operated by the Group.
The Group’s shareholders approved the remuneration of Board
members for 2018 at the Annual General Meeting held on 23 April
2018. For details of the remuneration paid to the Board and key
executives in 2018, please refer to Note 33c of the Consolidated
Management Report and Consolidated Financial Statements included
in the Financial Statements section of this Annual Report.
The total gross remuneration of the members of the Board of Directors
incurred by the Group in 2018 amounted to RUB 409 million.
Relations with shareholders
The Board is committed to maintaining an open and constructive
dialogue with the Company’s institutional shareholders and debt
investors and recognises the importance of those relationships in the
governance process. Regular engagement with investors allows the
Board to better understand their views and ensure they are provided
with timely and appropriate information on the Group’s strategy
and business performance.
The executive management undertakes a regular programme of
meetings, presentations, conference calls and webcasts with
institutional investors and sell-side analysts. The Group announces
financial results semi-annually. On a day-to-day basis, our investor
relations team also engages with investors on a wide range of issues.
In 2018, the Company held more than 300 meetings with investors
and shareholders, attended 10 investor conferences and arranged
two non-deal roadshows following the publication of the results.
A selection of the Group’s historical results together with other
useful information for investors and shareholders can be found
on the investor section of the Group’s corporate website
(www.globaltrans.com).
Globaltrans Investment PLC
Annual Report & Accounts 2018
82
FINANCIAL
STATEMENTS
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
83
Globaltrans Investment PLC
Annual Report & Accounts 2018
84
CONSOLIDATED MANAGEMENT REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2018
Contents
Board of Directors and other officers 85
Note 16. Net foreign exchange losses 148
Consolidated Management Report 86
Note 17. Property, plant and equipment 148
Directors’ responsibility 96
Note 18. Intangible assets 152
Independent Auditor’s Report 97
Note 19. Principal subsidiaries 154
Consolidated income statement 102
Note 20. Share-based payments 157
Consolidated statement of comprehensive income 103
Note 21. Financial assets 157
Consolidated balance sheet 104
Note 22. Other assets 159
Consolidated statement of changes in equity 105
Note 23. Inventories 160
Consolidated cash flow statement 106
Note 24. Cash and cash equivalents 160
Note 1. General information 107
Note 25. Share capital and share premium 161
Note 2. Basis of preparation 107
Note 26. Dividends 161
Note 27. Borrowings 162
Note 28. Deferred income tax 165
Note 29. Trade and other payables 167
Note 30. Earnings per share 167
Note 31. Contingencies 168
Note 32. Commitments 170
Note 33. Related party transactions 171
Note 34. Events after the balance sheet date 173
Note 3. Adoption of new or revised standards
and interpretations 107
Note 4. Summary of significant accounting policies 111
Note 5. New accounting pronouncements 125
Note 6. Financial risk management 127
Note 7. Critical accounting estimates and judgements 136
Note 8. Segmental information 137
Note 9. Non-GAAP financial information 140
Note 10. Revenue 143
Note 11. Expenses by nature 144
Note 12. Other gains – net 145
Note 13. Employee benefit expense 146
Note 14. Finance income and costs 146
Note 15. Income tax expense 147
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
85
BOARD OF DIRECTORS AND OTHER OFFICERS
Board of Directors
Mr. Michael Zampelas
Senior Independent Non-executive Director
Chairman of the Nomination Committee
Member of the Remuneration Committee
Dr. Johann Franz Durrer
Independent Non-executive Director
Chairman of the Remuneration Committee
Member of the Nomination Committee
Mr. John Carroll Colley
Independent Non-executive Director
Chairman of the Audit Committee
Mr. George Papaioannou
Independent Non-executive Director
Member of the Audit Committee
Ms. Elia Nicolaou
Non-executive Director
Member of the Audit Committee
Company Secretary
Secretary of the Board
Alternate Director: Mr. Marios Tofaros
Mr. Michalakis Thomaides
Non-executive Director
Ms. Melina Pyrgou
Non-executive Director
Mr. Marios Tofaros
Non-executive Director
Mr. Sergey Maltsev
Chairman of the Board of Directors
Executive Director
Appointed on 23 April 2018
Alternate Director: Mr. Yuri Isaev
Mr. Alexander Eliseev
Executive Director
Alternate Director: Ms. Ekaterina Golubeva
Mr. Sergey Tolmachev
Executive Director
Mr. Alexander Storozhev
Executive Director
Alternate Director: Ms. Elia Nicolaou
Mr. Konstantin Shirokov
Executive Director
Mr. Andrey Gomon
Executive Director
Alternate Director: Ms. Melina Pyrgou
Mr. Alexander Tarasov
Non-executive Director
Board support
The Company Secretary is available to advise all Directors to
ensure compliance with the Board procedures. Also a procedure
is in place to enable Directors, if they so wish, to seek independent
professional advice at the Company’s expense.
Company Secretary
Ms. Elia Nicolaou
Dimitriou Karatasou, 15
Anastasio Building, 6th floor, Office 601
Strovolos, 2024, Nicosia, Cyprus
Assistant secretary: Mr. Marios Tofaros
Registered office
20 Omirou Street
Agios Nicolaos
CY-3095 Limassol, Cyprus
Globaltrans Investment PLC
Annual Report & Accounts 2018
86
CONSOLIDATED MANAGEMENT REPORT
The Board of Directors presents its report together with the audited Consolidated Financial
Statements for the year ended 31 December 2018. The Group’s financial statements have
been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union and the requirements of Cyprus Companies Law, Cap. 113.
Principal activities
The principal activities of the Group, which are unchanged from last
year, are the provision of railway transportation services using own
and leased rolling stock as well as fleet engaged from third party rail
operators and the operating lease of rolling stock.
Adjusted EBITDA rose 28% year-on-year to RUB 33,069,961 thousand
(2017: RUB 25,788,683 thousand) with the Adjusted EBITDA Margin
expanding to 54% (2017: 50%). The Group’s Free Cash Flow was RUB
12,314,346 thousand, a 28% decline compared to RUB 17,047,982
thousand in 2017, largely due to increase in Total CAPEX.
Review of developments, position and
performance of the Group’s business
Globaltrans produced a solid overall financial performance in 2018.
The strong gondola market combined with slightly increased pricing
in rail transportation for the oil products and oil segment translated
into a strong set of results.
IFRS financial information
Management considers amongst others the following IFRS
measures in analysing the performance of the Group.
The Group’s Total revenue rose 11% year-on-year to RUB
86,772,742 thousand in 2018 (2017: RUB 78,080,532 thousand).
Operating profit increased 33% year-on-year to RUB 26,901,055
thousand in 2018 (2017: RUB 20,156,135 thousand). Profit
for the year ended 31 December 2018 grew 42% year-on-year to
RUB 19,583,435 thousand (2017: RUB 13,819,874 thousand).
On 31 December 2018 the total assets of the Group were
RUB 91,217,322 thousand (2017: RUB 77,421,556 thousand)
and net assets were RUB 53,525,434 thousand (2017: RUB
50,617,630 thousand).
On 31 December 2018 the total debt of the Group was RUB
25,728,911 thousand and increased by 58% as compared to end of
2017 which amounted to RUB 16,331,356 thousand. Total cash
and cash equivalents on 31 December 2018 grew by 44% and
amounted to RUB 7,129,918 thousand (31 December 2017:
4,966,171 thousand).
Non-IFRS financial information
Among others, management analyses the following key non-IFRS
measures. These non-IFRS measures are marked with capital letters
and their definitions are provided at the end of this section in
alphabetical order.
The Group had a strong balance sheet with Net Debt to Adjusted
EBITDA increasing to 0.56x (2017 end: 0.44x). Net Debt rose by
64% to RUB 18,598,993 thousand (2017 end: RUB 11,365,185
thousand). As at 31 December 2018 and 31 December 2017 almost
100% of the Group’s debt was denominated in Russian roubles.
In 2018, management continued to make disciplined decisions on
capital allocation whilst pursuing cost improvement and productivity
measures. The Total Capex rose 165% year-on-year to RUB
12,888,898 thousand (2017: RUB 4,872,076 thousand). This higher
capital expenditure reflected primarily larger expansion CAPEX in
response to strong demand and in order to support the new long-
term contracts and further development of niche projects. In 2018,
the Group acquired 4,747 units (including 3,862 gondola cars, 481
flat cars and 404 containers) compared to 1,332 units (including 706
gondola cars, 70 flat cars and 556 containers) in the previous year.
Operational information
In 2018, the Group’s Transportation Volume and Freight Rail
Turnover (both excluding Engaged Fleet) decreased 4% and 9%
year-on-year respectively, impacted by gondola car fleet rebalancing,
changed client logistics and a reduction in average speeds on the
RZD rail network over the course of 2018, caused by ongoing
major rail infrastructure modernisation projects. The Group’s
Transportation Volume was 88.5 million tones in 2018 (2017:
91.9 million tones) with Freight Rail Turnover amounting to 146.2
billion tonnes-km (2017: 160.1 billion tonnes-km).
The Average Number of Loaded Trips per Railcar decreased by 4%
year-on-year, while the Average Distance of Loaded Trips reduced
by 4% year-on-year.
Average Price per Trip increased 20% year-on-year to RUB 41,859.
The high operational efficiency was maintained with the Empty
Run Ratio for gondola cars increasing to 38% (2017: 37%) and the
Total Empty Run Ratio amounting to 46% (2017: 45%).
Adjusted Revenue increased 17% year-on-year to RUB 60,859,424
thousand (2017: RUB 52,094,289 thousand) supported by the
strong performance of the gondola business and slightly improving
pricing in rail transportation for the oil products and oil. Total
Operating Cash Costs were up 6% year-on-year to RUB 27,893,504
thousand (2017: RUB 26,302,818 thousand).
Total Fleet increased 3% to 69,023 units (2017 end: 66,692 units)
primarily reflecting sizeable increase in Owned Fleet, which was
partially offset by the intended reduction in number of Leased-in Fleet.
The financial position, development and performance of the Group
as presented in the financial statements is considered satisfactory.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
87
Definitions to Non-IFRS financial measures
Adjusted EBITDA represents EBITDA excluding “Net foreign
exchange transaction losses from financing activities”, “Share of loss
of associate”, “Other losses/(gains) – net”, “Net (gain)/loss on sale
of property, plant and equipment”, “Impairment of property, plant
and equipment”, “Loss on derecognition arising on capital repairs”
and “Reversal of impairment of intangible assets”.
Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided
by Adjusted Revenue.
Free Cash Flow is calculated as “Cash generated from operations”
(after “Changes in working capital”) less “Tax paid”, “Interest paid”,
“Purchases of property, plant and equipment”, “Finance lease
principal payments” and “Purchases of intangible assets”.
Freight Rail Turnover is a measure of freight carriage activity over a
particular period calculated as the sum of tonnage of each loaded
trip multiplied by the distance of each loaded trip, expressed in
tonnes-km. It includes volumes transported by the engaged fleet and
excludes performance of petrochemical tank container segment,
unless otherwise stated.
Adjusted Revenue is calculated as “Total revenue” less the following
“pass through” items “Infrastructure and locomotive tariffs: loaded
trips” and “Services provided by other transportation organisations”.
Net Debt is defined as the sum of total borrowings (including
interest accrued) less “Cash and cash equivalents”.
Average Distance of Loaded Trip is calculated as the sum of the
distances of all loaded trips for a period divided by the number of
loaded trips for the same period.
Average Number of Loaded Trips per Railcar is calculated as total
number of loaded trips in the relevant period divided by Average
Rolling Stock Operated.
Net revenue from engaged fleet represents the net sum of the
price charged for transportation to clients by the Group utilising
Engaged Fleet less the loaded railway tariff charged by OAO
“Russian Railways” (included in “Infrastructure and locomotive
tariffs: loaded trips”) less the cost of attracting fleet from third-
party operators (included in “Services provided by other
transportation organisations”).
Average Price per Trip is calculated as Net Revenue from Operation
of Rolling Stock divided by the total number of loaded trips during
the relevant period in the respective currency. Net Revenue from
Operation of Rolling Stock is defined as the sum of “Revenue from
railway transportation – operators services (tariff borne by the
Group)” and “Revenue from railway transportation – operators
services (tariff borne by the client)” less “Infrastructure and
locomotive tariffs: loaded trips”, “Services provided by other
transportation organisation” and net revenue from engaged fleet.
Average Rolling Stock Operated is calculated as the average
weighted (by days) number of rolling stock available for operator
services (not including rolling stock in maintenance, purchased
rolling stock in transition to its first place of commercial utilisation,
rolling stock leased out, Engaged Fleet, flat cars and tank containers
used in petrochemical business).
EBITDA represents “Profit for the year” before “Income tax expense”,
“Finance costs – net” (excluding “Net foreign exchange transaction
losses from financing activities”), “Depreciation of property, plant and
equipment” and “Amortisation of intangible assets”.
Empty Run Ratio is calculated as the total of empty trips in
kilometres by respective rolling stock type divided by total loaded
trips in kilometres of such rolling stock type. Empty trips are only
applicable to rolling stock operated (not including rolling stock in
maintenance, purchased rolling stock in transition to its first place
of commercial utilisation, rolling stock leased out, engaged fleet,
platforms and tank containers used in petrochemical business).
Engaged Fleet is defined as rolling stock subcontracted or otherwise
engaged from a third-party rail operator for a loaded trip from the
point of origination to the cargo’s destination, at which point the
railcar is then released to such third party.
Total CAPEX calculated on a cash basis as the sum of “Purchases of
property, plant and equipment”, “Purchases of intangible assets”,
“Acquisition of subsidiary undertakings – net of cash acquired” and
“Finance lease principal payments”.
Total Empty Run Ratio is calculated as total kilometres travelled
empty divided by the total kilometres travelled loaded by the rolling
stock fleet operated by Globaltrans (not including the relocation of
rolling stock to and from maintenance, purchased rolling stock in
transition to its first place of commercial utilisation, or rolling stock
leased out, Engaged Fleet, platforms and tank containers used in
petrochemical business) in the relevant period.
Total Fleet is defined as the fleet owned and leased in under finance
and operating leases as at the end of reporting period. It includes
railcars, locomotives and petrochemical tank containers, unless
otherwise stated, and excludes engaged fleet.
Total Operating Cash Costs represent operating cost items payable
in cash and calculated as “Total cost of sales, selling and marketing
costs and administrative expenses” less the “pass through” items:
“Infrastructure and locomotive tariffs: loaded trips” and “Services
provided by other transportation organisations” and non-cash
items: “Depreciation of property, plant and equipment”,
“Amortisation of intangible assets”, “Net impairment losses on
financial assets”, “Impairment of property, plant and equipment”,
“Net (gain)/loss on sale of property, plant and equipment” and
“Loss on derecognition arising on capital repairs”.
Transportation Volume is a measure of freight carriage activity over
a particular period, measuring weight of cargo carried in million
tonnes. It excludes volumes transported by Engaged Fleet and the
performance of petrochemical tank container segment, unless
otherwise stated.
Globaltrans Investment PLC
Annual Report & Accounts 2018
88
CONSOLIDATED MANAGEMENT REPORT
continued
Changes in Group structure
During 2018 Spacecom AS acquired 100% of the shares of
Spacecom Trans AS from the Company and the non-controlling
shareholders. As a result, the proportion of ordinary shares held by
the Company in Spacecom Trans AS increased from a direct holding
of 65% to an indirect holding of 65.25%. The transaction aimed to
optimise the management of both Estonian subsidiaries. There were
no other changes in the group structure of the Group during the
year ended 31 December 2018. For the principal subsidiaries of the
Company, refer to Note 19 to the Consolidated Financial Statements.
Non-Financial Information
and Diversity Statement
The Group will be publishing its Non-Financial Information and
Diversity Statement within its Annual Report that will be issued
within four months after the balance sheet date and will be available
on the Company’s website, www.globaltrans.com
Environmental matters
Rail is one of the most environmentally friendly modes of transport.
Nonetheless, any commercial activity has an environmental impact
and Globaltrans strives to minimise those from its operations where
possible. To this end, the Group ensures that its activities fully
comply with local environmental regulations. It also aims to help
business and nature co-exist by focusing on applying modern
technology in its operations and using natural resources rationally.
Human resources
Globaltrans considers the wellbeing of employees central to its
success and strives to maintain exemplary working standards, ensure
job satisfaction and create opportunities for professional growth.
The Group’s personnel policy focuses on creating a positive
atmosphere at all offices and facilities to maximise productivity.
As part of this, it offers medical insurance, support for education,
opportunities to obtain additional qualifications and training, and
financial aid in particularly difficult times.
The Group’s future success will partly depend on its ability to
continue to attract, retain and motivate key employees and qualified
personnel, in particular an experienced management team.
Competition in Russia for such personnel with relevant expertise is
intense due to the small number of qualified individuals with suitable
practical experience in the rail industry.
Adequate remuneration packages, which are in line with or in excess
of market levels, are offered to all employees and key managers and
remuneration is linked to the Group’s financial results. The Human
Resource function regularly monitors salary levels and other benefits
offered by competitors to ensure that the Group’s remuneration
packages are adequate.
Principal risks and uncertainties
The Company faces a number of diverse potential and actual risks
to its business. The Board has adopted a formal process to identify,
evaluate and manage principal risks and uncertainties faced by
the Group.
To identify, evaluate and mitigate these, the Group has established
an in-house system to monitor and control uncertainties and threats
throughout its activities. This is overseen by a dedicated Risk
Management function, which works directly with the Board of
Directors in this area.
The Company has grouped the risks that it considers to be
significant into key categories – strategic, operational, compliance
and financial – and they are presented below.
Strategic risks
The strategic risks faced by the Group that pose risks that influence
the Group’s ability to achieve its strategy include the general
economic situation and operating environment in Russia, Kazakhstan,
Ukraine, CIS and Baltic countries in which the Group operates; the
regulatory risk relating to the operation of the Russian railway
transportation market, including railway tariff regulation and
technical requirements for fleet maintenance; the highly competitive
Russian rail transportation market with unregulated operator’s
services tariffs; the significant concentration of the Group’s customer
base with the top 10 customers (including their affiliates and
suppliers) accounting for around 74% of the Group’s Net Revenue
from the operation of rolling stock in 2018; cost of borrowing
and/or deterioration in market conditions with potential impacts on
the profitability and payback period of investments; and reliance on
RZD for issuing permits allowing the Group to operate locomotives.
The Group operates mainly in Russia, other emerging markets and
Estonia. Emerging markets, such as Russia, Kazakhstan and Ukraine,
are subject to greater risks than more developed markets, including
significant economic, political, social, legal and legislative uncertainties.
Moreover, the Group’s business depends on the demand in the
Russian freight rail transportation market, which in turn depends on
certain key commodity sectors and, accordingly, on economic
conditions in Russia, Europe and elsewhere. A decrease in production
and demand for key commodities in Russia, or in adjacent countries
where the commodities of the Group’s key customers are shipped by
rail, as a result of a technological shift, economic downturn, political
crisis or other event in Russia or another relevant country, negatively
impacts the Group’s business and growth prospects.
The management of the Group constantly monitors the
developments in the operating environment and regulatory regime
of the railway transportation market in the countries in which the
Group operates. The Group’s business model is to maintain a
balanced fleet between universal gondola cars, adaptable to the
demand for transportation of various bulk cargoes and rail tank cars,
which are used for the transportation of oil products and oil. Further,
the Group has long-term, established relationships with its key
customers and their affiliates and suppliers and in some cases, the
Group becomes an integrated part of its customers’ operations.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
89
Around 60% of the Group’s Net Revenue from the Operation of
Rolling Stock in 2018 was covered by long-term service contracts
with several large clients. Such contracts provide additional stability
and greater certainty regarding transport volumes for the Group.
In addition, the Group’s marketing function regularly monitors
competitors’ strategies, their use of technology, their price strategies
and industry trends.
Operational risks
The operational risks faced by the Group that could influence the
Group’s operational efficiency include the physical state of the
Russian, Ukrainian, CIS and Baltic countries railway infrastructure
which may negatively impact the condition of the Group’s rolling
stock and the performance of the Group; the impact of inflation in
Russia on the Group’s costs with limited opportunities to increase
tariffs to customers; the competition for personnel with relevant
expertise and experience in Russia and the impact on the Group’s
ability to continue to attract, retain and motivate key employees and
qualified personnel; reliance on RZD for locomotive traction and
infrastructure usage and the impact of this on the quality of the
Group’s freight transportation services and therefore customer
satisfaction; IT availability and continuity considerations due to
reliance on specialised trail transport and logistics software for
ensuring efficient and effective logistics, dispatching and rolling
stock tracking services; and risks of terrorist attacks, natural disasters
or other catastrophic events beyond the Group’s control.
The Group is managing operational risk by ensuring that practically
all of the Group’s rolling stock is insured against damage. Further, the
Group monitors its rolling stock through the Group’s dispatch
centre on a 24/7 basis and plans routes accordingly to minimise the
risks of disruption. The Group monitors FAS initiatives with the aim
of detecting possible changes in tariff-setting methodology and tries
to reflect respective changes in contracts with customers. Among
the Group’s key objectives are to increase operational efficiency and
to focus on control and reduction of costs. The Group continuously
monitors its costs to maintain efficiency. The Human Resource
function regularly monitors salary levels and other benefits offered
by competitors to ensure that the Group’s remuneration packages
are adequate. Customer satisfaction is one of the key metrics that
the Group’s management monitors, with customer feedback being
analysed and appropriate follow-up actions being taken. Local IT
specialists have introduced solutions to maintain the availability of IT
services and ensure their recovery in case of disruption. The IT
function and Internal Audit function monitor all IT-related activities
and performance for compliance with IT policies and procedures.
Further the Group permanently monitors any disruptive events and
applies a Business Continuity Policy to ensure the safety of
employees and human life; maintain continuity of time-critical
services; minimise disruptions to clients and partners; and minimise
operational, financial and reputational impact.
Compliance risks
The Group is also subject to compliance risk, being the risks that
influence the Group’s adherence to relevant laws and regulations.
The Group is involved in material legal actions from time to time.
Some of it may have an adverse effect on the Group. The ambiguity
of the law in Russia and CIS countries creates regulatory uncertainty
and might result in claims from different government authorities.
Local tax, currency and customs legislation, especially in Russia,
other emerging markets and Cyprus, may be subject to varying
interpretations, inconsistencies between federal laws, regional and
local laws, rules and regulations, frequent changes and a lack of
judicial and administrative guidance on interpreting legislation.
The Group runs its operations in compliance with tax, currency,
labour, customs, antimonopoly and other applicable legislation and
constantly monitors any changes in the regulatory environment as
well as compliance with the terms of its agreements. Standard forms
of agreements are used for transportation services, and various
controls are in place to ensure that the terms of agreements are
adhered to. All contracts are subject to rigorous review by all of the
Group functions concerned and a formal approval process prior to
execution. The Group has controls in place, including highly qualified
and experienced personnel, to monitor changes in legislation and
determine the appropriate action needed to minimise the risk of a
challenge to such treatments by the authorities. For complex
matters, the Group retains external consultants.
Financial risks
The Group’s activities expose it to a variety of financial risks that
could influence the Group’s financial performance. These include:
market risk (including foreign exchange risk, fair value interest rate
risk and cash flow interest rate risk), credit risk and liquidity risk.
Foreign exchange risk
As of 31 December 2018, almost 100% of the Group’s long-term
borrowings are denominated in Russian Rouble. Further, a large
proportion of the Group’s expenses and revenues are denominated
and settled in Russian Roubles. Risks related to liabilities
denominated in foreign currency are partly compensated by assets
and income denominated in foreign currency.
The Group is exposed to the effects of currency fluctuations
between (i) the Russian Rouble and the US Dollar in relation to US
Dollar denominated balances held in the Company and the Cypriot
and Russian subsidiaries of the Group having the Russian Rouble as
their functional currency; (ii) the Euro and the US Dollar for US
Dollar denominated balances held in the Estonian subsidiaries of the
Group which have the Euro as their functional currency and (iii) the
Ukrainian Hryvnia and the US Dollar for the US Dollar denominated
balances held in the Ukrainian subsidiary of the Group which has the
Ukrainian Hryvnia as its functional currency.
Globaltrans Investment PLC
Annual Report & Accounts 2018
90
CONSOLIDATED MANAGEMENT REPORT
continued
A large proportion of the Group’s revenues and expenses are
denominated and settled in Russian Roubles. At present, the risks
related to liabilities denominated in foreign currency are not material
and are partly compensated by assets and income denominated in
foreign currency. The Group has refinanced all of its US Dollar-
denominated liabilities with long-term debt denominated in Russian
roubles and as of 31 December 2018 almost 100% of the Group’s
debt was denominated in Russian Roubles.
Had US Dollar exchange rate strengthened/weakened by 20%
against the Russian Rouble and all other variables remained
unchanged, the post-tax profit of the Group for the year ended
31 December 2018 would have decreased/increased by RUB
93,454 thousand (2017: 5% change, effect RUB 11,888 thousand)
and equity would have increased/decreased by RUB 528,448
thousand (2017: RUB 125,368 thousand). This is mainly due to
foreign exchange gains and losses arising upon retranslation of
cash and cash equivalents and accounts payable denominated in
US Dollars for the Group entities with Russian Rouble being their
functional currency. The impact on equity is mainly due to
foreign exchange gains and losses arising upon retranslation of
intercompany loans being recognised as part of net investment
in the foreign operation denominated in US Dollars for the
Ukrainian subsidiary of the Group.
Had Euro exchange rate strengthened/weakened by 10% against
the US Dollar and all other variables remained unchanged, the post-
tax profit of the Group for the year ended 31 December 2018
would have increased/decreased by RUB 37,260 thousand
(2017: 10% change, effect RUB 28,517 thousand). This is mainly
due to foreign exchange gains and losses arising upon retranslation
of payable balances and cash and cash equivalents and accounts
receivable denominated in US Dollars for the Estonian
subsidiaries of the Group.
Had US Dollar exchange rate strengthened/weakened by 10%
against the Ukrainian Hryvnia and all other variables remained
unchanged, the post-tax profit of the Group would have remained
unchanged (2017: 10% change, no effect on post-tax profit) and
the equity of the Group for the year ended 31 December 2018
would have decreased/increased by RUB 132,112 thousand
(2017: RUB 125,368 thousand). This is mainly due to foreign
exchange gains and losses arising upon retranslation of
intercompany loans being recognised as part of net investment
in the foreign operation denominated in US Dollars for the
Ukrainian subsidiary of the Group.
Interest-rate risks
The Group’s income and operating cash flows are exposed to
changes in market interest rates. These arise mainly from floating
rate lease liabilities and borrowings. An increase in market interest
rates in Russia may negatively influence the Group’s profits. As of
31 December 2018, the proportion of total debt with a fixed
interest rate amounted almost to 100%.
The Group concludes long-term borrowing and finance lease
contracts to finance purchases of rolling stock and acquisitions of
subsidiaries. The Group borrows at current market interest rates and
does not use any hedging instruments to manage interest-rate risk.
Management monitors changes in interest rates and takes steps to
mitigate these risks as far as practicable by ensuring that the Group
has financial liabilities with both floating and fixed interest rates.
As of 31 December 2018, the proportion of total debt with a fixed
interest rate amounted to almost 100%.
Credit risk
Assets that subject the Group to credit risk consist principally of
trade receivables, finance lease receivables, loans and other
receivables and cash and cash equivalents. Furthermore, the Group’s
business is substantially dependent on a few large key customers,
including its affiliates and suppliers. Its top 10 clients accounted for
58.65% of the Group’s trade receivables on 31 December 2018
(2017: 76.25%).
The Group has policies in place to ensure that sales of goods and
services are made to customers with an appropriate credit history.
The majority of bank balances are held with reliable banks.
Liquidity risk
The Group’s business is capital-intensive. The political turmoil
experienced within Ukraine and sanctions imposed by the United
States and the European Union on Russia have had a negative impact
on the Russian financial markets and may limit the Group’s access to
international sources of funding. The potentials lack of available
funding from international and Russian sources and increase in
market interest rates could have a negative impact on the Group’s
ability to obtain financing for the settlement of its liabilities or cash
to meet its financial obligations.
The Group has a budgeting policy in place that allows the
management to control current liquidity based on expected cash
flows. These include, among others, operating cash flows, capital
expenditure needs, funds borrowed from financial institutions
and funds raised from listed debt instruments.
Contingencies
The Group’s contingencies are disclosed in Note 31 to the
Consolidated Financial Statements.
Future developments
The Board of Directors does not expect any significant changes in
the activities of the Group for the foreseeable future.
The Group’s strategic objective is to strengthen its position as a
leading private freight rail group in Russia.
Results
The Group’s results for the year are set out on pages 102 and 103.
The Board of Directors recommends the payment of a dividend as
detailed below and the remaining net profit for the year is retained.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
91
On the date of this report, the Board of Directors of the Company,
having considered the profitability and liquidity position of the
Group, recommends a payment of dividend for the year 2018 total
dividend in the amount of 46.50 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,311,453
thousand, including final dividend for 2018 in the amount of RUB
1,429,927 thousand or RUB 8.00 per ordinary share/GDR and a
special final dividend in the amount of RUB 6,881,526 thousand or
RUB 38.50 per ordinary share/GDR. Such dividends shall be paid in
US Dollars at the rate as at 19 April 2019, subject to the approval of
the shareholders at the Annual General Meeting on 22 April 2019.
Share capital
As at 31 December 2018 the issued share capital of the Company
which remains unchanged from the prior year, comprised
178,740,916 ordinary shares with a par value of USD 0.10 per share.
Research and development activities
The Group has not undertaken any research and development
activities during the year ended 31 December 2018.
Events after the balance sheet date
The events after the balance sheet date are disclosed in Note 34 to
the Consolidated Financial Statements.
Branches
The Group operates through branches and representative offices,
maintaining eight branches and eight representative offices during
2018 (11 branches and eight representative offices during 2017).
Treasury shares
In 2018 the Company did not own or acquire either directly or
through a person in his own name but on Company’s behalf any of
its own shares.
Going concern
The Directors have access to all information necessary to exercise
their duties. The Directors continue to adopt the going concern
basis in preparing the Consolidated Financial Statements based on
the fact that, after making enquiries and following a review of the
Group’s budget for 2019, including cash flows and borrowing
facilities, the Directors consider that the Group has adequate
resources to continue in operation for the foreseeable future.
Dividends
Pursuant to its Articles of Association, the Company may pay
dividends out of its profits. To the extent that the Company declares
and pays dividends, owners of Global Depositary Receipts (“GDRs”)
on the relevant record date will be entitled to receive dividends
payable in respect of Ordinary Shares underlying the GDRs, subject
to the terms of the Deposit Agreement. The Company expects to
declare dividends in Russian Roubles and pay such dividends in US
Dollars. If dividends are not paid in US Dollars, except as otherwise
described under “Terms and Conditions of the Global Depositary
Receipts – Conversion of Foreign Currency”, they will be converted
into US Dollars by the Depositary and paid to holders of GDRs net
of currency conversion expenses.
The Company is a holding company and thus its ability to pay
dividends depends on the ability of its subsidiaries to pay dividends to
the Company in accordance with relevant legislation and contractual
restrictions. The payment of such dividends by its subsidiaries is
contingent upon the sufficiency of their earnings, cash flows and
distributable reserves. The maximum dividend payable by the
Company’s subsidiaries is restricted to the total accumulated retained
earnings of the relevant subsidiary, determined according to the law.
In April 2017, the shareholders of the Company approved the
payment of the final dividend in respect of the financial year ended
31 December 2016 in the amount of 39.20 Russian Roubles per
ordinary share/GDR, amounting to a total dividend of RUB 7,006,644
thousand (US Dollar equivalent of USD 124,605 thousand).
In August 2017, the Board of Directors of the Company approved
payment of total dividend in the amount of 44.8 Russian Roubles
per ordinary share/GDR, amounting to a total dividend of RUB
8,007,593 thousand, including interim dividend in the amount of
RUB 3,603,417 thousand or RUB 20.16 per ordinary share/GDR
and a special interim dividend in the amount of RUB 4,404,176
thousand or RUB 24.64 per ordinary share/GDR (US Dollar
equivalent of USD 135,401 thousand).
In April 2018, the shareholders of the Company approved the
payment of a dividend for the financial year ended 31 December
2017 in the amount of 44.85 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,016,530
thousand, including final dividend for 2017 in the amount of RUB
4,155,726 thousand or RUB 23.25 per ordinary share/GDR and a
special final dividend in the amount of RUB 3,860,804 thousand or
RUB 21.60 per ordinary share/GDR (US Dollar equivalent of
USD 130,728 thousand).
In August 2018, the Board of Directors of the Company approved
payment of total dividend in the amount of 45.9 Russian Roubles
per ordinary share/GDR, amounting to a total dividend of RUB
8,204,208 thousand (US Dollar equivalent of USD 119,724
thousand), including interim dividend in the amount of RUB
3,771,433 thousand (US Dollar equivalent of USD 55,037 thousand)
or RUB 21.10 per ordinary share/GDR and a special interim dividend
in the amount of RUB 4,432,775 thousand (US Dollar equivalent of
USD 64,687 thousand) or RUB 24.80 per ordinary share/GDR.
Globaltrans Investment PLC
Annual Report & Accounts 2018
92
CONSOLIDATED MANAGEMENT REPORT
continued
Auditors
The Board of Directors in accordance with the requirements of the
EU introduced into Cypriot legislation undertook a mandatory audit
tender in respect of the 2019 audit. Following this the Independent
Auditor, PricewaterhouseCoopers Limited, has expressed their
willingness to continue in office. A resolution giving authority to the
Board of Directors to fix their remuneration will be proposed at the
Annual General Meeting.
with a view to the best interests of the Company, and they are able to
exercise objective judgement on corporate affairs independently
from management.
The members of the Board of Directors at 31 December 2018 and
at the date of this report are shown on page 85. All of them were
members of the Board throughout the year 2018, except Mr. Sergey
Maltsev, who was appointed as Director 23 April 2018.
Corporate governance
Globaltrans’ Board of Directors adopted the Company’s Code of
Corporate Governance (the “Code”), guaranteeing that the
interests of all shareholders are given due consideration. Although
the Code is based on principles recommended by the UK Corporate
Governance Code (formerly the Combined Code), this does not
constitute voluntary compliance with such governance code.
Globaltrans’ corporate governance policies and practices are
designed to ensure that the Group upholds its responsibilities to
shareholders. As such, all employees are required to comply with
these guidelines and the Group’s management team takes
responsibility for ensuring that all departments adhere to these
standards. These key principles are promoted and applied across all
levels of the Group in order to establish effective and transparent
corporate governance. In January 2010, the Board supplemented
its Code of Corporate Governance with a corporate policy on the
treatment of the rights of its non-controlling shareholders; this
aims to ensure fair treatment of the rights of non-controlling
shareholders of the Company.
Full details of our governance policies can be found at:
http://www.globaltrans.com/about-us/corporate-
governance/governance-policies
The role of the Board of Directors
The Group is managed by the Board of Directors which is collectively
responsible to the shareholders for the success of the Group.
The Board sets the strategic objectives and ensures that the
necessary resources are in place to enable these objectives to be
met. The Board is fully involved in decision-making in the most
important areas of business and conducts regular reviews of the
Group’s operational and financial performance. One of the Board’s
key responsibilities is to ensure that there is in place a system of
prudent and effective risk controls that enable risks to be identified,
assessed and managed appropriately.
Members of the Board of Directors
As at 31 December 2018 and at the date of this report, the Board
comprises 15 members (2017: 14 members), nine (2017: 10
members) of whom are Non-executive Directors. Four (2017: four)
of the Non-executive Directors are independent, they have no
relationship with the Company, its related companies or their
officers that could interfere, or be reasonably perceived to interfere,
with the exercise of the Director’s independent business judgement
There were no significant changes in the assignment of
responsibilities of the Board of Directors, with the exception of
the change in the Chairman of the Board on 23 April 2018 from
Mr. Michael Zampelas to Mr. Sergey Maltsev.
There is no provision in the Company’s Articles of Association for
retirement of Directors by rotation; however, in accordance with
the terms of reference of the Board of Directors all Board members
are required to submit for re-election at least once every three years.
Should a Non-executive Director serve any term beyond six years,
his/her re-election would be subject to particularly rigorous review.
In practice, all current appointments are for one year and all
Directors will stand for re-election at the forthcoming Annual
General Meeting of shareholders of the Company.
The total gross remuneration of the members of the Board of
Directors incurred by the Group in 2018 amounted to RUB 408,987
thousand (2017: RUB 130,387 thousand).
Board performance
The Board held 16 meetings in 2018. The Directors’ attendance is
presented in the table below.
Eligible Attended
Michael Zampelas 16 16
Johann Franz Durrer 16 16
Carroll Colley 16 16
George Papaioannou 16 16
Alexander Eliseev 16 14
Melina Pyrgou 16 15
Konstantin Shirokov 16 15
Alexander Storozhev 16 16
Marios Tofaros 16 16
Elia Nicolaou 16 16
Sergey Tolmachev 16 16
Sergey Maltsev (Chairman) (1) 12 10
Andrey Gomon 16 15
Alexander Tarasov 16 16
Michael Thomaides 16 16
(1) Sergey Maltsev was appointed as a member of the Board of Directors
on 23 April 2018.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
93
The Board committees
The Board has established three committees: the Audit Committee,
the Nomination Committee and the Remuneration Committee.
A brief description of the terms of reference of the committees is
set out below.
Audit Committee
The Audit Committee comprises three Directors, two of whom are
independent, and meets at least four times each year. The Audit
Committee is chaired by Mr. J. Carroll Colley and is also attended by
Mr. Papaioannou and Ms. Nicolaou. The Audit Committee is
responsible for considering, among other matters: the integrity of
the Company’s financial statements, including its annual and interim
accounts, and the effectiveness of the Company’s internal controls
and risk management systems; auditors’ reports and the terms of
appointment and remuneration of the auditor.
The Committee supervises, monitors and advises the Board on risk
management and control systems and the implementation of codes
of conduct. In addition, the Audit Committee supervises the
submission by the Company of financial information and a number
of other audit-related issues. The Audit Committee is also
responsible for assessing the efficiency of the performance of the
Chairman of the Board.
The remuneration of Independent Directors is a matter for the
Chairman of the Board and the Executive Directors. No Director
or manager may be involved in any decisions as to his/her
own remuneration.
Board and management remuneration
Non-executive Directors serve on the Board pursuant to the letters
of appointment which are subject to approval by the shareholders at
the Annual General Meeting. Such letters of appointment specify
the terms of appointment and the remuneration of Non-executive
Directors. Appointments are for one year.
Levels of remuneration for Non-executive Directors reflect the time
commitment, responsibilities of the role and membership of the
respective committees of the Board. Directors are also reimbursed
for expenses associated with discharge of their duties.
The shareholders of the Company approved the remuneration of
the members of the Board of Directors at the Annual General
Meeting of shareholders held on 23 April 2018.
Refer to Note 33 of the Consolidated Financial Statements for details
of remuneration of Directors and other key management personnel.
The Audit Committee manages the relationship with the external
auditor on behalf of the Board. It considers the reappointment of
the external auditor each year, as well as remuneration and other
terms of engagement, and makes a recommendation to the Board.
Shareholders are asked to approve the reappointment of the auditor
each year at the Annual General Meeting.
Diversity policy
The Company does not have a formal Board diversity policy to
aspects such as age, gender or educational and professional
backgrounds, but, following best practice, while making the new
appointments and considering the current composition of the
Board of Directors, these aspects are taken into account.
The Internal Audit function is carried out internally by the Group’s
Internal Audit Service (“IAS”). IAS is responsible for testing the
systems of risk management, internal control and corporate
governance of the Group.
Nomination Committee
The Nomination Committee comprises two Independent Directors
and meets at least once a year. The Nomination Committee is
chaired by Mr. Zampelas and Dr. Durrer is the other member. The
Committee’s remit is to prepare selection criteria and appointment
procedures for members of the Board and to review on a regular basis
the structure, size and composition of the Board. In undertaking this
role, the Committee refers to the skills, knowledge and experience
required of the Board, given the Company’s stage of development,
and makes recommendations to the Board as to any changes. The
Committee also considers future appointments in respect of the
Board’s composition and makes recommendations regarding the
membership of the Audit and Remuneration Committees.
Remuneration Committee
The Remuneration Committee comprises two Independent
Directors and meets at least once a year. The Remuneration
Committee is chaired by Dr. Durrer and Mr. Zampelas is the other
member. The Committee’s responsibility is the determination and
review of, among other matters, the remuneration of Executive
Directors, and the review of the Company’s remuneration policies.
As of the date of publication of these financial statements the Board
has two females representing approximately 13.3% from the total
number of Directors. The age of the members of the Board of
Directors ranges from over 35 to over 70 years, with the average age
of Directors being 52 years. The Board members have the following
educational backgrounds: transportation and ports industry,
accounting, economics and financial, banking sector and legal,
engineering and mechanics, biophysics and mathematics, history,
international affairs and risk management.
Further details of the corporate governance regime of the
Company can be found on the website:
http://www.globaltrans.com/about-us/corporate-governance/
Regulations with regard to the amendment
of the Articles of Association
The Articles of Association of the Company may be amended from
time to time by special resolution at the General Meeting of the
Shareholders.
Globaltrans Investment PLC
Annual Report & Accounts 2018
94
CONSOLIDATED MANAGEMENT REPORT
continued
Company’s internal control and risk
management systems in relation to the
financial reporting process
The Board of Directors is responsible for the preparation of the
Consolidated Financial Statements that give a true and fair view in
accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the Cyprus
Companies Law, Cap. 113, and for such internal control as the Board
of Directors determines is necessary to enable the preparation of
Consolidated Financial Statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Consolidated Financial Statements, the Board of
Directors is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group’s financial reporting process.
The Board is primarily responsible for establishing a framework
of prudent and effective controls that enables risks to be assessed
and managed.
The Audit Committee assists the Board in this task by reviewing and
assessing the Group’s internal control and risk management
processes in relation to Group’s financial reporting process.
The system of controls is designed to manage rather than eliminate
the risks relevant to the Group’s operations and, therefore, can only
provide reasonable, and not absolute, assurance against material
errors, losses, fraud or breaches of laws and regulations.
At Globaltrans, the body responsible for internal audit is the
Internal Audit Service (“IAS”). It tests the Group’s systems of risk
management, internal control and corporate governance to obtain
a reasonable assurance that:
•
the risk management system functions efficiently;
•
•
•
•
material financial, management and operating information is
accurate, reliable and up to date;
the actions of employees and management bodies are in
compliance with the Group’s policies, standards and procedures
and the applicable laws;
resources are procured reasonably and used efficiently and
their safekeeping is fully guaranteed; and
Group companies conduct their business in compliance with
applicable laws.
Each year, the Audit Committee approves an internal audit plan,
which is developed by identifying the audit universe, performing a
risk analysis and obtaining input from management relative to risks,
controls and governance processes. The internal auditor regularly
reports to the Audit Committee on the progress of planned audits.
If any material internal control deficiencies are identified, they are
communicated to the Audit Committee, and consequently to the
Board, at once.
Significant direct or indirect holdings
(including indirect shareholding through
structures or cross shareholdings)
The issued share capital of the Company consists of 178,740,916
ordinary shares with a nominal value of USD 0.10 each, a certain
portion of which is held in the form of Global Depositary Receipts
(“GDRs”). The GDRs represent one ordinary share each and are
listed and traded on the Main Market of the London Stock Exchange
under the ticker GLTR. The free float of Globaltrans amounts to
approximately 55.5% (1) of the issued share capital. The Bank of
New York Mellon is the depositary bank for the GDR programme
of the Company.
The shareholder structure of the Company as at 31 December 2018
was as follows:
Onyx Investments Ltd (2) 11.5%
Marigold Investments Ltd (2) 11.5%
Maple Valley Investments Ltd (2) 10.8%
Litten Investments Ltd (3) 5.8%
Goldriver Resources Ltd (4) 4.7%
Controlled by Directors and
management of Globaltrans 0.2%
Free float (1) 55.5%
(1) For these purposes, the free float consists of the ordinary shares and GDRs held by
investors not affiliated or associated with the Company.
(2) Nikita Mishin, Andrey Filatov and Konstantin Nikolaev are co-founders of the
Company and beneficiaries with regard to 11.5%, 11.5% and 10.8% respectively of
Globaltrans’ ordinary share capital each through their respective SPVs (Onyx
Investments Ltd, Marigold Investments Ltd and Maple Valley Investments Ltd).
(3) Beneficially owned by Alexander Eliseev, Executive Director and co-founder of
the Company.
(4) Beneficially owned by Sergey Maltsev, Executive Director and co-founder of
the Company.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
95
Directors’ interests
The interests in the share capital of Globaltrans Investment PLC and its Group companies, both direct and indirect, of those who were
Directors of the Company as at 31 December 2018 and 31 December 2017 are shown below:
Name Type of holding 2018 2017
Alexander Eliseev Indirect holding of ordinary shares and GDRs 10,315,790 11,318,909
Sergey Maltsev Indirect holding of ordinary shares and GDRs 8,382,860 n/a
Johann Franz Durrer Holding of GDRs 160,606 160,606
The holders of special titles that provide
special control rights and description
of such rights
The Company does not have any titles with special rights.
Any restrictions in exercising of
voting rights of shares
There are no restrictions in the exercising of voting rights
of shares issued by the Company.
By Order of the Board
Sergey Tolmachev
Director
Limassol, 29 March 2019
Globaltrans Investment PLC
Annual Report & Accounts 2018
96
DIRECTORS’ RESPONSIBILITY
The Company’s Board of Directors is responsible for the preparation
of Consolidated Financial Statements that give a true and fair view in
accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the Cyprus
Companies Law, Cap.113, and for such internal control as the Board
of Directors determines it necessary to enable the preparation of
Consolidated Financial Statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Consolidated Financial Statements, the Board of
Directors is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group’s financial reporting process.
Each of the Directors confirms to the best of his or her knowledge
that the Consolidated Financial Statements (presented on pages 102
to 173) give a true and fair view of the financial position of Globaltrans
Investment PLC (the “Company”) and its subsidiaries (together with
the Company, the “Group”) as at 31 December 2018 and of its
financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the
Cyprus Companies Law, Cap.113.
Further, each of the Directors confirms to the best of his or her
knowledge that:
(i) proper books of account have been kept by the Company;
(ii) the Company’s Consolidated Financial Statements are in
agreement with the books of account;
(iii) the Consolidated Financial Statements give the information
required by the Cyprus Companies Law, Cap.113 in the
manner so required;
(iv) the Consolidated Management Report has been prepared in
accordance with the requirements of the Cyprus Companies
Law, Cap.113, and the information given therein is consistent
with the Consolidated Financial Statements;
(v) the information included in the corporate governance
statement in accordance with the requirements of
subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of
the Cyprus Companies Law, Cap. 113, and which is included as a
specific section of the Consolidated Management Report, have
been prepared in accordance with the requirements of the
Cyprus Companies Law, Cap, 113, and is consistent with the
Consolidated Financial Statements; and
(vi) the corporate governance statement includes all information
referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of
paragraph 2(a) of Article 151 of the Cyprus Companies Law,
Cap. 113.
By order of the Board
Sergey Tolmachev
Director
Limassol, 29 March 2019
Overview Strategic Report Governance Financial Statements Additional Information
INDEPENDENT AUDITOR’S REPORT
to the Members of Globaltrans Investment PLC
Globaltrans Investment PLC
Annual Report & Accounts 2018
97
Report on the Audit of the
Consolidated Financial Statements
Our opinion
In our opinion, the accompanying consolidated financial statements
of Globaltrans Investment PLC (the “Company”) and its subsidiaries
(together the “Group”) give a true and fair view of the consolidated
financial position of the Group as at 31 December 2018, and of its
consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and
the requirements of the Cyprus Companies Law, Cap. 113.
What we have audited
We have audited the consolidated financial statements which are
presented in pages 102 to 173 and comprise:
•
the consolidated balance sheet as at 31 December 2018;
•
the consolidated income statement for the year then ended;
•
•
the consolidated statement of comprehensive income for the
year then ended;
the consolidated statement of changes in equity for the year
then ended;
•
the consolidated cash flow statement for the year then ended; and
•
the notes to the consolidated financial statements, which include
a summary of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the consolidated financial statements is International
Financial Reporting Standards as adopted by the European Union
and the requirements of the Cyprus Companies Law, Cap. 113.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of
the Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group throughout the period of
our appointment in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA Code) together with the ethical requirements
that are relevant to our audit of the consolidated financial statements
in Cyprus and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA Code.
Our audit approach
Overview
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the consolidated
financial statements. In particular, we considered where the Board of
Directors made subjective judgements; for example, in respect of
significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Materiality
Audit scope
Areas of
focus
Overall group materiality: RUB 1,272,000 thousand, which represents approximately
5% of profit before tax.
We conducted full scope audit for the parent entity, all the significant components and the
group consolidation.
For the non-significant components we performed full scope audit, specified procedures over
specific financial statement lines and/or analytical procedures.
We have identified revenue recognition under IFRS 15 “Revenue from contracts with customers”,
including impact of adoption on 1 January 2018 as the key audit matter.
PricewaterhouseCoopers Ltd, City House, 6 Karaiskakis Street, CY-3032 Limassol, Cyprus
P O Box 53034, CY-3300 Limassol, Cyprus
T: +357 25 - 555 000, F:+357 - 25 555 001, www.pwc.com.cy
PricewaterhouseCoopers Ltd is a private company registered in Cyprus (Reg. No.143594). Its registered office is at 3 Themistocles Dervis Street, CY-1066, Nicosia. A list of the
company’s directors, including for individuals the present and former (if any) name and surname and nationality, if not Cypriot and for legal entities the corporate name, is kept by the
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is a separate legal entity. Please see www.pwc.com/structure for further details.
Globaltrans Investment PLC
Annual Report & Accounts 2018
98
INDEPENDENT AUDITOR’S REPORT
continued
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the consolidated financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall group
materiality for the consolidated financial statements as a whole as
set out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the consolidated financial statements as a whole.
Overall group materiality RUB 1,272,000 thousand
How we determined it Approximately 5% of profit before tax
For financial reporting purposes, the Group is structured into 10
reporting units/components, comprising the Company and
subsidiary or sub-subsidiary entities of the Company. We conducted
full scope audit of the group consolidation, the parent entity and the
3 reporting units, in 2 countries, which were assessed as significant
components due to their individual financial significance to the
Group. For the non-significant components we performed full
scope audit, specified procedures over specific financial statement
lines and/or analytical procedures.
In establishing the overall approach to the group audit, we
determined the scope of work that needed to be performed for
each reporting unit and whether this would be performed by us, as
the group engagement team, or component auditors from other
PwC network firms, operating under our instructions. Where the
work was performed by component auditors, we, as group auditors,
determined the level of involvement we needed to have in the audit
work at those reporting units to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis
for our opinion on the consolidated financial statements as a whole.
Rationale for the
materiality benchmark
applied
We chose the profit before tax as the
benchmark, because in our view, it is
the benchmark against which the
performance of the Group is most
commonly measured by the users of the
consolidated financial statements and is
a generally accepted benchmark. We
chose 5% which is within the range of
acceptable quantitative materiality
thresholds in auditing standards.
Our involvement in that work included, amongst others, discussion
and agreement over the nature, timing and extent of the work of
the component audit teams, frequent communications with the
component audit teams to ensure that our audit plan was
appropriately executed and review of the audit work performed
by these component audit teams. We focused our review on
significant/complex areas, such as the audit of the Group’s revenue
recognition policy under IFRS 15 “Revenue from contracts with
customers”, including the impact of adoption on 1 January 2018.
The group consolidation and consolidated financial statement
disclosures have been audited by the group engagement team.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above RUB 63,600
thousand as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
How we tailored our group audit scope
Globaltrans Investment PLC is the parent of a group of companies
situated in a number of territories; namely Russia, Ukraine, Estonia,
Finland and Cyprus. The financial information of these companies is
included in the consolidated financial statements of Globaltrans
Investment PLC.
Considering our ultimate responsibility for the opinion on the
Company’s consolidated financial statements, we are responsible for
the direction, supervision and performance of the group audit. In this
context, we tailored the scope of our audit and determined the
nature and extent of the audit procedures for the components of the
Group to ensure that we perform sufficient work to enable us to
provide an opinion on the consolidated financial statements as a
whole. Factors that were taken into account were, amongst others,
the structure of the Group, the financial significance and/or risk
profile and activities of each component, the Group’s accounting
processes and controls and the industry in which the Group operates.
By performing the procedures above at components’ level,
combined with the additional procedures at group level, we have
obtained sufficient and appropriate audit evidence regarding the
consolidated financial information of the Group as a whole to
provide a basis for our audit opinion on the consolidated
financial statements.
Key audit matters incorporating the most significant risks of
material misstatements, including assessed risk of material
misstatements due to fraud
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
99
Key Audit Matter
How our audit addressed the Key Audit Matter
Revenue recognition under IFRS 15 “Revenue from contracts with customers”, including impact of adoption on 1 January 2018
IFRS 15 “Revenue from contracts with customers” and its
subsequent amendment were effective for the Group from
1 January 2018.
In accordance with the transition provisions of IFRS 15, the Group
has elected the simplified transition method for the purpose of
adopting the new standard which allows the cumulative effect of
transition to IFRS 15 to be recognised as at 1 January 2018 as an
adjustment to the opening retained earnings directly in equity.
As a result, the Group changed its accounting policy for revenue
recognition as at 1 January 2018.
We focused our audit effort on the Board of Directors’
assessment of the impact of adoption and ongoing impact of
IFRS 15 on the Group’s accounting policy for operator’s services
contracts due to the fact that:
•
the Board of Directors exercised complex and subjective
judgements in the process of applying the principles of IFRS 15
to the Group’s operator’s services contracts and, accordingly,
in the process of assessing the impact of adoption and the
ongoing impact of the new accounting standard on the
Group’s accounting policies for the said revenue stream and in
preparing the relevant disclosures; and
•
the Group’s revenue from operator’s services contracts is
material in the context of the consolidated financial statements.
Note 3 “Adoption of new or revised standards and
interpretations”, Note 4 “Summary of significant accounting
policies”, Note 7 “Critical accounting estimates and judgements”
and Note 10 “Revenue” to the consolidated financial statements
provide detailed information regarding the Board of Directors’
assessment, and basis thereon and the Group’s new accounting
policies for revenue recognition as from 1 January 2018.
We evaluated and challenged the Board of Directors’ judgements
around the impact of adoption and ongoing impact of the new
accounting standard from 1 January 2018 and the adequacy and
appropriateness of the disclosures in this respect. We involved
PwC accounting technical experts to assist us in this process.
In particular:
•
•
•
•
•
We obtained the Board of Directors’ assessment of the impact
of adoption of the new accounting standard on the Group’s
revenue streams.
We assessed the completeness of the analysis by reference to the
Group’s revenue streams for the year ended 31 December 2017.
We challenged the Board of Directors’ analysis and
judgements for a sample of revenue contracts by reference
to the five-step model in IFRS 15.
We focused on the critical judgements that had the most
significant effect on the Board of Directors’ conclusion.
In particular:
(i) we challenged the Board of Directors’ assessment as to
why the services promised in operator’s services contracts
are not distinct in the context of the contracts and,
accordingly, why these are considered to constitute a
single performance obligation; and
(ii) we challenged the Board of Directors’ assessment as to the
basis for concluding that the Group is acting as a principal
for operator’s services contracts for which the OAO
“Russian Railways” tariffs are borne by the Group.
We assessed whether the Group entered into new types of
contracts with customers or amended the terms of existing
contracts with customers within the year ended 31 December
2018 requiring assessment under the new accounting standard.
We lastly evaluated the adequacy of the disclosures made in
Notes 3, 4, 7 and 10 of the consolidated financial statements
and compared the disclosures against the requirements of IFRS
15 “Revenue from contracts with customers” and IAS 1
“Presentation of financial statements”.
As a result of the above procedures, we determined that the
Board of Directors’ judgements are appropriate and reasonable
and the disclosures included in the consolidated financial
statements are adequate.
Globaltrans Investment PLC
Annual Report & Accounts 2018
100
INDEPENDENT AUDITOR’S REPORT
continued
Reporting on other information
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
Consolidated Management Report, including the Corporate
Governance Statement, and the Directors’ responsibility which we
obtained prior to the date of this auditor’s report, and the Company’s
complete Annual Report, including the Non-Financial Information
and Diversity Statement, which is expected to be made available to us
after that date. Other information does not include the consolidated
financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not and will not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have
performed on the other information that we obtained prior to the
date of this auditor’s report, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
When we read the Company’s complete Annual Report, including
the Non-Financial Information and Diversity Statement, if we
conclude that there is a material misstatement therein, we are
required to communicate the matter to those charged with
governance and, if not corrected, we will bring the matter to the
attention of the members of the Company at the Company’s
Annual General Meeting and we will take such other action as
may be required.
Responsibilities of the Board of Directors and those charged
with governance for the Consolidated Financial Statements
The Board of Directors is responsible for the preparation of the
consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the Cyprus
Companies Law, Cap. 113, and for such internal control as the Board
of Directors determines is necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of
Directors is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group’s financial reporting process.
Auditor’s Responsibilities for the audit of the
Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the
audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
Conclude on the appropriateness of the Board of Directors’ use of
the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Group’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves a
true and fair view.
Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
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101
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of
the current period and are therefore the key audit matters.
Report on Other Legal and Regulatory Requirements
Pursuant to the requirements of Article 10(2) of the EU Regulation
537/2014 we provide the following information in our
Independent Auditor’s Report, which is required in addition to the
requirements of International Standards on Auditing.
Appointment of the Auditor and Period of Engagement
We were first appointed as auditors of the Company in 2005 by
shareholders’ resolution for the audit of the financial statements for
the year ended 31 December 2004. Our appointment has been
renewed annually since then, by shareholders’ resolution. In 2008 the
Company listed Global Depository Receipts on the Main Market of
the London Stock Exchange and, accordingly, the first financial year
after the Company qualified as a European Union Public Interest
Entity was the year ended 31 December 2009. Since then, the total
period of uninterrupted engagement appointment was 10 years.
Consistency of the Additional Report to the Audit Committee
We confirm that our audit opinion on the consolidated financial
statements expressed in this report is consistent with the additional
report to the Audit Committee of the Company, which we issued on
28 March 2019 in accordance with Article 11 of the EU Regulation
537/2014.
Provision of Non-audit Services
We declare that no prohibited non-audit services referred to in
Article 5 of the EU Regulation 537/2014 and Section 72 of the
Auditors Law of 2017 were provided. In addition, there are no non-
audit services which were provided by us to the Group and which
have not been disclosed in the consolidated financial statements or
the consolidated management report.
Other Legal Requirements
Pursuant to the additional requirements of the Auditors Law of
2017, we report the following:
•
In our opinion, based on the work undertaken in the course of our
audit, the consolidated management report has been prepared in
accordance with the requirements of the Cyprus Companies Law,
Cap. 113, and the information given is consistent with the
consolidated financial statements.
•
•
•
•
In light of the knowledge and understanding of the Group and its
environment obtained in the course of the audit, we are required
to report if we have identified material misstatements in the
consolidated management report. We have nothing to report in
this respect.
In our opinion, based on the work undertaken in the course of our
audit, the information included in the corporate governance
statement in accordance with the requirements of subparagraphs
(iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus
Companies Law, Cap. 113, and which is included as a specific
section of the consolidated management report, have been
prepared in accordance with the requirements of the Cyprus
Companies Law, Cap, 113, and is consistent with the consolidated
financial statements.
In our opinion, based on the work undertaken in the course of our
audit, the corporate governance statement includes all information
referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph
2(a) of Article 151 of the Cyprus Companies Law, Cap. 113.
In light of the knowledge and understanding of the Group and its
environment obtained in the course of the audit, we are required
to report if we have identified material misstatements in the
corporate governance statement in relation to the information
disclosed for items (iv) and (v) of subparagraph 2(a) of Article 151
of the Cyprus Companies Law, Cap. 113. We have nothing to
report in this respect.
Other Matter
This report, including the opinion, has been prepared for and only for
the Company’s members as a body in accordance with Article 10(1)
of the EU Regulation 537/2014 and Section 69 of the Auditors Law
of 2017 and for no other purpose. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or to any other
person to whose knowledge this report may come to.
The engagement partner on the audit resulting in this independent
auditor’s report is Anna Loizou.
Anna Loizou
Certified Public Accountant and Registered Auditor
for and on behalf of
PricewaterhouseCoopers Limited
Certified Public Accountants and Registered Auditors
City House, 6 Karaiskakis Street,
CY-3032 Limassol, Cyprus
29 March 2019
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102
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2018
2018 2017
Note RUB’000 RUB’000
Revenue 10 86,772,742 78,080,532
Cost of sales 11 (55,154,376) (54,608,847)
Gross profit 31,618,366 23,471,685
Selling and marketing costs 11 (220,542) (237,640)
Administrative expenses 11 (4,629,044) (3,851,492)
Reversal of impairment charge of intangible assets 18 – 630,223
Other income 133,754 57,967
Other (losses)/gains – net 12 (1,479) 85,392
Operating profit 26,901,055 20,156,135
Finance income 14 377,445 480,585
Finance costs 14 (1,778,460) (2,046,403)
Net foreign exchange transaction losses on financing activities 14 (40,219) (236,540)
Finance costs – net 14 (1,441,234) (1,802,358)
Profit before income tax 25,459,821 18,353,777
Income tax expense 15 (5,876,386) (4,533,903)
Profit for the year 19,583,435 13,819,874
Profit attributable to:
– owners of the Company 17,671,968 12,288,777
– non-controlling interest 1,911,467 1,531,097
19,583,435 13,819,874
Weighted average number of ordinary shares in issue (thousand) 178,741 178,741
Basic and diluted earnings per share for profit attributable to the equity holders
of the Company during the year (expressed in RUB per share) (1) 30 98.87 68.75
(1) Basic and diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number
of ordinary shares in issue during the year.
The notes on pages 107 to 173 of these Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
2018 2017
RUB’000 RUB’000
Profit for the year 19,583,435 13,819,874
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Currency translation differences 1,282,549 504,640
Items that will not be reclassified to profit or loss
Currency translation differences attributable to non-controlling interest 622,618 299,095
Other comprehensive income for the year, net of tax 1,905,167 803,735
Total comprehensive income for the year 21,488,602 14,623,609
Total comprehensive income for the year attributable to:
– owners of the Company 18,954,517 12,793,417
– non-controlling interest 2,540,065 1,830,192
21,494,582 14,623,609
Items in the statement above are disclosed net of tax. There is no income tax relating to the components of other comprehensive
income above.
The notes on pages 107 to 173 of these Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
Globaltrans Investment PLC
Annual Report & Accounts 2018
104
CONSOLIDATED BALANCE SHEET
at 31 December 2018
31 December 2018 31 December 2017
Note RUB’000 RUB’000
Assets
Non-current assets
Property, plant and equipment 17 74,764,903 64,770,907
Intangible assets 18 757,209 1,453,801
Other assets 22 1,019,572 436,855
Trade receivables 21 221,805 183,516
Loans and other receivables 21 11,904 16,857
Total non-current assets 76,775,393 66,861,936
Current assets
Inventories 23 904,375 776,341
Other assets 22 3,587,790 2,569,514
Loans and other receivables 21 262,846 49,367
Trade receivables 21 2,365,723 2,179,954
Current income tax assets 191,277 18,273
Cash and cash equivalents 24 7,129,918 4,966,171
Total current assets 14,441,929 10,559,620
Total assets 91,217,322 77,421,556
Equity and liabilities
Equity attributable to the owners of the Company
Share capital 25 516,957 516,957
Share premium 25 27,929,478 27,929,478
Common control transaction reserve (10,429,876) (10,429,876)
Translation reserve 4,317,675 3,035,126
Capital contribution 2,694,851 2,694,851
Retained earnings 22,598,941 21,146,195
Total equity attributable to the owners of the Company 47,628,026 44,892,731
Non-controlling interest 5,897,408 5,724,899
Total equity 53,525,434 50,617,630
Non-current liabilities
Borrowings 27 17,269,321 9,050,768
Trade and other payables 29 404,357 –
Deferred tax liabilities 28 6,284,868 5,908,319
Total non-current liabilities 23,958,546 14,959,087
Current liabilities
Borrowings 27 8,459,590 7,280,588
Trade and other payables 29 2,549,337 4,413,656
Contract liabilities 10 2,673,467 –
Current tax liabilities 50,948 150,595
Total current liabilities 13,733,342 11,844,839
Total liabilities 37,691,888 26,803,926
Total equity and liabilities 91,217,322 77,421,556
On 29 March 2019, the Board of Directors of Globaltrans Investment PLC authorised these financial statements for issue.
By order of the Board
Sergey Tolmachev, Konstantin Shirokov,
Director Director
The notes on pages 107 to 173 of these Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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105
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Attributable to the owners of the Company
Common
control Non-
Share Share transaction Translation Capital Retained controlling
Year ended capital premium reserve reserve contribution earnings Total interest Total
31 December 2017 Note RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
Balance at 1 January 2017 516,957 27,929,478 (10,429,876) 2,530,486 2,694,851 23,871,655 47,113,551 6,094,707 53,208,258
Comprehensive income
Profit for the year – – – – – 12,288,777 12,288,777 1,531,097 13,819,874
Other comprehensive income
Currency translation differences – – – 504,640 – – 504,640 299,095 803,735
Total comprehensive
income for 2017 – – – 504,640 – 12,288,777 12,793,417 1,830,192 14,623,609
Transactions with owners
Dividends to owners
of the Company 26 – – – – – (15,014,237) (15,014,237) – (15,014,237)
Dividends to non-
controlling interest 26 – – – – – – – (2,200,000) (2,200,000)
Total transactions with owners – – – – – (15,014,237) (15,014,237) (2,200,000) (17,214,237)
Balance at 31 December 2017 516,957 27,929,478 (10,429,876) 3,035,126 2,694,851 21,146,195 44,892,731 5,724,899 50,617,630
Attributable to the owners of the Company
Common
control Non-
Share Share transaction Translation Capital Retained controlling
Year ended capital premium reserve reserve contribution earnings Total interest Total
31 December 2018 Note RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
Balance at 1 January 2018 516,957 27,929,478 (10,429,876) 3,035,126 2,694,851 21,146,195 44,892,731 5,724,899 50,617,630
Comprehensive income
Profit for the year – – – – – 17,671,968 17,671,968 1,911,467 19,583,435
Other comprehensive income
Currency translation differences – – – 1,282,549 – – 1,282,549 622,618 1,905,167
Total comprehensive
income for 2018 – – – 1,282,549 – 17,671,968 18,954,517 2,534,085 21,488,602
Transactions with owners
Dividends to owners
of the Company 26 – – – – – (16,220,738) (16,220,738) – (16,220,738)
Dividends to non-
controlling interest 26 – – – – – – – (1,723,005) (1,723,005)
Increase in share capital
of subsidiary – – – – – – – 200,061 200,061
Payments to non-
controlling interest 19 – – – – – – – (831,136) (831,136)
Acquisition of non-
controlling interest 19 – – – – – 1,516 1,516 (7,496) (5,980)
Total transactions with owners – – – – – (16,219,222) (16,219,222) (2,361,576) (18,580,798)
Balance at 31 December 2018 516,957 27,929,478 (10,429,876) 4,317,675 2,694,851 22,598,941 47,628,026 5,897,408 53,525,434
The notes on pages 107 to 173 of these Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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Annual Report & Accounts 2018
106
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2018
2018 2017
Note RUB’000 RUB’000
Cash flows from operating activities
Profit before tax 25,459,821 18,353,777
Adjustments for:
– Depreciation of property, plant and equipment 17 5,110,715 4,962,459
– Amortisation of intangible assets 18 696,702 717,986
– Net (gain)/loss on sale of property, plant and equipment 17 (27,347) 28,507
– Loss on derecognition arising on capital repairs 17 377,284 528,039
– Reversal of impairment charge on intangible assets 18 – (630,223)
– Impairment of property, plant and equipment 17 10,073 111,172
– Profit on sale of associates 12 – (60,888)
– Net impairment losses on financial assets 11 29,713 60,755
– Interest income 14 (377,445) (480,585)
– Interest expense and other finance costs 14 1,778,460 2,046,403
– Net foreign exchange transaction losses on financing activities 14 40,219 236,540
– Other income/(losses) (10,940) 3,505
33,087,255 25,877,447
Changes in working capital
– Inventories 169,562 106,437
– Trade receivables (316,527) (78,548)
– Other assets (1,042,367) 859,188
– Other receivables (66,210) (17,160)
– Trade and other payables 262,742 748,209
– Contract liabilities 507,939 –
Cash generated from operations 32,602,394 27,495,573
Tax paid (5,765,818) (3,631,769)
Net cash from operating activities 26,836,576 23,863,804
Cash flows from investing activities
– Loans repayments received from third parties 5,984 11,485
– Purchases of property, plant and equipment (11,567,554) (4,872,076)
– Purchases of intangible assets (110) –
– Proceeds from sale of property, plant and equipment 17 409,794 267,526
– Proceeds from sale of associates 12 – 60,888
– Interest received 377,445 480,585
– Receipts from finance lease receivable 129,251 23,830
Net cash used in investing activities (10,645,190) (4,027,762)
Cash flows from financing activities
– Proceeds from bank borrowings 27 15,197,467 15,710,000
– Proceeds from issue of non-convertible unsecured bonds 27 5,000,000 –
– Repayments of borrowings 27 (13,127,743) (15,722,698)
– Finance lease principal payments 27 (1,321,234) –
– Interest paid 27 (1,633,332) (1,943,746)
– Dividends paid to owners of the Company 26 (16,220,738) (15,014,237)
– Dividends paid to non-controlling interests in subsidiaries 26 (1,723,005) (2,200,000)
– Acquisition of non-controlling interest 19 (5,980) –
– Payments to non-controlling interest 19 (168,604) –
Net cash used in financing activities (14,003,169) (19,170,681)
Net increase in cash and cash equivalents 2,188,217 665,361
– Exchange losses on cash and cash equivalents (24,470) (472,604)
– Cash and cash equivalents at beginning of year 24 4,966,171 4,773,414
Cash and cash equivalents at end of year 24 7,129,918 4,966,171
Principal non-cash investing and financing transactions
The principal non-cash investing and financing transactions consist of finance leases with the Group acting as a lessor (Note 22) and finance
leases with the Group acting as the lessee (Note 27).
The notes on pages 107 to 173 of these Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Country of incorporation
Globaltrans Investment Plc (“the Company”) is incorporated and domiciled in Cyprus as a limited liability company in accordance with the
provisions of the Cyprus Companies Law, Cap. 113 and converted into a public company on 15 April 2008. The address of its registered office
is 20 Omirou Street, CY-3095 Limassol, Cyprus. The Group’s principal place of business is at 16/15 Spartakovskaya Sqr., Moscow, Russia.
Approval of the Consolidated Financial Statements
These Consolidated Financial Statements were authorised for issue by the Board of Directors on 29 March 2019.
Global Depositary Receipts
Global Depositary Receipts each representing one ordinary share of the Company are listed on the London Stock Exchange International
Main Market.
Principal activities
The principal activities of the Group, which are unchanged from last year, are the provision of railway transportation services using own and
leased rolling stock as well as the fleet engaged from third party operators and the operating lease of rolling stock.
2. Basis of preparation
The Consolidated Financial Statements of Globaltrans Investment PLC have been prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union (“EU”) and the requirements of the Cyprus Companies Law Cap. 113.
As of the date of the authorisation of the financial statements, all International Financial Reporting Standards issued by International
Accounting Standards Board (“IASB”) that are relevant to the Group’s operations and are effective as at 1 January 2018 have been adopted
by the EU through the endorsement procedure established by the European Commission.
The financial statements have been prepared under the historical cost convention.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 7.
3. Adoption of new or revised standards and interpretations
During the current year the Group adopted all the new and amended standards that are relevant to its operations and are effective for
accounting periods beginning on 1 January 2018. None of these has affected these Consolidated Financial Statements with the exception of
the following standards the adoption of which resulted in changes in the Group’s accounting policies:
•
IFRS 15 “Revenue from contracts with customers”; and
•
IFRS 9 “Financial Instruments”.
As explained below, in accordance with the transition provisions of IFRS 15 and IFRS 9, the Group has elected the simplified approach for
adoption of the standards. Accordingly, IFRS 15 and IFRS 9 were adopted without restating the comparative information, which is prepared
in accordance with IAS 18 and IAS 39, and the impact of adoption has been recognised in the opening retained earnings.
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Annual Report & Accounts 2018
108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
3. Adoption of new or revised standards and interpretations continued
The following table summarises the impact of adoption of the new standards on each financial statement line item of the consolidated
balance sheet. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot
be recalculated from the numbers provided. The adoption of the new standards did not have any impact on the consolidated income
statement, the consolidated statement of comprehensive income and the basic and diluted earnings per share.
31 December 2017 31 December 2017 Effect of 1 January 2018
– as previously – under IAS 18 adoption – under IFRS 15
presented Reclassifications(1) and IAS 39 of IFRS 15 and IFRS 9
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
Non-current assets
Trade and other receivables 637,228 (637,228) – – –
Trade receivables – 183,516 183,516 – 183,516
Loans and other receivables – 16,857 16,857 – 16,857
Other assets – 436,855 436,855 – 436,855
Total non-current assets 66,861,936 – 66,861,936 – 66,861,936
Current assets
Trade and other receivables 4,798,835 (4,798,835) – – –
Trade receivables – 2,179,954 2,179,954 – 2,179,954
Loans and other receivables – 49,367 49,367 – 49,367
Other assets – 2,569,514 2,569,514 – 2,569,514
Total current assets 10,559,620 – 10,559,620 – 10,559,620
Total assets 77,421,556 – 77,421,556 – 77,421,556
Current liabilities
Trade and other payables 4,413,656 – 4,413,656 (2,229,306) 2,184,350
Contract liabilities – – – 2,229,306 2,229,306
Total current liabilities 11,844,839 – 11,844,839 – 11,844,839
Total liabilities 26,803,926 – 26,803,926 – 26,803,926
(1) Changes in presentation following adoption of IFRS 9 and IFRS 15: The Group has voluntarily changed the presentation of certain amounts in the consolidated balance sheet to
reflect their different nature. Comparative figures have been adjusted to conform to the changes in the presentation for the current year. In particular:
•
•
Loans receivables and other receivables, which were previously presented within ‘trade and other receivables’, are now presented as ‘loans and other receivables’ on the face of the
consolidated balance sheet; and
Finance lease receivables, prepayments and other non-financial assets, which were previously presented within ‘trade and other receivables’, are now presented as ‘other assets’ on
the face of the consolidated balance sheet.
Comparative figures have been adjusted to conform with the changes in the presentation for the current period.
The impact of adoption of each standard is analysed in more detail in the following sections.
(i) IFRS 15 “Revenue from contracts with customers”
IFRS 15 “Revenue from contracts with customers” and related amendments superseded IAS 18 “Revenue”, IAS 11 “Construction Contracts”
and related interpretations. The new standard replaces the separate models for recognition of revenue for the sale of goods, services and
construction contracts under previous IFRS and establishes uniform requirements regarding the nature, amount and timing of revenue
recognition. IFRS 15 introduces the core principle that revenue must be recognised in such a way to depict the transfer of goods or services
to customers and reflect the consideration that the entity expects to be entitled to in exchange for transferring those goods or services to
the customer; the transaction price.
The new standard provides a principle-based five-step model that must be applied to all categories of contracts with customers. Any bundled
goods or services must be assessed as to whether they contain one or more performance obligations (that is, distinct promises to provide a
good or service). Individual performance obligations must be recognised and accounted for separately and any discounts or rebates in the
contract price must generally be allocated to each of them.
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109
3. Adoption of new or revised standards and interpretations continued
IFRS 15 provides further guidance on the measurement of revenue arising from contracts that have variable consideration due to discounts,
rebates, consignment inventories etc. In accordance with the new standard, when the consideration varies, an entity includes in the
transaction price some or all of an amount of variable consideration only to the extent that it is highly probable that a significant reversal in
the cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Further, incremental costs incurred to secure contracts with customers and certain costs incurred to fulfil such contracts have to be
capitalised and amortised over the period when the benefits of the contract are consumed.
The amendments to IFRS 15 clarify how to identify a performance obligation in a contract, how to determine whether a company is a
principal (that is, the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided) and how
to determine whether the revenue from granting a license should be recognised at a point in time or over time.
Impact of adoption
In accordance with the transition provisions of IFRS 15, the Group has elected the simplified transition method for adopting the new standard
which allows the cumulative effect of transition to IFRS 15 to be recognised as at 1 January 2018 as an adjustment to the opening retained
earnings directly in equity. In accordance with the transition method elected by the Group for implementation of IFRS 15, the comparatives
have not been restated but are prepared based on the Group’s previous policies, which comply with IAS 18 and related interpretations.
Based on detailed analysis of the Group’s revenue streams and individual contracts’ terms and on the basis of the facts and circumstances
relating to the Group’s revenue transactions, the management of the Group concluded that the adoption of the new standard on 1 January
2018 did not have an impact on the nature, amount or timing of revenue recognised by the Group. Accordingly, the adoption of IFRS 15 did
not have an impact on the Group’s retained earnings as of 1 January 2018.
The adoption of the new standard resulted in changes in the presentation of amounts in the consolidated balance sheet, as per below. In
particular, advances from customers for railway transportation services with a carrying amount of RUB 2,229,306 thousand as at 1 January
2018, that were previously included within trade and other payables, are now presented separately on the face of the consolidated balance
sheet as contract liabilities.
31 December 2017 Effect of IFRS 15 – 1 January 2018
under IAS 18 reclassification under IFRS 15
RUB’000 RUB’000 RUB’000
Current liabilities
Trade and other payables 4,413,656 (2,229,306) 2,184,350
Contract liabilities – 2,229,306 2,229,306
The table below summarises the impact of application of IFRS 15 on the current reporting period:
31 December 2018 31 December 2018
under IFRS 15 under IAS 18 Change
RUB’000 RUB’000 RUB’000
Current liabilities
Trade and other payables 2,549,337 5,222,804 2,673,467
Contract liabilities 2,673,467 – (2,673,467)
The assessment of the impact of adoption of IFRS 15 on the Group’s accounting policies required management to make certain critical
judgements in the process of applying the principles of the new standard. The judgements that had the most significant effect on
management’s conclusion are disclosed in Note 7.
The adoption of the new standard resulted in changes in the Group’s accounting policies in regards to revenue recognition. The Group’s
new accounting policies following adoption of IFRS 15 at 1 January 2018 are set out in Note 4.
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110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
3. Adoption of new or revised standards and interpretations continued
(ii) IFRS 9 “Financial instruments”
IFRS 9 “Financial instruments” replaces the provisions of IAS 39 that relate to recognition and derecognition of financial instruments and
classification and measurement of financial assets and financial liabilities. IFRS 9 further introduces new principles for hedge accounting and
a new forward-looking impairment model for financial assets.
The new standard requires debt financial assets to be classified into two measurement categories: those to be measured subsequently at
fair value (either through other comprehensive income or through profit or loss) and those to be measured at amortised cost. The
determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments
and the contractual cash flow characteristics of the instruments. For assets measured at fair value, gains and losses are either recorded in
profit or loss or in other comprehensive income.
In particular, debt financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of
principal and interest are measured at amortised cost. Debt financial assets that are held for collection of contractual cash flows and for
selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through
other comprehensive income. Lastly, debt financial assets that do not meet the criteria for amortised cost or fair value through other
comprehensive income are measured at fair value through profit or loss.
For investments in equity instruments that are not held for trading, the classification depends on whether the entity has made an irrevocable
election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. If no such
election has been made or the investments in equity instruments are held for trading they are required to be classified at fair value through
profit or loss.
IFRS 9 also introduces a single impairment model applicable for debt financial assets at amortised cost and fair value through other
comprehensive income and removes the need for a triggering event to be necessary for recognition of impairment losses. The new impairment
model requires the recognition of allowances for doubtful debt based on Expected Credit Losses (“ECL”), rather than incurred credit losses as
under IAS 39. The standard further introduces a simplified approach for calculating impairment on trade receivables as well as for calculating
impairment on contract assets and lease receivables; which also fall within the scope of the impairment requirements of IFRS 9.
For financial liabilities, the standard retains most of the requirements of IAS 39. The main change is that, in case where the fair value option is
taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income
rather than the income statement, unless this creates an accounting mismatch.
With the introduction of IFRS 9 “Financial Instruments”, the IASB confirmed that gains or losses that result from modification of financial
liabilities that do not result in derecognition shall be recognised in profit or loss.
IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic
relationship between the hedged item and hedging instrument and for the “hedge ratio” to be the same as the one management actually use
for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39.
Impact of adoption
In accordance with the transition provisions in IFRS 9, the Group has elected the simplified transition method for adopting the new standard
which allows for the effect of transition to IFRS 9 to be recognised as at 1 January 2018 as an adjustment to the opening retained earnings
directly in equity. In accordance with the transition method elected by the Group for implementation of IFRS 9, the comparatives have not
been restated but are prepared based on the Group’s previous policies, which comply with IAS 39. Consequently, the revised requirements
of IFRS 7 “Financial Instruments: Disclosures” have only been applied to the current period. The comparative period disclosures repeat those
disclosures made in the prior period.
On 1 January 2018, the Group’s management assessed which business models apply to the debt financial assets held by the Group that
were classified as loans and receivables under IAS 39. Management concluded to classify all the financial assets held by the Group at the
amortised cost measurement category under IFRS 9 as these are held with the objective to collect the contractual cash flows and their cash
flows represent solely payments of principal and interest. As a result, the measurement basis for the Group’s financial assets remained
unchanged by the adoption of IFRS 9. The adoption of IFRS 9 did not have an impact on the classification and measurement basis of the
Group’s financial liabilities.
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3. Adoption of new or revised standards and interpretations continued
As a result of the adoption of IFRS 9 the Group revised its impairment methodology for each class of assets subject to the new impairment
requirements. The Group has four types of assets that are subject to IFRS 9’s new expected credit loss model: trade receivables, loans and
other receivables, finance lease receivables and cash and cash equivalents. Based on the assessment performed by management, the
incremental impairment loss as at 1 January 2018 was immaterial. Accordingly, the impact of adoption of IFRS 9 on the Group’s retained
earnings as at 1 January 2018 was immaterial.
The adoption of the new standard resulted in changes in the Group’s accounting policies in regard to financial instruments and lease
receivables. The Group’s new accounting policies following adoption of IFRS 9 at 1 January 2018 are set out in Note 4.
4. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. Apart from the
accounting policy changes resulting from the adoption of IFRS 15 and IFRS 9, effective from 1 January 2018, these policies have been
consistently applied to all the years presented.
Basis of consolidation
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is
exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that
control ceases.
Business combinations involving entities under common control (ultimately controlled by the same party, before and after the business
combination, and that control is not transitory) are accounted using the predecessor basis of accounting. Under this method, the financial
statements of the acquiree are included in the Consolidated Financial Statements using pre-acquisition IFRS carrying amounts using uniform
accounting policies, on the assumption that the Group was in existence for all periods presented. The excess of the cost of acquisition over
the carrying amount of the Group’s share of identifiable net assets is recorded in equity, as “common control transaction reserve”.
The acquisition method of accounting is used for the acquisitions of subsidiaries that do not involve entities or businesses under common
control by the Group. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, equity
instruments issued by the Group and liabilities incurred to the former owners of the acquiree. The consideration transferred includes the fair
value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest
or the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets over the net identifiable assets acquired and
liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised
in profit or loss.
Indemnification assets recognised at the acquisition date continue to be measured on the same basis as the related indemnified item subject to
collectability and contractual terms until they are collected, sold, cancelled or expire in the post-combination period. The entity measures the
indemnification asset on the same basis as the related item, subject to any restrictions in the contractual terms such as a ceiling on the amount
payable and any adjustment for the seller creditworthiness. Measurement on the same basis includes recognising any gains or losses appropriately.
On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at the fair value or at the non-
controlling interest’s proportionate share of the acquiree’s identifiable net assets.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the
fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 9 in profit or loss
(2017: in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income). Contingent consideration that is
classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into compliance with
those used by the Group.
All inter-company transactions, balances, income, expenses and unrealised gains and losses are eliminated on consolidation. Profits and
losses from intra-group transactions that are recognised in assets are also eliminated. Unrealised losses are also eliminated but considered as
an impairment indicator of the asset transferred.
(b) Transactions with non-controlling interests
The Group treats transactions with non-controlling interests that do not result in loss of control as transactions with equity owners in their
capacity as equity owners of the Group. For purchases from non-controlling interests, the difference between the fair value of any consideration
paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity attributable to owners of the
Company. Gains or losses on disposals to non-controlling interests are also recorded in equity attributable to the owners of the Company.
(c) Disposal of subsidiaries
When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with
the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets and liabilities.
This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
(d) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. The Group’s
investment in associates includes goodwill identified on acquisition. Under the equity method, the investment is initially recognised at cost, and
the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously
recognised in other comprehensive income is reclassified to profit or loss where appropriate.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition
other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the
investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this
is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its
carrying value and recognises the amount adjacent to ‘share of profit/(loss) of an associate’ in the income statement.
Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognised in the Group’s
financial statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates change where necessary to ensure
consistency with the policies adopted by the Group. Dilution gains and losses arising in investments in associates are recognised in the
income statement.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The
chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been
identified as the Board of Directors of the Company that makes strategic decisions.
Revenue recognition
(i) Accounting policies applicable from 1 January 2018
Recognition and measurement. Revenue represents the amount of consideration to which the Group expects to be entitled in exchange for
transferring the promised goods or services to the customer, excluding amounts collected on behalf of third parties (for example, value-
added taxes); the transaction price. Revenue is recognised net off discounts and estimates for rebates that are in accordance with the
contracts entered into with the customers. The Group includes in the transaction price an amount of variable consideration only to the
extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the
uncertainty associated with the variable consideration is subsequently resolved. Estimations for rebates and discounts are based on the
Group’s experience with similar contracts and forecasted sales to the customer.
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4. Summary of significant accounting policies continued
The Group recognises revenue when the parties have approved the contract (in writing, orally or in accordance with other customary
business practices) and are committed to perform their respective obligations, the Group can identify each party’s rights and the payment
terms for the goods or services to be transferred, the contract has commercial substance (i.e. the risk, timing or amount of the Group’s future
cash flows is expected to change as a result of the contract), it is probable that the Group will collect the consideration to which it will be
entitled in exchange for the goods or services that will be transferred to the customer and when specific criteria have been met for each of
the Group’s contracts with customers, as described below.
The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of
each arrangement. In evaluating whether collectability of an amount of consideration is probable, the Group considers only the customer’s
ability and intention to pay that amount of consideration when it is due.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or
decreases in estimates are reflected in the income statement in the period in which the circumstances that give rise to the revision become
known by management.
Revenues earned by the Group are recognised on the following bases:
Revenue from railway transportation services – using own, leased or engaged rolling stock
The Group organises transportation services for clients using its own, leased or engaged rolling stock.
There are four types of operator’s services contracts:
•
•
•
•
The Group has a contractual relationship with the client and sets the terms of the transactions, such as selling and payment terms, bears
credit risk and controls the flow of receipts and payments. The OAO “Russian Railways” tariff is borne by the Group. Total proceeds from
clients are included in the Group’s revenue.
The Group has a contractual relationship with the client and sets the terms of the transactions, such as selling and payment terms, bears
credit risk and controls the flow of receipts and payments. The OAO “Russian Railways” tariff is borne by the Group and recharged to the
customer as a reimbursement but the Group bears the variability in tariffs. Total proceeds from clients are included in the Group’s revenue.
The Group has a contractual relationship with the client and sets the terms of the transaction, excluding the OAO “Russian Railways” tariff,
such as selling and payment terms, bears credit risk and controls the flow of receipts and payments. The OAO “Russian Railways” tariff is
paid by the Group and recharged to the customer as a reimbursement. Under these arrangements the Group recognises revenue net of
OAO “Russian Railways” tariff.
The Group has a contractual relationship with the customer and sets the terms of the transaction, excluding the OAO “Russian Railways”
tariff, such as selling and payment terms, bears credit risk and controls the flow of receipts and payments. The tariff is paid directly by the
customer to OAO “Russian Railways”. Under these arrangements the Group recognises revenue net of OAO “Russian Railways” tariff.
Revenue for all of the above types of contracts is recognised over time while the Group satisfies its performance obligation by transferring
control over the promised services to the customer in the accounting period in which the services are rendered. In particular, revenue is
recognised in accordance with the stage of completion of the transaction, determined based on the actual trip days lapsed against the total
estimated number of trip days for the entire trip, since the customer receives and consumes the benefits from the services simultaneously.
Customers are invoiced on a regular basis and in accordance with pre-agreed payment terms with credit periods not exceeding one year.
If the services rendered by the Group exceed the payment and the Group does not have the unconditional right to consideration for the
services rendered, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised.
Identification of performance obligations. The Group assesses whether contracts that involve the provision of a range of goods and/or
services contain one or more performance obligations (that is, distinct promises to provide a good or service) and allocates the transaction
price to each performance obligation identified on the basis of its stand-alone selling price. A good or service that is promised to a customer
is distinct if the customer can benefit from the good or service, either on its own or together with other resources that are readily available
to the customer (that is, the good or service is capable of being distinct) and the Group’s promise to transfer the good or service to the
customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within
the context of the contract).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
In assessing whether two or more promises to transfer goods and/or services to a customer are separate performance obligations, the
Group considers, amongst others, whether it provides a significant service of integrating the good or services with other goods or services
promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has
contracted (that is, the Group is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the
customer), whether one or more of the goods and/or services significantly modifies or customises, or is significantly modified or customised
by, one or more of the other goods or services promised in the contract or whether the good or services are highly interdependent or highly
interrelated. The Group considers that all of the above operator’s services contracts contain a single performance obligation.
Financing component. In determining the transaction price, the Group adjusts the promised amount of consideration for the effects of the
time value of money if the timing of payments agreed to (either explicitly or implicitly) provides the customer or the Group with a significant
benefit of financing. In these circumstances, the contract contains a significant financing element.
The Group does not have any material contracts where the period between the transfer of the promised goods or services to the customer
and payment by the customer exceeds one year. Consequently, the Group elected to use the practical expedient provided by IFRS 15 and
does not adjust any of the transaction prices for the effect of the financing component for the time value of money.
Contract assets and contract liabilities. In case the goods transferred or services rendered by the Group as of the reporting date exceed the
payments made by the customer as of that date and the Group does not have the unconditional right to charge the client for the goods
transferred or services rendered, a contract asset is recognised. If the payments made by a customer exceed the goods transferred or services
rendered under the relevant contract, a contract liability is recognised. The Group recognises any unconditional rights to consideration
separately from contract assets as a trade receivable because only the passage of time is required before the payment is due.
The Group assesses a contract asset for impairment in accordance with IFRS 9 using the simplified approach permitted by IFRS 9 which
requires lifetime expected credit losses to be recognised from initial recognition of the contract asset. Impairment of contract assets are
measured, presented and disclosed on the same basis as for trade receivables. Contract assets are written off when there is no reasonable
expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to
engage in a repayment plan with the Group and a failure to make contractual payments for a period of greater than 180 days past due.
Costs to obtain or fulfil contracts with customers. To the extent that these are recoverable, incremental costs incurred by the Group to
obtain a contract and incremental costs incurred to fulfil a contract are capitalised and amortised on a straight-line basis over the term of
the specific contract – consistent with the pattern of the transfer of the goods and/or services to which they relate to – and assessed for
impairment. Incremental costs of obtaining contracts are those costs that the Group incurs to obtain a contract with a customer that would
not have been incurred if the contract had not been obtained.
The Group does not have any contracts where the period of transfer of the goods and/or provision of the services (that is, the period between
the start and completion of a trip) exceeds one year. Accordingly, the Group recognises the incremental costs of obtaining a contract as an
expense when incurred since the amortization period of the asset that it would otherwise have recognised is less than one year.
(ii) Accounting policies applied until 31 December 2017
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the
Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow
to the entity and when specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on
historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Revenues earned by the Group are recognised on the following bases:
Revenue from railway transportation services – using own, leased or engaged rolling stock
The Group organises transportation services for clients using its own, leased or engaged rolling stock.
There are four types of operator’s services:
•
The Group has a contractual relationship with the client and sets the terms of the transactions, such as selling and payment terms, bears
credit risk and controls the flow of receipts and payments. The OAO “Russian Railways” tariff is borne by the Group. Total proceeds from
clients are included in the Group’s revenue.
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4. Summary of significant accounting policies continued
•
•
•
The Group has a contractual relationship with the client and sets the terms of the transactions, such as selling and payment terms, bears
credit risk and controls the flow of receipts and payments. The OAO “Russian Railways” tariff is borne by the Group and recharged to the
customer as a reimbursement but the Group bears the variability in tariffs. Total proceeds from clients are included in the Group’s revenue.
The Group has a contractual relationship with the client and sets the terms of the transaction, excluding the OAO “Russian Railways” tariff,
such as selling and payment terms, bears credit risk and controls the flow of receipts and payments. The OAO “Russian Railways” tariff is
paid by the Group and recharged to the customer as a reimbursement. Under these arrangements the Group recognises revenue net of
OAO “Russian Railways” tariff.
The Group has a contractual relationship with the customer and sets the terms of the transaction, excluding the OAO “Russian Railways”
tariff, such as selling and payment terms, bears credit risk and controls the flow of receipts and payments. The tariff is paid directly by the
customer to OAO “Russian Railways”. Under these arrangements the Group recognises revenue net of OAO “Russian Railways” tariff.
Revenue is recognised in accordance with the stage of completion of the transaction, based on the actual trip days lapsed against the total
estimated number of trip days for the entire trip.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”). The functional currency of the Company and majority of the Group’s
subsidiaries is the Russian Rouble (“RUB”). The Consolidated Financial Statements are presented in Russian Roubles (RUB) (“the presentation
currency”) because this is the currency better understood by the principal users of the financial statements.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions
or valuations where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
income statement.
Net foreign exchange differences arising from borrowings and other liabilities and from cash and cash equivalents and other monetary assets
are presented on the face of the income statement in the line “Net foreign transaction losses on financing activities”, with the appropriate
disclosure of the split between the two in the note “Finance income and costs”.
All other foreign exchange gains and losses are presented in the income statement within “Other gains – net”.
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a
functional currency different from the presentation currency are translated into the presentation currency as follows:
•
Assets and liabilities are translated at the closing rate existing at the date of the balance sheet presented.
•
Income and expense items at the average monthly rate (unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of
the transactions).
•
Share capital, share premium and all other reserves are translated using the historic rate.
All exchange differences resulting from the above translation are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, including foreign exchange
differences on long term loans receivable designated as part of the net investment in foreign operations, are recognised in other
comprehensive income. When a foreign operation is disposed of or sold and control or significant influence is lost, exchange differences that
were recorded in equity are recognised in the income statement as part of the gain or loss on disposal. On partial disposal of a foreign
operation, the proportionate share of the cumulative amount of the exchange differences recorded in equity relating to the amount
disposed is reclassified in the income statement. The Group assesses whether there is a partial disposal of a foreign operation on the basis of
the change in the Group’s proportionate ownership interest in the foreign operation.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
Property, plant and equipment
Property, plant and equipment are recorded at purchase or construction cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition or construction of the items.
Land is not depreciated.
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost, less residual value, over
their estimated useful lives, as follows:
Number of years,
range
Buildings 30
Rolling stock: (except locomotives)
– Gondola cars 22
– Rail tank cars 32
– Rail tank cars (specialised types) 30 – 40
– Hoppers 15 – 26
– Flat cars 20 – 32
Tank containers 20
Locomotives 9 – 25
Mounted wheels 7
Motor vehicles and other property, plant and equipment 3 – 10
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Assets under construction are not depreciated until they are completed and brought into use, at which time they are reclassified in the
relevant class of property, plant and equipment and depreciated accordingly.
Borrowing costs to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to
complete and prepare the asset for its intended use. All other borrowing costs are expensed.
Expenditure for repairs and maintenance of property, plant and equipment is charged to the income statement of the year in which they are
incurred. The cost of major renovations and other subsequent expenditure are included in the carrying amount of the asset or recognised as
a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and
the cost of the item can be measured reliably. The carrying amount of the replaced cost is derecognised.
Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with carrying amount and these
are included within operating profit as part of operating expenses.
Rolling stock repair and maintenance costs
Repair and maintenance costs relating to periodical capital repairs of locomotives and other rolling stock and periodical middle repairs of
locomotives constitute major repairs that result in enhancement of the economic benefits of the rolling stock and as such are capitalised by
the Group.
In particular, the cost of each major periodic capital repair is recognised in the carrying amount of the relevant item of rolling stock repaired
and separately depreciated over the expected period until the next periodic capital repair or until the end of the useful economic life of the
item of rolling stock, if earlier. Significant components replaced as part of periodic major capital repairs are capitalised and depreciated
separately over their useful economic life. Simultaneously with the capitalisation of the costs of the new periodic major capital repair, the
carrying amount of the repaired rolling stock that is attributable to the previous periodic capital repair and/or significant component
replaced, if any, is derecognised and debited in ‘cost of sales’ in the income statement as ‘loss on derecognition arising on capital repairs’.
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4. Summary of significant accounting policies continued
If it is not practicable for the Group to determine the carrying amount of the repaired rolling stock that is attributable to the previous
periodic capital repair and/or significant component replaced to be derecognised, the Group uses the cost of the current periodic major
capital repair or replaced part as an indication of what the cost of the replaced part was at the time the rolling stock was acquired.
Other types of repairs of rolling stock, such as current repairs and depot repairs, are viewed by the Group as routine repairs and maintenance
and thus their cost is charged in the Group’s income statement as and when incurred.
Upon initial recognition of rolling stock, the Group’s accounting policy is not to separately identify and depreciate the element of its cost that
is reflecting the maintenance element of the periodic major capital repair of the rolling stock on initial recognition. The cost attributed to
significant components, such as wheel pairs, is separately identified and depreciated over their useful economic life.
Intangible assets
(a) Customer relationships
Customer relationships acquired in a business combination are recognised at fair value at the acquisition date. Customer relationships relate
to a transportation services contract with MMK Group. Customer relationships have a finite useful life and are carried at cost less
accumulated amortisation. Customer relationships are being amortised using the straight-line method over an estimated useful life from five
to seven years from the date of their acquisition. The useful lives of the customer relationships are reviewed, and adjusted, if appropriate,
at the end of each reporting period.
(b) Computer software
The costs of acquiring computer software for internal use are capitalised as intangible assets where the software supports a significant
business system and the expenditure leads to the creation of a durable asset. Computer software is capitalised at cost and amortised over
three years, which reflects its estimated useful life, using straight-line method commencing when the asset is available for its intended use.
Costs associated with maintaining computer software programmes are recognised as an expense as incurred.
Impairment of non-financial assets
Assets that have indefinite useful life and goodwill are not subject to amortisation and are tested annually for impairment.
Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-
generating units). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of impairment
whenever there is an indication that an impairment recognised in prior periods may no longer exist or may have decreased.
Leases
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments, the right to use an asset for an
agreed period of time.
The Group is the lessee
(a) Finance leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased assets and the present value of the
minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the
finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element
of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease
term, except for instances, where the Group has the option to obtain ownership of the assets and it is reasonable certain that such ownership
will be obtained, in which case the asset is depreciated over the useful economic life of the asset.
(b) Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-
line basis over the period of the lease.
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4. Summary of significant accounting policies continued
(c) Sale and leaseback
A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. If a sale and leaseback transaction results
in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortised over the lease term.
When the overall economic effect of a sale and leaseback transaction cannot be understood without reference to the series of transactions
as a whole (i.e. when the series of transactions are closely interrelated, negotiated as a single transaction, and take place concurrently or in a
continuous sequence) the transaction is accounted for as one transaction, usually a collateralised borrowing.
If a sale and leaseback transaction results in an operating lease any profit or loss will be recognised immediately. If the sale price is below fair
value any profit or loss will be recognised immediately except that, if the loss is compensated for by future lease payments at below market
price, it is deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale
price is above fair value, the excess over fair value is deferred and amortised over the period for which the asset is expected to be used.
The Group is the lessor
(a) Finance leases
Where the Group is a lessor in a lease which transfers substantially all the risks and rewards incidental to ownership to the lessee, the assets
leased out are presented as a finance lease receivable and carried at the present value of the future lease payments. Finance lease receivables
are initially recognised at commencement (when the lease term begins) using a discount rate determined at inception (the earlier of the date
of the lease agreement and the date of commitment by the parties to the principal provisions of the lease).
The difference between the gross receivable and the present value represents unearned finance income. The income is recognised over the
term of the lease using the net investment method (before income tax and other taxes) which reflects a constant periodic rate of return.
Incremental costs directly attributable to negotiating and arranging the lease are included in the initial measurement of the finance lease
receivable and reduce the amount of income recognised over the lease term. Finance income from leases is recorded within interest income
in the income statement.
(b) Operating leases
Assets leased out under operating leases are included in property, plant and equipment in the balance sheet based on the nature of the asset.
They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment.
(c) Impairment of lease receivables
Until 31 December 2017, the Group assessed whether there was objective evidence that a lease receivable was impaired in accordance
with IAS 39. The impairment provision was determined in the same way as for trade receivables.
From 1 January 2018, the Group recognises credit loss allowance on lease receivables in accordance with IFRS 9 using the simplified approach
permitted by the standard, which requires expected credit losses to be recognised from initial recognition of the lease receivable at an amount
equal to lifetime ECL. The ECL is determined in the same way as for trade receivables and is recognised through an allowance account to write
down the lease receivables’ net carrying amount to the present value of expected cash flows discounted at the interest rates implicit in the
leases. The estimated future cash flows reflect the cash flows that may result from obtaining and selling the assets subject to the lease.
(d) Revenues from leasing
Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.
Financial instruments
(i) Accounting policies applicable from 1 January 2018
(a) Financial assets
Recognition and derecognition. All purchases and sales of financial assets that require delivery within the time frame established by
regulation or market convention (“regular way” purchases and sales) are recorded at trade-date; being the date on which the Group
commits to purchase or sell the asset. All other purchases and sales are recognised when the entity becomes a party to the contractual
provisions of the instrument.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and
the Group has transferred substantially all the risks and rewards of ownership. Any gain or loss arising upon their derecognition is recognised
directly in the income statement.
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4. Summary of significant accounting policies continued
Classification. The classification depends on the Group’s business model for managing the financial assets and the contractual cash flow
characteristics of the assets. Management determines the classification of financial assets at initial recognition.
The Group classifies its financial assets at amortised cost. Financial assets at amortised cost are held for collection of contractual cash flows
and their cash flows represent solely payments of principal and interest. They are included in current assets, except for maturities greater
than twelve months after the balance sheet date. These are classified as non-current assets. The Group’s financial assets at amortised cost
comprise of trade receivables, loans and other receivables and cash and cash equivalents on the balance sheet.
Reclassification. Financial instruments are reclassified only when the business model for managing those assets changes. The reclassification
has a prospective effect and takes place from the start of the first reporting period following the change.
Measurement. At initial recognition, the Group measures financial assets classified at amortised cost at their fair value plus incremental
transaction costs that are directly attributable to the acquisition of the financial assets. Subsequently, these are measured at amortised cost.
Interest income. Interest income on financial assets at amortised cost is recognised using the effective interest rate method and is included
within ‘finance income’ in the income statement. In particular, interest income is calculated by applying the effective interest rate to the gross
carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets,
the effective interest rate is applied to the net carrying amount of the financial asset; that is after deduction of the loss allowance. The
Group’s definition of credit-impaired assets is explained in Note 6, Credit risk section.
Impairment. The Group assesses on each reporting date and on a forward looking basis the Expected Credit Losses (“ECL”) associated with
its debt financial assets carried at amortised cost. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is
determined by evaluating a range of possible outcomes, (ii) time value of money, and (iii) all reasonable and supportable information that
is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of
future conditions.
The carrying amount of the financial assets is reduced through the use of an allowance account, and the amount of the loss is recognised in
the income statement within ‘selling and marketing costs’. Subsequent recoveries of amounts for which loss allowance was previously
recognised are credited against the same line item.
The impairment methodology applied by the Group for calculating expected credit losses depends on the type of financial asset assessed for
impairment. Specifically:
•
•
For trade receivables the Group applies the simplified approach permitted by IFRS 9 for calculating expected credit losses, which requires
lifetime expected losses to be recognised from initial recognition of the financial assets. The assessment is done on an individual basis.
For all its other debt financial assets carried at amortised cost, the Group applies the general approach. In particular, the Group applies the
three stage model for calculating impairment, which is based on changes in the credit quality of the financial asset since initial recognition.
A financial instrument that is not credit -impaired on initial recognition is classified in Stage 1. The ECL of financial assets in Stage 1 is
measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until
contractual maturity, if shorter. If the Group identifies a Significant Increase in Credit Risk (“SICR”) since initial recognition, the asset is
transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until its contractual maturity but considering
expected prepayments, if any.
Refer to Note 6, Credit risk section for a description of how the Group determines when a SICR has occurred. If the Group determines that a
financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL. The Group’s definition of credit
impaired assets and definition of default is explained in Note 6, Credit risk section.
Write-off. Financial assets are written-off, in whole or in part, when the Group has concluded that there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a
repayment plan with the Group and a failure to make contractual payments for a period of greater than 180 days past due. The Group may
write-off financial assets that are still subject to enforcement activity when the Group seeks to recover amounts that are contractually due,
however, there is no reasonable expectation of recovery. Subsequent recoveries of amounts previously written off are credited against
‘selling and marketing costs’ in the income statement.
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4. Summary of significant accounting policies continued
Classification as trade receivables. Trade receivables are amounts due from customers for services performed in the ordinary course of
business. If collection is expected in one year or less (or in a normal operating cycle of the business, if longer than one year) they are classified as
current assets, if not, they are presented as non-current assets. Trade receivables are recognised initially at the amount of consideration that is
unconditional unless they contain significant financing components, in which case they are recognised at fair value. The Group holds its trade
receivables with the objective to collect the contractual cash flows and their contractual cash flows represent solely payments of principal and
interest and therefore measures them subsequently at amortised cost using the effective interest method, less provision for impairment.
Classification as loans and other receivables. These amounts generally arise from transactions outside the usual operating activities of the
Group. These are held with the objective to collect their contractual cash flows and their contractual cash flows represent solely payments of
principal and interest. Accordingly, these are measured at amortised cost using the effective interest method, less provision for impairment.
Loans and other receivables are classified as current assets if they are due within one year or less (or in the normal operating cycle of the
business if longer). If not, they are presented as non-current assets.
Classification as cash and cash equivalents. In the cash flow statement, cash and cash equivalents include cash in hand and deposits held at
call with banks with original maturity of three months or less, less bank overdrafts, if any. Cash and cash equivalents are carried at amortised
cost using the effective interest method, less provision for impairment. Bank overdrafts are shown within borrowings in the current liabilities
on the balance sheet.
(b) Financial liabilities
Classification. The Group’s financial liabilities are initially recognised at fair value and classified as subsequently measured at amortised cost.
Borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised over the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all
of the facility will be drawn down. In this case, the fee is deferred until draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period
of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
Borrowings are removed from the balance sheet when the obligation specified in the contract is extinguished (i.e. when the obligation
specified in the contract is discharged, cancelled or expires). The difference between the carrying amount of a financial liability that has been
extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is
recognised in the income statement as other income or finance costs.
Modifications. An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as
substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the
cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate,
is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. In addition, other
qualitative factors, such as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features
attached to the instrument and change in loan covenants are also considered. If an exchange of debt instruments or modification of terms
is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the
exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability
and are amortised over the remaining term of the modified liability.
Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative catch up method,
with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital
transaction with owners.
Borrowing costs. Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required
to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the period in which they are incurred.
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4. Summary of significant accounting policies continued
Trade and other payables. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Trade and other payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are recognised initially
at fair value and subsequently measured at amortised cost using the effective interest method.
(ii) Accounting policies applied until 31 December 2017
(a) Financial assets
Recognition and derecognition. Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the
Group commits to purchase or sell the asset. Loans and receivables are recognised when the funds are advanced to the debtor/borrower.
Classification. The Group classifies its financial assets as loans and receivables. The classification depends on the purpose for which the
financial assets were acquired. Management determines the classification of financial assets at initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and for
which there is no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after
the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise trade receivables, loans and
other receivables and cash and cash equivalents in the balance sheet.
Measurement. Loans and receivables are initially recognised at fair value plus transaction costs and are subsequently carried at amortised
cost using the effective interest method. Loans and receivables are derecognised when the rights to receive cash flows from the financial
assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Interest income. Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired,
the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective
interest rate of the instrument, and continues unwinding the discount as interest income.
Impairment. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial
assets is impaired based on the incurred loss model.
A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables. Significant financial difficulties of the debtor/borrower, probability that the
debtor/borrower will enter bankruptcy or delinquency in payments are considered indicators that the receivable is impaired. The amount of
the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the
original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract.
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the
consolidated income statement within ‘selling and marketing costs’. When a receivable is uncollectible, it is written off against the allowance
account for receivables. Subsequent recoveries of amounts previously written off are credited against ‘selling and marketing costs’ in the
income statement.
Classification as trade receivables. Trade receivables are amounts due from customers for services provided in the ordinary course of
business. If collection is expected in one year or less (or in a normal operating cycle of the business, if longer than one year) they are classified
as current assets, if not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision for impairment.
Classification as cash and cash equivalents. In the consolidated cash flow statement, cash and cash equivalents include cash in hand and
deposits held at call with banks with original maturity of three months or less, less bank overdrafts, if any. Cash and cash equivalents are
carried at amortised cost using the effective interest method. Bank overdrafts are shown within borrowings in the current liabilities on the
balance sheet.
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continued
4. Summary of significant accounting policies continued
(b) Financial liabilities
Borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised over the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all
of the facility will be drawn down. In this case, the fee is deferred until draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period
of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
Borrowing costs. Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required
to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the period in which they are incurred.
Trade and other payables. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Trade and other payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are recognised initially
at fair value and subsequently measured at amortised cost using the effective interest method.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. Net realisable
value is the estimated selling price in the ordinary course of business less the cost of completion and applicable variable selling expenses.
Cash flow statement
Cash flow statement is prepared under indirect method. Purchases of property, plant and equipment, including prepayments for property,
plant and equipment, are included within cash flows from investing activities and finance lease payments are included within cash flows from
financing activities and are shown net of VAT. Related input VAT is included in movement in changes of working capital, within trade and
other receivables.
When the Group enters into a sale and lease back arrangement which constitutes collateralised borrowing, the proceeds received are included
within cash flows from financing activities. Receipts from finance lease receivables are included within cash flows from investing activities.
Share capital, share premium and treasury shares
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Any excess of the fair value of consideration received over the par value of shares issued is recognised as share premium. Share premium is
the difference between the fair value of the consideration receivable for the issue of shares and the nominal value of the shares. Share
premium account can only be resorted to for limited purposes, which do not include the distribution of dividends, and is otherwise subject
to the provisions of the Cyprus Companies Law on reduction of share capital.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders within a separate
reserve ‘treasury shares’ until the shares are cancelled or re-issued. Where such ordinary shares are subsequently re-issued, any consideration
received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to
the Company’s equity holders within retained earnings. The consideration initially paid for treasury shares which are subsequently re-issued
is transferred from ‘treasury shares’ to retained earnings.
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4. Summary of significant accounting policies continued
Capital contribution
Capital contribution constitutes contributions made by the Company’s shareholders other than for the issue of shares by the Company in
their capacity as equity owners of the Company for which the Company has no contractual obligation to repay them. Such contributions are
recognised directly in equity as they constitute transactions with equity owners in their capacity as equity owners of the Company.
Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not
that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not
recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering
the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the
same class of obligations may be small.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to
passage of time is recognised as interest expense.
Provisions are only used to cover those expenses which they had been set up for. Other possible or present obligations that arise from past
events but it is not probable that an outflow of resources embodying economic benefit will be required to settle the obligations, or the
amount cannot be measured with sufficient reliability, are disclosed in the notes to the financial statements as contingent liabilities.
Current and deferred income tax
The tax expense for the period comprises of current and deferred tax. Tax is recognised in the income statement, except to the extent that
it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity respectively.
Current income tax liabilities and assets for the current and prior periods are measured at the amount expected to be paid to or recovered
from the taxation authorities using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject
to interpretations and establishes provisions where appropriate on the basis of amounts expected to be paid to tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Consolidated Financial Statements. However, deferred tax liabilities are not recognised if they
arise from the initial recognition of goodwill. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates except where the Group can
control the timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities, when the income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity
or different taxable entities when there is an intention to settle the balances on a net basis.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
Russian Value Added Tax (“VAT”)
Russian output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of receivables from customers or
(b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice.
The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is recognised in the balance sheet on a
gross basis and disclosed separately as an asset and liability. Where provision has been made for the impairment of receivables, the
impairment loss is recorded for the gross amount of the debtor, including VAT.
Employee benefits
Wages, salaries, contributions to the state pension and social insurance funds, paid annual leave and sick leave, bonuses and other benefits
(such as health services) are accrued in the year in which the associated services are rendered by the employees of the Group. These are
included in staff costs and the Group has no further obligations once the contributions have been paid.
The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created
a constructive obligation.
Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following
dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the Group recognises costs for a restructuring
that is within the scope of IAS 37 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary
redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due
more than 12 months after the end of the reporting period are discounted to present value.
Share based payment transactions
The Group operates a cash-settled share-based compensation plan. In accordance with compensation plan, key management personnel and
selected employees of the Group are entitled to receive cash compensations based on the weighted average market quotations of the fixed
number of Global Depository Receipts (“GDR”) of the Company. The fair value of the employee services received in exchange for the grant
of the equivalent GDR instruments is recognised as an expense over the vesting period.
At each balance sheet date, if required by the terms of the compensation plan, the Group revises its estimates of the monetary equivalent of
GDRs that are expected to vest. It recognises the impact of the revision of original estimates, including number of instruments expected to
vest and fair values, in profit or loss, with a corresponding adjustment to share-based payment liability.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which
the dividends are approved and are no longer at the discretion of the Company. More specifically, interim dividends are recognised when
approved by the Board of Directors whereas in case of final dividends, these are recognised at the time when they are approved by the
Company’s shareholders.
Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating
to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as
non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has
obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other
prepayments are written off to profit or loss when the goods or services relating to the prepayments are received. If there is an indication
that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down
accordingly and a corresponding impairment loss is recognised in the income statement.
Comparatives
Comparative figures have been adjusted to conform with changes in the presentation for the current year. Details of the reclassifications
are disclosed in Note 3.
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5. New accounting pronouncements
Certain new standards, amendments to existing standards and interpretations have been issued that are mandatory for annual periods
beginning on or after 1 January 2019, that are expected to have an impact on the Group’s financial statements and which the Group has not
early adopted. Items marked with * have not been endorsed by the European Union (“EU”). The Group will only be able to apply the new
standards, amendments to existing standards or interpretations when these are endorsed by the EU.
IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019)
The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing.
Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead,
introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in
the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to
classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
In accordance with the transition provisions of IFRS 16, the Group has elected the modified retrospective transition method for adopting the
new standard with the effect of transition to be recognised in the opening retained earnings as at 1 January 2019 in the Consolidated
Financial Statements for the year ending 31 December 2019; which will be the first year when the Group will apply IFRS 16. The Group opted
the practical expedient provided by IFRS 16 to measure the right-of-use assets on transition at an amount equal to that of the lease liability
(adjusted for any prepaid or accrued expenses), with the exception of assets under finance leases as per IAS 17 that were in place at the date
of transition to IFRS 16 that will continue to be measured at their carrying amount immediately before the date of application.
A reconciliation of the operating lease commitments as at 31 December 2018 disclosed in Note 32 to the recognised liability on 1 January
2019 is as follows:
1 January 2019
RUB’000
Total future minimum lease payments for non-cancellable operating leases (Note 32) 1,378,832
Impact of discounting (133,400)
(Less): short-term leases recognised on a straight-line basis as expense (270,671)
(Less): payments for lease not yet commenced (1,056,590)
Add: adjustments as a result of a different treatment of extension and termination options 791,689
Other (1,365)
Total lease liabilities (excluding financial lease liabilities recognised as at 31 December 2018) 708,495
As shown in Note 32, as of the reporting date the Group has non-cancellable operating lease commitments of RUB 1,378,832 thousand out
of which approximately RUB 270,671 thousand relate to short-term leases which will be recognised on a straight line basis as an expense in
the income statement. The Group opted to apply the optional exception of short-term leases under IFRS 16 whose lease term, at their
commencement date, is 12 months or less.
Further, the Group’s non-cancellable operating lease commitments as of 31 December 2018 include an amount of RUB 1,056,590
thousand relating to a lease contract entered into in the year 2018 for the lease of offices. In accordance with the terms of the agreement, the
Group will obtain right to use the offices within the first quarter of year 2019 and thus no lease liability was recognised in respect of this lease
on 1 January 2019.
The Group had finance lease liabilities recognised as at 31 December 2018 with a carrying amount of RUB 2,212,668 thousand (Note 27)
and lease assets with a carrying amount of RUB 3,414,376 thousand (Note 17). Upon adoption of IFRS 16, the Group will recognise lease
liabilities and right-of-use assets in respect of these leases at amounts equal to their carrying amounts as at 31 December 2018 under IAS17.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
5. New accounting pronouncements continued
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods beginning
on or after 1 January 2019)
IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies
how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity
should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments
based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine
amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes
it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining
the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the
expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the
effect of a change in facts and circumstances or of new information that affects the judgements or estimates required by the interpretation
as a change in accounting estimate.
Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgement or estimate include,
but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a
taxation authority’s right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with
a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgements and
estimates required by the Interpretation. The Group is currently assessing the impact of the interpretation on its financial statements and as
of the date of issue of these financial statements the impact of the interpretation is not known.
Annual improvements to IFRSs 2015-2017 cycle – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December
2017 and effective for annual periods beginning on or after 1 January 2019)
The narrow scope amendments impact four standards. IFRS 3 was clarified that an acquirer should remeasure its previously held interest in a
joint operation when it obtains control of the business. Conversely, IFRS 11 now explicitly explains that the investor should not remeasure its
previously held interest when it obtains joint control of a joint operation, similarly to the existing requirements when an associate becomes a
joint venture and vice versa. The amended IAS 12 explains that an entity recognises all income tax consequences of dividends where it has
recognised the transactions or events that generated the related distributable profits, e.g. in profit or loss or in other comprehensive income.
It is now clear that this requirement applies in all circumstances as long as payments on financial instruments classified as equity are
distributions of profits, and not only in cases when the tax consequences are a result of different tax rates for distributed and undistributed
profits. The revised IAS 23 now includes explicit guidance that the borrowings obtained specifically for funding a specified asset are excluded
from the pool of general borrowings costs eligible for capitalisation only until the specific asset is substantially complete. The Group is
currently assessing the impact of the amendments on its financial statements and as of the date of issue of these financial statements the
impact of the amendments is not known.
Definition of materiality – amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods
beginning on or after 1 January 2020)
The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until now has
featured elsewhere in IFRS. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure
that the definition of material is consistent across all IFRS Standards. Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those
financial statements, which provide financial information about a specific reporting entity. The Group is currently assessing the impact of the
amendments on its financial statements and as of the date of issue of these financial statements the impact of the amendments is not known.
Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual
periods beginning on or after 1 January 2020)
The revised Conceptual Framework includes a new chapter on measurement; guidance on reporting financial performance; improved
definitions and guidance – in particular the definition of a liability; and clarifications in important areas, such as the roles of stewardship,
prudence and measurement uncertainty in financial reporting. The Group is currently assessing the impact of the amendments on its
financial statements and as of the date of issue of these financial statements the impact of the amendments is not known.
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6. Financial risk management
Financial risks factors
The Group’s activities exposed it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest
rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets
and seeks to minimise potential adverse effects on the Group’s financial results.
Market risk
(a) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in the currency different
from the functional currency of each of the entities of the Group.
As of 31 December 2018, almost 100% of the Group’s long-term borrowings are denominated in Russian Rouble. Further, a large proportion
of the Group’s expenses and revenues are denominated and settled in Russian Roubles. Risks related to liabilities denominated in foreign
currency are partly compensated by assets and income denominated in foreign currency.
During the year 2018 there was increased volatility in currency markets and the Russian Rouble has depreciated significantly against some
major currencies, especially in the second half of the year. As of the end of December 2018 the Russian Rouble has depreciated against the
US Dollar from 57.6002 as of 31 December 2017 to 69.4706 Russian Roubles (21% devaluation).
The Group is exposed to the effects of currency fluctuations between (i) the Russian Rouble and the US Dollar in relation to US Dollar
denominated balances held in the Company and the Cypriot and Russian subsidiaries of the Group having the Russian Rouble as their
functional currency; (ii) the Euro and the US Dollar for US Dollar denominated balances held in the Estonian subsidiaries of the Group which
have the Euro as their functional currency and (iii) the Ukrainian Hryvnia and the US Dollar for the US Dollar denominated balances held in
the Ukrainian subsidiary of the Group which has the Ukrainian Hryvnia as its functional currency.
The Group does not have formal arrangements for hedging this foreign exchange risk.
The carrying amounts of monetary assets and liabilities denominated in US Dollars as at 31 December 2018 and 31 December 2017 are
as follows:
2018 2017
RUB’000 RUB’000
Assets 1,013,937 680,794
Liabilities 101,055 712,908
Had US Dollar exchange rate strengthened/weakened by 20% against the Russian Rouble and all other variables remained unchanged, the
post-tax profit of the Group for the year ended 31 December 2018, would have decreased/increased by RUB 93,454 thousand (2017: 5%
change, effect RUB 11,888 thousand) and equity would have increased/decreased by RUB 528,447 thousand (2017: 5% change, effect
RUB 125,368 thousand).
This is mainly due to foreign exchange gains and losses arising upon retranslation of cash and cash equivalents and accounts payable
denominated in US Dollars for the Group entities with Russian Rouble being their functional currency. The impact on equity is mainly due to
foreign exchange gains and losses arising upon retranslation of intercompany loans being recognised as part of net investment in the foreign
operation denominated in US Dollars for the Ukrainian subsidiary of the Group.
Had Euro exchange rate strengthened/weakened by 10% against the US Dollar and all other variables remained unchanged, the post-tax
profit of the Group for the year ended 31 December 2018, would have increased /decreased by RUB 37,260 thousand (2017: 10% change,
effect RUB 28,517 thousand). This is mainly due to foreign exchange gains and losses arising upon retranslation of payable balances and cash
and cash equivalents and accounts receivable denominated in US Dollars for the Estonian subsidiaries of the Group.
Had US Dollar exchange rate strengthened/weakened by 5% against the Ukrainian Hryvnia and all other variables remained unchanged, the
post-tax profit of the Group would have remained unchanged (2017: 5% change, no effect on post-tax profit) and the equity of the Group
for the year ended 31 December 2018, would have decreased/increased by RUB 528,447 thousand (2017: 5% change, effect RUB 125,368
thousand). This is mainly due to foreign exchange gains and losses arising upon retranslation of intercompany loans being recognised as part
of net investment in the foreign operation denominated in US Dollars for the Ukrainian subsidiary of the Group.
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Annual Report & Accounts 2018
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
6. Financial risk management continued
(b) Cash flow and fair value interest rate risk
The Group’s income and operating cash flows are exposed to changes in market interest rates arising mainly from floating rate borrowings.
In addition the Group is exposed to fair value interest rate risk through market value fluctuations of borrowings and bank deposits with fixed
interest rates. However, any potential change in the market rates of interest will not have an impact on the carrying amount of the fixed rate
financial instruments and hence on the Group’s post tax profit or equity as these instruments are carried at amortised cost.
Long-term borrowing contracts of the Group are concluded to finance the purchase of rolling stock. While analysing new investment
projects and concluding credit facility agreements, loan agreements and lease contracts, issues of bonds and various scenarios are developed
taking into account terms of refinancing and alternative financing sources. Based on these scenarios the Group measures the impact of a
definite change in interest rate on profit or loss and selects the financing model that allows maximising the estimated future profit.
As at 31 December 2018 and 31 December 2017, the Group did not have any Russian Rouble or US Dollar credit facilities at floating interest
rates, therefore any reasonably possible change in market interest rates would not have any significant impact on the post-tax profit or equity
of the Group.
The Group obtains borrowings at current market interest rates and does not use any hedging instruments to manage interest rate risk.
Management monitors changes in interest rates and takes steps to mitigate these risks as far as practicable.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to meet an obligation.
Credit risk arises from cash and cash equivalents, trade receivables, loans and other receivables as well as lease receivables.
(i) Risk management
The Group has policies in place to ensure that sales of goods and services are made to customers with an appropriate credit history.
Management assesses the credit quality of the Group’s customers, taking into account their financial position, past experience and other
factors. These policies allow the Group to reduce its credit risk. However, the Group’s business is heavily dependent on a few large key
customers, with the top 10 customers accounting for 58.65% of the Group’s trade receivables as at 31 December 2018 (2017: 76.25%).
For banks and financial institutions, the Group has established policies whereby the majority of bank balances are held with independently
rated parties with a minimum rating of ‘Ba2’. These policies enable the Group to reduce its credit risk significantly.
(ii) Impairment of financial assets
The Group has four types of assets that are subject to the expected credit loss model:
•
trade receivables;
•
finance lease receivables;
•
loans and other receivables; and
•
cash and cash equivalents.
The impairment methodology applied by the Group for calculating expected credit losses depends on the type of assets assessed for
impairment. All assets are assessed for impairment on an individual basis. Specifically:
•
•
For trade receivables and finance lease receivables the Group applies the simplified approach permitted by IFRS 9 for calculating expected
credit losses, which requires lifetime expected credit losses to be recognised from initial recognition of the financial assets.
For loans and other receivables and cash and cash equivalents, the Group applies the general approach. In particular, the Group applies the
three stage model for calculating impairment, which is based on changes in the credit quality of the financial asset since initial recognition.
A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. The ECL of financial assets in Stage 1 is
measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until
contractual maturity, if shorter. If the Group identifies a significant increase in credit risk since initial recognition, the asset is transferred to
Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until its contractual maturity but considering expected
prepayments, if any. If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is
measured as a Lifetime ECL.
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129
6. Financial risk management continued
Significant increase in credit risk. The Group considers the probability of default upon initial recognition of an asset and whether there has
been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase
in credit risk the Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of
initial recognition. In making this assessment, the Group considers available reasonable and supportive forwarding-looking information.
Especially the following indicators are incorporated:
•
internal credit rating;
•
external credit rating (as far as available);
•
actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant
change to the borrower’s/counterparty’s ability to meet its obligations;
•
actual or expected significant changes in the operating results of the borrower/counterparty;
•
significant increases in credit risk on other financial instruments of the same borrower/counterparty;
•
significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements; and
•
significant changes in the expected performance and behaviour of the borrower/counterparty, including changes in the payment status
of counterparty in the group and changes in the operating results of the borrower.
Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model. The
historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the
customers to settle the receivable balances. Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is
more than 30 days past due in making a contractual payment.
Default and credit-impaired. A default on a financial asset is when the financial asset meets one or more of the following criteria: (i) the
borrower is more than 90 days past due on its contractual payments, (ii) the borrower is assessed as unlikely to pay its credit obligations in full
without realisation of collateral, regardless of the existence of any past-due amount or of the number of days past due, (iii) the Company, for
economic or contractual reasons relating to the borrower’s financial difficulty, granted to the borrower a concession(s) that it would not
otherwise consider. The Company considers defaulted assets to be credit-impaired so that Stage 3 represents all debt financial assets which
are considered defaulted.
Write-off. Assets are written-off, in whole or in part, when the Group has concluded that there is no reasonable expectation of recovery.
Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan
with the Group and a failure to make contractual payments for a period of greater than 180 days past due. The Group may write-off financial
assets that are still subject to enforcement activity when the Group seeks to recover amounts that are contractually due, however, there is no
reasonable expectation of recovery. Subsequent recoveries of amounts previously written off are credited against ‘selling and marketing
costs’ in the income statement.
The Group does not have any material debt financial assets that are subject to the impairment requirements of IFRS 9 and their contractual
cash flows have been modified.
The Group’s exposure to credit risk for each class of asset subject to the expected credit loss model is set out below:
Trade receivables and finance lease receivables
The Group assesses, on an individual basis, its exposure to credit risk arising from trade receivables and finance lease receivables.
This assessment is based on the credit history of the customers with the Group as well as the period the trade receivable or finance lease
receivable is past due (in days).
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130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
6. Financial risk management continued
The following table contains an analysis of the gross carrying amount of the Group’s trade receivables and finance lease receivables by
reference to the days past due. This basis is aligned with the Group’s internal credit risk grades for these assets.
Finance lease
Trade receivables receivables
RUB’000 RUB’000
Current (not past due) 1,583,886 316,668
1 – 30 days past due 762,210 –
31 – 90 days past due 18,294 –
More than 90 days past due 369,180 –
Total 2,733,570 316,668
The gross carrying amounts, as per above, represent the Group’s maximum exposure to credit risk on these assets as at 31 December 2018,
without taking into account any collateral held. The Group does not hold any collateral as security for any trade receivable balances.
Finance lease receivables are effectively secured as the rights to the leased asset revert to the Group in the event of default.
The movement in the credit loss allowance for trade receivables during the year 2018 is presented in the table below:
Trade receivables
RUB’000
Opening balance as at 1 January 2018 (141,336)
New assets originated or purchased (12,044)
Assets written off during the year as uncollectible 13,071
Recoveries 4,534
Other (10,267)
Closing balance as at 31 December 2018 (146,042)
There were no significant trade receivable balances written off during the period that are subject to enforcement activity.
The estimated expected credit loss allowance on finance lease receivables as at 31 December 2018 was immaterial. This assessment takes
into consideration the presence of the leased asset, which acts as a collateral for the finance lease receivable.
Loans and other receivables
The Group assesses, on an individual basis, its exposure to credit risk arising from loans and other receivables. This assessment takes into
account, amongst others, the period the loan receivable or other receivable balance is past due (in days) and history of defaults in the past,
adjusted for forward looking information.
The following table contains an analysis of the credit risk exposure for loans and other receivables on the basis of the Group’s internal
credit risk rating grades. The gross carrying amounts below represent the Group’s maximum exposure to credit risk on these assets as at
31 December 2018.
Gross carrying
amount
Internal credit risk rating grade Company definition of category RUB’000
Performing Stage 1 – Counterparties have a low risk of default and a strong capacity to
meet contractual cash flows 263,653
Under-performing Stage 2 – Customers for which there is a significant increase in credit risk;
as significant increase in credit risk is presumed if interest and/or principal
repayments are 30 days past due 18,017
Non-performing or credit-impaired Stage 3 – Interest and/or principal repayments are more than 90 days past due 42,732
The gross carrying amounts, as per above, represent the Group’s maximum exposure to credit risk on these assets as at 31 December 2018,
without taking into account any collateral held. The Group does not hold any collateral as security for any loans receivable and other
receivable balances.
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131
6. Financial risk management continued
The movement in the credit loss allowance for other receivables during the year 2018 is presented in the table below:
Other receivables
Non-performing
RUB’000
Opening balance as at 1 January 2018 (39,786)
New assets originated or purchased (14,882)
Assets written off during the year as uncollectible 18,403
Other (13,387)
Closing balance as at 31 December 2018 (49,652)
The estimated expected credit loss allowance on loans receivable as at 31 December 2018 was immaterial.
There were no significant loans and other receivable balances written off during the period that are subject to enforcement activity.
Cash and cash equivalents
The Group assesses, on an individual basis, its exposure to credit risk arising from cash at bank based on ratings from external credit rating
institutions and internal ratings if external are not available.
The following table contains an analysis of the gross carrying amount of the Group’s cash at bank by reference to the credit risk ratings
assigned by external credit rating agencies. The gross carrying amounts below represent the Group’s maximum exposure to credit risk on
these assets as at 31 December 2018:
Rating RUB’000
Moody’s (1) A3 – Aaa 1,462,017
Moody’s (1) Ba2 – Baa1 5,659,996
Moody’s (1) B1 152
Moody’s (1) Caa1 – Caa3 2,748
Standard & Poor’s (2) B – BB+ 3,349
Fitch (3) BBB – BBB+ 652
Other external non-rated banks – satisfactory credit quality (performing) 439
Total cash at bank and bank deposits (4) 7,129,353
(1) International rating agency Moody’s Investors Service.
(2) International rating agency Standard & Poor’s.
(3) International rating agency Fitch Rating.
(4) The rest of the balance sheet item ‘cash and cash equivalents’ is cash on hand.
The Group does not hold any collateral as security for any of the above balances.
The estimated expected credit loss allowance on cash and cash equivalents as at 31 December 2018, based on the general approach of
IFRS 9, was immaterial. All cash and cash equivalents were performing (Stage 1) as at 31 December 2018.
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Annual Report & Accounts 2018
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
6. Financial risk management continued
Credit risk at 31 December 2017
The table below summarises the analysis of accounts receivable under contractual terms of settlement at the balance sheet date for the year
ended 31 December 2017:
Impairment
Fully performing Past due Impaired provision Total
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
Trade receivables 1,508,473 671,481 324,852 (141,336) 2,363,470
Loans receivable 16,857 – – – 16,857
Other receivables 31,070 18,297 39,786 (39,786) 49,367
Finance lease receivables 445,919 – – – 445,919
2,002,319 689,778 364,638 (181,122) 2,875,613
Receivables amounting to RUB 2,002,319 thousand as of 31 December 2017 were fully performing. The credit quality of financial assets that
were neither past due or impaired was assessed by reference to external credit rating, if available. For accounts receivable with no external
credit rating available management assessed credit quality by reference to the prior history of working with customers. Customers with
longer history of working with the Group were regarded by management as having lower risk of default.
The credit quality of financial assets that were neither past due nor impaired as assessed by reference to external credit rating if available or
to the working history of the counterparty with the Group was as follows:
RUB’000
Trade and other receivables
Counterparties with external credit rating
Moody’s (2) (B1 – Ba1) 3,170
Standard & Poor’s (3) (BB- – BB) 7,875
Fitch (4) (B- – BB+) 369,679
380,724
Counterparties without external credit rating
Group 1 1,527,462
Group 2 94,133
1,621,595
Total trade and other receivables 2,002,319
Group 1 – Receivables from counterparties with more than one year of working history with the Group.
Group 2 – Receivables from counterparties with less than one year of working history with the Group.
Receivables of RUB 689,778 thousand as of 31 December 2017 were past due but not impaired. These related to a number of independent
customers for whom there was no history of either non-repayment in the past or renegotiation of the repayment terms due to inability of
the customer to repay the balance. Trade receivables were impaired only when there is an indication that the customer is unable to repay
the balance.
The ageing analysis of past due trade receivables at 31 December 2017 as follows:
RUB’000
Less than 1 month 433,790
From 1 to 3 months 72,246
From 3 to 6 months 6,773
From 6 months to 1 year 9,055
Over one year 167,914
689,778
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133
6. Financial risk management continued
Trade receivables amounting to RUB 121,699 thousand as of 31 December 2017 were impaired and fully provided for. The individually
impaired receivables mainly related to customers for railway services, which were in unexpectedly difficult economic situation. It was
assessed that no portion of these receivables was expected to be recovered.
Other receivables amounting to RUB 39,786 thousand as of 31 December 2017 were impaired and provided for in full. It was assessed that
no portion of these receivables is expected to be recovered.
Movements on the Group’s provision for impairment of trade and other receivables during the year 2017 were as follows:
Trade Other
receivables receivables Total
RUB’000 RUB’000 RUB’000
At 1 January 263,972 29,163 293,135
Provision for receivables impairment (Note 11) 42,267 18,488 60,755
Bad debt written off (167,639) (7,834) (175,473)
Currency translation differences 2,736 – 2,736
Other – (31) (31)
At 31 December 141,336 39,786 181,122
The creation and release of provision for impaired receivables have been included in “selling and marketing costs” in the income statement
(Note 11). Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
Cash at bank and short-term bank deposits
Rating RUB’000
Moody’s (2) A3 – Aaa 1,002,389
Moody’s (2) Ba2 – Baa1 3,101,414
Moody’s (2) B1 174
Moody’s (2) Caa1 – Caa3 1,844
Standard & Poor’s (3) BB+ 658,258
Fitch (4) BBB – BBB+ 151,920
Other non-rated banks – satisfactory credit quality 49,715
Total cash at bank and bank deposits (1) 4,965,714
(1) The rest of the balance sheet item Cash and cash equivalents is cash on hand.
(2) International rating agency Moody’s Investors Service.
(3) International rating agency Standard & Poor’s.
(4) International rating agency Fitch Rating.
The maximum exposure to credit risk at 31 December 2017 was the fair value of each class of receivables mentioned above. The Group did
not hold any collateral as security for any receivables other than finance lease receivables which are effectively secured as the rights to the
leased asset revert to the Group in the event of default.
Liquidity risk
The Group has an excess of current assets over current liabilities of RUB 708,587 thousand as at 31 December 2018 (2017: excess of current
liabilities over current assets RUB 1,285,219 thousand).
The Group has predictable cash flows which allow the Group to repay its liabilities when they fall due. The Group also has successful credit
and refinancing history and maintains enough flexibility ensuring the ability to attract necessary funds through committed credit facilities.
Due to availability of committed credit lines amounting to RUB 4,515,000 thousand as of 31 December 2018 (2017: RUB 19,140,000
thousand), together with long-term borrowings (Note 27) the Group has the ability to meet its liabilities as they fall due and mitigate risks
of adverse changes in the financial markets environment.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
6. Financial risk management continued
Management controls current liquidity based on expected cash flows and expected revenue receipts. In the long-term perspective the liquidity
risk is determined by forecasting future cash flows at the moment of signing new credit, loan or lease agreements and by budgeting procedures.
The table below summarises the analysis of financial liabilities of the Group by maturity as of 31 December 2018 and 31 December 2017.
The amounts in the table are contractual undiscounted cash flows. Trade and other payables balances due within 12 months equal their
carrying balances as the impact of discounting is not significant.
Between Between
Less than 1 month and Between 6 months and Between Between
1 month 3 months 3 and 6 months less than 1 year 1 and 2 years 2 and 5 years Total
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
31 December 2018
Borrowings 427,029 2,273,971 1,893,914 5,195,738 6,186,061 11,273,818 27,250,531
Trade and other payables 820,446 35,390 34,458 115,318 197,689 98,844 1,302,145
Finance lease liabilities 56,475 110,666 165,549 329,426 609,246 1,359,462 2,630,824
1,303,950 2,420,027 2,093,921 5,640,482 6,992,996 12,732,124 31,183,500
31 December 2017
Borrowings 492,546 2,426,820 1,326,157 4,210,040 6,321,331 3,623,067 18,399,961
Trade and other payables 777,375 1,389 – – – – 778,764
1,269,921 2,428,209 1,326,157 4,210,040 6,321,331 3,623,067 19,178,725
Note: statutory liabilities are excluded as the analysis is provided for financial liabilities only.
(a) Capital risk management
The Group’s main objective when managing capital is to maintain the ability to continue as a going concern in order to ensure the required
profitability of the Group, maintain optimum equity structure and reduce its cost of capital.
Defining capital, the Group uses the amount of net assets attributable to the Company’s equity owners and the Group’s borrowings.
The Group manages the capital based on borrowings to total capitalisation ratio. Borrowings include loan liabilities. To maintain or change its
equity structure, the Company may vary the amount of dividend paid or sell assets in order to reduce debts.
Total capitalisation is calculated as the sum of the total Group borrowings and total equity attributable to the equity owners of the Company.
The management does not currently have any specific target for the rate of borrowings to total capitalisation.
The rate of borrowings to total capitalisation as at 31 December 2018 and 31 December 2017 are as follows:
2018 2017
RUB’000 RUB’000
Total borrowings 25,728,911 16,331,356
Total capitalisation 73,356,937 61,224,087
Total borrowings to total capitalisation ratio (percentage) 35.07% 26.67%
External requirements are imposed on the capital of the Group as defined by management in relation to long-term loans provided by
financial institutions to the Company and certain subsidiaries of the Company. The Group analyses compliance with external requirements
to the capital at each reporting date and when entering into new loan agreements and lease contracts. There were no instances of non-
compliance with externally imposed capital requirements during 2018 and 2017. Management believes that the Group will be able to
comply with its external requirements to the capital during the whole term of agreements.
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6. Financial risk management continued
Fair value estimation
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the
asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
The estimated fair values of financial instruments have been determined by the Group, using available market information, where it exists,
appropriate valuation methodologies and assistance of experts. However, judgement is necessarily required to interpret market data to
determine the estimated fair value. The Russian Federation continues to display some characteristics of an emerging market and economic
conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale
transactions and therefore do not always represent the fair values of financial instruments. The Group has used all available market
information in estimating the fair value of financial instruments.
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level 1 are measurements at quoted prices (unadjusted)
in active markets for identical assets or liabilities, (ii) level 2 measurements are valuations techniques with all material inputs observable for the
asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level 3 measurements are valuations not
based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the
fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a level 3
measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.
The fair values in level 2 and level 3 of fair value hierarchy were estimated using discounted cash flows valuation techniques. The fair value of
unquoted fixed and floating interest rate instruments which are not quoted in an active market was estimated based on estimated future
cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.
Financial assets at amortised cost. The fair value of floating rate instruments is normally their carrying amount. The estimated fair value of
fixed interest rate instruments is based on estimated future cash flows expected to be received, discounted at current interest rates for new
instruments with similar credit risk and remaining maturity. Discount rates used depend on credit risk of the counterparty.
The fair values of financial assets do not materially differ from their carrying amounts as the impact of discounting is not significant.
Financial liabilities carried at amortised cost. Fair values of borrowings and other liabilities were determined using valuation techniques.
As at 31 December 2018 and 31 December 2017 there were no fixed or floating interest rate instruments with stated maturity denominated
in a currency other than the Russian Rouble.
The fair value as at 31 December 2018 and 31 December 2017 of fixed and floating interest rate instruments with stated maturity
denominated in Russian Rouble was estimated based on expected cash flows discounted using the rate of similar Russian Rouble
denominated instruments entered into by the Group close to 31 December 2018 and 31 December 2017, respectively. The discount rate
used was 9.5% p.a. (2017: 8% p.a.) (Note 27). The fair value as at 31 December 2018 of the fixed interest rate non-convertible bonds was
equal to their quoted price and the resulting fair value measurement is within level 1.
The fair value of liabilities repayable on demand or after a notice period (“demandable liabilities”) is estimated as the amount payable on
demand, discounted from the first date on which the amount could be required to be paid.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
7. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
(a) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below:
(i) Tax legislation
Russian tax, currency and customs legislation is subject to varying interpretations (Note 31).
(b) Critical judgements in applying Group’s accounting policies
The Group also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies.
Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a
significant adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below:
(i) Revenue recognition under IFRS 15 “Revenue from contracts with customers”, including impact of adoption
IFRS 15 “Revenue from contracts with customers” and its subsequent amendment were effective for the Group from 1 January 2018.
The assessment of the impact of adoption of IFRS 15 on the Group’s accounting policies and ongoing accounting under IFRS 15 required
management to make certain critical judgements in the process of applying the principles of the new standard. The judgements that had the
most significant effect on management’s conclusion are the following:
Identification of performance obligations
Operator’s services contracts involve the provision by the Group of a wide range of services. Management believes that, although some of
these services can be obtained by the clients from the market separately and different combinations of services can be provided to different
customers, in the context of each individual contract with a customer, the services provided by the Group are highly dependent and
interrelated with each other and, therefore, are not distinct. In making this assessment, management noted that, despite the fact that the
Group’s contracts contain a promise to deliver multiple services, the nature of the promise within the context of the contracts and the
economic substance of the transaction is that the customers are purchasing integrated operator’s services to which the individual services
promised are inputs rather than separate services and consequently this is considered to constitute a single performance obligation.
Assessment as to whether the Group is acting as an agent or principal for certain operator’s services contracts
Operator’s services are rendered using own or leased rolling stock. In those cases when the Group’s customers do not interact with OAO
“Russian Railways”, a full service is charged by the Group to its customers and the OAO “Russian Railways” tariff is borne by the Group with
or without further recharge to its customers. There are certain characteristics indicating that the Group is acting as an agent in these
arrangements, particularly the fact that OAO “Russian Railways” tariffs are available to the public and therefore are known to the customer.
However, the services are rendered with the use of own or leased rolling stock and the Group bears the OAO “Russian Railways” tariff to
bring the rolling stock back or to the next destination. The Group is independent in its pricing policy and considers its potential loss for
empty run tariff.
Management historically took the position that the Group acts as a principal in these arrangements and the Group accounted for full receipts
from customers as sales revenue and the OAO “Russian Railways” tariff was also included in cost of sales. Management re-assessed the
accounting treatment followed historically by the Group by reference to the requirements of the new standard and concluded that this is still
appropriate. Management believes that the Group is acting as a principal in these arrangements as it is the party that controls the services
prior these are transferred to the customers and, through separate arrangements with OAO “Russian Railways”, obtains the right to direct
them to provide services on its behalf.
Had OAO “Russian Railways” tariff directly attributable to such services been excluded from revenues and cost of sales for the year ended
31 December 2018 both would have decreased by RUB 22,682,168 thousand (2017: RUB 22,507,762 thousand).
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137
7. Critical accounting estimates and judgements continued
(ii) Intention for the distribution of dividends by subsidiaries
Withholding tax at the rate of 5% is applied to the dividends distributed by the Russian subsidiaries of the Group to the Company. In case the
dividends are distributed by the Estonian subsidiaries the tax of 20% will be applied to gross amount of such distributions. Management
exercises judgement in determining the provisions to be recognised by the Group for such taxes. These provisions are based on management’s
estimates and intention for future dividend distribution by each respective subsidiary out of profits of subsidiaries as of 31 December 2018.
Deferred income tax liabilities of RUB 3,474,968 thousand (2017: RUB 2,785,978 thousand) have not been recognised for the withholding
taxes that would be payable in case unremitted earnings of certain subsidiaries are distributed to the Company in the form of dividends as it is
the current intention of the management of the Group that such amounts are reinvested. Unremitted earnings on which no deferred tax
liability was recognised totalled to RUB 28,932,126 thousand as at 31 December 2018 (2017: RUB 20,506,150 thousand).
8. Segmental information
The chief operating decision-maker has been identified as the Board of Directors of the Company. The Board reviews the Group’s internal
reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.
The Board considers the business from two perspectives: by type of activity and by type of rolling stock used. From a type of activity
perspective, the Board reviews revenues with no further analysis of the underlying cost components. From the type of rolling stock used
perspective, the Board assesses the performance of each type of rolling stock at the level of adjusted revenue. In particular, the Board reviews
discrete financial information for gondola cars and rail tank cars, whereas all other types of rolling stock (such as hopper cars and platforms)
are reviewed together.
Adjusted revenue is the measure of profit looked at by the chief operating decision-maker and this includes the revenues derived from the
relating type of rolling stock used less infrastructure and locomotive tariffs paid for the loaded trips of relating rolling stock less services
provided by other transportation organisations. Further, the Board receives information in respect of relating depreciation and amortisation
charges for rolling stock and customer relationships, respectively, impairment charges/reversal of impairment in respect of rolling stock and
customer relationships and loss on derecognition arising on capital repairs. All information provided to the Board in relation to profit or loss
items is measured in a manner consistent with that in the financial statements.
The Board also reviews additions to segment assets. Liabilities are not segmented since they are not reviewed from that perspective by the
chief operating decision maker. Capital expenditure comprises additions of rolling stock to property, plant and equipment.
The Group does not have transactions between different business segments.
Gondola cars Rail tank cars Other railcars Total
RUB’000 RUB’000 RUB’000 RUB’000
Year ended 31 December 2018
Total revenue – operator’s services (recognised over time) 56,578,061 26,171,577 1,070,226 83,819,864
Total revenue – operating lease 217,875 1,131,730 44,631 1,394,236
Inter-segment revenue – – – –
Revenue (from external customers) 56,795,936 27,303,307 1,114,857 85,214,100
Less: Infrastructure and locomotive tariffs – loaded trips (16,072,497) (6,093,700) (515,971) (22,682,168)
Less: Services provided by other transportation organisations (2,631,711) (571,819) (27,620) (3,231,150)
Adjusted revenue for reportable segments 38,091,728 20,637,788 571,266 59,300,782
Depreciation and amortisation (4,445,258) (1,085,940) (84,314) (5,615,512)
Impairment of property, plant and equipment (10,073) – – (10,073)
Loss on derecognition arising on capital repairs (142,020) (217,593) (17,671) (377,284)
Additions to non-current assets
(included in reportable segment assets) 12,117,088 658,041 1,190,307 13,965,436
Reportable segment assets 50,970,274(1) 20,517,936 1,531,496 73,019,706
(1) Includes RUB 752,718 thousand of intangible assets representing customer relationships.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
8. Segmental information continued
Gondola cars Rail tank cars Other railcars Total
RUB’000 RUB’000 RUB’000 RUB’000
Year ended 31 December 2017
Total revenue – operator’s services 52,210,098 22,472,812 1,185,233 75,868,143
Total revenue – operating lease 104,838 1,020,852 86,498 1,212,188
Inter-segment revenue – – – –
Revenue (from external customers) 52,314,936 23,493,664 1,271,731 77,080,331
Less: Infrastructure and locomotive tariffs – loaded trips (16,832,160) (5,162,124) (513,478) (22,507,762)
Less: Services provided by other transportation organisations (3,228,663) (195,297) (54,521) (3,478,481)
Adjusted revenue for reportable segments 32,254,113 18,136,243 703,732 51,094,088
Depreciation and amortisation (4,398,130) (1,018,965) (100,092) (5,517,187)
Impairment of property, plant and equipment – – (111,172) (111,172)
Loss on derecognition arising on capital repairs (261,336) (265,670) (1,033) (528,039)
Reversal of impairment charge of intangible assets 630,223 – – 630,223
Additions to non-current assets
(included in reportable segment assets) 3,227,815 754,615 151,807 4,134,237
Reportable segment assets 44,100,083(1) 19,445,539 533,320 64,078,942
(1) Includes RUB 1,447,559 thousand of intangible assets representing customer relationships.
A reconciliation of total adjusted revenue to total profit before income tax is provided as follows:
2018 2017
RUB’000 RUB’000
Adjusted revenue for reportable segments 59,300,782 51,094,088
Other revenues 1,558,642 1,000,201
Total adjusted revenue 60,859,424 52,094,289
Cost of sales (excl. infrastructure and locomotive tariffs – loaded trips, services provided by
other transportation organisations, impairment of property, plant and equipment,
depreciation of property, plant and equipment and amortisation of intangible assets,
loss on derecognition arising on capital repairs) (23,094,638) (22,352,208)
Selling, marketing and administrative expenses (excl. depreciation,
amortisation and impairments) (4,771,519) (3,979,117)
Depreciation and amortisation (5,807,417) (5,680,445)
Reversal of impairment charge of customer relationships – 630,223
Net impairment losses on financial assets (29,713) (60,755)
Impairment charge for property, plant and equipment (10,073) (111,172)
Loss on derecognition arising on capital repairs (377,284) (528,039)
Other income 133,754 57,967
Other gains – net (1,479) 85,392
Operating profit 26,901,055 20,156,135
Finance income 377,445 480,585
Finance costs (1,778,460) (2,046,403)
Net foreign exchange transaction losses on financing activities (40,219) (236,540)
Profit before income tax 25,459,821 18,353,777
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139
8. Segmental information continued
Segment assets and liabilities are reconciled to the Group assets and liabilities as follows:
2018 2017
Assets Liabilities Assets Liabilities
RUB’000 RUB’000 RUB’000 RUB’000
Segment assets/ liabilities 73,019,706 – 64,078,915 –
Unallocated:
– Deferred tax liabilities – 6,284,868 – 5,908,319
– Current income tax assets/liabilities 191,277 50,948 18,273 150,595
– Property, plant and equipment 2,497,915 – 2,139,551 –
– Intangible assets 4,491 – 6,242 –
– Other assets 4,607,362 – 3,006,369 –
– Trade receivables 2,587,528 – 2,363,470 –
– Loans and other receivables 274,750 66,224 –
– Inventories 904,375 – 776,341 –
– Cash and cash equivalents 7,129,918 – 4,966,171 –
– Borrowings – 25,728,911 – 16,331,356
– Trade and other payables – 2,953,694 – 4,413,656
– Contract liabilities – 2,673,467 – –
Total 91,217,322 37,691,888 77,421,556 26,803,926
Geographic information
Revenues from external customers
2018 2017
RUB’000 RUB’000
Revenue
Russia 85,532,368 77,171,269
Estonia 929,319 749,218
Finland 741 6,404
Ukraine 310,314 153,641
86,772,742 78,080,532
The revenue information above is based on the location where the sale has originated, i.e. on the location of the respective subsidiary of
the Group.
In the periods set out below, certain customers, included within the revenue generated in Russia, accounted for greater than 10% of the
Group’s total revenues:
2018 2017
RUB’000 % revenue RUB’000 % revenue
Revenue
Customer A – rail tank cars segment 17,162,366 20 14,248,432 18
Customer B – gondola cars segment 24,939,534 29 24,146,713 31
Customer C – gondola cars segment 13,397,567 15 12,106,875 16
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
8. Segmental information continued
Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under
insurance contracts.
2018 2017
RUB’000 RUB’000
Non-current assets
Russia 63,583,859 54,766,788
Estonia 12,149,137 10,947,603
Ukraine 512,102 527,835
Cyprus 7,212 4,468
76,252,310 66,246,694
9. Non-GAAP financial information
In addition to financial information under IFRS, the Group also use certain measures not recognised by EU IFRS or IFRS (referred to as “non-
GAAP measures”) as supplemental measures of the Group’s operating and financial performance. The management believes that these
non-GAAP measures provide valuable information to readers, because they enable them to focus more directly on the underlying day-to-
day performance of the Group’s business. These might not be consistent with measures (of similar description) used by other entities.
Adjusted Revenue
Adjusted Revenue is defined as “Total revenue” adjusted for “pass through” items: “Infrastructure and locomotive tariffs: loaded trips” and
“Services provided by other transportation organisations”. “Infrastructure and locomotive tariffs: loaded trips” comprises revenue resulting
from tariffs that customers pay to the Group and the Group pays on to OAO “Russian Railways”, which are reflected in equal amounts in
both the Group’s Total revenue and Cost of sales. “Services provided by other transportation organisations” is revenue resulting from the
tariffs that customers pay to the Group and the Group pays on to third-party rail operators for subcontracting their rolling stock, which are
reflected in equal amounts in both the Group’s Total Revenue and Cost of Sales.
The following table provides details of Adjusted Revenue for 2018 and 2017 and its reconciliation to Total Revenue.
2018 2017
RUB’000 RUB’000
Total revenue 86,772,742 78,080,532
Minus “pass through” items
Infrastructure and locomotive tariffs: loaded trips (22,682,168) (22,507,762)
Services provided by other transportation organisations (3,231,150) (3,478,481)
Adjusted Revenue 60,859,424 52,094,289
Total Operating Cash Costs and Non-cash Costs
In order to show the dynamics and nature of the Group’s cost base, individual items of Total Cost of Sales, selling and marketing costs and
administrative expenses have been regrouped into Operating Cash Costs and Operating Non-cash Costs.
Total Operating Cash Costs represent operating cost items payable in cash and calculated as “Total cost of sales, selling and marketing costs
and administrative expenses” less the “pass through” items: “Infrastructure and locomotive tariffs: loaded trips” and “Services provided by
other transportation organisations” and non-cash items: “Depreciation of property, plant and equipment”, “Amortisation of intangible
assets”, “Net impairment losses on financial assets”, “Impairment of property, plant and equipment”, “Net (gain)/loss on sale of property,
plant and equipment” and “Loss on derecognition arising on capital repairs”.
Total Operating Non-cash Costs include cost items such as “Depreciation of property, plant and equipment”, “Amortisation of intangible
assets”, “Loss on derecognition arising on capital repairs”, “Net impairment losses on financial assets”, “Impairment of property, plant and
equipment” and “Net (gain)/loss on sale of property, plant and equipment”.
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141
9. Non-GAAP financial information continued
Other Operating Cash Costs include cost items such as “Advertising and promotion”, “Auditors’ remuneration”, “Communication costs”,
“Information services”, “Legal, consulting and other professional fees”, “Rental of tank containers”, “Operating lease rentals – office”,
“Taxes (other than income tax and value added taxes)” and “Other expenses”.
2018 2017
RUB’000 RUB’000
“Pass through” cost items (25,913,318) (25,986,243)
– Infrastructure and locomotive tariffs: loaded trips (22,682,168) (22,507,762)
– Services provided by other transportation organisations (3,231,150) (3,478,481)
Total cost of sales, selling and marketing costs and administrative expenses
(adjusted for “pass through” cost items) (34,090,644) (32,711,736)
Total Operating Cash Costs (27,893,504) (26,302,818)
– Infrastructure and locomotive tariffs – empty runs and other tariffs (13,848,049) (13,103,048)
– Repairs and maintenance (3,821,338) (3,769,086)
– Employee benefit expense (4,366,804) (3,425,986)
– Operating lease rentals – rolling stock (826,937) (1,634,370)
– Fuel and spare parts – locomotives (1,935,278) (1,519,083)
– Engagement of locomotive crews (795,289) (662,100)
– Other Operating Cash Costs (2,299,809) (2,189,145)
Advertising and promotion (37,716) (31,240)
Auditors’ remuneration (58,760) (55,903)
Communication costs (33,391) (37,446)
Information services (26,626) (19,025)
Legal, consulting and other professional fees (70,084) (69,415)
Rental of tank-containers (43,770) (63,622)
Operating lease rentals – office (183,188) (179,887)
Taxes (other than on income and value added taxes) (681,263) (746,058)
Other expenses (1,165,011) (986,549)
Total Operating Non-cash Costs (6,197,140) (6,408,918)
– Depreciation of property, plant and equipment (5,110,715) (4,962,459)
– Amortisation of intangible assets (696,702) (717,986)
– Loss on derecognition arising on capital repairs (377,284) (528,039)
– Net impairment losses on financial assets (29,713) (60,755)
– Impairment of property, plant and equipment (10,073) (111,172)
– Net loss on sale of property, plant and equipment 27,347 (28,507)
Total cost of sales, selling and marketing costs and administrative expenses (60,003,962) (58,697,979)
Adjusted EBITDA
Adjusted EBITDA represents EBITDA excluding “Net foreign exchange transaction losses from financing activities”, “Share of loss of
associate”, “Other losses/(gains) – net”, “Net (gain)/loss on sale of property, plant and equipment”, “Impairment of property, plant and
equipment”, “Loss on derecognition arising on capital repairs” and “Reversal of impairment of intangible assets”.
EBITDA (a non-GAAP financial measure) represents “Profit for the year” before “Income tax expense”, “Finance costs – net” (excluding
“Net foreign exchange transaction losses from financing activities”), “Depreciation of property, plant and equipment” and “Amortisation of
intangible assets”.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
9. Non-GAAP financial information continued
The following table provides details on Adjusted EBITDA for 2018 and 2017 and its reconciliation to EBITDA and Profit for the year:
2018 2017
RUB’000 RUB’000
Profit for the year 19,583,435 13,819,874
Plus (Minus)
– Income tax expense 5,876,386 4,533,903
– Finance costs – net 1,441,234 1,802,358
– Net foreign exchange transaction losses on financing activities (40,219) (236,540)
– Amortisation of intangible assets 696,702 717,986
– Depreciation of property, plant and equipment 5,110,715 4,962,459
EBITDA 32,668,253 25,600,040
Plus (Minus)
– Loss on derecognition arising on capital repairs 377,284 528,039
– Net foreign exchange transaction losses on financing activities 40,219 236,540
– Other losses/(gains) – net 1,479 (85,392)
– Net loss on sale of property, plant and equipment (27,347) 28,507
– Impairment of property, plant and equipment 10,073 111,172
– Reversal of impairment of intangible assets – (630,223)
Adjusted EBITDA 33,069,961 25,788,683
Free Cash Flow
Free Cash Flow is calculated as “Cash generated from operations” (after “Changes in working capital”) less “Tax paid”, “Interest paid”,
“Purchases of property, plant and equipment”, “Finance lease principal payments” and “Purchases of intangible assets”.
Total CAPEX calculated on a cash basis as the sum of “Purchases of property, plant and equipment”, “Purchases of intangible assets”,
“Acquisition of subsidiary undertakings – net of cash acquired” and “Finance lease principal payments”.
The Attributable Free Cash Flow means Free Cash Flow less Adjusted profit attributable to non-controlling interests.
Adjusted Profit Attributable to Non-controlling Interests is calculated as “Profit attributable to non-controlling interests” less share of
“Impairment of property, plant and equipment” and “Impairment of intangible assets” attributable to non-controlling interests.
The following table sets out details on Free Cash Flow and Attributable Free Cash Flow for 2018 and 2017, and its reconciliation to
Cash generated from operations.
2018 2017
RUB’000 RUB’000
Cash generated from operations 32,602,394 27,495,573
Tax paid (5,765,818) (3,631,769)
Interest paid (1,633,332) (1,943,746)
Purchases of property, plant and equipment (11,567,554) (4,872,076)
Finance lease principal payments (1,321,234) –
Purchases of intangible assets (110) –
Total CAPEX 12,888,898 4,872,076
Free Cash Flow 12,314,346 17,047,982
Attributable Free Cash Flow 10,402,879 15,516,885
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9. Non-GAAP financial information continued
Net Debt and Net Debt to Adjusted EBITDA
Net Debt is defined as the sum of total borrowings (including interest accrued) less “Cash and cash equivalents”.
Total Debt is defined as total borrowings (including interest accrued).
The following table sets out the details on the Group’s Net Debt and Net Debt to Adjusted EBITDA at 31 December 2018 and 2017, and
reconciliation of Net Debt to Total Debt.
2018 2017
RUB’000 RUB’000
Total debt 25,728,911 16,331,356
Minus
Cash and cash equivalents 7,129,918 4,966,171
Net Debt 18,598,993 11,365,185
Net Debt to Adjusted EBITDA 0.56x 0.44x
10. Revenue
(a) Disaggregation of revenue
2018 2017
RUB’000 RUB’000
Railway transportation – operator’s services (tariff borne by the Group) 48,129,793 44,371,174
Railway transportation – operator’s services (tariff borne by the client) 35,690,071 31,496,969
Other 1,558,642 1,000,201
Total revenue from contracts with customers recognised over time (2017: Total revenue) 85,378,506 76,868,344
Operating lease of rolling stock 1,394,236 1,212,188
Total revenue 86,772,742 78,080,532
Note: Revenue from railway transportation – operators services (tariff borne by the Group) includes infrastructure and locomotive tariffs for loaded trips for the year ended 31 December
2018 amounting to RUB 22,682,168 thousand (for the year ended 31 December 2017: RUB 22,507,762 thousand) and the cost of engaging the fleet from third parties recharged to
clients of the Group amounting to RUB 3,231,150 thousand (2017: RUB 3,478,481 thousand).
(b) Liabilities related to contracts with customers
The Group has recognised the following liabilities related to contracts with customers as of 1 January 2018 (date of adoption of IFRS 15)
and 31 December 2018:
31 December 2018 1 January 2018
RUB’000 RUB’000
Contract liabilities relating to railway transportation contracts 2,673,467 2,229,306
Total contract liabilities 2,673,467 2,229,306
Contract liabilities represent advances from customers for transportation services. Until 31 December 2017, the carrying amount of
advances from customers for transportation services was included within trade and other payables (Note 29). This amount consists of
prepayments received in accordance with contracts for transportation services.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
10. Revenue continued
(c) Revenue recognised in relation to contract liabilities
The Group’s revenue for the year ended 31 December 2018 includes the entire contract liability balance of RUB 2,229,306 thousand as
of 1 January 2018.
The Group does not have any contracts where the period of provision of the services (that is, the period between the start and completion of
a trip) exceeds one year. As permitted under IFRS 15, the transaction price allocated to unsatisfied (or partially unsatisfied) performance
obligations as of the balance sheet date is not disclosed.
11. Expenses by nature
2018 2017
RUB’000 RUB’000
Cost of sales
Infrastructure and locomotive tariffs: loaded trips 22,682,168 22,507,762
Infrastructure and locomotive tariffs: empty run trips and other tariffs 13,848,049 13,103,048
Services provided by other transportation organisations 3,231,150 3,478,481
Operating lease rentals – rolling stock 826,937 1,634,370
Rental of tank-containers 43,770 63,622
Employee benefit expense 1,450,366 1,163,527
Repairs and maintenance 3,821,338 3,769,086
Depreciation of property, plant and equipment 5,062,376 4,913,217
Loss on derecognition arising on capital repairs 377,284 528,039
Amortisation of intangible assets 696,687 717,968
Fuel and spare parts – locomotives 1,935,278 1,519,083
Engagement of locomotive crews 795,289 662,100
(Gain)/loss on sale of property, plant and equipment (20,754) 32,695
Impairment of property, plant and equipment 10,073 111,172
Other expenses 394,365 404,677
Total cost of sales 55,154,376 54,608,847
2018 2017
RUB’000 RUB’000
Selling, marketing and administrative expenses
Depreciation of property, plant and equipment 48,339 49,242
Amortisation of intangible assets 15 18
Gain on sale of property, plant and equipment (6,593) (4,188)
Employee benefit expense 2,916,438 2,262,459
Net impairment losses on trade receivables and prepayments 29,713 60,755
Operating lease rental – office 183,188 179,887
Auditors’ remuneration 58,760 55,903
Legal, consulting and other professional fees 70,084 69,415
Advertising and promotion 37,716 31,240
Communication costs 33,391 37,446
Information services 26,626 19,025
Taxes (other than income tax and value added taxes) 681,263 746,058
Other expenses 770,646 581,872
Total selling, marketing and administrative expenses 4,849,586 4,089,132
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145
11. Expenses by nature continued
2018 2017
RUB’000 RUB’000
Total expenses
Depreciation of property, plant and equipment (Note 17) 5,110,715 4,962,459
Loss on derecognition arising on capital repairs (Note 17) 377,284 528,039
Amortisation of intangible assets (Note 18) 696,702 717,986
Impairment of property, plant and equipment (Note 17) 10,073 111,172
Total (gain)/loss on sale of property, plant and equipment (Note 17) (27,347) 28,507
Employee benefit expense (Note 13) 4,366,804 3,425,986
Net impairment losses on trade receivables and prepayments 29,713 60,755
Operating lease rentals – rolling stock 826,937 1,634,370
Operating lease rentals – office 183,188 179,887
Repairs and maintenance 3,821,338 3,769,086
Fuel and spare parts – locomotives 1,935,278 1,519,083
Engagement of locomotive crews 795,289 662,100
Infrastructure and locomotive tariffs: loaded trips 22,682,168 22,507,762
Infrastructure and locomotive tariffs: empty run trips and other tariffs 13,848,049 13,103,048
Services provided by other transportation organisations 3,231,150 3,478,481
Rental of tank-containers 43,770 63,622
Auditors’ remuneration 58,760 55,903
Legal, consulting and other professional fees 70,084 69,415
Advertising and promotion 37,716 31,240
Communication costs 33,391 37,446
Information services 26,626 19,025
Taxes (other than income tax and value added taxes) 681,263 746,058
Other expenses 1,165,011 986,549
Total cost of sales, selling and marketing costs and administrative expenses 60,003,962 58,697,979
Note: The auditors’ remuneration stated above includes fees of RUB 16,798 thousand (2017: RUB 17,059 thousand) for statutory audit services and RUB 5,235 thousand
(2017: RUB 4,714 thousand) for other assurance services charged by the Company’s statutory audit firm. The rest of the auditors’ remuneration relates to fees for audit services
charged by the auditors of the subsidiaries of the Company.
Legal, consulting and other professional fees include RUB 1,548 thousand for the year 2018 (RUB 2,085 thousand for the year 2017) in
relation to fees paid to the Company’s statutory audit firm for tax consultancy services.
12. Other (losses)/gains – net
2018 2017
RUB’000 RUB’000
Other gains 25,100 47,591
Other losses (90,954) (88,136)
Net foreign exchange gains (Note 16) 64,375 65,049
Profit from sale of associate (1) – 60,888
Total other (losses)/gains – net (1,479) 85,392
(1) During the year 2017, the Group disposed its investment in associate, Daugavpils Lokomotivju Remonta Rupnica (“DLRR”), for a consideration of RUB 60,888 thousand,
realising profit on disposal of RUB 60,888 thousand.
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146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
13. Employee benefit expense
2018 2017
RUB’000 RUB’000
Wages and salaries 2,020,679 1,776,586
Termination benefits 8,467 7,426
Bonuses 1,382,287 956,088
Share based payment expense (Note 20) 236,572 97,229
Social insurance costs 718,799 588,657
Total employee benefit expense 4,366,804 3,425,986
Average number of employees during the year 1,540 1,534
14. Finance income and costs
2018 2017
RUB’000 RUB’000
Interest expense:
– Bank borrowings (1,344,208) (1,991,826)
– Non-convertible bond (314,869) –
– Total interest expense calculated using the effective interest rate method (1,659,077) (1,991,826)
– Finance leases (108,216) –
Total interest expense (1,767,293) (1,991,826)
Other finance costs (11,167) (54,577)
Total finance costs (1,778,460) (2,046,403)
Interest income:
– Bank balances 141,095 85,636
– Short-term deposits 192,917 346,322
– Loans to third parties 1,425 2,854
– Total interest income calculated using the effective interest rate method 335,437 434,812
– Finance leases – third parties 42,008 45,773
Total finance income 377,445 480,585
Net foreign exchange transaction gains on borrowings and other liabilities 35,631 271,933
Net foreign exchange transaction losses on cash and cash equivalents and other monetary assets (75,850) (508,473)
Net foreign exchange transaction losses on financing activities (Note 16) (40,219) (236,540)
Net finance costs (1,441,234) (1,802,358)
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147
15. Income tax expense
2018 2017
RUB’000 RUB’000
Current tax:
– Corporation tax 4,751,834 3,335,915
– Withholding tax on dividends 748,003 535,000
Total current tax 5,499,837 3,870,915
Deferred tax (Note 28):
– Origination and reversal of temporary differences 376,549 662,988
Total deferred tax 376,549 662,988
Income tax expense 5,876,386 4,533,903
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
2018 2017
RUB’000 RUB’000
Profit before tax 25,459,821 18,353,777
Tax calculated at domestic tax rates applicable to profits in the respective countries 5,846,000 4,490,473
Tax effects of:
– Expenses not deductible for tax purposes 255,960 115,745
– Allowances and income not subject to tax (128,703) (8,558)
Tax effect of tax losses for which no deferred tax asset was recognised – (10,819)
Estonian income tax arising on distribution (1) 59,899 –
Withholding taxes:
– Dividend withholding tax provision in relation to intended dividend distribution of subsidiaries (156,770) 52,938
Tax charge 5,876,386 4,533,903
(1) Estonian tax law calls for profits to be taxed at the time of distribution and not during the year in which they arise. During the year 2018, the Group incurred taxes on a non-recurring
distribution from an Estonian subsidiary.
The Company is subject to income tax on taxable profits at the rate 12.5%. As from tax year 2012 brought forward losses of the Company of
only five years may be utilised.
Up to 31 December 2008, under certain conditions interest of the Company may be subject to special contribution for defence at the rate of
10%. In such cases 50% of the same interest will be exempt from income tax thus having an effective tax rate burden of approximately 15%.
From 1 January 2009 onwards, under certain conditions, interest may be exempt from income tax and be subject only to special contribution
for defence at the rate of 10%; increased to 15% as from 31 August 2011, and to 30% as from 29 April 2013. In certain cases dividends
received from abroad may be subject to special contribution for defence at the rate of 15%; increased to 17% as from 31 August 2011;
increased to 20% as from 1 January 2012; reduced to 17% as from 1 January 2013. In certain cases dividends received by the Company from
1 January 2012 onwards from other Cyprus tax resident companies may also be subject to special contribution for defence. Gains on disposal
of qualifying titles (including shares, bonds, debentures, rights thereon etc.) are exempt from Cyprus income tax.
For Russian subsidiaries, the annual profit is taxed at 20%. Withholding tax is applied to dividends distributed to the Company by its Russian
subsidiaries at the rate of 5% on gross dividends declared; such tax is withheld at source by the respective subsidiary and is paid to the Russian
tax authorities at the same time when the payment of dividend is effected. Dividend withholding tax provision is recognised in the respective
periods for the withholding taxes that would be payable by subsidiaries where there is an intention that earnings will be distributed to the
Company in the form of dividends.
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148
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
15. Income tax expense continued
For subsidiaries in Estonia, the annual profit earned by enterprises is not taxed and thus no income tax or deferred tax asset/liabilities arise.
Instead of taxing the net profit, the distribution of statutory retained earnings is subject to a dividend tax rate of 20% of net dividend paid.
For the subsidiary in Ukraine the annual profit was taxed at a tax rate 25% until 31 March 2011; decreased to 23% until 31 December 2011
and further decreased to 21% thereafter. As of 1 January 2013 the tax rate reduced to 19% and is reduced to 18% from 1 January 2014.
The Group has not recognised any tax in relation to other comprehensive income as all elements of other comprehensive income are not
subject to tax.
16. Net foreign exchange losses
The exchange differences credited to the income statement are included as follows:
2018 2017
RUB’000 RUB’000
Finance income and costs (Note 14) (40,219) (236,540)
Other gains – net (Note 12) 64,375 65,049
24,156 (171,491)
17. Property, plant and equipment
Land and
Rolling stock buildings Motor vehicles Other Total
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
At 1 January 2017
Cost 92,819,465 354,051 202,842 1,786,732 95,163,090
Accumulated depreciation (28,900,085) (76,764) (115,906) (416,754) (29,509,509)
Net book amount 63,919,380 277,287 86,936 1,369,978 65,653,581
Year ended 31 December 2017
Opening net book amount 63,919,380 277,287 86,936 1,369,978 65,653,581
Additions 4,137,300 512 35,723 674,373 4,847,908
Disposals (566,515) – (5,359) (1,838) (573,712)
Depreciation charge (Note 11) (4,801,088) (12,338) (29,654) (119,379) (4,962,459)
Transfers 64,155 1,403 – (65,558) –
Impairment charge (1) (Note 11) (111,172) – – – (111,172)
Transfer to inventories (240,123) – – (79,435) (319,558)
Derecognition arising on capital repairs (528,039) – – – (528,039)
Currency translation differences 757,485 838 921 (5,114) 764,358
Closing net book amount 62,631,383 267,702 88,567 1,783,255 64,770,907
At 31 December 2017
Cost 94,103,663 358,239 210,070 2,319,710 96,991,682
Accumulated depreciation (31,472,280) (90,537) (121,503) (536,455) (32,220,775)
Net book amount 62,631,383 267,702 88,567 1,783,255 64,770,907
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149
17. Property, plant and equipment continued
Land and
Rolling stock buildings Motor vehicles Other Total
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
At 1 January 2018
Cost 94,103,663 358,239 210,070 2,319,710 96,991,682
Accumulated depreciation (31,472,280) (90,537) (121,503) (536,455) (32,220,775)
Net book amount 62,631,383 267,702 88,567 1,783,255 64,770,907
Year ended 31 December 2018
Opening net book amount 62,631,383 267,702 88,567 1,783,255 64,770,907
Additions 13,965,522 – 51,054 510,617 14,527,193
Disposals (429,359) (103) (15,353) (238) (445,053)
Depreciation charge (Note 11) (4,920,692) (12,388) (30,390) (147,245) (5,110,715)
Transfers 2,021 – 1,828 (3,849) –
Impairment charge (Note 11) (10,073) – – – (10,073)
Transfer to inventories (328,418) – – (12) (328,430)
Derecognition arising on capital repairs (377,284) – – – (377,284)
Currency translation differences 1,733,888 1,729 2,260 481 1,738,358
Closing net book amount 72,266,988 256,940 97,966 2,143,009 74,764,903
At 31 December 2018
Cost 107,436,162 347,949 201,242 2,662,667 110,648,020
Accumulated depreciation (35,169,174) (91,009) (103,276) (519,658) (35,883,117)
Net book amount 72,266,988 256,940 97,966 2,143,009 74,764,903
Useful lives of rolling stock
The estimation of the useful lives of items of rolling stock is a matter of judgement based on the experience with similar assets. The future
economic benefits embodied in the assets are consumed principally through use. However, other factors, such as technical or commercial
obsolescence and wear and tear, often result in the diminution of the economic benefits embodied in the assets. The Group assesses the
remaining useful lives of its rolling stock as of each balance sheet date taking into account the current technical conditions of the assets and
estimated period during which the assets are expected to earn benefits for the Group. The following primary factors are considered: (a) the
expected usage of the assets; (b) the expected physical wear and tear, which depends on operational factors and maintenance programme;
and (c) the technical or commercial obsolescence arising from changes in market conditions.
Based on management’s assessment, the useful economic life of the Group’s rolling stock as of 31 December 2018 is considered appropriate.
(1) Impairment assessment of rolling stock as of 31 December 2017
The management’s assessment as of 31 December 2017 did not reveal indicators for impairment for any of the CGUs of the Group, with the
exception of the Estonian rail tank cars/operating leasing CGU and certain locomotives within the locomotives/operating leasing segment
which were not in use at that time and required substantial repair costs and thus were separately impaired. These locomotives were impaired
to their scrap value, determined based on fair value less costs to sell measurement, resulting in an impairment loss of RUB 111,172 thousand.
This measurement did not involve significant estimates.
The recoverable amount of the Estonian rail tank cars/operating leasing CGU, with rolling stock of RUB 10,919,427 thousand as at
31 December 2017 was compared with the carrying amount of the assets in this CGU, which included rolling stock. As a result of the
impairment assessment, no impairment charges were noted with respect to this CGU.
The recoverable amount of the CGU was determined based on a level 3 fair value less cost to sell and was not sensitive to changes in the
underlying variables and assumptions used in the determination of the recoverable amount of the CGUs.
The fair value less cost to sell was determined based on the prices quoted by major manufacturers of the specific rolling stock held by the
Group, adjusted to take into account the age of each specific asset in the possession of the Group and expenses necessary to bring the assets
to the location and condition that enables their current use, assessed by management as being their highest and best use. The recoverable
amount was not sensitive to changes in key assumptions in the impairment model.
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150
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
17. Property, plant and equipment continued
(2) Impairment assessment of rolling stock as of 31 December 2018
The Group assessed whether there were any indications for impairment of its rolling stock as of 31 December 2018 in accordance with its
accounting policy for impairment of non-financial assets (Note 4). The Group’s assessment did not reveal any indicators for impairment,
with the exception of the Estonian rail tank cars/operating leasing CGU.
The recoverable amount of the Estonian rail tank cars/operating leasing CGU, with rolling stock of RUB 12,123,690 thousand as at
31 December 2018 was compared with the carrying amount of the assets in this CGU, which included rolling stock. As a result of the
impairment assessment, no impairment charges were noted with respect to this CGU.
The recoverable amount of the CGU was determined based on a level 3 fair value less cost to sell and was not sensitive to changes in the
underlying variables and assumptions used in the determination of the recoverable amount of the CGUs.
The fair value less cost to sell was determined based on the prices quoted by major manufacturers of the specific rolling stock held by the
Group, adjusted to take into account the age of each specific asset in the possession of the Group and expenses necessary to bring the assets
to the location and condition that enables their current use, assessed by management as being their highest and best use. The recoverable
amount was not sensitive to changes in key assumptions in the impairment model.
In the cash flow statement, proceeds from sale of property, plant and equipment comprise:
2018 2017
RUB’000 RUB’000
Net book amount 445,053 573,712
Gain/(loss) on sale of property, plant and equipment (Note 11) 27,347 (28,507)
Consideration from sale of property, plant and equipment 472,400 545,205
The consideration from sale of property, plant and equipment is further analysed as follows:
2018 2017
RUB’000 RUB’000
Cash consideration received within year 409,794 267,526
Property, plant and equipment disposed through finance lease transactions – 256,664
Movement in advances received for sales of property, plant and equipment 62,606 21,015
472,400 545,205
Property, plant and equipment includes the following amounts where the Group is the lessee under a finance lease:
2018 2017
RUB’000 RUB’000
Cost – capitalised finance leases 5,646,924 1,838,378
Accumulated depreciation (744,353) (429,242)
4,902,571 1,409,136
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151
17. Property, plant and equipment continued
The net carrying amount of property, plant and equipment that are leased under finance leases, are analysed as follows:
2018 2017
RUB’000 RUB’000
Rolling stock (1) 3,414,376 –
3,414,376 –
(1) As at 31 December 2018 rolling stock with a net carrying amount of RUB 1,488,195 thousand (2017: RUB 1,409,136 thousand) was pledged under finance leases that have been
repaid by the Group as at 31 December 2018 and 31 December 2017 for which the Group has the unilateral right to request for release of the pledged rolling stock with immediate effect.
The Group is identified as a lessee under a finance lease in the following cases:
(a) The lease transfers ownership of property, plant and equipment to the Group at the end of the lease term.
(b) The Group has the option to purchase the property, plant and equipment at a price that is expected to be sufficiently lower than the fair
value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised.
The total net book value of pledged property, plant and equipment (included above) which are held as collateral for the borrowings and
loans are as follows (Note 27):
2018 2017
RUB’000 RUB’000
Rolling stock 22,372,026 16,567,626
Other (tank-containers) 572,499 1,395,772
22,944,525 17,963,398
In accordance with the terms of its bank borrowings, the Group had a commitment as at 31 December 2018 to pledge tank-containers with
a carrying amount of RUB 728,669 thousand within six months from the date of bank loan agreement; being 4 July 2018. The relevant
pledge agreement was concluded in January 2019.
In accordance with the terms of its bank borrowings, the Group had a commitment as at 31 December 2017 to pledge rolling stock with a
market value of not less than RUB 6,000,000 thousand within six months from the date of bank loan agreement; being 15 August 2017.
The relevant pledge agreement was concluded in February 2018. The relevant bank loan was fully repaid during March 2018.
Depreciation expense of RUB 5,062,376 thousand in 2018 (2017: RUB 4,913,217 thousand) has been charged to “cost of sales” and RUB
48,339 thousand in 2018 (2017: RUB 49,242 thousand) has been charged to “selling, marketing and administrative expenses”. Impairment
charge of RUB 10,073 thousand in 2018 (2017: RUB 111,172 thousand) has been charged to “cost of sales”.
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152
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
18. Intangible assets
Computer Customer
software relationships Total
RUB’000 RUB’000 RUB’000
At 1 January 2017
Cost 10,772 6,780,787 6,791,559
Accumulated amortisation and impairment (2,643) (5,247,352) (5,249,995)
Net book amount 8,129 1,533,435 1,541,564
Year ended 31 December 2017
Opening net book amount 8,129 1,533,435 1,541,564
Amortisation charge (Note 11) (1,887) (716,099) (717,986)
Reversal of impairment charge – 630,223 630,223
Closing net book amount 6,242 1,447,559 1,453,801
At 31 December 2017
Cost 10,772 6,780,787 6,791,559
Accumulated amortisation and impairment (4,530) (5,333,228) (5,337,758)
Net book amount 6,242 1,447,559 1,453,801
Year ended 31 December 2018
Opening net book amount 6,242 1,447,559 1,453,801
Amortisation charge (Note 11) (1,888) (694,814) (696,702)
Additions 110 – 110
Transfers 27 (27) –
Closing net book amount 4,491 752,718 757,209
At 31 December 2018
Cost 10,934 4,863,734 4,874,668
Accumulated amortisation and impairment (6,443) (4,111,016) (4,117,459)
Net book amount 4,491 752,718 757,209
As of 31 December 2018, the Group’s intangible assets include a customer relationship with MMK Group with a carrying amount of RUB
752,718 thousand (2017: RUB 1,447,559 thousand). The customer relationship was allocated to the Russian gondola cars/operator’s
services CGU. During the year 2017, the customer relationship with Metalloinvest with a carrying amount of RUB 143,260 thousand at
1 January 2017 reached the end of its useful economic life.
Amortisation of RUB 696,687 thousand (2017: RUB 717,968 thousand) has been charged to “cost of sales” in the income statement and
RUB 15 thousand (2017: RUB 18 thousand) to “administrative expenses”.
Useful lives of customer relationships
The estimation of the useful lives of the customer relationships is a matter of judgement based on expectations of the duration of the
relationship with the customers.
The contract with MMK Group was concluded in February 2013 for five years expiring in February 2018. In assessing the useful life of this
customer relationship on initial recognition, management took the view that the cooperation with MMK Group would not terminate after
the expiry of the underlying contract as the relationship is based on market conditions and the rolling stock of the Group and its expertise
best meet the transportation requirements of the customer. In view of these considerations, management estimated the useful economic
life of the customer relationship with the MMK Group to be seven years on the initial acquisition of this customer relationship.
During 2014, the terms of the contract with MMK was prolonged for a further one year to February 2019. Management reassessed the
useful economic life of the customer relationship and concluded that, despite the prolongation of the contract in year 2014, the remaining
useful economic life of the customer relationship remained reasonable.
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153
18. Intangible assets continued
During 2018, the contract with MMK was prolonged to September 2020. Management reassessed the useful economic life of the customer
relationship and concluded that, despite the prolongation of the contract in year 2018, the remaining useful economic life of the customer
relationship remains appropriate.
Based on management’s assessment as of 31 December 2018 and 31 December 2017, the useful economic life of the customer relationship
with MMK Group remains appropriate.
(1) Assessment of reversal of previously recognised impairment of customer relationship as of 31 December 2017
The carrying amount of the Group’s intangible assets as of 31 December 2017, included a customer relationship with MMK Group with a
carrying amount of RUB 1,447,559 thousand, as of that date. This customer relationship has been allocated to the Russian gondola
cars/operator’s services CGU.
Based on impairment assessment performed by the Group as of 31 December 2015, an impairment charge of RUB 996,160 thousand was
recognised during the year ended 31 December 2015 against the carrying amount of this customer relationship.
The Group assesses as of each reporting date whether there are any indications for impairment or reversal of previously recognised
impairment for its customer relationships, in accordance with its accounting policy for impairment of non-financial assets (Note 4).
The analysis of indicators for reversal of the previously recognised impairment for the customer relationship with MMK Group showed that
there were indicators of reversal in place as of 30 June 2017, reflecting the general recovery in the market and industry conditions. Therefore,
management performed an impairment assessment to determine the customer relationship’s recoverable amount as of that date.
The recoverable amount of this customer relationship as of 30 June 2017 was estimated based on value-in-use calculations and was
determined to be higher than its carrying amount if no impairment charge was recognised in the past in respect of it. As a result, a reversal of
impairment of RUB 630,223 thousand was recognised during the six-month period ended 30 June 2017 increasing the carrying amount of
the customer relationship to the one that would have been if no impairment charge was recognised in the past.
The projections prepared were based on 3.5 year post-tax cash flow projections, being the period over which cash flows are expected from
this customer relationship. A post-tax discount rate of 14.9% was applied for the projected period.
The key assumptions were transportation volumes and tariffs per trip, which are the main components of revenue, as well as cost drivers,
which were projected on the actual results for the six months to 30 June 2017, and the estimated growth in the EBITDA margin during the
projected period and the discount rate. The projected volumes reflected past experience and management’s estimates. The transportation
prices were estimated in accordance with the past performance of the Group and management’s expectations of market development.
Any reasonable change in the assumptions used in the calculation for the recoverable amount of this customer relationship would not
decrease the amount of the reversal of impairment recognised.
Taking into account the above as well as the continuing strong performance of the Russian gondola cars/operator’s services CGU in the six-
month period to 31 December 2017, the management concluded that there were no indicators for impairment with respect to the
customer relationship as of 31 December 2017.
(2) Assessment for impairment as of 31 December 2018
The Group assessed whether there were any indications of impairment of the customer relationship with MMK Group as of 31 December
2018, in accordance with its accounting policy for impairment of non-financial assets (Note 4). The Group’s assessment did not reveal any
indicators of impairment and, as a result, management did not estimate the recoverable amount of this customer relationship.
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Annual Report & Accounts 2018
154
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
19. Principal subsidiaries
The Group had the following subsidiaries at 31 December 2018 and 31 December 2017:
Proportion of
Proportion of Proportion of ordinary shares
ordinary shares ordinary shares held by non-
held by the held by the controlling
Company (%) Group (%) interest (%)
Place of
business/
country of
Name incorporation Principal activities 2018 2017 2018 2017 2018 2017
New Forwarding Russia Railway transportation 100 100 100 100 – –
Company, AO
GTI Management, OOO Russia Railway transportation 100 100 100 100 – –
Ural Wagonrepair Russia Repair and maintenance 100 100 100 100 – –
Company, AO of rolling stock
Ukrainian New Forwarding
Company OOO Ukraine Railway transportation 100 100 100 100 – –
BaltTransServis, OOO Russia Railway transportation 60 60 60 60 40 40
RemTransServis, OOO (1) Russia Repair and maintenance – – 59.4 59.4 40.6 40.6
of rolling stock
SyntezRail LLC (3) Russia Railway transportation – – 60 60 40 40
SyntezRail Ltd Cyprus Intermediary holding company 60 60 60 60 40 40
Spacecom AS Estonia Operating lease of rolling 65.25 65.25 65.25 65.25 34.75 34.75
stock and provision of
forwarding services
Ekolinja Oy (2) Finland Operating sub-lease – – 65.25 65.25 34.75 34.75
of rolling stock
Spacecom Trans AS (4) Estonia Operating lease of – 65 65.25 65 34.75 35
rolling stock
(1) RemTransServis, OOO is a 99% subsidiary of BaltTransServis, OOO.
(2) Ekolinja Oy is a 100% subsidiary of Spacecom AS.
(3) SyntezRail LLC is a 100% subsidiary of SyntezRail Ltd.
(4) During 2018 Spacecom AS acquired 100% of the shares of Spacecom Trans AS from the Company and the non-controlling shareholders. As a result, the proportion of ordinary
shares held by the Company in Spacecom Trans AS increased from a direct holding of 65% to an indirect holding of 65.25%.
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held directly
by the parent company do not differ from the proportion of ordinary shares held.
The accumulated non-controlling interest as of 31 December 2018 and 31 December 2017 comprised the following:
2018 2017
RUB’000 RUB’000
BaltTransServis, OOO (including RemTransservis, OOO) 1,848,646 1,668,540
Spacecom AS (including Ekolinja Oy) 2,824,204 3,105,411
Spacecom Trans AS 1,064,637 1,008,312
SyntezRail, OOO; SyntezRail Limited 159,921 (57,364)
Total 5,897,408 5,724,899
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155
19. Principal subsidiaries continued
Transactions with non-controlling interests
During 2018 Spacecom AS acquired 100% of the shares of Spacecom Trans AS from the Company and the non-controlling shareholders,
for a total consideration of Eur 30,100 thousand (equivalent to RUB 2,391,761 thousand). As a result, the proportion of ordinary shares held
by the Company in Spacecom Trans AS increased from a direct holding of 65% to an indirect holding of 65.25%. The transaction aimed to
optimise the management of both Estonian subsidiaries.
Out of the total amount payable to the non-controlling shareholders of RUB 837,116 thousand, RUB 5,980 thousand relate to the
acquisition of 0.25% in Spacecom Trans AS by the Group. The difference between the consideration payable and the carrying amount of the
non-controlling interest as of the disposal date of RUB 1,516 thousand was recognised in retained earnings. The remaining RUB 831,136
payable to the non-controlling shareholders was recognised as a reduction in the carrying amount of the non-controlling interest.
An amount of RUB 168,804 thousand was paid to the non-controlling interest within 2018.
Significant restrictions
There are no significant restrictions, statutory, contractual, regulatory, or arising from protective rights of non-controlling interests, on the
ability of the Group to access or use the assets and settle the liabilities of the Group.
Summarised financial information of subsidiaries with material non-controlling interests
Set out below are the summarised financial information for each subsidiary that has non-controlling interests that are material to the Group.
The financial information of Spacecom AS (including Ekolinja Oy) and Spacecom Trans AS have been aggregated since both entities operate
in the Estonian rail tank cars segment, have significant transactions between them, and management reviews their performance as a single
operation. The financial information of BaltTransServis, OOO includes RemTransServis, OOO.
No summarised financial information is presented for SyntezRail, OOO and SyntezRail Limited as their operations and financial position
are not material to the Group.
Summarised balance sheet
BaltTransServis OOO Spacecom AS – Spacecom Trans AS
2018 2017 2018 2017
RUB’000 RUB’000 RUB’000 RUB’000
Current
Assets 2,863,563 2,625,172 568,845 716,544
Liabilities 1,713,310 1,395,496 916,598 49,972
Total current net assets 1,150,253 1,229,676 (347,753) 666,572
Non-current
Assets 5,571,362 5,300,163 12,252,920 11,081,530
Liabilities 2,099,999 2,358,489 827,446 –
Total non-current net assets 3,471,363 2,941,674 11,425,474 11,081,530
Net assets 4,621,616 4,171,350 11,077,721 11,748,102
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156
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
19. Principal subsidiaries continued
Summarised income statement
BaltTransServis OOO Spacecom AS – Spacecom Trans AS
2018 2017 2018 2017
RUB’000 RUB’000 RUB’000 RUB’000
Revenue 26,128,533 21,458,824 943,402 755,622
Profit before income tax 5,726,124 4,926,219 276,877 58,589
Income tax expense (1,175,858) (1,014,228) (59,289) –
Post-tax profit from continuing operations 4,550,266 3,911,991 217,588 58,589
Other comprehensive income – – 1,824,144 716,756
Total comprehensive income 4,550,266 3,911,991 2,041,732 775,345
Total comprehensive income allocated
to non-controlling interests 1,820,106 1,564,796 710,615 270,120
Dividends paid to non-controlling interest (1,640,000) (2,200,000) (83,005) –
Summarised cash flow statements
BaltTransServis OOO Spacecom AS – Spacecom Trans AS
2018 2017 2018 2017
RUB’000 RUB’000 RUB’000 RUB’000
Cash flows from operating activities
Cash generated from operations 6,288,546 5,980,883 642,591 493,096
Income tax paid (1,209,550) (1,027,999) (59,289) (1,203)
Net cash generated from operating activities 5,078,996 4,952,884 583,302 491,893
Net cash generated from/(used in) investing activities (799,737) (347,927) (936,540) 167,713
Net cash used in financing activities (4,416,883) (5,901,728) (99,337) (136,287)
Net increase/(decrease) in cash and cash equivalents (137,624) (1,296,771) (452,575) 523,319
Cash and cash equivalents at beginning of year 1,132,945 2,429,582 581,995 42,618
Exchange differences on cash and cash equivalents (275) 134 66,093 16,072
Cash and cash equivalents at end of year 995,046 1,132,945 195,513 582,009
The information above includes the amounts before inter-company eliminations.
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20. Share-based payments
On 1 January 2015, the Group introduced a new remuneration programme for some of the members of management, including members of
key management of the Group, which included, amongst other things, a three year compensation scheme in accordance to which, members
of management received a yearly cash compensation calculated based on the weighted average market quotations of the GDRs of the
Company. This compensation was set for a three year period and divided on three instalments to be paid after the end of each assessment
period which equalled to one year. The award was conditional on the performance of the participants and on meeting certain Key Performance
Indicators (“KPIs”) each year during the three years vesting period. The scheme reached the end of its vesting period on 31 December 2017
and on 1 January 2018 the Group introduced a new three year compensation scheme under similar major terms and conditions as the initial.
Both schemes fall within the scope of IFRS 2 “Share-based payment” and have therefore been classified as a cash-settled share based
payment arrangements.
In accordance with the terms of the remuneration programme, the compensation is calculated based on the weighted average fair value of
the Company’s GDRs, quoted in US Dollar multiplied by the weighted average RUB/USD exchange rate for each period.
The Group recognised an employee benefit expense of RUB 236,572 thousand in this respect for the year ended 31 December 2018
(2017: RUB 97,229 thousand) and the Group’s liability in respect of this amounted to RUB 290,805 as of 31 December 2018
(2017: RUB 226,560 thousand).
The share based payment liability as of 31 December 2018 was determined based on the assumption that all participants will remain with
the Group and all KPIs will be met and that there will be no significant fluctuation in the value of the Company’s GDRs during the vesting
period. The significant inputs into the valuation were the weighted average fair value of the Company’s GDRs and the weighted average
USD/RUB exchange.
21. Financial assets
(a) Trade receivables
2018 2017
RUB’000 RUB’000
Trade receivables – third parties 2,733,570 2,504,806
Less: Provision for impairment of trade receivables (146,042) (141,336)
Trade receivables – net 2,587,528 2,363,470
Less non-current portion:
Trade receivables – third parties 245,537 203,153
Less: Provision for impairment of trade receivables (23,732) (19,637)
Total non-current portion 221,805 183,516
Current portion 2,365,723 2,179,954
Trade receivables amounting to RUB 245,537 thousand as of 31 December 2018 (2017: RUB 203,153 thousand) relate to a receivable from
Georgian Railways for services rendered by the Group prior to 1 April 2015. The amount receivable is under dispute and the Group initiated
a claim to the Georgian Court demanding the repayment of the entire balance due. Based on assessment performed as at 31 December
2018, the Group recognised a provision for impairment of RUB 23,732 thousand (2017: RUB 19,637 thousand) in order to account for
the expected time until receipt of the amount due (Note 31).
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158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
21. Financial assets continued
The carrying amounts of the Group’s trade receivables are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
Currency:
– US Dollar 250,245 195,948
– Russian Rouble 2,183,841 2,107,462
– Euro 137,472 59,650
– Ukrainian Hryvnia 15,970 410
2,587,528 2,363,470
According to the management’s estimates, the fair values of trade receivables do not materially differ from their carrying amounts as the
impact of discounting is not significant.
(b) Loans and other receivables
2018 2017
RUB’000 RUB’000
Loans receivables – third parties 11,904 16,857
Other receivables 112,434 89,153
Other receivables – related parties (Note 33) 200,064 –
Less: Provision for impairment of other receivables (49,652) (39,786)
Loans and other receivables – net 274,750 66,224
Less non-current portion:
– Loans receivables – third parties 11,904 16,857
Current portion 262,846 49,367
The carrying amounts of the Group’s loans and other receivables are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
Currency:
– US Dollar 2,207 584
– Russian Rouble 260,247 48,476
– Ukrainian Hryvnia 392 307
– Other 11,904 16,857
274,750 66,224
According to the management’s estimates, the fair values of loans and other receivables do not materially differ from their carrying
amounts as the impact of discounting is not significant.
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159
22. Other assets
2018 2017
RUB’000 RUB’000
Prepayments – third parties 2,857,251 1,949,999
Finance leases to third parties 316,668 445,919
VAT recoverable 1,433,443 610,451
Other assets 4,607,362 3,006,369
Less non-current portion:
– Finance leases to third parties 289,374 414,869
– Prepayments for property, plant and equipment 693,267 21,986
– VAT recoverable 36,931 –
Total non-current portion 1,019,572 436,855
Current portion 3,587,790 2,569,514
The Group’s finance leases as at 31 December 2018 and 31 December 2017 are denominated in Russian Roubles.
The finance lease receivables are scheduled as follows:
Less than one year Between 1 to 5 years Over 5 years Total
RUB’000 RUB’000 RUB’000 RUB’000
At 31 December 2018
Minimum lease receivable 61,311 291,591 96,489 449,391
Less: Unearned finance income (34,017) (97,059) (1,647) (132,723)
Present value of minimum lease receivables 27,294 194,532 94,842 316,668
At 31 December 2017
Minimum lease receivable 79,801 319,499 270,154 669,454
Less: Unearned finance income (48,751) (153,535) (21,249) (223,535)
Present value of minimum lease receivables 31,050 165,964 248,905 445,919
According to the management’s estimates, the fair values of finance lease receivables do not materially differ from their carrying amounts as
the impact of discounting is not significant.
The effective interest rates on finance lease receivables at the balance sheet were as follows:
2018 2017
% %
Finance leases to third parties 11.17 11.28
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160
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
23. Inventories
2018 2017
RUB’000 RUB’000
Raw materials, spare parts and consumables 904,375 776,341
904,375 776,341
All inventories are stated at cost.
24. Cash and cash equivalents
2018 2017
RUB’000 RUB’000
Cash at bank and in hand 6,685,392 3,313,155
Short-term bank deposits 444,526 1,653,016
Total cash and cash equivalents 7,129,918 4,966,171
The weighted average effective interest rate on short-term deposits was 6.46% in 2018 (2017: 7.61%) and these deposits have a maturity
of 1 to 30 days (2017: 1 to 30 days).
Cash and cash equivalents include the following for the purposes of the cash flow statement:
2018 2017
RUB’000 RUB’000
Cash and cash equivalents 7,129,918 4,966,171
Total cash and cash equivalents 7,129,918 4,966,171
Cash and cash equivalents are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
Russian Rouble 5,485,393 4,016,241
US Dollar 759,190 441,311
Euro 838,956 482,936
Ukrainian Hryvnia 46,379 25,683
Total cash and cash equivalents 7,129,918 4,966,171
The carrying value of cash and cash equivalents approximates their fair value.
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161
25. Share capital and share premium
Number Share capital Share premium Total
of shares USD’000 USD’000 USD’000
At 1 January 2017 / 31 December 2017 /
1 January 2018 / 31 December 2018 178,740,916 17,875 949,471 967,346
Number Share capital Share premium Total
of shares RUB’000 RUB’000 RUB’000
At 1 January 2017 / 31 December 2017 /
1 January 2018 / 31 December 2018 178,740,916 516,957 27,929,478 28,446,435
The total authorised number of ordinary shares at 31 December 2018 was 233,918,128 shares with a par value of USD 0.10 per share
(31 December 2017: 233,918,128 shares with a par value of USD 0.10 per share). All issued shares are fully paid.
26. Dividends
In April 2017, the shareholders of the Company approved the payment of the final dividend in respect of the financial year ended
31 December 2016 in the amount of 39.20 Russian Roubles per ordinary share/GDR, amounting to a total dividend of RUB 7,006,644
thousand (US Dollar equivalent of USD 124,605 thousand).
In August 2017, the Board of Directors of the Company approved payment of total dividend in the amount of 44.8 Russian Roubles per
ordinary share/GDR, amounting to a total dividend of RUB 8,007,593 thousand, including interim dividend in the amount of RUB
3,603,417 thousand or RUB 20.16 per ordinary share/GDR and a special interim dividend in the amount of RUB 4,404,176 thousand or
RUB 24.64 per ordinary share/GDR (US Dollar equivalent of USD 135,401 thousand).
In April 2018, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2017 in
the amount of 44.85 Russian Roubles per ordinary share/GDR, amounting to a total dividend of RUB 8,016,530 thousand, including final
dividend for 2017 in the amount of RUB 4,155,726 thousand or RUB 23.25 per ordinary share/GDR and a special final dividend in the
amount of RUB 3,860,804 thousand or RUB 21.60 per ordinary share/GDR (US Dollar equivalent of USD 130,728 thousand).
In August 2018, the Board of Directors of the Company approved payment of total dividend in the amount of 45.9 Russian Roubles per
ordinary share/GDR, amounting to a total dividend of RUB 8,204,208 thousand (US Dollar equivalent of USD 119,724 thousand), including
interim dividend in the amount of RUB 3,771,433 thousand (US Dollar equivalent of USD 55,037 thousand) or RUB 21.10 per ordinary
share/GDR and a special interim dividend in the amount of RUB 4,432,775 thousand (US Dollar equivalent of USD 64,687 thousand) or
RUB 24.80 per ordinary share/GDR.
On the date of this report, the Board of Directors of the Company, having considered the profitability and liquidity position of the Group,
recommends a payment of dividend for the year 2018 total dividend in the amount of 46.50 Russian Roubles per ordinary share/GDR,
amounting to a total dividend of RUB 8,311,453 thousand, including final dividend for 2018 in the amount of RUB 1,429,927 thousand or
RUB 8.00 per ordinary share/GDR and a special final dividend in the amount of RUB 6,881,526 thousand or RUB 38.50 per ordinary
share/GDR. Such dividends shall be paid in US Dollars at the rate as at 19 April 2019, subject to the approval of the shareholders at the
Annual General Meeting on 22 April 2019.
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162
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
26. Dividends continued
During the years ended 31 December 2018 and 2017, the Group declared and paid dividends in favour of the equity holders of the
Company and the non-controlling interests as detailed in the table below.
2018 2017
RUB’000 RUB’000
Dividends declared to equity holders of the Company 16,220,738 15,014,237
Dividends paid to equity holders of the Company 16,220,738 15,014,237
Dividends declared to non-controlling interest 1,723,005 2,200,000
Dividends paid to non-controlling interest 1,723,005 2,200,000
27. Borrowings
2018 2017
RUB’000 RUB’000
Current
Bank borrowings 7,831,616 7,280,588
Non-convertible unsecured bonds 131,100 –
Finance lease liabilities 496,874 –
Total current borrowings 8,459,590 7,280,588
Non-current
Bank borrowings 10,568,008 9,050,768
Non-convertible unsecured bonds 4,985,519 –
Finance lease liabilities 1,715,794 –
Total non-current borrowings 17,269,321 9,050,768
Total borrowings 25,728,911 16,331,356
Maturity of non-current borrowings (excluding finance lease liabilities)
Between 1 and 2 years 5,186,713 5,727,105
Between 2 and 5 years 10,366,814 3,323,663
15,553,527 9,050,768
Bank borrowings
Bank borrowings mature by 2023 (2017: by 2022) and bear average interest of 7.99% per annum (2017: 9.38% per annum).
There were no defaults or breaches of loan terms during the years ended 31 December 2018 and 31 December 2017.
The current and non-current bank borrowings amounting to RUB 6,775,211 thousand and RUB 9,681,198 thousand respectively (2017:
RUB 4,746,499 thousand and RUB 6,559,101 thousand respectively) are secured by pledge of rolling stock and tank-containers with a total
carrying net book value of RUB 22,944,525 thousand (2017: RUB 17,963,398 thousand) (Note 17).
In accordance with the terms of its bank borrowings, the Group had a commitment as at 31 December 2018 to pledge tank-containers with
a carrying amount of RUB 728,669 thousand within six months from the date of bank loan agreement; being 4 July 2018. The relevant
pledge agreement was concluded in January 2019.
In accordance with the terms of its bank borrowings, the Group had a commitment as at 31 December 2017 to pledge rolling stock with a
market value of not less than RUB 6,000,000 thousand within 6 months from the date of bank loan agreement; being 15 August 2017.
The relevant pledge agreement was concluded in February 2018. The relevant bank was fully repaid during March 2018.
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163
27. Borrowings continued
Non-convertible bonds
Non-convertible Russian Rouble denominated bonds issued by New Forwarding Company AO (“NFC”) in 2018 for a total amount of
RUB 5 billion, out of a total RUB 100 billion registered programme, carry a coupon rate of 7.25% p.a. and have maturity in 2023.
The Company acts as the guarantor for the bond issue.
Finance lease liabilities
Finance lease liabilities are effectively secured as the rights to the leased asset reverts to the lessor in the event of default. For details of assets
under finance leases refer to Note 17.
2018 2017
RUB’000 RUB’000
Finance lease liabilities – minimum lease payments
Not later than 1 year 662,116 –
Later than 1 year and not later than 5 years 1,968,708 –
Future finance charges of finance leases (418,156) –
Present value of finance lease liabilities 2,212,668 –
The present value of finance lease liabilities is as follows:
– Not later than 1 year 496,874 –
– Later than 1 year and not later than 5 years 1,715,794 –
2,212,668 –
The exposure of the Group’s borrowings to interest rate changes and the contractual re-pricing dates at the balance sheet dates are as follows:
2018 2017
RUB’000 RUB’000
6 months or less 2,742,720 3,635,970
6 to 12 months 5,716,870 3,644,631
1 to 5 years 17,269,321 9,050,755
25,728,911 16,331,356
Note: The amounts above are based on the earliest of their contractual re-pricing dates and maturity dates.
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164
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
27. Borrowings continued
Movements in borrowings are analysed as follows:
Bank borrowings
and loans Non-convertible
(excl. overdrafts) Finance lease unsecured bonds Total
RUB’000 RUB’000 RUB’000 RUB’000
Year ended 31 December 2017
Opening amount as at 1 January 2017 16,292,469 – – 16,292,469
Cash flows:
– Amounts advanced 15,710,000 – – 15,710,000
– Repayments of borrowings (15,722,698) – – (15,722,698)
– Interest paid (1,943,746) – – (1,943,746)
– Interest charged 1,991,826 – – 1,991,826
Non-cash changes:
– Other 3,505 – – 3,505
Closing amount as at 31 December 2017 16,331,356 – – 16,331,356
Year ended 31 December 2018
Opening amount as at 1 January 2018 16,331,356 – – 16,331,356
Cash flows:
– Amounts advanced 15,197,467 – 5,000,000 20,197,467
– Repayments of borrowings (13,127,743) (1,321,234) – (14,448,977)
– Interest paid (1,335,018) (100,064) (198,250) (1,633,332)
– Interest charged 1,344,208 108,216 314,869 1,767,293
Non-cash changes:
– Net foreign exchange 294 – – 294
– Finance lease liability (10,940) 3,525,750 – 3,514,810
Closing amount as at 31 December 2018 18,399,624 2,212,668 5,116,619 25,728,911
The carrying amount and fair value of current and non-current borrowings are as follows:
Carrying amount Fair value
2018 2017 2018 2017
RUB’000 RUB’000 RUB’000 RUB’000
Bank borrowings 18,399,624 16,331,356 18,087,461 16,646,324
Non-convertible unsecured bonds 5,116,619 – 4,940,619 –
Finance lease liabilities 2,212,668 – 2,166,542 –
25,728,911 16,331,356 25,194,622 16,646,324
The fair value as at 31 December 2018 and 31 December 2017 of fixed interest rate instruments with stated maturity denominated in
Russian Rouble was estimated based on expected cash flows discounted using the rate of similar Russian Rouble denominated instruments
entered into by the Group close to 31 December 2018 and 31 December 2017. The discount rates was 9.5% p.a. (2017: 8% p.a.). The fair
value measurements are within level 2 of the fair value hierarchy (2017: level 2). The fair value as at 31 December 2018 of the fixed interest
rate non-convertible bonds was equal to their quoted price and the resulting fair value measurement is within level 1.
The fair value of liabilities repayable on demand or after a notice period (“demandable liabilities”) is estimated as the amount payable on
demand, discounted from the first date on which the amount could be required to be paid.
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165
27. Borrowings continued
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
Russian Rouble 25,724,528 16,331,356
Euro 4,383 –
25,728,911 16,331,356
The Group has the following undrawn borrowing facilities:
2018 2017
RUB’000 RUB’000
Fixed rate:
– Expiring within one year 1,490,000 2,640,000
– Expiring beyond one year 3,025,000 16,500,000
4,515,000 19,140,000
The weighted average effective interest rates at the balance sheet were as follows:
2018 2017
% %
Bank borrowings 8.0 9.4
Non-convertible unsecured bonds 7.3 –
Finance lease liabilities 8.4 –
28. Deferred income tax
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred taxes relate to the same taxable entity and fiscal authority.
The gross movement on the deferred income tax account is as follows:
2018 2017
RUB’000 RUB’000
Beginning of year 5,908,319 5,245,331
Income statement charge (Note 15) 376,549 662,988
End of year 6,284,868 5,908,319
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166
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
28. Deferred income tax continued
The movement on the deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within
the same tax jurisdiction, is as follows:
Property, plant Withholding
and equipment tax provision Intangible assets Total
Deferred tax liabilities RUB’000 RUB’000 RUB’000 RUB’000
At 1 January 2017 5,170,969 498,130 306,681 5,975,780
Charged/(credited) to:
– Income statement (Note 15) 309,021 211,103 (17,174) 502,950
At 31 December 2017 / 1 January 2018 5,479,990 709,233 289,507 6,478,730
Charged/(credited) to:
– Income statement (Note 15) 1,385,566 (224,097) (139,181) 1,022,288
At 31 December 2018 6,865,556 485,136 150,326 7,501,018
Trade and Lease liabilities Other assets/
Tax losses other payables and borrowings liabilities Total
Deferred tax assets RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
At 1 January 2017 (19,309) (128,500) (487,792) (94,848) (730,449)
Charged/(credited) to:
– Income statement (Note 15) (40,599) 45,636 210,865 (55,864) 160,038
At 31 December 2017 / 1 January 2018 (59,908) (82,864) (276,927) (150,712) (570,411)
Charged/(credited) to:
– Income statement (Note 15) 896 (103,606) (546,414) 3,385 (645,739)
At 31 December 2018 (59,012) (186,470) (823,341) (147,327) (1,216,150)
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future
taxable profits is probable. The Group has not recognised deferred tax assets in the amount of RUB 433,600 thousand (2017: RUB 428,551
thousand) for tax losses amounting to RUB 2,721,000 thousand (2017: RUB 2,701,554 thousand) available to be carried forward as it is not
probable that future taxable profits will be available against which these tax losses can be utilised.
Deferred income tax liabilities of RUB 3,474,968 thousand (2017: RUB 2,785,978 thousand) have not been recognised for the withholding
taxes that would be payable on the unremitted earnings of certain subsidiaries. It is the current intention of the management of the Group
that such amounts are reinvested. Unremitted earnings on which no deferred tax liability was recognised totalled RUB 28,932,126 thousand
as at 31 December 2018 (2017: RUB 20,506,150 thousand).
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167
29. Trade and other payables
2018 2017
RUB’000 RUB’000
Current
Trade payables to third parties 539,995 707,143
Other payables to third parties 569,084 129,552
VAT payable and other taxes 685,328 738,433
Accrued expenses 106,789 85,336
Accrued key management compensation, including share based payment (Note 33) 648,141 523,886
Advances from customers for transportation services (1) – 2,229,306
2,549,337 4,413,656
Non-current
Accrued key management compensation, including share based payment (Note 33) 114,751 –
Other payables to third parties 289,606 –
404,357 –
(1) Advances from customers consist of prepayments received in accordance with contracts on transportation services. Following adoption of IFRS 15 on 1 January 2018,
this balance is included within contract liabilities (Note 10).
The fair value of trade and other payables approximates their carrying amount at the balance sheet date.
30. Earnings per share
Basic and diluted
Basic and diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
2018 2017
Profit attributable to equity holders of the Company (RUB thousand) 17,671,968 12,288,777
Weighted average number of ordinary shares in issue (thousand) 178,741 178,741
Basic and diluted earnings per share (expressed in RUB per share) attributable to the
equity holders of the Company during the year 98.87 68.75
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168
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
31. Contingencies
Operating environment
The Group and its subsidiaries mainly operate in the Russian Federation, Estonia, Finland and Ukraine.
Russian Federation
The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices.
The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations. The Russian
economy continues to be negatively impacted by ongoing political tension in the region and international sanctions against certain Russian
companies and individuals. Firm oil prices, low unemployment and rising wages supported a modest growth of the economy in 2018.
The operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary
measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to
predict and management’s current expectations and estimates could differ from actual results.
Tax contingencies. Russian tax and customs legislation which was enacted or substantively enacted at the end of the reporting period, is
subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by
management and the formal documentation supporting the tax positions may be challenged tax authorities. Russian tax administration is
gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax
incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the
year when decisions about the review was made. Under certain circumstances reviews may cover longer periods.
The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for
Economic Co-operation and Development (“OECD”) but has specific characteristics. This legislation provides the possibility for tax authorities
to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties
and some types of transactions with unrelated parties), provided that the transaction price is not arm’s length. Management has implemented
internal controls to be in compliance with this transfer pricing legislation. Management believes that its pricing policy used in 2018 and 2017
and preceding years is arm’s length and it has implemented internal controls to be in compliance with this transfer pricing legislation.
Tax liabilities arising from transactions between companies within the Group are determined using actual transaction prices. It is possible,
with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such
challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.
The Group includes companies incorporated in Cyprus, Russia, Ukraine, Estonia and Finland. The tax liabilities of the Group are
determined on the assumption that these companies are tax residents in the countries where they are incorporated and are not subject to
profits tax of other tax jurisdictions, because they do not have permanent establishments in other jurisdictions. The Company and the non-
controlling shareholding companies holding interests in the Company’s Russian subsidiaries are the only and full beneficial owners of the
equity interests held directly and indirectly in these subsidiaries. This interpretation of relevant legislation may be challenged but the impact
of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall
operations of the Group.
As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of
such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and
interpretations that it has taken can probably be sustained, there is a possible risk that an outflow of resources will be required should such
tax positions and interpretations be challenged by the tax authorities. There is currently an ongoing tax investigation in one of the Russian
subsidiaries of the Group, which may give rise to the tax authorities challenging positions and interpretations applied by management.
Management will vigorously defend the positions and interpretations applied in determining taxes recognised in this condensed
consolidated interim financial information if these are challenged by the authorities. The impact of any such challenge cannot be reliably
estimated; however, it may be significant to the financial position and/or the overall operations of the Group.
Estonia and Finland
Estonia and Finland represent well-developed markets and economies with stable political systems and developed legislation based on
EU requirements and regulations.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
169
31. Contingencies continued
Ukraine
Starting in 2013, the political situation in Ukraine has experienced instability with numerous protests and continued political uncertainty that
has led to deterioration of the state’s finances, volatility of financial markets and sharp depreciation of the national currency against major
foreign currencies. The ratings of Ukrainian sovereign debt were downgraded by international rating agencies with negative outlooks for the
future. The Central bank of Ukraine, among other measures, imposed certain restrictions on processing of client payments by banks and on
the purchase of foreign currency on the inter-bank market. The recent political situation has been volatile, with changes in the Ukrainian
Parliament and the Presidency.
Despite certain improvements in recent years, the final resolution and the ongoing effects of the political and economic situation are difficult
to predict, but they may have further severe effects on the Ukrainian economy and the Group’s business.
Compliance with covenants
The Group is subject to certain covenants related primarily to its borrowings. Non-compliance with such covenants may result in negative
consequences for the Group including claims for early repayment. The Group is in compliance with covenants as of 31 December 2018 and
31 December 2017 (Note 27).
Insurance policies
The Group holds insurance policies in relation to all vehicles (rolling stock and motor vehicles) and in respect of public third party liability.
The Group does not have full insurance for business interruption or third party liability in respect of environmental damage.
Environmental matters
The enforcement of environmental regulation in the countries in which the Group operates is evolving and the enforcement posture of
government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations.
As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing
regulations, civil litigation or legislation, cannot be estimated but could be material. In the current enforcement climate under existing
legislation, management believes that there are no significant liabilities for environmental damage.
Legal proceedings
During the years ended 31 December 2018 and 31 December 2017, the Company’s subsidiaries were involved as a claimants and
defendants in a number of court proceedings.
Georgian Railways case
As at 31 December 2018 the Group has outstanding receivable amounting to EUR 3,090 thousand/RUB 245,537 thousand (2017: EUR
2,950 thousand/RUB 203,153 thousand ) from Georgian Railways relating to invoices issued for services rendered prior to 1 April 2015. The
Georgian Railways dispute the tariffs applied in computing the outstanding balance and thus have not proceeded with the repayment of the
amount which remains outstanding. The Group has initiated a claim to the Georgian Court demanding the repayment of the entire balance.
Based on assessment performed as at 31 December 2018, management recognised a loss allowance of EUR 299 thousand/ RUB 23,732
thousand (2017: EUR 285 thousand/ RUB 19,637 thousand).
The Group issued additional invoices of EUR 1,555 thousand (RUB 115,244 thousand) to Georgian Railways in the intervening period
during 2015 that the rail cars remained in Georgia. The revenue arising from these invoices has not been recognised as it was not assessed as
probable at that time that future economic benefits would flow to the Group.
In February 2016, the first court hearing took place during which the facts of the claim were presented. No decisions were taken.
In March 2016, Georgian Railways have initiated a claim of approximately GEL 16,122 thousand (approximately RUB 380,000 thousand)
claiming compensation for storage costs incurred during the period the wagons remain in Georgia plus interest.
In March 2018, the Georgian Court ruled in favour of the Group an amount of US$ 10 million. The Group has not recognised a receivable for
the amount awarded as this might not constitute a final decision on the matter.
Globaltrans Investment PLC
Annual Report & Accounts 2018
170
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
31. Contingencies continued
Claim in relation to sale of rolling of stock
In February 2018, the Group received a claim from a third party in relation to a sale of rolling stock. In March 2018, the third party initiated
legal action claiming from the Group an amount of RUB 996 million. In June 2018, there was a court decision against the Group for an
amount of RUB 684 million. Both parties have appealed this decision and on 27 September 2018 the 2nd instance court cancelled the
penalty in full amount. On 15 February 2019 the Moscow Arbitrary court cancelled all court decisions made. The amount of claim was
decreased to RUB 727 million. No provision has been recognised in respect of this claim as the Group has received an unconditional
irrevocable guarantee for the entire amount of this claim.
Claim in relation to unpaid railroad tariffs
In December 2018, the Group, jointly with a third party customer, received a claim from a third party for the total amount of RUB 519
million in relation to discount applied on railroad tariffs. No provision has been recognised in the Consolidated Financial Statements in
respect of this claim as the Group is of the opinion that it is not probable that it will be required to make a payment under this claim.
In the opinion of management, there are no other legal proceedings or other claims outstanding, as of 31 December 2018 and 2017 which
could have a material effect on the results of operations or financial position of the Group and which have not been accrued or disclosed in
these financial statements.
32. Commitments
(a) Capital commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
2018 2017
RUB’000 RUB’000
Property, plant and equipment 2,707,799 –
(b) Operating lease commitments – Group as lessee
The Group leases offices under non-cancellable operating lease agreements.
The Group also leases various types of rolling stock under cancellable and non-cancellable operating lease agreements. The lease expenditure
charged to the income statement during the years is disclosed in Note 11.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2018 2017
RUB’000 RUB’000
Not later than 1 year 477,188 280,530
Later than 1 year not later than 5 years 882,449 107,891
Later than 5 years 19,195 –
1,378,832 388,421
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
171
32. Commitments continued
(c) Operating lease commitments – Group as lessor
The Group leases out rolling stock and locomotives under cancellable and non-cancellable operating lease agreements. The future aggregate
minimum lease payments receivable under non-cancellable operating leases in which the Group is acting as the lessor are as follows:
2018 2017
RUB’000 RUB’000
Not later than 1 year 348,257 200,975
Later than 1 year not later than 5 years 28,182 –
376,439 200,975
There were no contingent-based rents to be recognised in the income statement for the year ended 31 December 2018 and
31 December 2017.
33. Related party transactions
Marigold Investments Ltd, Onyx Investments Ltd and Maple Valley Investments Ltd are Company’s shareholders with a direct shareholding
as at 31 December 2018 11.5%, 11.5% and 10.8%, respectively (as at 31 December 2017 of 11.5%, 11.5% and 11.2%, respectively).
Litten Investments Ltd, controlled by member of key management of the Group, has a shareholding in the Company of 5.8% as at
31 December 2018 (31 December 2017: 6.3%).
From 7 March 2018 and as at 31 December 2018, Goldriver Resources Ltd, which has a shareholding in the Company of 4.7% , is controlled
by a member of key management personnel of the Group.
As at 31 December 2018, 55.5% (2017: 59.4%) of the shares represent the free market-float of Global Depository Receipts and ordinary
shares held by investors not affiliated with the Company. The remaining 0.2% (2017: 0.1%) of the shares of the Company are controlled by
Directors and key management of the Company.
For the purposes of these financial statements, parties are considered to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial and operational decisions as defined by IAS 24 “Related Party
Disclosures”. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely
the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties may
not be effected on the same terms, conditions and amounts as transactions between unrelated parties.
Globaltrans Investment PLC
Annual Report & Accounts 2018
172
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
33. Related party transactions continued
The following transactions were carried out with related parties:
(a) Sales of goods and services
2018 2017
RUB’000 RUB’000
Sales of services:
– Associate – 484,208
– 484,208
(b) Purchases of goods and services
2018 2017
RUB’000 RUB’000
Purchases of services:
– Associate – 115,820
– 115,820
(c) Key management compensation
2018 2017
RUB’000 RUB’000
Key management salaries and other short-term employee benefits (1) 1,675,673 961,204
Share-based compensation (Note 20) 236,572 97,229
1,912,245 1,058,433
(1) ‘Key management salaries and other short-term employee benefits’ include Directors’ remuneration paid to the Directors of the Company both by the Company and by subsidiaries
of the Group in respect of services provided to such subsidiaries amounting to RUB 408,987 thousand (2017: RUB 130,387 thousand).
(d) Year-end balances arising from sale of shares/purchases of services
2018 2017
RUB’000 RUB’000
Other receivable from related parties (Note 21):
– Receivable from entity controlled by key management 200,064 –
200,064 –
2018 2017
RUB’000 RUB’000
Accrued key management remuneration – current (Note 29):
– Accrued salaries and other short-term employee benefits 472,087 297,326
– Share-based payment liability (Note 20) 176,054 226,560
648,141 523,886
2018 2017
RUB’000 RUB’000
Accrued key management remuneration – non-current (Note 29):
– Share-based payment liability (Note 20) 114,751 –
114,751 –
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
173
34. Events after the balance sheet date
In February 2019, New Forwarding Company AO successfully placed a second five-year Russian Rouble denominated exchange-traded
bond for a total amount of RUB 5 billion, out of RUB 100 billion registered programme, priced at a coupon rate of 8.8% p.a.
On the date of this report, the Board of Directors of the Company, having considered the profitability and liquidity position of the Group,
recommends a payment of dividend for the year 2018 total dividend in the amount of 46.50 Russian Roubles per ordinary share/GDR,
amounting to a total dividend of RUB 8,311,453 thousand, including final dividend for 2018 in the amount of RUB 1,429,927 thousand or
RUB 8.00 per ordinary share/GDR and a special final dividend in the amount of RUB 6,881,526 thousand or RUB 38.50 per ordinary
share/GDR. Such dividends shall be paid in US Dollars at the rate as at 19 April 2019, subject to the approval of the shareholders at the
Annual General Meeting on 22 April 2019.
There were no other material post balance sheet events which have a bearing in the understanding of these Consolidated Financial Statements.
Independent Auditor’s Report on pages 97 to 101.
Globaltrans Investment PLC
Annual Report & Accounts 2018
174
MANAGEMENT REPORT AND PARENT COMPANY
FINANCIAL STATEMENTS
for the year ended 31 December 2018
Contents
Board of Directors and other officers 175
Note 12. Finance costs – net 216
Management Report 176
Note 13. Income tax expense 216
Directors’ responsibility 184
Note 14. Net foreign exchange gains/(losses) 217
Independent Auditor’s Report 185
Note 15. Dividends 218
Income statement 189
Note 16. Property, plant and equipment 219
Statement of comprehensive income 190
Note 17. Investments in subsidiary undertakings 219
Balance sheet 191
Note 18. Loans and other receivables 221
Statement of changes in equity 192
Note 19. Other assets 222
Cash flow statement 193
Note 20. Cash and cash equivalents 223
Note 1. General information 194
Note 21. Share capital and share premium 223
Note 2. Basis of preparation 194
Note 22. Borrowings 224
Note 3. Adoption of new or revised standards
and interpretations 195
Note 23. Payables and accrued expenses 226
Note 24. Related party transactions 226
Note 4. Summary of significant accounting policies 196
Note 5. New accounting pronouncements 204
Note 6. Financial risk management 206
Note 7. Critical accounting estimate and judgements 213
Note 8. Revenue 215
Note 9. Other gains – net 215
Note 10. Expenses by nature 215
Note 11. Employee benefit expense 216
Note 25. Commitments 230
Note 26. Contingencies 230
Note 27. Events after the balance sheet date 231
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
175
BOARD OF DIRECTORS AND OTHER OFFICERS
Board of Directors
Mr. Michael Zampelas
Senior Independent Non-executive Director
Chairman of the Nomination Committee
Member of Remuneration Committee
Dr. Johann Franz Durrer
Independent Non-executive Director
Chairman of the Remuneration Committee
Member of the Nomination Committee
Mr. John Carroll Colley
Independent Non-executive Director
Chairman of the Audit Committee
Mr. George Papaioannou
Independent Non-executive Director
Member of the Audit Committee
Ms. Elia Nicolaou
Non-executive Director
Member of the Audit Committee
Company Secretary
Secretary of the Board
Alternate Director: Mr. Marios Tofaros
Mr. Michalakis Thomaides
Non-executive Director
Ms. Melina Pyrgou
Non-executive Director
Mr. Marios Tofaros
Non-executive Director
Mr. Sergey Maltsev
Chairman of the Board of Directors
Executive Director
Appointed on 23 April 2018
Alternate Director: Mr. Yuri Isaev
Mr. Alexander Eliseev
Executive Director
Alternate Director: Ms. Ekaterina Golubeva
Mr. Sergey Tolmachev
Executive Director
Mr. Alexander Storozhev
Executive Director
Alternate Director: Ms. Elia Nicolaou
Mr. Konstantin Shirokov
Executive Director
Mr. Andrey Gomon
Executive Director
Alternate Director: Ms. Melina Pyrgou
Mr. Alexander Tarasov
Non-executive Director
Board support
The Company Secretary is available to advise all Directors to
ensure compliance with the Board procedures. Also a procedure
is in place to enable Directors, if they so wish, to seek independent
professional advice at the Company’s expense.
Company Secretary
Ms. Elia Nicolaou
Dimitriou Karatasou, 15
Anastasio Building, 6th floor, Office 601
Strovolos, 2024, Nicosia, Cyprus
Assistant secretary: Mr. Marios Tofaros
Registered office
20 Omirou Street
Agios Nicolaos
CY-3095 Limassol, Cyprus
Globaltrans Investment PLC
Annual Report & Accounts 2018
176
MANAGEMENT REPORT
The Board of Directors presents its report together with the audited parent company
financial statements for the year ended 31 December 2018. The parent company’s
financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union and the requirements
of Cyprus Companies Law, Cap. 113.
Principal activities
The principal activities of the Company, which are unchanged from
last year, are the holding of investments and provision of financing
to other Group companies.
Review of developments, position and
performance of the Company’s business
The Company’s profit for the year increased to RUB 15,847,719
thousand compared to RUB 9,967,841 thousand for the year ended
31 December 2017. This was mainly the result of the increase in the
dividend income earned from the subsidiaries from RUB 10,700,007
thousand during the year ended 31 December 2017 to RUB
15,112,974 thousand in the current year.
The total asset position of the Company has increased as of 31
December 2018 compared to 31 December 2017, with total assets
as of 31 December 2018 amounting to RUB 48,696,474 thousand
compared to RUB 46,304,334 thousand as of 31 December 2017.
The net asset position of the Company has decreased as of 31
December 2018 compared to 31 December 2017, with net assets as
of 31 December 2018 amounting to RUB 40,837,914 thousand
compared to RUB 41,210,933 thousand as of 31 December 2017.
The decrease in the net asset position of the Company was the result
of the dividend distributions to the owners of the Company made
during the year ended 31 December 2018 which exceeded the net
profit for the year by RUB 373,019 thousand.
The financial position, development and performance of the Company
as presented in the financial statements is considered satisfactory.
Changes in Group structure
During 2018 Spacecom AS acquired 100% of the shares of
Spacecom Trans AS from the Company and the non-controlling
shareholders. As a result, the proportion of ordinary shares held by
the Company in Spacecom Trans AS increased from a direct holding
of 65% to an indirect holding of 65.25%. The transaction aimed to
optimise the management of both Estonian subsidiaries. There were
no other changes in the group structure of the Group during the
year ended 31 December 2018. For the principal subsidiaries of
the Company, refer to Note 17 of the financial statements.
Non-Financial Information and
Diversity Statement
The Group will be publishing its Non-Financial Information and
Diversity Statement within its Annual Report that will be issued
within four months after the balance sheet date and will be available
on the Company’s website, www.globaltrans.com
Environmental matters
Rail is one of the most environmentally friendly modes of transport.
Nonetheless, any commercial activity has an environmental impact
and Globaltrans strives to minimise those from its operations where
possible. To this end, the Group ensures that its activities fully
comply with local environmental regulations. It also aims to help
business and nature co-exist by focusing on applying modern
technology in its operations and using natural resources rationally.
Human resources
Globaltrans considers the wellbeing of employees central to its
success and strives to maintain exemplary working standards, ensure
job satisfaction and create opportunities for professional growth.
The Group’s personnel policy focuses on creating a positive
atmosphere at all offices and facilities to maximise productivity.
As part of this, it offers medical insurance, support for education,
opportunities to obtain additional qualifications and training, and
financial aid in particularly difficult times.
The Group’s future success will partly depend on its ability to
continue to attract, retain and motivate key employees and qualified
personnel, in particular an experienced management team.
Competition in Russia for such personnel with relevant expertise
is intense due to the small number of qualified individuals with
suitable practical experience in the rail industry.
Adequate remuneration packages, which are in line with or in excess
of market levels, are offered to all employees and key managers and
remuneration is linked to the Group’s financial results. The Human
Resource function regularly monitors salary levels and other benefits
offered by competitors to ensure that the Group’s remuneration
packages are adequate.
Principal risks and uncertainties
The Company faces a number of diverse potential and actual risks
to its business. The Board has adopted a formal process to identify,
evaluate and manage principal risks and uncertainties faced by the
Company and its subsidiaries.
To identify, evaluate and mitigate these, the Company has
established an in-house system to monitor and control uncertainties
and threats throughout its activities. This is overseen by a dedicated
Risk Management function, which works directly with the Board of
Directors in this area.
The Company has grouped the risks that it considers to be significant
into key categories – strategic, operational, compliance and financial
– and they are presented below.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
177
Strategic risks
The strategic risks faced by the Company and its subsidiaries,
together referred to as “Group”, that pose risks that influence the
Group’s ability to achieve its strategy include the general economic
situation and operating environment in Russia, Kazakhstan,
Ukraine, CIS and Baltic countries in which the Group operates;
the regulatory risk relating to the operation of the Russian railway
transportation market including railway tariff regulation and
technical requirements for fleet maintenance; the highly
competitive Russian rail transportation market with unregulated
operators’ services tariffs; the significant concentration of the
Group’s customer base with the top 10 customers (including their
affiliates and suppliers) accounting for around 74% of the Group’s
Net Revenue from the operation of rolling stock in 2018; cost of
borrowing and/or deterioration in market conditions with
potential impacts on the profitability and payback period of
investments; and reliance on RZD for issuing permits allowing
the Group to operate locomotives.
The Group operates mainly in Russia, other emerging markets and
Estonia. Emerging markets, such as Russia, Kazakhstan and Ukraine,
are subject to greater risks than more developed markets, including
significant economic, political, social, legal and legislative
uncertainties. Moreover, the Group’s business depends on the
demand in the Russian freight rail transportation market, which in
turn depends on certain key commodity sectors and, accordingly,
on economic conditions in Russia, Europe and elsewhere. A decrease
in production and demand for key commodities in Russia, or in
adjacent countries where the commodities of the Group’s key
customers are shipped by rail, as a result of a technological shift,
economic downturn, political crisis or other event in Russia or
another relevant country, negatively impacts the Group’s business
and growth prospects.
The management of the Group constantly monitors the
developments in the operating environment and regulatory regime
of the railway transportation market in the countries in which the
Group operates. The Group’s business model is to maintain a
balanced fleet between universal gondola cars, adaptable to the
demand for transportation of various bulk cargoes and rail tank cars,
which are used for the transportation of oil products and oil. Further,
the Group has long-term, established relationships with its key
customers and their affiliates and suppliers and in some cases, the
Group becomes an integrated part of its customers’ operations.
Around 60% of the Group’s Net Revenue from the Operation of
Rolling Stock in 2018 was covered by long-term service contracts
with several large clients. Such contracts provide additional stability
and greater certainty regarding transport volumes for the Group.
In addition, the Group’s marketing function regularly monitors
competitors’ strategies, their use of technology, their price
strategies and industry trends.
Operational risks
The operational risks faced by the Group that could influence
the Group’s operational efficiency include the physical state
of the Russian, Ukrainian, CIS and Baltic countries railway
infrastructure which may negatively impact the condition of
the Group’s rolling stock and the performance of the Group; the
impact of inflation in Russia on the Group’s costs with limited
opportunities to increase tariffs to customers; the competition for
personnel with relevant expertise and experience in Russia and the
impact on the Group’s ability to continue to attract, retain and
motivate key employees and qualified personnel; reliance on RZD
for locomotive traction and infrastructure usage and the impact of
this on the quality of the Group’s freight transportation services
and therefore customer satisfaction; IT availability and continuity
considerations due to reliance on specialised trail transport and
logistics software for ensuring efficient and effective logistics,
dispatching and rolling stock tracking services; and risks of
terrorist attacks, natural disasters or other catastrophic events
beyond the Group’s control.
The Group is managing operational risk by ensuring that practically
all of the Group’s rolling stock is insured against damage. Further,
the Group monitors its rolling stock through the Group’s dispatch
centre on a 24/7 basis and plans routes accordingly to minimise the
risks of disruption. The Group monitors FAS initiatives with the aim
of detecting possible changes in tariff-setting methodology and tries
to reflect respective changes in contracts with customers. Among
the Group’s key objectives are to increase operational efficiency and
to focus on control and reduction of costs. The Group continuously
monitors its costs to maintain efficiency.
The Human Resource function regularly monitors salary levels and
other benefits offered by competitors to ensure that the Group’s
remuneration packages are adequate. Customer satisfaction is one
of the key metrics that the Group’s management monitors, with
customer feedback being analysed and appropriate follow-up
actions being taken. Local IT specialists have introduced solutions to
maintain the availability of IT services and ensure their recovery in
case of disruption. The IT function and Internal Audit function
monitor all IT-related activities and performance for compliance
with IT policies and procedures.
Further the Group permanently monitors any disruptive events
and applies a Business Continuity Policy to ensure the safety of
employees and human life; maintain continuity of time-critical
services; minimise disruptions to clients and partners; and minimise
operational, financial and reputational impact.
Compliance risks
The Group is also subject to compliance risk, being the risks that
influence the Group’s adherence to relevant laws and regulations.
The Group is involved in material legal actions from time to time.
Some of it may have an adverse effect on the Group. The ambiguity
of the law in Russia and CIS countries creates regulatory uncertainty
and might result in claims from different government authorities.
Local tax, currency and customs legislation, especially in Russia,
other emerging markets and Cyprus, may be subject to varying
interpretations, inconsistencies between federal laws, regional and
local laws, rules and regulations, frequent changes and a lack of
judicial and administrative guidance on interpreting legislation.
Globaltrans Investment PLC
Annual Report & Accounts 2018
178
MANAGEMENT REPORT
continued
The Group runs its operations in compliance with tax, currency,
labour, customs, antimonopoly and other applicable legislation and
constantly monitors any changes in the regulatory environment as
well as compliance with the terms of its agreements. Standard forms
of agreements are used for transportation services, and various
controls are in place to ensure that the terms of agreements are
adhered to. All contracts are subject to rigorous review by all of the
Group functions concerned and a formal approval process prior to
execution. The Group has controls in place, including highly qualified
and experienced personnel, to monitor changes in legislation and
determine the appropriate action needed to minimise the risk of a
challenge to such treatments by the authorities. For complex
matters, the Group retains external consultants.
Financial risks
The Company’s activities expose it to a variety of financial risks that
could influence the Company’s financial performance. These include:
market risk (including foreign exchange risk, fair value interest rate
risk and cash flow interest rate risk), credit risk and liquidity risk.
Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or
recognised assets or liabilities are denominated in a currency
different from the functional currency of the Company.
During the year 2018 there was increased volatility in currency
markets and the Russian Rouble has depreciated significantly against
some major currencies, especially in the second half of the year. As of
the end of December 2018 the Russian Rouble has depreciated
against the US Dollar from 57.6002 as of 31 December 2017 to
69.4706 Russian Roubles (21% devaluation).
The fluctuations in the exchange rate between (i) US Dollar and
Russian Rouble and (ii) Euro and Russian Rouble expose the
Company to foreign exchange risk.
Had US Dollar exchange rate strengthened/weakened by 20%
(2017: 5% change) against the Russian Rouble and all other variables
remained unchanged, the post-tax profit of the Company for the
year ended 31 December 2018 would have increased/decreased by
RUB 150,147 thousand (2017: RUB 24,641 thousand). This is mainly
due to foreign exchange gains and losses arising upon retranslation
of US Dollar denominated loans receivable and cash and cash
equivalents as of 31 December 2018 and as of 31 December 2017.
Had Euro exchange rate strengthened/weakened by 20% (2017:
5% change) against the Russian Rouble and all other variables
remained unchanged, the post-tax profit of the Company for the
year ended 31 December 2018 would have increased/decreased by
RUB 276,343 thousand (2017: decreased/increased by RUB 2,811
thousand). This is mainly due to foreign exchange gains and losses
arising upon retranslation of Euro denominated other receivables,
cash and cash equivalents and payables as of 31 December 2018
and as of 31 December 2017.
The Company’s current policy is not to hedge this foreign
exchange risk.
Interest-rate risk
The Company holds interest bearing financial instruments at
fixed interest rates.
Financial assets and liabilities issued at fixed rates expose the
Company to fair value interest rate risk. However, as all of the
Company’s fixed interest rate financial instruments are carried at
amortised cost, any reasonably possible change in the interest rates
as of 31 December 2018 and 31 December 2017 would not have
any impact on the Company’s post tax profit or equity.
Financial assets and liabilities issued at floating rate expose the
Company to cash flow interest rate risk. As of 31 December 2018
the Company did not have any floating interest rate borrowings or
receivables, therefore was not exposed to cash flow interest rate risk.
The Company’s current policy is not to hedge interest rate risk.
Credit risk
Financial instruments which potentially subject the Company to
credit risk, consist principally of loans and other receivables, cash and
cash equivalents and financial guarantees issued by the Company for
borrowings of the subsidiaries.
At each balance sheet date, the Company assesses on a forward
looking basis the expected credit losses associated with its loans
receivable from subsidiaries. Based on the assessment performed as
31 December 2018, a reversal of impairment losses of RUB 728,378
thousand was recognised.
The majority of the Company’s bank balances are held with
independently rated banks with a minimum rating of ‘Ba2’. This
policy enables the Company to reduce its credit risk significantly.
The Company has issued financial guarantees on the borrowings of its
subsidiaries. As a result, the Company is exposed to credit risk arising
from potential risk of default of the Company’s subsidiaries on their
external debt. As of 31 December 2018, none of the Company’s
subsidiaries had defaulted on or breached any covenants on their
borrowings. No significant expected credit losses arose on these.
Liquidity risk
As at 31 December 2018, the Company has an excess of current
liabilities over current assets of RUB 965,709 thousand (2017: RUB
1,961,776 thousand). Management believes that the Company will
be able to meet its obligations as they fall due.
Management controls current liquidity based on expected cash
flows, expected dividend and interest income receipts, expected
dividend payments and advancements under borrowings from
subsidiaries. In the long-term perspective, the liquidity risk is
determined by forecasting future cash flows at the moment of
signing new loans and by budgeting procedures.
Contingencies
The Company’s contingencies are disclosed in Note 26 to the
financial statements.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
179
Future developments
The Board of Directors does not expect any significant changes in
the activities of the Company in the foreseeable future.
The Company’s strategic objective is to strengthen the position of
the Group as a leading private freight rail group in Russia.
Results
The Company’s results for the year are set out on pages 189 and 190.
The Board of Directors recommends the payment of a dividend as
detailed below and the remaining net profit for the year is retained.
Dividends
Pursuant to its Articles of Association the Company may pay dividends
out of its profits. To the extent that the Company declares and pays
dividends, owners of Global Depositary Receipts (“GDRs”) on the
relevant record date will be entitled to receive dividends payable in
respect of Ordinary Shares underlying the GDRs, subject to the terms
of the Deposit Agreement. The Company expects to declare dividends
in Russian Roubles and pay such dividends in US Dollars. If dividends are
not paid in US Dollars, except as otherwise described under “Terms and
Conditions of the Global Depositary Receipts – Conversion of Foreign
Currency”, they will be converted into US Dollars by the Depositary and
paid to holders of GDRs net of currency conversion expenses.
The Company is a holding company and thus its ability to pay
dividends depends on the ability of its subsidiaries to pay dividends to
the Company in accordance with relevant legislation and contractual
restrictions. The payment of such dividends by its subsidiaries is
contingent upon the sufficiency of their earnings, cash flows and
distributable reserves. The maximum dividend payable by the
Company’s subsidiaries is restricted to the total accumulated retained
earnings of the relevant subsidiary, determined according to the law.
In April 2017, the shareholders of the Company approved the
payment of the final dividend in respect of the financial year ended
31 December 2016 in the amount of 39.20 Russian Roubles per
ordinary share/GDR, amounting to a total dividend of RUB 7,006,644
thousand (US Dollar equivalent of USD 124,605 thousand).
In August 2017, the Board of Directors of the Company approved
payment of total dividend in the amount of 44.8 Russian Roubles
per ordinary share/GDR, amounting to a total dividend of RUB
8,007,593 thousand, including interim dividend in the amount of
RUB 3,603,417 thousand or RUB 20.16 per ordinary share/GDR
and a special interim dividend in the amount of RUB 4,404,176
thousand or RUB 24.64 per ordinary share/GDR (US Dollar
equivalent of USD 135,401 thousand).
In April 2018, the shareholders of the Company approved the
payment of a dividend for the financial year ended 31 December
2017 in the amount of 44.85 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,016,530
thousand, including final dividend for 2017 in the amount of
RUB 4,155,726 thousand or RUB 23.25 per ordinary share/GDR
and a special final dividend in the amount of RUB 3,860,804
thousand or RUB 21.60 per ordinary share/GDR (US Dollar
equivalent of USD 130,728 thousand).
In August 2018, the Board of Directors of the Company approved
payment of total dividend in the amount of 45.9 Russian Roubles
per ordinary share/GDR, amounting to a total dividend of RUB
8,204,208 thousand (US Dollar equivalent of USD 119,724
thousand), including interim dividend in the amount of RUB
3,771,433 thousand (US Dollar equivalent of USD 55,037 thousand)
or RUB 21.10 per ordinary share/GDR and a special interim
dividend in the amount of RUB 4,432,775 thousand (US Dollar
equivalent of USD 64,687 thousand) or RUB 24.80 per ordinary
share/GDR.
On the date of this report, the Board of Directors of the Company,
having considered the profitability and liquidity position of the
Group, recommends a payment of dividend for the year 2018 total
dividend in the amount of 46.50 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,311,453
thousand, including final dividend for 2018 in the amount of RUB
1,429,927 thousand or RUB 8.00 per ordinary share/GDR and a
special final dividend in the amount of RUB 6,881,525 thousand or
RUB 38.50 per ordinary share/GDR. Such dividends shall be paid in
US Dollars at the rate as at 19 April 2019, subject to the approval of
the shareholders at the Annual General Meeting on 22 April 2019.
Share capital
As at 31 December 2018 the issued share capital of the Company,
which remains unchanged from the prior year, comprised
178,740,916 ordinary shares with a par value of USD 0.10 per share.
Research and development activities
The Company has not undertaken any research and development
activities during the year ended 31 December 2018.
Events after the balance sheet date
The events after the balance sheet date are disclosed in Note 27 to
the financial statements.
Branches
The Company does not operate through any branches.
Treasury shares
In 2018 the Company did not own or acquire either directly or
through a person in his own name, but on Company’s behalf any
of its own shares.
Going concern
The Directors have access to all information necessary to exercise
their duties. The Directors continue to adopt the going concern
basis in preparing the financial statements based on the fact that,
after making enquiries and following a review of the Group’s budget
for 2019, including cash flows and borrowing facilities, the Directors
consider that the Company has adequate resources to continue in
operation for the foreseeable future.
Globaltrans Investment PLC
Annual Report & Accounts 2018
180
MANAGEMENT REPORT
continued
Auditors
The Board of Directors in accordance with the requirements of the
EU introduced into Cypriot legislation undertook a mandatory audit
tender in respect of the 2019 audit. Following this the Independent
Auditor, PricewaterhouseCoopers Limited, has expressed their
willingness to continue in office. A resolution giving authority to the
Board of Directors to fix their remuneration will be proposed at
the Annual General Meeting.
The members of the Board of Directors at 31 December 2018
and at the date of this report are shown on page 175. All of them
were members of the Board throughout the year 2018, except
Mr. Sergey Maltsev, who was appointed as Director 23 April 2018.
There were no significant changes in the assignment of
responsibilities of the Board of Directors, with the exception of
the change in the Chairman of the Board on 23 April 2018 from
Mr. Michael Zampelas to Mr. Sergey Maltsev.
Corporate governance
Globaltrans’ Board of Directors adopted the Company’s Code of
Corporate Governance (the “Code”), guaranteeing that the
interests of all shareholders are given due consideration. Although
the Code is based on principles recommended by the UK Corporate
Governance Code (formerly the Combined Code), this does not
constitute voluntary compliance with such governance code.
Globaltrans’ corporate governance policies and practices are designed
to ensure that the Group upholds its responsibilities to shareholders.
As such, all employees are required to comply with these guidelines
and the Group’s management team takes responsibility for ensuring
that all departments adhere to these standards. These key principles
are promoted and applied across all levels of the Group in order to
establish effective and transparent corporate governance. In January
2010, the Board supplemented its Code of Corporate Governance
with a corporate policy on the treatment of the rights of its non-
controlling shareholders; this aims to ensure fair treatment of the
rights of non-controlling shareholders of the Company.
Full details of our governance policies can be found at:
http://www.globaltrans.com/about-us/corporate-
governance/governance-policies
The role of the Board of Directors
The Company is managed by the Board of Directors which is
collectively responsible to the shareholders for the success of the
Group. The Board sets the strategic objectives and ensures that the
necessary resources are in place to enable these objectives to be
met. The Board is fully involved in decision making in the most
important areas of business and conducts regular reviews of the
Group’s operational and financial performance. One of the Board’s
key responsibilities is to ensure that there is in place a system of
prudent and effective risk controls that enable risks to be identified,
assessed and managed appropriately.
Members of the Board of Directors
As at 31 December 2018 and at the date of this report, the Board
comprises 15 members (2017: 14 members), nine (2017: 10
members) of whom are Non-executive Directors. Four (2017: four)
of the Non-executive Directors are independent, they have no
relationship with the Company, its related companies or their
officers that could interfere, or be reasonably perceived to interfere,
with the exercise of the Director’s independent business judgement
with a view to the best interests of the Company, and they are able
to exercise objective judgement on corporate affairs independently
from management.
There is no provision in the Company’s Articles of Association for
retirement of Directors by rotation; however, in accordance with
the terms of reference of the Board of Directors all Board members
are required to submit for re-election at least once every three years.
Should a Non-executive Director serve any term beyond six years,
his/her re-election would be subject to particularly rigorous review.
In practice, all current appointments are for one year and all
Directors will stand for re-election at the forthcoming Annual
General Meeting of shareholders of the Company.
The total gross remuneration of the members of the Board of
Directors incurred by the Company in 2018 amounted to
RUB 186,911 thousand (2017: RUB 45,375 thousand).
Board performance
The Board held 16 meetings in 2018. The Directors’ attendance is
presented in the table below.
Eligible Attended
Michael Zampelas 16 16
Johann Franz Durrer 16 16
Carroll Colley 16 16
George Papaioannou 16 16
Alexander Eliseev 16 14
Melina Pyrgou 16 15
Konstantin Shirokov 16 15
Alexander Storozhev 16 16
Marios Tofaros 16 16
Elia Nicolaou 16 16
Sergey Tolmachev 16 16
Sergey Maltsev (Chairman) (1) 12 10
Andrey Gomon 16 15
Alexander Tarasov 16 16
Michael Thomaides 16 16
(1) Sergey Maltsev was appointed as a member of the Board of Directors
on 23 April 2018.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
181
The Board committees
The Board has established three committees: the Audit Committee,
the Nomination Committee and the Remuneration Committee.
A brief description of the terms of reference of the committees is
set out below.
Audit Committee
The Audit Committee comprises three Directors, two of whom are
independent, and meets at least four times each year. The Audit
Committee is chaired by Mr. J. Carroll Colley and is also attended by
Mr. Papaioannou and Ms. Nicolaou. The Audit Committee is
responsible for considering, among other matters: the integrity of
the Company’s financial statements, including its annual and interim
accounts, and the effectiveness of the Company’s internal controls
and risk management systems; auditors’ reports and the terms of
appointment and remuneration of the auditor.
The Committee supervises, monitors and advises the Board on risk
management and control systems and the implementation of codes
of conduct. In addition, the Audit Committee supervises the
submission by the Company of financial information and a number
of other audit-related issues. The Audit Committee is also
responsible for assessing the efficiency of the performance of the
Chairman of the Board.
The Audit Committee manages the relationship with the external
auditor on behalf of the Board. It considers the reappointment of
the external auditor each year, as well as remuneration and other
terms of engagement, and makes a recommendation to the Board.
Shareholders are asked to approve the reappointment of the auditor
each year at the Annual General Meeting.
The Internal Audit function is carried out internally by the Group’s
Internal Audit Service (“IAS”). IAS is responsible for testing the
systems of risk management, internal control and corporate
governance of the Group.
Nomination Committee
The Nomination Committee comprises two Independent Directors
and meets at least once a year. The Nomination Committee is chaired
by Mr. Zampelas and Dr. Durrer is the other member. The
Committee’s remit is to prepare selection criteria and appointment
procedures for members of the Board and to review on a regular basis
the structure, size and composition of the Board. In undertaking this
role, the Committee refers to the skills, knowledge and experience
required of the Board, given the Company’s stage of development,
and makes recommendations to the Board as to any changes. The
Committee also considers future appointments in respect of the
Board’s composition and makes recommendations regarding the
membership of the Audit and Remuneration Committees.
Remuneration Committee
The Remuneration Committee comprises two Independent Directors
and meets at least once a year. The Remuneration Committee is
chaired by Dr. Durrer and Mr. Zampelas is the other member. The
Committee’s responsibility is the determination and review of, among
other matters, the remuneration of Executive Directors, and the
review of the Company’s remuneration policies. The remuneration of
Independent Directors is a matter for the Chairman of the Board and
the Executive Directors. No Director or manager may be involved in
any decisions as to his/her own remuneration.
Board and management remuneration
Non-executive Directors serve on the Board pursuant to the letters
of appointment which are subject to approval by the shareholders at
the Annual General Meeting. Such letters of appointment specify
the terms of appointment and the remuneration of Non-executive
Directors. Appointments are for one year.
Levels of remuneration for Non-executive Directors reflect the time
commitment, responsibilities of the role and membership of the
respective committees of the Board. Directors are also reimbursed
for expenses associated with discharge of their duties.
The shareholders of the Company approved the remuneration of
the members of the Board of Directors at the Annual General
Meeting of shareholders held on 23 April 2018.
Refer to Note 24 of the financial statements for details of
remuneration of Directors and other key management personnel.
Diversity policy
The Company does not have a formal Board diversity policy to
aspects such as age, gender or educational and professional
backgrounds, but following best practice while making the new
appointments and considering the current composition of the
Board of Directors, these aspects are taken into account.
As of the date of publication of these financial statements the Board
has two females representing approximately 13% from the total
number of Directors. The age of the members of the Board of
Directors ranges from over 35 to over 70 years, with the average age
of Directors being 52 years. The Board members have the following
educational backgrounds: transportation and ports industry,
accounting, economics and financial, banking sector and legal,
engineering and mechanics, biophysics and mathematics, history,
international affairs and risk management. The Board has a necessary
balance of skills and expertise to run the Company and the Group.
Further details of the corporate governance regime of the
Company can be found on the website:
http://www.globaltrans.com/about-us/corporate-governance/
Globaltrans Investment PLC
Annual Report & Accounts 2018
182
MANAGEMENT REPORT
continued
Regulations with regard to the amendment
of the Articles of Association
The Articles of Association of the Company may be amended
from time to time by special resolution at the General Meeting of
the Shareholders.
Company’s internal control and risk
management systems in relation to the
financial reporting process
The Board of Directors is responsible for the preparation of the
financial statements that give a true and fair view in accordance with
International Financial Reporting Standards as adopted by the
European Union and the requirements of the Cyprus Companies
Law, Cap. 113, and for such internal control as the Board of
Directors determines is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Board of Directors is
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Company’s financial reporting process.
The Board is primarily responsible for establishing a framework
of prudent and effective controls that enables risks to be assessed
and managed.
The Audit Committee assists the Board in this task by reviewing and
assessing the Group’s internal control and risk management
processes in relation to Group’s financial reporting process.
The system of controls is designed to manage rather than eliminate
the risks relevant to the Group’s operations and, therefore, can only
provide reasonable, and not absolute, assurance against material
errors, losses, fraud or breaches of laws and regulations.
•
•
resources are procured reasonably and used efficiently and
their safekeeping is fully guaranteed; and
Group companies conduct their business in compliance with
applicable laws.
Each year, the Audit Committee approves an internal audit plan,
which is developed by identifying the audit universe, performing a
risk analysis and obtaining input from management relative to risks,
controls and governance processes. The internal auditor regularly
reports to the Audit Committee on the progress of planned audits.
If any material internal control deficiencies are identified, they are
communicated to the Audit Committee, and consequently to the
Board, at once.
Significant direct or indirect holdings
(including indirect shareholding through
structures or cross shareholdings)
The issued share capital of the Company consists of 178,740,916
ordinary shares with a nominal value of USD 0.10 each, a certain
portion of which is held in the form of Global Depositary Receipts
(“GDRs”). The GDRs represent one ordinary share each and are
listed and traded on the Main Market of the London Stock Exchange
under the ticker GLTR. The free float of Globaltrans amounts to
approximately 55.5% (1) of the issued share capital. The Bank of
New York Mellon is the depositary bank for the GDR programme
of the Company.
The shareholder structure of the Company as at 31 December 2018
was follows:
Onyx Investments Ltd (2) 11.5%
Marigold Investments Ltd (2) 11.5%
Maple Valley Investments Ltd (2) 10.8%
Litten Investments Ltd (3) 5.8%
Goldriver Resources Ltd (4) 4.7%
Controlled by Directors and
management of Globaltrans 0.2%
Free float (1) 55.5%
At Globaltrans, the body responsible for internal audit is the
Internal Audit Service (“IAS)”. It tests the Group’s systems of risk
management, internal control and corporate governance to obtain
a reasonable assurance that:
•
the risk management system functions efficiently;
(1) For these purposes, the free float consists of the ordinary shares and GDRs held by
investors not affiliated or associated with the Company.
(2) Nikita Mishin, Andrey Filatov and Konstantin Nikolaev are co-founders of the
Company and beneficiaries with regard to 11.5%, 11.5% and 10.8% respectively
of Globaltrans’ ordinary share capital each through their respective SPVs (Onyx
Investments Ltd, Marigold Investments Ltd and Maple Valley Investments Ltd).
•
•
material financial, management and operating information is
accurate, reliable and up to date;
(3) Beneficially owned by Alexander Eliseev, Executive Director and co-founder
of the Company.
the actions of employees and management bodies are in
compliance with the Group’s policies, standards and procedures
and the applicable laws;
(4) Beneficially owned by Sergey Maltsev, Executive Director and co-founder
of the Company.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
183
Directors’ interests
The interests in the share capital of Globaltrans Investment PLC, both direct and indirect, of those who were Directors of the Company as at
31 December 2018 and 31 December 2017 are shown below:
Name Type of holding 2018 2017
Alexander Eliseev Indirect holding of ordinary shares and GDRs 10,315,790 11,318,909
Sergey Maltsev Indirect holding of ordinary shares and GDRs 8,382,860 n/a
Johann Franz Durrer Holding of GDRs 160,606 160,606
The holders of special titles that provide
special control rights and description
of such rights
The Company does not have any titles with special rights.
Any restrictions in exercising of
voting rights of shares
There are no restrictions in the exercising of voting rights
of shares issued by the Company.
By Order of the Board
Sergey Tolmachev
Director
Limassol, 29 March 2019
Globaltrans Investment PLC
Annual Report & Accounts 2018
184
DIRECTORS’ RESPONSIBILITY
The Company’s Board of Directors is responsible for the preparation
of financial statements that give a true and fair view in accordance
with International Financial Reporting Standards as adopted by the
European Union and the requirements of the Cyprus Companies
Law, Cap.113, and for such internal control as the Board of Directors
determines it necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the parent company financial statements, the Board of
Directors is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting
unless the Board of Directors either intends to liquidate the Company
or to cease operations, or has no realistic alternative but to do so.
(iv) the Management Report has been prepared in accordance
with the requirements of the Cyprus Companies Law, Cap.113,
and the information given therein is consistent with the
financial statements;
(v) the information included in the corporate governance statement
is in accordance with the requirements of subparagraphs (iv) and
(v) of paragraph 2(a) of Article 151 of the Cyprus Companies
Law, Cap. 113, and which is included as a specific section of the
Management Report, have been prepared in accordance with
the requirements of the Cyprus Companies Law, Cap. 113, and is
consistent with the financial statements; and
(vi) the corporate governance statement includes all information
referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of
paragraph 2(a) of Article 151 of the Cyprus Companies Law,
Cap. 113.
Those charged with governance are responsible for overseeing the
Company’s financial reporting process.
By order of the Board
Each of the Directors confirms to the best of his or her knowledge
that the parent company financial statements (presented on pages
189 to 231) give a true and fair view of the financial position of
Globaltrans Investment PLC (the “Company”) as at 31 December
2018 and of its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting
Standards as adopted by the European Union and the requirements
of the Cyprus Companies Law, Cap.113.
Further, each of the Directors confirms to the best of his or her
knowledge that:
(i) proper books of account have been kept by the Company;
(ii) the Company’s Parent Company Financial Statements are in
agreement with the books of account;
(iii) the Parent Company Financial Statements give the information
required by the Cyprus Companies Law, Cap.113 in the manner
so required;
Sergey Tolmachev
Director
Limassol, 29 March 2019
Overview Strategic Report Governance Financial Statements Additional Information
INDEPENDENT AUDITOR’S REPORT
to the Members of Globaltrans Investment PLC
Globaltrans Investment PLC
Annual Report & Accounts 2018
185
Report on the Audit of the Parent
Company Financial Statements
Our opinion
In our opinion, the accompanying parent company financial
statements give a true and fair view of the financial position of the
parent company Globaltrans Investment PLC (the “Company”)
as at 31 December 2018, and of its financial performance and
its cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and the requirements of the Cyprus
Companies Law, Cap. 113.
What we have audited
We have audited the parent company financial statements which
are presented in pages 189 to 231 and comprise:
•
the balance sheet as at 31 December 2018;
•
the income statement for the year then ended;
•
the statement of comprehensive income for the year then ended;
•
the statement of changes in equity for the year then ended;
Independence
We remained independent of the Company throughout the period of
our appointment in accordance with the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional Accountants
(IESBA Code) together with the ethical requirements that are
relevant to our audit of the parent company financial statements in
Cyprus and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA Code.
Our audit approach
Overview
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the parent company
financial statements. In particular, we considered where the Board of
Directors made subjective judgements; for example, in respect of
significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
•
the cash flow statement for the year then ended; and
Materiality
•
the notes to the parent company financial statements, which
include a summary of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the parent company financial statements is
International Financial Reporting Standards as adopted by the
European Union and the requirements of the Cyprus Companies
Law, Cap. 113.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of
the Parent Company Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Key audit matters
Overall materiality: RUB 829,870
thousand, which represents approximately
5% of profit before tax.
We have determined that there are no
key audit matters to communicate in
our report.
We tailored the scope of our audit in order to perform sufficient
work to enable us to provide an opinion on the parent company
financial statements as a whole, taking into account the structure of
the Company, the accounting processes and controls, and the
industry in which the Company operates.
Materiality
The scope of our audit was influenced by our application of materiality.
An audit is designed to obtain reasonable assurance whether the
parent company financial statements are free from material
misstatement. Misstatements may arise due to fraud or error.
They are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the parent company financial statements.
PricewaterhouseCoopers Ltd, City House, 6 Karaiskakis Street, CY-3032 Limassol, Cyprus
P O Box 53034, CY-3300 Limassol, Cyprus
T: +357 25 - 555 000, F:+357 - 25 555 001, www.pwc.com.cy
PricewaterhouseCoopers Ltd is a private company registered in Cyprus (Reg. No.143594). Its registered office is at 3 Themistocles Dervis Street, CY-1066, Nicosia. A list of the
company’s directors, including for individuals the present and former (if any) name and surname and nationality, if not Cypriot and for legal entities the corporate name, is kept by the
Secretary of the company at its registered office. PwC refers to the Cyprus member firm, PricewaterhouseCoopers Ltd and may sometimes refer to the PwC network. Each member firm
is a separate legal entity. Please see www.pwc.com/structure for further details.
Globaltrans Investment PLC
Annual Report & Accounts 2018
186
INDEPENDENT AUDITOR’S REPORT
continued
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
materiality for the parent company financial statements as a whole
as set out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the parent company financial statements as a whole.
Overall materiality
RUB 829,870 thousand
How we determined it Approximately 5% of profit before tax
Rationale for the
materiality benchmark benchmark, because in our view, it is the
applied
We chose profit before tax as the
benchmark against which the performance
of the Company is most commonly
measured by the users of the parent
company financial statements and is a
generally accepted benchmark. We chose
5% which is within the range of acceptable
quantitative materiality thresholds in
auditing standards.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above RUB 41,494
thousand as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Key audit matters incorporating the most significant risks of
material misstatements, including assessed risk of material
misstatements due to fraud
We have determined that there are no Key Audit Matters to
communicate in our report.
Reporting on other information
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
Management Report, including the Corporate Governance
Statement, and the Directors’ responsibility which we obtained prior
to the date of this auditor’s report, and the Company’s complete
Annual Report, including the Non-Financial Information and
Diversity Statement, which is expected to be made available to us
after that date. Other information does not include the parent
company financial statements and our auditor’s report thereon.
Our opinion on the parent company financial statements does not
cover the other information and we do not and will not express any
form of assurance conclusion thereon.
In connection with our audit of the parent company financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the parent company
financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work
we have performed on the other information that we obtained prior
to the date of this auditor’s report, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
When we read the Company’s complete Annual Report, including the
Non-Financial Information and Diversity Statement, if we conclude
that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance and, if not
corrected, we will bring the matter to the attention of the members of
the Company at the Company’s Annual General Meeting and we will
take such other action as may be required.
Responsibilities of the Board of Directors and those charged
with governance for the Parent Company Financial Statements
The Board of Directors is responsible for the preparation of the
parent company financial statements that give a true and fair view in
accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the Cyprus
Companies Law, Cap. 113, and for such internal control as the Board
of Directors determines is necessary to enable the preparation of
parent company financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the parent company financial statements, the Board of
Directors is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting
unless the Board of Directors either intends to liquidate the Company
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the
Parent Company Financial Statements
Our objectives are to obtain reasonable assurance about whether
the parent company financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these parent company
financial statements.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
187
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the
audit. We also:
•
•
•
•
Identify and assess the risks of material misstatement of the parent
company financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
Conclude on the appropriateness of the Board of Directors’ use of
the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the
parent company financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Company to
cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the
parent company financial statements, including the disclosures,
and whether the parent company financial statements represent
the underlying transactions and events in a manner that achieves a
true and fair view.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the parent company financial statements
of the current period and are therefore the key audit matters.
Report on Other Legal and Regulatory Requirements
Pursuant to the requirements of Article 10(2) of the EU Regulation
537/2014 we provide the following information in our
Independent Auditor’s Report, which is required in addition to the
requirements of International Standards on Auditing.
Appointment of the Auditor and Period of Engagement
We were first appointed as auditors of the Company in 2005 by
shareholders’ resolution for the audit of the financial statements for
the year ended 31 December 2004. Our appointment has been
renewed annually since then, by shareholders’ resolution. In 2008 the
Company listed Global Depository Receipts on the Main Market of
the London Stock Exchange and, accordingly, the first financial year
after the Company qualified as a European Union Public Interest
Entity was the year ended 31 December 2009. Since then, the total
period of uninterrupted engagement appointment was 10 years.
Consistency of the Additional Report to the Audit Committee
We confirm that our audit opinion on the parent company financial
statements expressed in this report is consistent with the additional
report to the Audit Committee of the Company, which we issued on
28 March 2019 in accordance with Article 11 of the EU Regulation
537/2014.
Provision of Non-audit Services
We declare that no prohibited non-audit services referred to in
Article 5 of the EU Regulation 537/2014 and Section 72 of the
Auditors Law of 2017 were provided. In addition, there are no non-
audit services which were provided by us to the Company and which
have not been disclosed in the parent company financial statements
or the management report.
Other Legal Requirements
Pursuant to the additional requirements of the Auditors Law of
2017, we report the following:
•
•
•
In our opinion, based on the work undertaken in the course of our
audit, the management report has been prepared in accordance
with the requirements of the Cyprus Companies Law, Cap. 113,
and the information given is consistent with the parent company
financial statements.
In light of the knowledge and understanding of the Company and
its environment obtained in the course of the audit, we are
required to report if we have identified material misstatements in
the management report. We have nothing to report in this respect.
In our opinion, based on the work undertaken in the course of our
audit, the information included in the corporate governance
statement in accordance with the requirements of subparagraphs
(iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus
Companies Law, Cap. 113, and which is included as a specific section
of the management report, have been prepared in accordance with
the requirements of the Cyprus Companies Law, Cap, 113, and is
consistent with the parent company financial statements.
Globaltrans Investment PLC
Annual Report & Accounts 2018
188
INDEPENDENT AUDITOR’S REPORT
continued
•
•
In our opinion, based on the work undertaken in the course of our
audit, the corporate governance statement includes all information
referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph
2(a) of Article 151 of the Cyprus Companies Law, Cap. 113.
In light of the knowledge and understanding of the Company and
its environment obtained in the course of the audit, we are
required to report if we have identified material misstatements
in the corporate governance statement in relation to the
information disclosed for items (iv) and (v) of subparagraph 2(a)
of Article 151 of the Cyprus Companies Law, Cap. 113. We have
nothing to report in this respect.
Other Matter
This report, including the opinion, has been prepared for and only for
the Company’s members as a body in accordance with Article 10(1)
of the EU Regulation 537/2014 and Section 69 of the Auditors Law
of 2017 and for no other purpose. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or to any other
person to whose knowledge this report may come to.
We have reported separately on the consolidated financial
statements of the Company and its subsidiaries for the year ended
31 December 2018.
The engagement partner on the audit resulting in this independent
auditor’s report is Anna Loizou.
Anna Loizou
Certified Public Accountant and Registered Auditor
for and on behalf of
PricewaterhouseCoopers Limited
Certified Public Accountants and Registered Auditors
City House, 6 Karaiskakis Street,
CY-3032 Limassol, Cyprus
29 March 2019
Overview Strategic Report Governance Financial Statements Additional Information
INCOME STATEMENT
for the year ended 31 December 2018
Globaltrans Investment PLC
Annual Report & Accounts 2018
189
2018 2017
Note RUB’000 RUB’000
Revenue 8 15,160,887 10,806,345
Selling and marketing costs (6,406) (5,633)
Administrative expenses (347,143) (244,161)
Reversal of impairment losses on loans receivable 24 728,378 120,960
Other income 133,754 57,967
Other gains – net 9 1,133,853 1,695
Operating profit 16,803,323 10,737,173
Finance income 12 22,181 51,845
Finance costs 12 (349,985) (209,160)
Net foreign exchange transaction gains/(losses) on financing activities 12 121,892 (77,017)
Finance costs – net 12 (205,912) (234,332)
Profit before tax 16,597,411 10,502,841
Income tax expense 13 (749,692) (535,000)
Profit for the year 15,847,719 9,967,841
The notes on pages 194 to 231 are an integral part of these financial statements.
Globaltrans Investment PLC
Annual Report & Accounts 2018
190
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
2018 2017
RUB’000 RUB’000
Profit for the year 15,847,719 9,967,841
Other comprehensive income for the year, net of tax – –
Total comprehensive income for the year 15,847,719 9,967,841
The notes on pages 194 to 231 are an integral part of these financial statements.
Overview Strategic Report Governance Financial Statements Additional Information
BALANCE SHEET
at 31 December 2018
Globaltrans Investment PLC
Annual Report & Accounts 2018
191
31 December 2018 31 December 2017
Note RUB’000 RUB’000
Assets
Non-current assets
Investments in subsidiary undertakings 17 45,151,248 45,252,722
Property, plant and equipment 16 2,572 4,468
Other assets 19 4,640 –
Loans and other receivables 18 876,476 407,186
Total non-current assets 46,034,936 45,664,376
Current assets
Loans and other receivables 18 1,379,274 204,528
Other assets 19 2,296 1,555
Income tax assets 11,919 11,794
Cash and cash equivalents 20 1,268,049 422,081
Total current assets 2,661,538 639,958
Total assets 48,696,474 46,304,334
Equity and liabilities
Capital and reserves
Share capital 21 516,957 516,957
Share premium 21 27,929,478 27,929,478
Capital contribution 2,694,851 2,694,851
Retained earnings 9,696,628 10,069,647
Total equity 40,837,914 41,210,933
Non-current liabilities
Borrowings 22 4,231,313 2,491,667
Total non-current liabilities 4,231,313 2,491,667
Current liabilities
Borrowings 22 3,241,204 2,534,089
Payables and accrued expenses 23 386,043 67,645
Total current liabilities 3,627,247 2,601,734
Total liabilities 7,858,560 5,093,401
Total equity and liabilities 48,696,474 46,304,334
On 29 March 2019 the Board of Directors of Globaltrans Investment PLC authorised these financial statements for issue.
Sergey Tolmachev, Konstantin Shirokov,
Director Director
The notes on pages 194 to 231 are an integral part of these financial statements.
Globaltrans Investment PLC
Annual Report & Accounts 2018
192
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Share Share Capital Retained
capital premium contribution earnings Total
Note RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
Balance at 1 January 2017 516,957 27,929,478 2,694,851 15,116,043 46,257,329
Comprehensive income
Profit for the year – – – 9,967,841 9,967,841
Total comprehensive income for 2017 – – – 9,967,841 9,967,841
Transactions with owners
Dividend to owners of the Company 15 – – – (15,014,237) (15,014,237)
Total distributions to owners of the Company – – – (15,014,237) (15,014,237)
Total transactions with owners – – – (15,014,237) (15,014,237)
Balance at 31 December 2017/1 January 2018 516,957 27,929,478 2,694,851 10,069,647 41,210,933
Comprehensive income
Profit for the year – – – 15,847,719 15,847,719
Total comprehensive income for 2018 – – – 15,847,719 15,847,719
Transactions with owners
Dividend to owners of the Company 15 – – – (16,220,738) (16,220,738)
Total distributions to owners of the Company – – – (16,220,738) (16,220,738)
Total transactions with owners – – – (16,220,738) (16,220,738)
Balance at 31 December 2018 516,957 27,929,478 2,694,851 9,696,628 40,837,914
The notes on pages 194 to 231 are an integral part of these financial statements.
Overview Strategic Report Governance Financial Statements Additional Information
CASH FLOW STATEMENT
for the year ended 31 December 2018
Globaltrans Investment PLC
Annual Report & Accounts 2018
193
2018 2017
Note RUB’000 RUB’000
Cash flows from operating activities
Profit before tax 16,597,411 10,502,841
Adjustments for:
– Depreciation of property, plant and equipment 16 1,896 2,301
– Interest on loans to related parties 8 (47,913) (106,338)
– Bank interest income 12 (22,181) (51,845)
– Interest expense 12 349,985 209,160
– Reversal of impairment losses on loans receivable 24 (728,378) (120,960)
– Profit from sale of subsidiaries 9 (1,134,752) –
– Net foreign exchange transaction (gains)/losses on financing activities 12 (121,892) 77,017
Operating cash flows before working capital changes 14,894,176 10,512,176
Changes in working capital
– Other assets (741) (1,218)
– Payables and accrued expenses 44,107 313,491
Net cash generated from operations 14,937,542 10,824,449
Interest received from loans from related parties 21,743 129,173
Tax paid (748,003) (535,000)
Net cash generated from operating activities 14,211,282 10,418,622
Cash flows from investing activities
– Proceeds from sale of subsidiary 17 671,441 –
– Loans granted to related parties 24 (900,000) (650,000)
– Loan repayments received from related parties 24 936,968 1,564,249
– Bank interest received 22,181 51,845
Net cash generated from investing activities 730,590 966,094
Cash flows from financing activities
– Proceeds from bank borrowings 22 8,000,000 5,000,000
– Proceeds from borrowings – related parties 22 – 610,798
– Repayment of bank borrowings 22 (5,558,000) –
– Repayment of borrowings – related parties 22 – (1,362,798)
– Interest paid – related parties 24 – (47,649)
– Interest paid on bank borrowings 22 (345,224) (139,459)
– Dividends paid to the Company’s shareholders 15 (16,220,738) (15,014,237)
Net cash used in financing activities (14,123,962) (10,953,345)
Net increase in cash and cash equivalents 817,910 431,371
– Exchange losses on cash and cash equivalents 28,058 (323,967)
Cash and cash equivalents at beginning of year 422,081 314,677
Cash and cash equivalents at end of year 20 1,268,049 422,081
The notes on pages 194 to 231 are an integral part of these financial statements.
Globaltrans Investment PLC
Annual Report & Accounts 2018
194
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1. General information
Country of incorporation
Globaltrans Investment Plc (“the Company”) is incorporated and domiciled in Cyprus as a limited liability company in accordance with the
provisions of the Cyprus Companies Law, Cap. 113 and converted into a public company on 15 April 2008. The address of its registered
office is 20 Omirou Street, Limassol, Cyprus.
Approval of the parent company financial statements
These parent company financial statements were authorised for issue by the Board of Directors of the Company on 29 March 2019.
Global Depositary Receipts
Global Depositary Receipts each representing one ordinary share of the Company are listed on the London Stock Exchange International
Main Market.
Principal activities
The principal activities of the Company, which are unchanged from last year, are the holding of investments and provision of financing to
other Group companies.
Consolidated financial statements
The Company has also prepared Consolidated Financial Statements in accordance with International Financial Reporting Standards as
adopted by the European Union (“EU”) and the requirements of the Cyprus Companies Law, Cap. 113 for the Company and its subsidiaries
(“the Group”). These Consolidated Financial Statements can be obtained from the Company’s website at: www.globaltrans.com
2. Basis of preparation
The parent company financial statements of Globaltrans Investment PLC have been prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union (“EU”) and the requirements of the Cyprus Companies Law, Cap. 113.
As of the date of the authorisation of the financial statements, all International Financial Reporting Standards issued by International
Accounting Standards Board (“IASB”) that are relevant to the Company’s operations and are effective as at 1 January 2018 have been
adopted by the EU through the endorsement procedure established by the European Commission.
The financial statements have been prepared under the historical cost convention.
The Company has prepared these parent company financial statements for compliance with the requirements of the Cyprus Companies
Law, Cap. 113 and disclosure rules as issued by the Financial Conduct Authority of United Kingdom.
Users of these parent company financial statements should read them together with the Company’s Consolidated Financial Statements as
at and for the year ended 31 December 2018 in order to obtain a proper understanding of the financial position, the financial performance
and cash flows of the Company and the Group.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and requires
management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 7.
Overview Strategic Report Governance Financial Statements Additional Information
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195
3. Adoption of new or revised standards and interpretations
During the current year the Company adopted all the new and amended standards International Financial Reporting Standards (“IFRS”)
that are relevant to its operations and are effective for accounting periods beginning on 1 January 2018. None of these has affected these
financial statements with the exception of IFRS 9 “Financial Instruments”, the adoption of which resulted in changes in the Company’s
accounting policies.
IFRS 9 “Financial instruments”
IFRS 9 “Financial instruments” replaces the provisions of IAS 39 that relate to recognition and derecognition of financial instruments and
classification and measurement of financial assets and financial liabilities. IFRS 9 further introduces new principles for hedge accounting and
a new forward-looking impairment model for financial assets.
The new standard requires debt financial assets to be classified into two measurement categories: those to be measured subsequently at fair
value (either through other comprehensive income or through profit or loss) and those to be measured at amortised cost. The determination
is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the
contractual cash flows characteristics of the instruments. For assets measured at fair value, gains and losses are either recorded in profit or loss
or in other comprehensive income.
In particular, assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and
interest are measured at amortised cost. Assets that are held for collection of contractual cash flows and for selling the financial assets, where
the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through other comprehensive income.
Lastly, assets that do not meet the criteria for amortised cost or fair value through other comprehensive income are measured at fair value
through profit or loss.
For investments in equity instruments that are not held for trading, the classification depends on whether the entity has made an irrevocable
election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. If no such
election has been made or the investments in equity instruments are held for trading they are required to be classified at fair value through
profit or loss.
IFRS 9 also introduces a single impairment model applicable for debt instruments at amortised cost and fair value through other
comprehensive income and removes the need for a triggering event to be necessary for recognition of impairment losses. The new
impairment model under IFRS 9 requires the recognition of allowances for doubtful debt based on Expected Credit Losses (“ECL”), rather
than incurred credit losses as under IAS 39. The standard further introduces a simplified approach for calculating impairment on trade
receivables as well as for calculating impairment on contract assets and lease receivables; which also fall within the scope of the impairment
requirements of IFRS 9.
For financial liabilities, the standard retains most of the requirements of IAS 39. The main change is that, in case where the fair value option
is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income
rather than the income statement, unless this creates an accounting mismatch.
With the introduction of IFRS 9 “Financial Instruments”, the IASB confirmed that gains or losses that result from modification of financial
liabilities that do not result in derecognition shall be recognised in profit or loss.
IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic
relationship between the hedged item and hedging instrument and for the “hedge ratio” to be the same as the one management actually use
for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39.
Impact of adoption
In accordance with the transition provisions in IFRS 9, the Company has elected the simplified transition method for adopting the new
standard. Accordingly, the effect of transition to IFRS 9 was recognised as at 1 January 2018 as an adjustment to the opening retained
earnings directly in equity. In accordance with the transition method elected by the Company for implementation of IFRS 9 the comparatives
have not been restated but are stated based on the previous policies, which comply with IAS 39. Consequently, the revised requirements of
IFRS 7 “Financial Instruments: Disclosures” have only been applied to the current period. The comparative period disclosures repeat those
disclosures made in the prior period.
Globaltrans Investment PLC
Annual Report & Accounts 2018
196
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
3. Adoption of new or revised standards and interpretations continued
On 1 January 2018, the Company’s management assessed which business models apply to the financial assets held by the Company that
were classified as loans and receivables under IAS 39. Management concluded to classify all the financial assets held by the Company at the
amortised cost measurement category under IFRS 9 as these are held with the objective to collect the contractual cash flows and their cash
flows represent solely payments of principal and interest. As a result, the measurement basis for the Company’s financial assets remained
unchanged by the adoption of IFRS 9. The adoption of IFRS 9 did not have an impact on the classification and measurement basis of the
Company’s financial liabilities.
As a result of the adoption of IFRS 9 the Company revised its impairment methodology for each class of financial instruments subject to the
new impairment requirements. The Company has three types of financial instruments that are subject to IFRS 9’s new expected credit loss
model: loans and other receivables, cash and cash equivalents and financial guarantees. Based on the assessment performed by management,
the incremental impairment loss as of 1 January 2018 was immaterial. Accordingly, the impact of adoption of IFRS 9 on the Company’s
retained earnings as of 1 January 2018 was immaterial.
The Company’s new accounting policies following adoption of IFRS 9 at 1 January 2018 are set out in Note 4.
Changes in presentation following adoption of IFRS 9
The Company has voluntarily changed the presentation of certain amounts in the balance sheet to reflect their different nature. In particular,
prepayments and other non-financial assets, which were previously presented within “Loans and other receivables”, are now presented as
“Other assets” on the face of the balance sheet.
Comparative figures have been adjusted to conform to the changes in the presentation for the current year. The following table summarises
the impact of the changes made on each financial statement line item of the balance sheet affected. Line items that were not affected by the
changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided.
31 December 2017
– as previously 31 December 2017
presented Reclassification – as restated
RUB’000 RUB’000 RUB’000
Current assets
Loans and other receivables 206,083 (1,555) 204,528
Other assets – 1,555 1,155
Total current assets 639,958 – 639,958
Total assets 46,304,334 – 46,304,334
4. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. Apart from the accounting
policy changes resulting from the adoption of IFRS 9 effective from 1 January 2018, these policies have been consistently applied to all
the years presented.
Foreign currency translation
(a) Functional and presentation currency
Items included in the Company’s financial statements are measured using the currency of the primary economic environment in which the
entity operates (“the functional currency”). The Company’s functional currency is the Russian Rouble. The financial statements are also
presented in Russian Roubles (“the presentation currency”) because this is the currency better understood by the principal users of the
financial statements.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the spot exchange rates prevailing at the dates of the
transactions or valuations where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in
the income statement.
Overview Strategic Report Governance Financial Statements Additional Information
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197
4. Summary of significant accounting policies continued
Net foreign exchange differences arising from borrowings and other liabilities and from cash and cash equivalents and other monetary assets
are presented on the face of the income statement in the line “Net foreign transaction losses on financing activities”, with the appropriate
disclosure of the split between the two in the note “Finance costs – net”.
All other foreign exchange gains and losses are presented in the income statement within “Other gains/(losses)”.
Dividend income
Dividend income is recognised when the right to receive payment is established.
Employee benefits
Wages, salaries, contributions to the state pension and social insurance funds, paid annual leave and sick leave, bonuses and other benefits
(such as health services) are accrued in the year in which the associated services are rendered by the employees of the Company. These are
included in staff costs and the Company has no further obligations once the contributions have been paid.
The Company recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created
a constructive obligation.
Current and deferred income tax
The tax expense for the period comprises of current and deferred tax. Tax is recognised in the income statement, except to the extent that
it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity respectively.
Current income tax liabilities and assets for the current and prior periods are measured at the amount expected to be paid to or recovered
from the taxation authorities using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations is subject to
interpretations and establishes provisions where appropriate on the basis of amounts expected to be paid to tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax rates and laws that have been enacted
or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred
tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the Company can control the
timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities, when the income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity
or different taxable entities when there is an intention to settle the balances on a net basis.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which
the dividends are approved and are no longer at the discretion of the Company. More specifically, interim dividends are recognised when
approved by the Board of Directors whereas in case of final dividends, these are recognised at the time when they are approved by the
Company’s shareholders.
Operating leases
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments, the right to use an asset for
an agreed period of time. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
Globaltrans Investment PLC
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198
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
Property, plant and equipment
Property, plant and equipment are recorded at purchase cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Depreciation on property, plant and equipment is calculated using the straight-line method to
allocate their cost, less residual value, over their estimated useful lives, as follows:
Number of years
Motor vehicles 3 – 5
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Expenditure for repairs and maintenance of property, plant and equipment is charged to the income statement of the year in which they are
incurred. The cost of major renovations and other subsequent expenditure are included in the carrying amount of the asset or recognised as
a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company
and the cost of the item can be measured reliably.
Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with carrying amount and these
are included within operating profit as part of administrative expenses.
Investments in subsidiary undertakings
Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when the
Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity.
The Company carries the investments in subsidiaries at cost less any impairment in its separate financial statements. Investments in subsidiaries
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised through income statement for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. An impairment loss recognised in prior
years is reversed where appropriate if there has been a change in the estimates used to determine the recoverable amount.
The cost of investments in subsidiaries includes the fair value of any asset or liability arising from a contingent consideration arrangement.
The subsequent remeasurement of any asset/liability arising from a contingent consideration arrangement is adjusted against the cost of
the investment in subsidiary.
In cases of acquisitions of subsidiaries from entities under common control or subsidiaries of the Company, the cost of acquisition is
determined to be the fair value of the investment acquired as opposed to the transaction price. Any differences between the transaction
price and the fair value of the investment acquired reflect notional contributions/distributions from entities under common control or
subsidiaries and are recognised as such, i.e. directly in equity in cases of transactions with common control entities and as an additional
contribution to or distribution from the subsidiary transferring the investment to the Company.
Group reorganisations resulting into an exchange of non-financial assets and where the future cash inflows before and after the
reorganisation do not change as a result of the reorganisation are considered to lack commercial substance and no gains or losses are
recognised relating to such restructurings.
Indemnification assets received for contingent liabilities of the investments in subsidiaries that existed at the time of acquisition of such
subsidiaries are recognised against the cost of the relevant investment.
Deferred consideration
Deferred consideration arises when settlement of all or any part of the cost of an acquisition is deferred. Deferred consideration is stated at
fair value at the date of acquisition, which is determined by discounting the amounts due to present value using market interest rates at the
date of initial recognition. Interest is accrued on the fair value of deferred consideration at the original effective interest rate and is
recognised in finance costs.
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4. Summary of significant accounting policies continued
Impairment of non-financial assets
Assets that have indefinite useful life and goodwill are not subject to amortisation and are tested annually for impairment.
Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-
generating units). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of impairment
whenever there is an indication that an impairment recognised in prior periods may no longer exist or may have decreased.
Financial instruments
(i) Accounting policies applicable from 1 January 2018
(a) Financial assets
Recognition and derecognition. All purchases and sales of financial assets that require delivery within the time frame established by
regulation or market convention (“regular way” purchases and sales) are recorded at trade-date; being the date on which the Company
commits to purchase or sell the asset. All other purchases and sales are recognised when the entity becomes a party to the contractual
provisions of the instrument.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and
the Company has transferred substantially all the risks and rewards of ownership. Any gain or loss arising upon their derecognition is
recognised directly in the income statement.
Classification. The Company classifies its financial assets at amortised cost. The classification depends on the Company’s business model for
managing the financial assets and the contractual cash flow characteristics of the assets. Management determines the classification of
financial assets at initial recognition.
Financial assets at amortised cost are held for collection of contractual cash flows and their cash flows represent solely payments of principal
and interest. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are
classified as non-current assets. The Company’s financial assets at amortised cost comprise of loans and other receivables and cash and cash
equivalents on the balance sheet.
Reclassification. Financial instruments are reclassified only when the business model for managing those assets changes. The reclassification
has a prospective effect and takes place from the start of the first reporting period following the change.
Measurement. At initial recognition, the Company measures financial assets classified at amortised cost at their fair value plus incremental
transaction costs that are directly attributable to the acquisition of the financial assets. Subsequently, these are measured at amortised cost.
Interest income. Interest income on financial assets at amortised cost is recognised using the effective interest rate method. Interest income on
loans granted to related parties is recognised within ‘Revenue’ in the income statement. All other interest income recognised on debt financial
assets carried at amortised cost is included within ‘Finance income’ in the income statement. In particular, interest income is calculated by
applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-
impaired. For credit-impaired financial assets, the effective interest rate is applied to the net carrying amount of the financial asset; that is after
deduction of the loss allowance. The Company’s definition of credit-impaired assets is explained in Note 6, credit risk section.
Impairment. The Company assesses on each reporting date and on a forward looking basis the Expected Credit Losses (“ECL”) associated
with its debt financial assets carried at amortised cost. The measurement of ECL reflects: (i) an unbiased and probability weighted amount
that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information
that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of
future conditions.
The carrying amount of the financial assets is reduced through the use of an allowance account, and the amount of the loss is recognised on
the face of the income statement. Subsequent recoveries of amounts for which loss allowance was previously recognised are credited against
the same line item.
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
For all its debt financial assets carried at amortised cost, the Company applies the general approach. In particular, the Company applies the
three stage model for calculating impairment, which is based on changes in the credit quality of the financial asset since initial recognition.
A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. The ECL of financial assets in Stage 1 is
measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until
contractual maturity, if shorter. If the Company identifies a Significant Increase in Credit Risk (“SICR”) since initial recognition, the asset is
transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until its contractual maturity but considering
expected prepayments, if any. Refer to Note 6, credit risk section for a description of how the Company determines when a SICR has
occurred. If the Company determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as
a Lifetime ECL. The Company’s definition of credit impaired assets and definition of default is explained in Note 6, credit risk section.
Write-off. Financial assets are written-off, in whole or in part, when the Company has concluded that there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a
repayment plan with the Company and a failure to make contractual payments for a period of greater than 180 days past due. The Company
may write-off financial assets that are still subject to enforcement activity when the Company seeks to recover amounts that are contractually
due, however, there is no reasonable expectation of recovery. Subsequent recoveries of amounts previously written off are recognised
directly on the face of the income statement.
Modification. The Company sometimes renegotiates or otherwise modifies the contractual terms of its financial assets, The Company
assesses whether the modification of the contractual cash flows is substantial considering, among other, the following factors: any new
contractual terms that substantially affect the risk profile of the asset (e.g. profit share or equity-based return), significant change in interest
rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the
asset or a significant extension of a loan when the borrower is not in financial difficulties.
If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Company derecognises the
original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition
for subsequent impairment calculation purposes, including determining whether a SICR has occurred. The Company also assesses whether
the new loan or debt instrument meets the SPPI criterion.
Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is
recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners.
In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed
payments, the Company compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are
substantially different because of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially
different from the original asset and the modification does not result in derecognition. The Company recalculates the gross carrying amount
by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for
purchased or originated credit-impaired financial assets), and recognises a modification gain or loss in profit or loss.
Classification as loans and other receivables. These amounts are held with the objective to collect their contractual cash flows and their
contractual cash flows represent solely payments of principal and interest. Accordingly, these are measured at amortised cost using the
effective interest method, less provision for impairment. Loans and other receivables are classified as current assets if they are due within
one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current assets.
Classification as cash and cash equivalents. In the cash flow statement, cash and cash equivalents include cash in hand and deposits held
at call with banks or with original maturity of three months or less, less bank overdrafts, if any. Cash and cash equivalents are carried at
amortised cost using the effective interest method, less provision for impairment. Bank overdrafts are shown within borrowings in the
current liabilities on the balance sheet.
(b) Financial liabilities
Classification. The Company’s financial liabilities are initially recognised at fair value and classified as subsequently measured at amortised cost.
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4. Summary of significant accounting policies continued
Derecognition of financial liabilities. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or
expires. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the
consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in income statement as other income or
finance costs. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying amounts, including costs or fees incurred for the modification, is
recognised in profit or loss within finance costs. When the terms of the existing financial liability are not substantially modified, the existing
liability is not derecognised and the gain/loss arising on the modification, including costs or fees incurred for the modification, is recognised
in the income statement within finance costs.
Borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised over the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all
of the facility will be drawn down. In this case, the fee is deferred until draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period
of the facility to which it relates.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least
twelve months after the balance sheet date.
Borrowings are removed from the balance sheet when the obligation specified in the contract is extinguished (i.e. when the obligation
specified in the contract is discharged, cancelled or expires). The difference between the carrying amount of a financial liability that has been
extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is
recognised in the income statement within “finance costs-net”.
Other payables. Other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle
of the business if longer). If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method.
Financial guarantees. Financial guarantee contracts are contracts that require the Company to make specified payments to reimburse the
holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of debt
instrument. Financial guarantees are recognised as a financial liability at the time the guarantee is issued. Financial guarantees are initially
recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis
over the life of the guarantee in “other gains/(losses)” in the income statement.
At the end of each reporting period, the guarantee is subsequently measured at the higher of (i) the amount of the loss allowance
determined in accordance with the expected credit loss model under IFRS 9 and (ii) the amount initially recognised less, where appropriate,
the cumulative amount of income recognised in accordance with the principles of IFRS 15 “Revenue from Contracts with Customers”.
The fair values of financial guarantees issued in relation to obligations of subsidiaries, where such guarantees are provided for no
compensation, are accounted for as contributions and are recognised as part of the cost of the investment in the respective subsidiary in
the financial statements of the Company.
(ii) Accounting policies applied until 31 December 2017
(a) Financial assets
Recognition and derecognition. Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the
Company commits to purchase or sell the asset. Loans and receivables are recognised when the funds are advanced to the debtor/borrower.
Classification. The Company classifies its financial assets as loans and receivables. The classification depends on the purpose for which the
financial assets were acquired. Management determines the classification of financial assets at initial recognition.
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and for
which there is no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after
the balance sheet date. These are classified as non-current assets. The Company’s loans and receivables comprise loans and other receivables
and cash and cash equivalents in the balance sheet.
Measurement. Loans and receivables are initially recognised at fair value plus transaction costs and are subsequently carried at amortised
cost using the effective interest method. Loans and receivables are derecognised when the rights to receive cash flows from the financial
assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.
Interest income. Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired,
the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original
effective interest rate of the instrument, and continues unwinding the discount as interest income.
Impairment. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of
financial assets is impaired based on the incurred loss model.
A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of receivables. Significant financial difficulties of the debtor/borrower, probability that the
debtor/borrower will enter bankruptcy or delinquency in payments are considered indicators that the receivable is impaired. The amount of
the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the
original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract.
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised on the face of
the income statement. When a receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent
recoveries of amounts previously written off are recognised on the face of the income statement.
Classification as cash and cash equivalents. In the cash flow statement, cash and cash equivalents include cash in hand and deposits held at
call with banks with original maturity of three months or less, less bank overdrafts, if any. Cash and cash equivalents are carried at amortised
cost using the effective interest method. Bank overdrafts are shown within borrowings in the current liabilities on the balance sheet.
(b) Financial liabilities
Classification. The Company’s financial liabilities are initially recognised at fair value and classified as subsequently measured at amortised cost.
Derecognition of financial liabilities. A financial liability is derecognised when the obligation under the liability is discharged or cancelled
or expires. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and
the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in income statement as other income
or finance costs.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition
of a new liability, and the difference in the respective carrying amounts, including costs or fees incurred for the modification, is recognised in
profit or loss within finance costs. When the terms of the existing financial liability are not substantially modified, the existing liability is not
derecognised and the gain/loss arising on the modification, including costs or fees incurred for the modification, is recognised in the income
statement within finance costs.
Borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised over the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all
of the facility will be drawn down. In this case, the fee is deferred until draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period
of the facility to which it relates.
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4. Summary of significant accounting policies continued
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least
12 months after the balance sheet date.
Other payables. Other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle
of the business if longer). If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method.
Financial guarantees. Financial guarantees are contracts that require the Company to make specified payments to reimburse the holder of
the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt
instrument. Financial guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received.
This amount is amortised on a straight-line basis over the life of the guarantee. At the end of each reporting period, the guarantees are
measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of
expenditure required to settle the obligation at the end of the reporting period.
Fair values of financial guarantees issued in relation to obligations of subsidiaries, where such guarantees are provided for no compensation,
are accounted for as contributions and recognised as part of the cost of the investment in the respective subsidiary in the financial statements
of the Company.
Amortisation of financial guarantees is recognised in “other gains/(losses)” in the income statement on a straight-line basis.
Share capital, share premium and treasury shares
Ordinary shares are classified as equity.
Incremental costs directly related to the issue of new shares are shown as a deduction, net of tax, from the proceeds.
Any excess of the fair value of consideration received over the par value of shares issued is recognised as share premium. Share premium is
the difference between the fair value of the consideration receivable for the issue of shares and the nominal value of the shares. Share
premium account can only be resorted to for limited purposes, which do not include the distribution of dividends, and is otherwise subject
to the provisions of the Cyprus Companies Law on reduction of share capital.
Where the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity within a separate reserve ‘treasury shares’ until the shares are cancelled or
re-issued. Where such ordinary shares are subsequently re-issued, any consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, is included in equity within retained earnings. The consideration initially paid for
treasury shares which are subsequently re-issued is transferred from ‘treasury shares’ to retained earnings.
Capital contribution
Capital contribution constitutes contributions made by the Company’s shareholders other than for the issue of shares by the Company in
their capacity as equity owners of the Company for which the Company has no contractual obligation to repay them. Such contributions are
recognised directly in equity as they constitute transactions with equity owners in their capacity as equity owners of the Company.
Provisions and contingent liabilities
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not
that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not
recognised for future operating losses.
Where there are number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the
class of obligation as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.
Provisions are measured at the present value of the expenditures to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage
of time is recognised as interest expense.
Provisions are only used to cover those expenses which they had been set up for. Other possible or present obligations that arise from past
events but it is not probable that an outflow of resources embodying economic benefit will be required to settle the obligations; or the
amount cannot be measured with sufficient reliability are disclosed in the notes to the financial statements as contingent liabilities.
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
4. Summary of significant accounting policies continued
Transactions with equity owners/subsidiaries
The Company enters into transactions with its shareholders and subsidiaries. When consistent with the nature of the transaction, the Company’s
accounting policy is to recognise (a) any gains or losses with equity holders and other entities which are under the control of the ultimate
shareholder, directly through equity and consider these transactions as the receipt of additional capital contribution or the payment of dividends;
and (b) any losses with subsidiaries as cost of investment in subsidiaries. Similar transactions with non-equity holders, or subsidiaries, are
recognised through the income statement in accordance with IFRS 9 “Financial Instruments” (2017: IAS 39 “Financial Instruments”).
Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating
to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as
non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Company
has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Company. Other
prepayments are written off to profit or loss when the goods or services relating to the prepayments are received. If there is an indication that
the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly
and a corresponding impairment loss is recognised in the income statement.
Cash flow statement
Cash flows arising from dividend income and interest income on loans granted to related parties which form part of the revenue of the
Company are reported as part of operating activities in the cash flow statement. Interest income received on other balances which form
part of the Company’s finance income are reported within cash flows from investing activities in the cash flow statement. Interest expense
arising from deferred consideration for acquisition in subsidiaries is recognised within financing activities. Principal payments of deferred
consideration are recognised as acquisition of subsidiaries within cash flows from investing activities.
Comparatives
Comparative figures have been adjusted to conform with changes in the presentation for the current year. Details of the reclassifications
are disclosed in Note 3.
5. New accounting pronouncements
Certain new standards, amendments to existing standards and interpretations have been issued that are mandatory for annual periods
beginning on or after 1 January 2019, that are expected to have an impact on the Company’s financial statements and which the Company
has not early adopted. Items marked with * have not been endorsed by the European Union (“EU”). The Company will only be able to apply
the new standards, amendments to existing standards or interpretations when these are endorsed by the EU.
IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019)
The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing.
Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead,
introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in
the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to
classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
In accordance with the transition provisions of IFRS 16, the Company has elected the modified retrospective transition method for adopting
the new standard with the effect of transition to be recognised in the opening retained earnings as at 1 January 2019 in the financial
statements for the year ending 31 December 2019; which will be the first year when the Company will apply IFRS 16. The Company opted
the practical expedient provided by IFRS 16 to measure the right-of-use assets on transition at an amount equal to that of the lease liability
(adjusted for any prepaid or accrued expenses).
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5. New accounting pronouncements continued
A reconciliation of the operating lease commitments as at 31 December 2018 disclosed in Note 25 to the recognised liability on
1 January 2019 is as follows:
1 January 2019
RUB’000
Total future minimum lease payments for non-cancellable operating leases (Note 25) 7,758
Effect of discounting to present value (466)
Total lease liabilities 7,292
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods beginning
on or after 1 January 2019)
IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies how
to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should
determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on
which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a
right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that
the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit
or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on
which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and
circumstances or of new information that affects the judgements or estimates required by the interpretation as a change in accounting estimate.
Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgement or estimate include, but
are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation
authority’s right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax
treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgements and
estimates required by the Interpretation. The Company is currently assessing the impact of the interpretation on its financial statements and
as of the date of issue of these financial statements the impact of the interpretation is not known.
Definition of materiality –amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods
beginning on or after 1 January 2020)*
The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until now has
featured elsewhere in IFRS. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure that
the definition of material is consistent across all IFRS Standards. Information is material if omitting, misstating or obscuring it could reasonably
be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity. The Company is currently assessing the impact of the
amendments on its financial statements and as of the date of issue of these financial statements the impact of the amendments is not known.
Annual improvements to IFRSs 2015-2017 cycle – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on
12 December 2017 and effective for annual periods beginning on or after 1 January 2019)
The narrow scope amendments impact four standards. IFRS 3 was clarified that an acquirer should remeasure its previously held interest in a
joint operation when it obtains control of the business. Conversely, IFRS 11 now explicitly explains that the investor should not remeasure its
previously held interest when it obtains joint control of a joint operation, similarly to the existing requirements when an associate becomes a
joint venture and vice versa. The amended IAS 12 explains that an entity recognises all income tax consequences of dividends where it has
recognised the transactions or events that generated the related distributable profits, e.g. in profit or loss or in other comprehensive income.
It is now clear that this requirement applies in all circumstances as long as payments on financial instruments classified as equity are
distributions of profits, and not only in cases when the tax consequences are a result of different tax rates for distributed and undistributed
profits. The revised IAS 23 now includes explicit guidance that the borrowings obtained specifically for funding a specified asset are excluded
from the pool of general borrowings costs eligible for capitalisation only until the specific asset is substantially complete. The Company is
currently assessing the impact of the amendments on its financial statements and as of the date of issue of these financial statements the
impact of the amendments is not known.
Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for
annual periods beginning on or after 1 January 2020)*
The revised Conceptual Framework includes a new chapter on measurement; guidance on reporting financial performance; improved
definitions and guidance – in particular the definition of a liability; and clarifications in important areas, such as the roles of stewardship,
prudence and measurement uncertainty in financial reporting. The Company is currently assessing the impact of the amendments on its
financial statements and as of the date of issue of these financial statements the impact of the amendments is not known.
Globaltrans Investment PLC
Annual Report & Accounts 2018
206
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
6. Financial risk management
Financial risk factors
The Company’s activities exposed it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest
rate risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Company’s financial results.
Market risk
(a) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency different
from the functional currency of the Company.
During the year 2018 there was increased volatility in currency markets and the Russian Rouble has depreciated significantly against some
major currencies, especially in the second half of the year. As of the end of December 2018 the Russian Rouble has depreciated against the
US Dollar from 57.6002 as of 31 December 2017 to 69.4706 Russian Roubles (21% devaluation).
The fluctuations in the exchange rate between (i) US Dollar and Russian Rouble and (ii) between Euro and Russian Rouble expose the
Company to foreign exchange risk.
The carrying amounts of monetary assets denominated in US Dollars as at 31 December 2018 and 31 December 2017 are as follows:
2018 2017
RUB’000 RUB’000
Assets 865,298 563,223
Liabilities 7,315 –
There were no significant monetary liabilities denominated in US Dollars as at 31 December 2018 and 31 December 2017.
The carrying amounts of monetary assets and liabilities denominated in Euro as at 31 December 2018 and 31 December 2017 are as follows:
2018 2017
RUB’000 RUB’000
Assets 1,656,925 3,386
Liabilities 77,822 67,645
Had US Dollar exchange rate strengthened/weakened by 20% (2017: 5% change) against the Russian Rouble and all other variables
remained unchanged, the post-tax profit of the Company for the year ended 31 December 2018 would have increased/decreased by
RUB 150,147 thousand (2017: RUB 24,641 thousand). This is mainly due to foreign exchange gains and losses arising upon retranslation
of US Dollar denominated loans receivable and cash and cash equivalents as of 31 December 2018 and as of 31 December 2017.
Had Euro exchange rate strengthened/weakened by 20% (2017: 5% change) against the Russian Rouble and all other variables remained
unchanged, the post-tax profit of the Company for the year ended 31 December 2018 would have increased/decreased by RUB 276,343
thousand (2017: decreased/increased by RUB 2,811 thousand). This is mainly due to foreign exchange gains and losses arising upon
retranslation of Euro denominated other receivables, cash and cash equivalents and payables as of 31 December 2018 and as of
31 December 2017.
In prior years, the Company has impaired fully loans receivable from its subsidiary, Ukrainian New Forwarding Company, OOO, which were
denominated in US Dollars. The gross amount of the said loans is RUB 1,901,961 thousand as of 31 December 2018 (2017: RUB 1,954,255
thousand). Therefore, although the Company is subject to foreign exchange risk in relation to these loans, yet, any foreign exchange difference
arising on these loans as a result of fluctuations in the Russian Rouble to US Dollar exchange rate would trigger an opposite and equivalent
adjustment to the loss allowance for these loans and therefore would not have an impact on the income statement of the Company.
The Company’s current policy is not to hedge this foreign exchange risk.
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207
6. Financial risk management continued
(b) Cash flow and fair value interest rate risk
The Company holds interest bearing financial instruments at fixed interest rates.
Financial assets and liabilities issued at fixed rates expose the Company to fair value interest rate risk. However, as all of the Company’s fixed
interest rate financial instruments are carried at amortised cost, any reasonably possible change in the interest rates as of 31 December 2018
and 31 December 2017 would not have any impact on the Company’s post tax profit or equity.
Financial assets and liabilities issued at floating rate expose the Company to cash flow interest rate risk. As of 31 December 2018 and
31 December 2017 the Company did not have any floating interest rate borrowings or receivables, therefore was not exposed to cash flow
interest rate risk.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to meet an obligation.
Credit risk arises from cash and cash equivalents, loans and other receivables and financial guarantees issued by the Company for borrowings
of subsidiaries.
(i) Risk management
For banks and financial institutions, the Company has established policies whereby the majority of bank balances are held with independently
rated parties with a minimum rating of ‘Ba2’. These policies enable the Company to reduce its credit risk significantly.
(ii) Impairment of financial assets
The Company has three types of financial instruments that are subject to the expected credit loss model:
•
loans and other receivables;
•
cash and cash equivalents; and
•
financial guarantees.
The Company applies the general approach, prescribed in IFRS 9, for assessing expected credit losses on all its debt financial assets and
financial guarantees issued. In particular, the Company applies the three stage model for calculating impairment, which is based on changes
in the credit quality of the financial asset since initial recognition. A financial instrument that is not credit-impaired on initial recognition is
classified in Stage 1. The ECL of financial assets in Stage 1 is measured at an amount equal to the portion of lifetime ECL that results from
default events possible within the next 12 months or until contractual maturity, if shorter. If the Company identifies a significant increase in
credit risk since initial recognition, the asset is transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until
its contractual maturity but considering expected prepayments, if any. If the Company determines that a financial asset is credit-impaired,
the asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL.
Significant increase in credit risk. The Company considers the probability of default upon initial recognition of an asset and whether there
has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant
increase in credit risk the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at
the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. Especially the following
indicators are incorporated:
•
internal credit rating;
•
external credit rating (as far as available);
•
actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change
to the borrower’s ability to meet its obligations;
•
actual or expected significant changes in the operating results of the borrower/counterparty;
•
significant increases in credit risk on other financial instruments of the same borrower/counterparty;
•
significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements; and
•
significant changes in the expected performance and behaviour of the borrower/counterparty, including changes in the payment status
of counterparty in the Group and changes in the operating results of the borrower.
Globaltrans Investment PLC
Annual Report & Accounts 2018
208
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
6. Financial risk management continued
Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model. The historical
loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the counterparties
to settle the receivables. Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past
due in making a contractual payment.
Default and credit-impaired. A default on a financial asset is when the financial asset meets one or more of the following criteria: (i) the
borrower is more than 90 days past due on its contractual payments, (ii) the borrower is assessed as unlikely to pay its credit obligations in full
without realisation of collateral, regardless of the existence of any past-due amount or of the number of days past due, (iii) the Company, for
economic or contractual reasons relating to the borrower’s financial difficulty, granted to the borrower a concession(s) that it would not
otherwise consider. The Company considers defaulted assets to be credit-impaired so that Stage 3 represents all debt financial assets which
are considered defaulted.
Write-off. Assets are written-off, in whole or in part, when the Company has concluded that there is no reasonable expectation of recovery.
Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan
with the Company and a failure to make contractual payments for a period of greater than 180 days past due. The Company may write-off
financial assets that are still subject to enforcement activity when the Company seeks to recover amounts that are contractually due,
however, there is no reasonable expectation of recovery. Subsequent recoveries of amounts previously written off are recognised directly
on the face of the income statement.
The Company calculates expected credit losses based on a probability-weighted estimate of the present value of future cash shortfalls
(i.e. the weighted average of credit losses, with the respective risks of default occurring in a given time period used as weights). An ECL
measurement is unbiased and is determined by evaluating a range of possible outcomes.
The Company calculates ECL using the following three components: exposure at default (“EAD”), probability of default (“PD”) and loss
given default (“LGD”). EAD is an estimate of exposure at a future default date, taking into account expected changes in the exposure after
the reporting period, including repayments of principal and interest, and expected drawdowns on committed facilities. PD is an estimate of
the likelihood of default to occur over a given time period and LGD is an estimate of the loss arising on default.
The Company’s exposure to credit risk for each class of financial instruments subject to the expected credit loss model is set out below:
Loans receivable and other receivables
The Company assesses, on an individual basis, its exposure to credit risk arising from loans and other receivables. This assessment takes into
account, amongst others, the period the loan receivable or other receivable balance is past due (in days), expectations around changes in
business, financial or economic conditions as well as expectations around the performance of the counterparty.
The following table contains an analysis of the credit risk exposure for loans receivable and other receivables by reference to the Company’s
internal credit risk rating grades. The gross carrying amounts below represent the Company’s maximum exposure to credit risk on these
assets as at 31 December 2018.
Gross carrying amount
Loans receivable Other receivables
Internal credit risk rating grade Company definition of category RUB’000 RUB’000
Performing Stage 1 – Counterparties have a low risk of default and a
strong capacity to meet contractual cash flows 450,401 883,203
Under-performing Stage 2 – Counterparties for which there is a significant increase
in credit risk; as significant increase in credit risk is presumed if
interest and/or principal repayments are 30 days past due – –
Non-performing or credit-impaired Stage 3 – Interest and/or principal repayments are
90 days past due 3,274,507 –
The gross carrying amounts, as per above, represent the Company’s maximum exposure to credit risk on these assets as at 31 December
2018, without taking account of any collateral held. The Company does not hold any collateral as security for any loans receivable or other
receivable balances.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
209
6. Financial risk management continued
The movement in the credit loss allowance for loans receivable during the year 2018 is presented in the table below:
Loans receivable
non-performing
RUB’000
Opening balance as at 1 January 2018 (2,258,613)
Recoveries 728,378
Foreign exchange difference (371,274)
At 31 December 2018 (1,901,961)
During the year 2018, the only movement in the gross carrying amount of the credit impaired loans receivable were repayments and foreign
exchange differences. The impact of these on the credit loss allowance is reflected in the table above.
The estimated credit loss allowance on performing loans receivable and other receivable balances as at 1 January 2018 and 31 December
2018 was not material. There were no write-offs in loans and other receivable balances within the year 2018.
During the year 2018, the contractual cash flows of the Company’s credit-impaired loans receivable as at 1 January 2018 were modified so
as to extend the maturity of the loans. No other changes to the terms of the loans were made. As the modification was driven by financial
difficulties of the counterparties and inability to make the originally agreed payments and the risks and rewards of the loans did not change,
the modification did not result in derecognition of the said loans. In addition, these modifications did not significantly impact the ECL on
these loans.
Cash and cash equivalents
The Company assesses, on an individual basis, its exposure to credit risk arising from cash at bank based on ratings from external credit rating
institutions and internal reviews, if external are not available.
The following table contains an analysis of the gross carrying amount of the Company’s cash at bank by reference to the credit risk ratings
assigned by external credit rating agencies. The gross carrying amounts below represent the Company’s maximum exposure to credit risk
on these assets as at 31 December 2018:
Gross carrying
amount
Rating RUB’000
Moody’s (1) A3 1,157,196
Moody’s (1) Aa2 108,737
Moody’s (1) Ba2 1,119
Moody’s (1) Caa1 997
Total 1,268,049
(1) International rating agency Moody’s Investors Service.
The Company does not hold any collateral as security for any of the above balances.
The estimated expected credit loss allowance on cash and cash equivalents as at 31 December 2018, based on the general approach of
IFRS 9, was immaterial. All cash and cash equivalents were performing (Stage 1) as at 31 December 2018.
Financial guarantees
The primary purpose of these instruments is to ensure that funds are available to a borrower as required. Guarantees which represent
irrevocable assurances that the Company will make payments in the event that a counterparty cannot meet its obligations to third parties,
carry the same credit risk as loans receivable.
The Company has issued financial guarantees on the borrowings of its subsidiaries and quoted bonds issued by its subsidiaries (Note 24).
As a result, the Company is exposed to credit risk arising from potential risk of default of the Company’s subsidiaries on their external debt.
As of 31 December 2018 and 31 December 2017, none of the Company’s subsidiaries had defaulted on or breached any covenants on
their borrowings/bonds.
Globaltrans Investment PLC
Annual Report & Accounts 2018
210
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
6. Financial risk management continued
The following table contains an analysis of the exposure to credit risk on financial guarantee by reference to the Company’s internal credit
risk rating grades. The amounts below represent the Company’s maximum exposure to credit risk on these financial instruments as at
31 December 2018.
Stage 1
RUB’000
– Performing 12,993,934
– Underperforming –
– Non-performing –
Total unrecognised gross amount 12,993,934
The amounts, as per above, represent the Company’s maximum exposure to credit risk on these financial instruments as at 31 December 2018,
without taking account of any collateral held. The Company does not hold any collateral as security for any guarantees issued to its subsidiaries.
The estimated provision as at 1 January 2018 and 31 December 2018 for free of charge financial guarantees issued by the Company for
obligations of its subsidiaries in accordance with loan agreements with financial institutions where such obligations are also secured by a
pledge of property, plant and equipment and the distressed sale value of such pledge exceeds the amount of the obligation of the respective
subsidiary was estimated at RUB Nil, since, in case of default, the Company will be able to recover its losses under the issued guarantees from
the respective subsidiaries in full.
The estimated provision as at 1 January 2018 and 31 December 2018 for free of charge financial guarantees issued by the Company for
unsecured or underpledged obligations of its subsidiaries in accordance with loan agreements with financial institutions and quoted bonds
issued by subsidiaries was estimated using a probability adjusted discounted cash flow analysis, using probability of default, as implied by the
market rate of the borrowings obtained by the subsidiaries, and loss given default, as estimated by considering the distressed value of the net
assets of the subsidiaries which were not pledged at the time of the guarantees. This was assessed as RUB Nil, since, in case of default, the
Company will be able to recover its losses under the issued guarantees from the respective subsidiaries in full.
Credit risk at 31 December 2017
The credit quality of financial assets that are neither past due or impaired was assessed by reference to external credit rating, if available.
For receivables with no external credit rating available management assessed credit quality by reference to the prior history of working
with counterparties.
The credit quality of financial assets that are neither past due nor impaired as assessed by reference to external credit rating if available or
to the working history of the counterparty with the Company was as follows:
Cash at bank and short-term bank deposits
2017
Agency Rating RUB’000
Moody’s (1) Aa3 90,993
Moody’s (1) A3 328,783
Moody’s (1) Ba2 499
Moody’s (1) Caa1 1,806
Total cash at bank and short-term bank deposits 422,081
(1) International rating agency Moody’s Investors Service.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
211
6. Financial risk management continued
The table below summarises the analysis of accounts receivable under contractual terms of settlement at the balance sheet date for the
year ended 31 December 2017:
Impairment
Fully performing Past due Impaired provision Total
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
As of 31 December 2017
Loans receivable – – 2,870,327 (2,258,613) 611,714
– – 2,870,327 (2,258,613) 611,714
The maximum exposure to credit risk at 31 December 2017 was the fair value of each class of receivables mentioned above. The Company
did not hold any collateral as security for any receivables.
Movements on the Company’s provision for impairment of loans and other receivables were as follows:
RUB’000
At 1 January 2017 (2,489,700)
Reversal of provision for receivables impairment 120,960
Foreign exchange difference 110,127
At 31 December 2017 (2,258,613)
The creation and release of provision for impaired receivables have been included on the face of the income statement. Amounts charged
to the allowance account are generally written off, when there is no expectation of recovering additional cash.
Liquidity risk
As at 31 December 2018, the Company has an excess of current liabilities over current assets of RUB 965,709 thousand (2017: RUB
1,961,776 thousand). Management believes that the Company will be able to meet its obligations as they fall due.
Management controls current liquidity based on expected cash flows, expected dividend and interest income receipts, expected dividend
payments and advancements under borrowings from subsidiaries. In the long-term perspective, the liquidity risk is determined by forecasting
future cash flows at the moment of signing new loans and by budgeting procedures.
The table below summarises the analysis of financial liabilities of the Company by maturity as of 31 December 2018 and 31 December 2017.
The amounts in the table are contractual undiscounted cash flows. Non-interest bearing trade and other payables balances due within
12 months equal their carrying balances as the impact of discounting is not significant.
Between Between
Less than 1 month and Between 6 months Between Between
1 month 3 months 3 and 6 months to 1 year 1 and 2 years 2 and 5 years Total
RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000 RUB’000
31 December 2018
Payables and accrued expenses (1) – 311,398 – – – – 311,398
Borrowings 20,384 506,041 746,563 2,457,111 2,663,258 1,869,822 8,263,179
Financial guarantee contracts (2) 7,877,315 5,116,619 – – – – 12,993,934
7,897,699 5,934,058 746,563 2,457,111 2,663,258 1,869,822 21,568,511
31 December 2017
Payables and accrued expenses (1) – 11,218 – – – – 11,218
Borrowings – 1,399,575 54,252 1,424,402 2,607,890 – 5,486,119
Financial guarantee contracts (2) 4,160,401 201,386 – – – – 4,361,787
4,160,401 1,612,179 54,252 1,424,402 2,607,890 – 9,859,124
(1) Payables and accrued expenses exclude statutory liabilities as the analysis is provided for financial liabilities only.
(2) The maximum possible amount of obligation under financial guarantee contracts is disclosed at the earliest time it may be called.
Globaltrans Investment PLC
Annual Report & Accounts 2018
212
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
6. Financial risk management continued
Capital risk management
The Company’s main objective when managing capital is to maintain the ability to continue as a going concern in order to ensure the
required profitability of the Company, maintain optimum equity structure and reduce its cost of capital.
For defining capital, the Company uses the amount of net assets attributable to the Company’s shareholders and the Company’s borrowings.
No external requirements are imposed on the capital of the Company.
The Company manages the capital based on borrowings to total capitalisation ratio.
To maintain or change capital structure the Company may vary the amount of dividend paid in order to reduce debts. Management believes
that the current equity is sufficient to fund current projects and further development of the Company.
Total capitalisation is calculated as the sum of the total borrowings and net assets at the date of calculation. The management does not
currently have any specific target on the rate of borrowings to total capitalisation.
The rate of borrowings to total capitalisation as at 31 December 2018 and 31 December 2017 are as follows:
2018 2017
RUB’000 RUB’000
Total borrowings 7,472,517 5,025,756
Total capitalisation 48,310,431 46,236,689
Total borrowings to total capitalisation ratio (percentage) 15.47% 10.87%
Fair value estimation
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the
asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
The estimated fair values of financial instruments have been determined by the Company, using available market information, where it exists,
appropriate valuation methodologies and assistance of experts. However, judgement is necessarily required to interpret market data to
determine the estimated fair value. The Russian Federation continues to display some characteristics of an emerging market and economic
conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale
transactions and therefore do not always represent the fair values of financial instruments. The Company has used all available market
information in estimating the fair value of financial instruments.
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level 1 measurements are measurements at quoted
prices (unadjusted) in active markets for identical assets or liabilities, (ii) level 2 measurements are valuations techniques with all material
inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level 3
measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in
categorising financial instruments using the fair value hierarchy.
If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a level 3 measurement.
The significance of a valuation input is assessed against the fair value measurement in its entirety.
The fair values in level 2 and level 3 of fair value hierarchy were estimated using discounted cash flows valuation techniques. The fair value of
unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current
interest rates for new instruments with similar credit risk and remaining maturity.
Financial assets carried at amortised cost. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows
expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount
rates used depend on credit risk of the counterparty. Refer to Note 18.
Overview Strategic Report Governance Financial Statements Additional Information
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213
6. Financial risk management continued
The fair value as at 31 December 2018 and 31 December 2017 of fixed interest rate instruments with stated maturity with subsidiary entities
was estimated based on expected cash flows discounted using the rate of similar instruments, denominated in the same currency, entered
into by the subsidiaries of the Company on their bank borrowings close to the year-end. In the absence of similar instruments entered into by
a subsidiary of the Company with non-related parties close to the year-end the estimated fair value was estimated based on expected cash
flows discounted at an estimated rate that reflects management’s best estimate of the current interest rate of new instruments,
denominated in a similar currency and with similar credit risk and remaining maturity.
The discount rate used for US Dollar denominated loans to related parties as at 31 December 2018 was 8% (31 December 2017: 8%).
The discount rates used for Russian Rouble denominated loans to related parties as at 31 December 2018 were 6.5% and 17.7%
(31 December 2017: 17.7%) and for other receivables from related parties was 3%.The fair value measurements of loans to related parties
and other receivables from related parties as at 31 December 2018 and 31 December 2017 are within level 3 of the fair value hierarchy.
Refer to Note 18.
The fair value of financial assets receivable on demand approximates their carrying amount.
Liabilities carried at amortised cost. Fair values of borrowings and other liabilities were determined using valuation techniques.
As at 31 December 2018 and 31 December 2017, the fair value of fixed interest rate instruments with stated maturity denominated in
Russian Rouble was estimated based on expected cash flows discounted using the rate of similar Russian Rouble denominated instruments
entered into by the subsidiaries of the Company on their bank borrowings close to 31 December 2018 and 31 December 2017.
The discount rate used for Russian Rouble denominated bank borrowings as at 31 December 2018 was 9.5% (2017: 8.0%) (Note 22).
There were no US Dollar denominated borrowings as at 31 December 2018 and 31 December 2017. The fair value measurements of
liabilities as at 31 December 2018 and 31 December 2017 are within level 2 (2017: level 2) of the fair value hierarchy.
The fair value of liabilities repayable on demand or after a notice period (“demandable liabilities”) is estimated as the amount payable on
demand, discounted from the first date on which the amount could be required to be paid.
7. Critical accounting estimate and judgements
Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
(a) Critical accounting estimates
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below:
1. Fair value of guarantees issued and subsequent measurement
Management estimated the fair value of the free of charge guarantees issued by the Company to secure the liabilities of its subsidiaries based on
the best estimate of expenditure required to settle the obligation. Specifically, the fair values on initial recognition and the expected credit losses
as at 1 January 2018 and at the reporting date of guarantees issued by the Company for obligations of its subsidiaries in accordance with loan
agreements with financial institutions and quoted bonds issued by subsidiaries were estimated using a probability adjusted discounted cash flow
analysis, using probability of default, as implied by the market rate of the borrowings obtained by the subsidiaries and loss given default.
The loss given default for the financial guarantees issued by the Company for the obligations of its subsidiaries in accordance with loan
agreements with financial institutions where such obligations are also secured by a pledge of property, plant and equipment and the
distressed sale value of such pledge exceeds the amount of the obligation of the respective subsidiary has been estimated at RUB Nil, since,
in case of default, the Company will be able to recover its losses under the issued guarantees from respective subsidiaries in full.
Globaltrans Investment PLC
Annual Report & Accounts 2018
214
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
7. Critical accounting estimate and judgements continued
The loss given default for guarantees issued by the Company for unsecured or underpledged obligations of its subsidiaries in accordance
with loan agreements with financial institutions and quoted bonds issued by subsidiaries was estimated by considering the distressed value
of the net assets of the subsidiaries which were not pledged at the time of the assessment. The fair values on initial recognition were
estimated at RUB Nil, since, in case of default, the Company will be able to recover its losses under the issued guarantees from respective
subsidiaries in full.
On 1 January 2018 and at 31 December 2018, the Company assesses whether any ECL provision is needed for the guarantees in issue as of
that date. As of 1 January 2018 and 31 December 2018, management has assessed that no need for provision arises in relation to any of the
guarantees issued by the Company on the basis that, in case of default, the Company will be able to recover its losses under the issued
guarantees from respective subsidiaries in full.
2. Impairment assessment of loans receivable from subsidiaries
At each balance sheet date, the Company assesses, on a forward-looking basis, the expected credit losses associated with its loans receivable
from subsidiaries carried at amortised cost, in accordance with the accounting policy stated in Note 4. The assessment performed as of
31 December 2018 resulted in the recognition of reversal of impairment losses of RUB 728,378 thousand.
The assessment of expected credit losses on the loans receivable from Ukrainian New Forwarding Company OOO, with a carrying amount
of RUB 398,566 thousand as at 31 December 2018, classified as credit-impaired (Stage 3) as of that date, required management to use
estimates and projections of future cash flows. The expected credit losses were determined based on multiple forward-looking recovery
scenarios to measure the expected cash shortfalls, discounted using the loans’ original effective interest rate method, weighted based on
the probability of each scenario occurring.
In making this assessment, the Company considered all reasonable and supportable forward-looking information available without undue cost
and effort. The cash flow projections were determined by reference to management’s cash flow estimates, which were based on historical
financial performance of the subsidiary, as adjusted to take into consideration the impact of forecasted industry and market conditions.
As with any forecast, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty, and therefore the
actual outcomes may be significantly different to those projected. The Company considers these forecasts to represent its best estimate of
the possible outcomes and that the chosen scenarios are appropriately representative of the range of possible scenarios. The key input in this
assessment are the recovery rates assigned to each scenario. Any reasonable change in these would not result in a material increase/decrease
in the reversal of impairment losses recognised in the income statement for the year ended 31 December 2018.
3. Income taxes
Significant judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate
tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional
taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will
impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Refer to Note 26.
(b) Critical judgements in the application of the Company’s accounting policies
Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies.
Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a
significant adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below:
Initial recognition of related party transactions
In the normal course of business, the Company enters into transactions with its related parties. IFRS 9 requires initial recognition of financial
instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates,
where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated
parties and effective interest rate analysis. Terms and conditions of related party balances are disclosed in Note 24.
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8. Revenue
2018 2017
RUB’000 RUB’000
Interest on loans to related parties calculated using the effective interest rate method (Note 24) 47,913 106,338
Dividend income (Note 24) 15,112,974 10,700,007
Total 15,160,887 10,806,345
9. Other gains – net
2018 2017
RUB’000 RUB’000
Net foreign exchange transaction (losses)/gains on non-financing activities (Note 14) (899) 1,695
Profit from sale of subsidiaries (Note 17) 1,134,752 –
Other gains – net 1,133,853 1,695
10. Expenses by nature
2018 2017
RUB’000 RUB’000
Statutory auditor’s remuneration for statutory audit services 16,343 16,762
Statutory auditor’s remuneration for other assurance services 5,293 4,714
Advertising and marketing expenses 6,406 5,633
Office rent 2,291 2,057
Depreciation of property, plant and equipment (Note 16) 1,896 2,301
Employee benefit expense (Note 11) 221,845 132,181
Legal, consulting and other professional services (1) 35,085 29,045
Bank charges 2,260 2,525
Non-executive Directors’ fees (Note 24) 22,200 20,950
Travel expenses 13,836 13,614
Stock exchange and financial regulator fees 4,754 4,058
Taxes other than on income 10,043 8,127
Other expenses 11,297 7,827
Total selling and marketing costs and administrative expenses 353,549 249,794
(1) Includes RUB 1,388 thousand for the year 2018 (RUB 2,085 thousand for the year 2017) in fees paid to the Company’s statutory audit firm for tax consultancy services.
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216
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
11. Employee benefit expense
2018 2017
RUB’000 RUB’000
Salaries 123,123 66,202
Bonuses 92,539 62,810
Social security costs 6,183 3,169
Total employee benefit expense 221,845 132,181
Average number of staff employed during the year 7 7
12. Finance costs – net
2018 2017
RUB’000 RUB’000
Included in finance costs:
– Interest expense on borrowings from related parties (Note 22) – (43,945)
– Interest expense on bank borrowings (Note 22) (349,985) (165,215)
Total interest expense calculated using the effective interest rate method (349,985) (209,160)
Total finance costs (349,985) (209,160)
Included in finance income:
– Interest income on bank balances 22,181 51,845
Total interest income calculated using the effective interest rate method 22,181 51,845
Total finance income 22,181 51,845
Net foreign exchange transaction gains/(losses) on cash and cash equivalents,
loans and dividends receivable 86,267 (339,728)
Net foreign exchange transaction gains on borrowings, dividends payable
and other financial liabilities 35,625 262,711
Net foreign exchange transactions gains/(losses) from financing activities (Note 14) 121,892 (77,017)
Finance costs – net (205,912) (234,332)
13. Income tax expense
2018 2017
RUB’000 RUB’000
Current tax:
– Corporation tax 1,689 –
– Defence contribution – –
– Withholding tax on dividends receivable 748,003 535,000
Total tax expense 749,692 535,000
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13. Income tax expense continued
The tax on the Company’s results before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
2018 2017
RUB’000 RUB’000
Profit before tax 16,597,411 10,502,841
Tax calculated at the applicable tax rate 2,074,676 1,312,855
Tax effect of expenses not deductible for tax purposes 64,150 40,640
Tax effect of allowances and income not subject to tax (2,137,137) (1,353,495)
Foreign withholding tax on dividends receivable 748,003 535,000
Tax charge 749,692 535,000
The Company is subject to income tax on taxable profits at the rate of 12.5% as from 1 January 2013. As from tax year 2012 brought
forward losses of only five years may be utilised.
Up to 31 December 2008, under certain conditions interest may be subject to special contribution for defence at the rate of 10%. In such
cases 50% of the same interest will be exempt from income tax thus having an effective tax rate burden of approximately 15%. From
1 January 2009 onwards, under certain conditions, interest may be exempt from income tax and be subject only to special contribution for
defence at the rate of 10%; increased to 15% as from 31 August 2011, and to 30% as from 29 April 2013. In certain cases dividends received
from abroad may be subject to special contribution for defence at the rate of 15%; increased to 17% as from 31 August 2011; increased to
20% as from 1 January 2012; reduced to 17% as from 1 January 2014.
In certain cases dividends received from 1 January 2012 onwards from other Cyprus tax resident companies may also be subject to special
contribution for defence. Gains on disposal of qualifying titles (including shares, bonds, debentures, rights thereon, etc.) are exempt from
Cyprus income tax.
Withholding tax is applied to dividends distributed to the Company by its Russian subsidiaries at the rate of 5% on gross dividends declared;
such tax is withheld at source by the respective subsidiary and is paid to the Russian tax authorities at the same time when the payment of
dividend is effected.
At 31 December 2018, the Company has tax losses carried forward amounting RUB 1,020,501 thousand (2017: RUB 1,049,617 thousand)
for which no deferred tax was recognised as profits for future periods against which these losses can be utilised cannot be estimated with
sufficient reliability.
14. Net foreign exchange gains/(losses)
2018 2017
RUB’000 RUB’000
Finance costs – net (Note 12) 121,892 (77,017)
Other (losses)/gains (Note 9) (899) 1,695
Total foreign exchange gains/(losses) 120,933 (75,322)
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218
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
15. Dividends
In April 2017, the shareholders of the Company approved the payment of the final dividend in respect of the financial year ended
31 December 2016 in the amount of 39.20 Russian Roubles per ordinary share/GDR, amounting to a total dividend of RUB 7,006,644
thousand (US Dollar equivalent of USD 124,605 thousand).
In August 2017, the Board of Directors of the Company approved payment of total dividend in the amount of 44.8 Russian Roubles per
ordinary share/GDR, amounting to a total dividend of RUB 8,007,593 thousand, including interim dividend in the amount of RUB
3,603,417 thousand or RUB 20.16 per ordinary share/GDR and a special interim dividend in the amount of RUB 4,404,176 thousand or
RUB 24.64 per ordinary share/GDR (US Dollar equivalent of USD 135,401 thousand).
In April 2018, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2017 in
the amount of 44.85 Russian Roubles per ordinary share/GDR, amounting to a total dividend of RUB 8,016,530 thousand, including final
dividend for 2017 in the amount of RUB 4,155,726 thousand or RUB 23.25 per ordinary share/GDR and a special final dividend in the
amount of RUB 3,860,804 thousand or RUB 21.60 per ordinary share/GDR (US Dollar equivalent of USD 130,728 thousand).
In August 2018, the Board of Directors of the Company approved payment of total dividend in the amount of 45.9 Russian Roubles per
ordinary share/GDR, amounting to a total dividend of RUB 8,204,208 thousand (US Dollar equivalent of USD 119,724 thousand), including
interim dividend in the amount of RUB 3,771,433 thousand (US Dollar equivalent of USD 55,037 thousand) or RUB 21.10 per ordinary
share/GDR and a special interim dividend in the amount of RUB 4,432,775 thousand (US Dollar equivalent of USD 64,687 thousand) or
RUB 24.80 per ordinary share/GDR.
On the date of this report, the Board of Directors of the Company, having considered the profitability and liquidity position of the Group,
recommends a payment of dividend for the year 2018 total dividend in the amount of 46.50 Russian Roubles per ordinary share/GDR,
amounting to a total dividend of RUB 8,311,453 thousand, including final dividend for 2018 in the amount of RUB 1,429,927 thousand or
RUB 8.00 per ordinary share/GDR and a special final dividend in the amount of RUB 6,881,526 thousand or RUB 38.50 per ordinary
share/GDR. Such dividends shall be paid in US Dollars at the rate as at 19 April 2019, subject to the approval of the shareholders at the
Annual General Meeting on 22 April 2019.
During the years ended 31 December 2018 and 31 December 2017, the Company declared and paid as detailed in the table below:
2018 2017
RUB’000 RUB’000
Dividends declared 16,220,738 15,014,237
Dividends paid 16,220,738 15,014,237
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219
16. Property, plant and equipment
Motor vehicles Total
RUB’000 RUB’000
At 1 January 2017
Cost 11,470 11,470
Accumulated depreciation (4,701) (4,701)
Net book amount 6,769 6,769
Year ended 31 December 2017
Depreciation charge (Note 10) (2,301) (2,301)
Closing net book amount 4,468 4,468
At 31 December 2017 / 1 January 2018
Cost 11,470 11,470
Accumulated depreciation (7,002) (7,002)
Net book amount 4,468 4,468
Year ended 31 December 2018
Depreciation charge (Note 10) (1,896) (1,896)
Closing net book amount 2,572 2,572
At 31 December 2018
Cost 11,470 11,470
Accumulated depreciation (8,898) (8,898)
Net book amount 2,572 2,572
17. Investments in subsidiary undertakings
2018 2017
RUB’000 RUB’000
At beginning of year 45,252,722 45,252,722
Contribution into the capital of subsidiary 300,090 –
Disposal of subsidiary (401,564) –
At end of year 45,151,248 45,252,722
Globaltrans Investment PLC
Annual Report & Accounts 2018
220
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
17. Investments in subsidiary undertakings continued
Details of the direct and indirect investments in the subsidiary undertakings are as follows:
Proportion of
Proportion of Proportion of ordinary shares
ordinary shares ordinary shares held by non-
held by the held by the controlling
Company (%) Group (%) interest (%)
Country of
Name incorporation Principal activities 2018 2017 2018 2017 2018 2017
New Forwarding Russia Railway transportation 100 100 100 100 – –
Company, AO
GTI Management, OOO Russia Railway transportation 100 100 100 100 – –
Ural Wagonrepair Russia Repair and maintenance 100 100 100 100 – –
Company, AO of rolling stock
Ukrainian New Forwarding Ukraine Railway transportation 100 100 100 100 – –
Company OOO
BaltTransServis, OOO Russia Railway transportation 60 60 60 60 40 40
RemTransServis, OOO (1) Russia Repair and maintenance – – 59.4 59.4 40.6 40.6
of rolling stock
SyntezRail LLC (4) Russia Railway transportation – – 60 60 40 40
SyntezRail Ltd Cyprus Intermediary holding company 60 60 60 60 40 40
Spacecom AS Estonia Operating lease of rolling 65.25 65.25 65.25 65.25 34.75 34.75
stock and provision of
forwarding services
Ekolinja Oy (2) Finland Operating sub-lease – – 65.25 65.25 34.75 34.75
of rolling stock
Spacecom Trans AS (3) Estonia Operating lease – 65 65.25 65 34.75 35
of rolling stock
(1) RemTransServis, OOO is a 99% subsidiary of BaltTransServis, OOO.
(2) Ekolinja Oy is a 100% subsidiary of Spacecom AS.
(3) During 2018 Spacecom AS acquired 100% of the shares of Spacecom Trans AS from the Company and the non-controlling shareholders. As a result, the proportion of ordinary shares
held by the Company in Spacecom Trans AS increased from a direct holding of 65% to an indirect holding of 65.25%.
(4) Syntezrail LLC is a 100% subsidiary of Syntezrail Limited.
Contribution to subsidiary during the year 2018
During the year ended 31 December 2018, the Company subscribed to newly issued share capital of Syntezrail Ltd for an amount of RUB
300,090 thousand. There was no change in the proportion of the ordinary shares held by the Company in the subsidiary as a result of this
acquisition of shares. The amount remained payable to the subsidiary as of 31 December 2018 (Note 23).
Disposal of subsidiary during the year 2018
During 2018 Spacecom AS acquired 100% of the shares of Spacecom Trans AS from the Company and the non-controlling shareholders,
for a total consideration of Eur 30,100 thousand (equivalent to RUB 2,391,761 thousand).
As a result, the proportion of ordinary shares held by the Company in Spacecom Trans AS increased from a direct holding of 65% to an
indirect holding of 65.25%. The transaction aimed to optimise the management of both Estonian subsidiaries. As a result of the sale, the
Company recognised a profit on disposal of RUB 1,134,752 thousand (Note 9).
Out of the total consideration payable by Spacecom AS for this transaction, Eur 19,565 thousand (equivalent of RUB 1,536,316 thousand)
was payable to the Company. An amount of RUB 671,441 thousand was received by the Company within the year 2018 with the remaining
RUB 883,203 thousand remained outstanding as at 31 December 2018 (Note 18).
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221
17. Investments in subsidiary undertakings continued
The following amounts are included in the statement of cash flows in relation to acquisitions and disposals of subsidiaries:
2018 2017
RUB’000 RUB’000
Contribution to the share capital of Syntezrail Ltd – –
Proceeds from sale of Spacecom Trans AS 671,441 –
Total cash inflow for the disposal of subsidiaries 671,441 –
18. Loans and other receivables
2018 2017
RUB’000 RUB’000
Loans to related parties 3,274,508 2,870,327
Less: Provision for impairment of loans to related parties (1,901,961) (2,258,613)
Loans to related parties – net (Note 24) 1,372,547 611,714
Other receivables – related party (Note 24) 883,203 –
Total loans and other receivables – net 2,255,750 611,714
Less non-current portion:
Loans to related parties (Note 24) 338,635 407,186
Other receivables – related party (Note 24) 537,840 –
Total non-current portion 876,476 407,186
Current portion 1,379,274 204,528
The weighted average contractual interest rate on loans receivable from related parties was 6.57% at 31 December 2018 (31 December
2017: 6.90%). The weighted average effective interest rate on loans receivables from related parties was 11.21% (2017: 12.60%) at
31 December 2018.
The contractual interest rate and effective interest rate on other receivables from related parties was 3% at 31 December 2018.
The fair values of non-current loans and other receivables are as follows:
2018 2017
RUB’000 RUB’000
Financial assets
Loans to related parties 338,635 407,186
Other receivables – related party 537,840 –
Total financial assets 876,476 407,186
The fair values of current loans and other receivables equal their carrying amount as the impact of discounting is not significant.
As at 31 December 2018, the fair values of US Dollar denominated loans to related parties are based on cash flows discounted using a rate
8% (31 December 2017: 8%). The discount rate used for Russian Rouble denominated loans to related parties as at 31 December 2018 was
6.5% and 17.7% (31 December 2017: 17.7%). The fair value measurements of loans to related parties and other receivables from related
parties as at 31 December 2018 and 31 December 2017 are within level 3 of the fair value hierarchy.
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Annual Report & Accounts 2018
222
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
18. Loans and other receivables continued
The carrying amounts of the Company’s loans and other receivables are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
US Dollars 398,566 321,624
Russian Roubles 973,981 290,090
Euro 883,203 –
Total loans and other receivables 2,255,750 611,714
(1) Impairment assessment of loans receivable from subsidiaries as of 31 December 2017
At 31 December 2017 the Company reviewed its loans receivable from subsidiaries for any indication of impairment. The analysis of
impairment indicators as of 31 December 2017 revealed indicators for impairment/reversal of impairment with respect to the loans to
Ural Wagonrepair Company, ZAO and Ukrainian New Forwarding Company OOO. Based on the impairment testing performed, no
impairment loss or reversal of impairment was identified, other than the amounts already recognised in the financial statements.
The recoverable amount of the loans was determined based on the present value of the expected cash flows to be received from each loan,
discounted at its original effective interest rate. The cash flow projections have been determined by reference to management’s estimates
which are based on historical financial performance of each subsidiary, as adjusted to take into consideration the impact of prevailing
industry and market conditions.
If the present value of the projected cash flows had been 10% higher/lower than management’s estimate at 31 December 2017, the
recoverable amount would increase/decrease, resulting in increase/decrease in the reversal of impairment of RUB 61,171 thousand in
relation to these loans receivable.
(2) Assessment of credit losses on loans receivable from subsidiaries as of 31 December 2018
At 31 December 2018, the Company assessed, on a forward looking basis, the expected credit losses associated with its loans receivable
from subsidiaries carried at amortised cost, in accordance with the accounting policy stated in Note 4. The assessment performed resulted
in the recognition of reversal of impairment losses of RUB 728,378 thousand. Refer to Note 7 for more information in this respect.
19. Other assets
2018 2017
RUB’000 RUB’000
Prepayments – third parties 6,935 1,555
VAT recoverable 1 –
Total other assets 6,936 1,155
Less non-current portion:
Prepayments – third parties 4,640 –
Total non-current portion 4,640 –
Current portion 2,296 1,555
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223
20. Cash and cash equivalents
2018 2017
RUB’000 RUB’000
Cash at bank 1,268,049 422,081
Total cash and cash equivalents 1,268,049 422,081
Cash and cash equivalents include the following for the purposes of the cash flow statement:
2018 2017
RUB’000 RUB’000
Cash and cash equivalents 1,268,049 422,081
1,268,049 422,081
Cash and cash equivalents are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
US Dollars 466,732 241,599
Russian Roubles 27,595 177,096
Euro 773,722 3,386
Total cash and cash equivalents 1,268,049 422,081
The carrying value of cash and cash equivalents approximates their fair value.
21. Share capital and share premium
Number Share capital Share premium Total
of shares USD’000 USD’000 USD’000
At 1 January 2017/31 December 2017/
1 January 2018/ 31 December 2018 178,740,916 17,875 949,471 967,346
Number Share capital Share premium Total
of shares RUB’000 RUB’000 RUB’000
At 1 January 2017/31 December 2017/
1 January 2018/31 December 2018 178,740,916 516,957 27,929,478 28,446,435
The total authorised number of ordinary shares at 31 December 2018 was 233,918,128 shares with a par value of USD 0.10 per share
(31 December 2017: 233,918,128 shares with a par value of USD 0.10 per share). All issued shares are fully paid.
Globaltrans Investment PLC
Annual Report & Accounts 2018
224
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
22. Borrowings
2018 2017
RUB’000 RUB’000
Current
Bank borrowings 3,241,204 2,534,089
Total current borrowings 3,241,204 2,534,089
Non-current
Bank borrowings 4,231,313 2,491,667
Total non-current borrowings 4,231,313 2,491,667
Total borrowings 7,472,517 5,025,756
Maturity of non-current borrowings
Between 1 and 2 years 2,418,131 2,491,667
Between 2 and 5 years 1,813,182 –
4,231,313 2,491,667
As at 31 December 2018, Rouble-denominated bank borrowings bear fixed average interest at 7.97% p.a. (2017: 8.35% p.a.). There were
no US Dollar denominated borrowings as at 31 December 2018 and 31 December 2017.
The exposure of the Company’s borrowings to interest rate changes and the contractual re-pricing dates at the balance sheet dates are
as follows:
2018 2017
RUB’000 RUB’000
6 months or less 1,032,416 1,290,339
6 to 12 months 2,208,788 1,243,750
1 to 5 years 4,231,313 2,491,667
7,472,517 5,025,756
Note: The amounts disclosed are based on the earliest of the contractual re-pricing dates and the maturity date.
The Company’s borrowings as of 31 December 2018 are secured by pledge of rolling stock held by its subsidiaries New Forwarding
Company OOO and GTI Management OOO with a market value of not less than RUB 4,133,290 thousand and RUB 4,344,689 respectively.
All of the Company’s bank loans as of 31 December 2017 were unsecured. In accordance with the terms of its bank borrowings as of
31 December 2017, the Company had a commitment to pledge rolling stock held by its subsidiary New Forwarding Company OOO with a
market value of not less than RUB 6,000,000 thousand within six months from the date of the bank loan agreement; being 15 August 2017.
The relevant pledge agreement was concluded in February 2018. The relevant bank loan was fully repaid during March 2018.
The weighted average effective interest rates at the balance sheet were as follows:
2018 2017
% %
Bank borrowings 7.97 8.35
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225
22. Borrowings continued
The carrying amount and fair value of current and non-current borrowings are as follows:
Carrying amount Fair value
2018 2017 2018 2017
RUB’000 RUB’000 RUB’000 RUB’000
Bank borrowings 7,472,517 5,025,756 7,351,544 5,087,607
7,472,517 5,025,756 7,351,544 5,087,607
The fair value of borrowings and other liabilities were determined using valuation techniques.
As at 31 December 2018 and 31 December 2017, the fair value of fixed interest rate instruments with stated maturity denominated in
Russian Rouble was estimated based on expected cash flows discounted using the rate of similar Russian Rouble denominated instruments
entered into by the subsidiaries of the Company on their bank borrowings close to 31 December 2018 and 31 December 2017, respectively.
The discount rate used for Russian Rouble denominated borrowings from related parties as at 31 December 2018 was a level 2 discount rate
of 9.50% (8.00% as at 31 December 2017).
The carrying amounts of the borrowings are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
Russian Roubles 7,472,517 5,025,756
Total borrowings 7,472,517 5,025,756
Reconciliation of liabilities arising from financing activities:
Total liabilities
Bank Loans from from financing
borrowings related parties activities
RUB’000 RUB’000 RUB’000
Opening balance 1 January 2018 5,025,756 – 5,025,756
Cash flows:
– Proceeds from borrowings 8,000,000 – 8,000,000
– Repayment of principal (5,558,000) – (5,558,000)
– Interest paid (345,224) – (345,224)
Interest expense 349,985 – 349,985
At end of year 2018 7,242,517 – 7,242,517
Total liabilities
Bank Loans from from financing
borrowings related parties activities
RUB’000 RUB’000 RUB’000
Opening balance 1 January 2017 – 755,703 755,703
Cash flows:
– Proceeds from borrowings 5,000,000 610,798 5,610,798
– Repayment of principal – (1,362,797) (1,362,797)
– Interest paid (139,459) (47,649) (187,108)
Interest expense 165,215 43,945 209,160
At end of year 5,025,756 – 5,025,756
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Annual Report & Accounts 2018
226
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
23. Payables and accrued expenses
2018 2017
RUB’000 RUB’000
Current
Accrued key management personnel compensation (Note 24) 74,645 56,427
Accrued expenses 9,531 9,834
Other payables to third parties 1,777 1,384
Other payables to related parties (Note 24) 300,090 –
Total current trade and other payables 386,043 67,645
The fair value of payables, which are due within one year approximates, their carrying amount at the balance sheet date.
The carrying amounts of the Company’s payables and accrued expenses are denominated in the following currencies:
2018 2017
RUB’000 RUB’000
Euro 77,822 67,645
Russian Roubles 300,031 –
US Dollars 7,315 –
Other 875 –
Total payables and accrued expenses 386,043 67,645
24. Related party transactions
Marigold Investments Ltd, Onyx Investments Ltd and Maple Valley Investments Ltd are Company’s shareholders with a direct shareholding
as at 31 December 2018 11.5%, 11.5% and 10.8%, accordingly (as at 31 December 2017 of 11.5%, 11.5% and 11.2%, accordingly).
Litten Investments Ltd, controlled by member of key management of the Group, has a shareholding in the Company of 5.8% as at
31 December 2018 (31 December 2017: 6.3%).
From 7 March 2018 and as at 31 December 2018, Goldriver Resources Ltd, which has a shareholding in the Company of 4.7% , is controlled
by a member of key management personnel of the Group.
As at 31 December 2018, 55.5% (2017: 59.4%) of the shares represent the free market-float of Global Depository Receipts and ordinary
shares held by investors not affiliated with the Company. The remaining 0.2% (2017: 0.1%) of the shares of the Company are controlled by
Directors and key management of the Company.
For the purposes of these financial statements, parties are considered to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial and operational decisions as defined by IAS 24 “Related Party
Disclosures”. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely
the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties may
not be effected on the same terms, conditions and amounts as transactions between unrelated parties.
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227
24. Related party transactions continued
The following transactions were carried out with related parties:
(a) Loans to related parties
2018 2017
RUB’000 RUB’000
Loans to subsidiaries:
– At beginning of year 611,714 1,442,781
– Loan advances 900,000 650,000
– Interest charged (Note 8) 47,913 106,338
– Loan repaid during the year (936,968) (1,564,249)
– Interest repaid during the year (21,743) (129,173)
– Reversal of impairment 728,378 120,960
– Net foreign exchange 43,253 (14,943)
At end of year 1,372,547 611,714
Consists of:
– Non-current portion 303,951 407,186
– Current portion 1,068,596 204,528
At end of year 1,372,547 611,714
Loans to related parties – gross amount 3,247,508 2,870,327
Less: Provision for impairment of loans to related parties (1,901,961) (2,258,613)
Loans to related parties – net 1,372,547 611,714
The balances at the 31 December 2018 carry a weighted average contractual interest rate of 6.57% (2017: 6.9%) p.a. The weighted average
effective interest rate at the 31 December 2018 was 11.21% (2017: 12.60%).
(b) Loans from related parties
2018 2017
RUB’000 RUB’000
Loans from subsidiaries:
– At beginning of year – 755,703
– Loans advanced during the year – 610,798
– Interest charged (Note 12) – 43,945
– Interest repaid during the year – (47,649)
– Loan repaid during the year – (1,362,797)
At end of year – –
(c) Other receivables from related parties
2018 2017
RUB’000 RUB’000
Other receivables for the sale of shares
Subsidiaries 883,203 –
At end of year 883,203 –
Consists of:
– Non-current portion 537,840 –
– Current portion 345,363 –
At end of year 883,203 –
The balance at the 31 December 2018 carry a contractual interest rate of 3% p.a. The weighted average effective interest rate at
the 31 December 2018 was 3%.
Globaltrans Investment PLC
Annual Report & Accounts 2018
228
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
24. Related party transactions continued
(d) Dividend income from related parties
2018 2017
RUB’000 RUB’000
Dividend income from related parties
Subsidiaries 15,112,974 10,700,007
Total 15,112,974 10,700,007
(e) Interest income and finance costs
2018 2017
RUB’000 RUB’000
Interest income
Subsidiaries 47,913 106,338
Total interest income calculated using the effective interest rate method 47,913 106,338
Interest expense:
Subsidiaries – borrowings – (43,945)
Total interest expense calculated using the effective interest rate method – (43,945)
Total finance income 47,913 62,393
(f) Guarantees in favour of subsidiaries
Guarantees are irrevocable assurances that the Company will make payments in the event that another party cannot meet its obligations.
The Company has guaranteed the following obligations:
2018 2017
RUB’000 RUB’000
Subsidiaries (1) 12,933,934 4,361,787
Total guaranteed obligations 12,933,934 4,361,787
(1) Represents the maximum amount of obligation under each contract, being the contractual undiscounted cash flows under the loan agreements as at 31 December 2018 and 2017.
During the years ended 31 December 2018 and 31 December 2017 the Company has acted as the guarantor for the obligation of its
subsidiaries for loan agreements entered into with financial institutions and third parties and quoted bonds issued by subsidiaries. The fair
values of such guarantees are amortised through the income statement. As at 31 December 2018 and 31 December 2017 there were no
financial guarantees recognised by the Company.
Management estimated the fair value of the free of charge guarantees issued by the Company to secure the liabilities of its subsidiaries based
on the best estimate of expenditure required to settle the obligation. Specifically, the fair values on initial recognition and the expected credit
losses at 1 January 2018 and at the reporting date of guarantees issued by the Company for obligations of its subsidiaries in accordance with
loan agreements with financial institutions and quoted bonds issued by subsidiaries were estimated using a probability adjusted discounted
cash flow analysis, using probability of default, as implied by the market rate of the borrowings obtained by the subsidiaries and loss given
default.
The loss given default for the financial guarantees issued by the Company for the obligations of its subsidiaries in accordance with loan
agreements with financial institutions where such obligations are also secured by a pledge of property, plant and equipment and the distressed
sale value of such pledge exceeds the amount of the obligation of the respective subsidiary has been estimated at RUB Nil, since, in case of
default, the Company will be able to recover its losses under the issued guarantees from respective subsidiaries in full.
The loss given default for guarantees issued by the Company for unsecured or underpledged obligations of its subsidiaries in accordance with
loan agreements with financial institutions and quoted bonds issued by subsidiaries was estimated by considering the distressed value of the
net assets of the subsidiaries which were not pledged at the time of the assessment. The fair values on initial recognition were estimated at RUB
Nil, since, in case of default, the Company will be able to recover its losses under the issued guarantees from respective subsidiaries in full.
Overview Strategic Report Governance Financial Statements Additional Information
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229
24. Related party transactions continued
On 1 January 2018 and at 31 December 2018, the Company assesses whether any ECL provision is needed for the guarantees in issue as of
that date. As of 1 January 2018 and 31 December 2018, management has assessed that no need for provision arises in relation to any of the
guarantees issued by the Company on the basis that, in case of default, the Company will be able to recover its losses under the issued
guarantees from respective subsidiaries in full.
At 31 December 2017, the Company assessed whether any provision was needed for the guarantees in issue as of that date. Management
reviewed the financial condition and performance of the Company’s subsidiaries and their ability to service the loans which were being
guaranteed by the Company as of that date and assessed that no need for provisioning arose in relation to any of the guarantees issued by
the Company.
(g) Impairment losses
2018 2017
RUB’000 RUB’000
Reversal of impairment losses of loans to subsidiaries (Notes 7 and 18) 728,378 120,960
(h) Key management personnel compensation
2018 2017
RUB’000 RUB’000
Key management salaries and other short-term employee benefits (1) 222,479 135,893
222,479 135,893
(1) ‘Key management salaries and other short-term employee benefits’ include Directors’ remuneration amounting to RUB 186,911 thousand (2017: RUB 45,735 thousand).
(i) Directors’ remuneration
2018 2017
RUB’000 RUB’000
Directors’ fees (Note 10) 22,200 20,950
Emoluments in their executive capacity 164,711 24,425
Total Directors’ remuneration 186,911 45,375
(j) Year-end balances arising from payables to key management
2018 2017
RUB’000 RUB’000
Accrued key management remuneration (Note 23):
– Accrued salaries and other short-term employee benefits 74,645 56,427
74,645 56,427
(k) Year-end balances arising from subscription to share capital of subsidiaries
2018 2017
RUB’000 RUB’000
Payable for subscription to share capital of subsidiaries 300,090 –
300,090 –
Globaltrans Investment PLC
Annual Report & Accounts 2018
230
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
continued
25. Commitments
Operating lease commitments – Company as lessee
The Company leases offices under non-cancellable operating lease agreements.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2018 2017
RUB’000 RUB’000
Not later than 1 year 2,527 1,881
Later than 1 year not later than 5 years 5,231 –
7,758 –
26. Contingencies
Operating environment of the Company
The Company’s subsidiaries operate in the Russian Federation, Estonia, Ukraine and Finland.
Russian Federation
The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices.
The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations. The Russian
economy continues to be negatively impacted by ongoing political tension in the region and international sanctions against certain Russian
companies and individuals. Firm oil prices, low unemployment and rising wages supported a modest growth of the economy in 2018. The
operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures
to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and
management’s current expectations and estimates could differ from actual results.
Tax contingencies. Cypriot tax legislation is subject to varying interpretations. There are transactions and calculations for which the ultimate
tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional
taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
The Company is incorporated outside Russia. Tax liabilities of the Company are determined on the assumption that it is not subject to
Russian profits tax because it does not have a permanent establishment in Russia. The Company is a tax resident of Cyprus only and full
beneficial owner of the equity interest held directly and indirectly in its subsidiaries. This interpretation of relevant legislation may be
challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial
position and/or the overall operations of the Company.
Estonia and Finland
Estonia and Finland represent well-developed markets and economies with stable political systems and developed legislation based on
EU requirements and regulations.
Ukraine
Starting in 2013, the political situation in Ukraine has experienced instability with numerous protests and continued political uncertainty that
has led to deterioration of the state’s finances, volatility of financial markets and sharp depreciation of the national currency against major
foreign currencies. The ratings of Ukrainian sovereign debt were downgraded by international rating agencies with negative outlooks for the
future. The Central bank of Ukraine, among other measures, imposed certain restrictions on processing of client payments by banks and on
the purchase of foreign currency on the inter-bank market. The recent political situation has been volatile, with changes in the Ukrainian
Parliament and the Presidency. The Company’s exposure to Ukraine comprises loans receivable of RUB 398,566 thousand (2017: RUB
321,624 thousand) from Ukrainian New Forwarding Company OOO (Note 18).
Despite certain improvements in recent years, the final resolution and the ongoing effects of the political and economic situation are difficult
to predict, but they may have further severe effects on the Ukrainian economy and the Company’s business.
Overview Strategic Report Governance Financial Statements Additional Information
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231
27. Events after the balance sheet date
On the date of this report, the Board of Directors of the Company, having considered the profitability and liquidity position of the Group,
recommends a payment of dividend for the year 2018 total dividend in the amount of 46.50 Russian Roubles per ordinary share/GDR,
amounting to a total dividend of RUB 8,311,453 thousand, including final dividend for 2018 in the amount of RUB 1,429,927 thousand or
RUB 8.00 per ordinary share/GDR and a special final dividend in the amount of RUB 6,881,526 thousand or RUB 38.50 per ordinary
share/GDR. Such dividends shall be paid in US Dollars at the rate as at 19 April 2019, subject to the approval of the shareholders at the
Annual General Meeting on 22 April 2019.
There were no other material events after the balance sheet date that which have a bearing on the understanding of these financial statements.
Independent Auditor’s Report on pages 185 to 188.
Globaltrans Investment PLC
Annual Report & Accounts 2018
232
ADDITIONAL
INFORMATION
Overview Strategic Report Governance Financial Statements Additional Information
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233
Globaltrans Investment PLC
Annual Report & Accounts 2018
234
SELECTED OPERATIONAL INFORMATION
for the year ended 31 December 2018
Fleet (including rolling stock and containers)
2018 (1) 2017 (1) Change Change, %
Owned Fleet
Gondola cars 44,878 41,282 3,596 9%
Rail tank cars 17,938 18,133 (195) -1%
Locomotives 69 69 0 0%
Other railcars (including flat, hopper cars, etc) 860 510 350 69%
Containers (including petrochemical and other) 1,660 1,256 404 32%
Total 65,405 61,250 4,155 7%
Owned Fleet as % of Total Fleet 95% 92% – –
Leased-in Fleet
Gondola cars 104 2,321 (2,217) -96%
Rail tank cars 2,488 1,989 499 25%
Locomotives 0 0 0 NM
Other railcars 646 752 (106) -14%
Containers (including petrochemical and other) 380 380 0 0%
Total 3,618 5,442 (1,824) -34%
Leased-in Fleet as % of Total Fleet 5% 8% – –
Total Fleet (Owned Fleet and Leased-in Fleet)
Gondola cars 44,982 43,603 1,379 3%
Rail tank cars 20,426 20,122 304 2%
Locomotives 69 69 0 0%
Other railcars (including flat, hopper cars, etc) 1,506 1,262 244 19%
Containers (including petrochemical and other) 2,040 1,636 404 25%
Total 69,023 66,692 2,331 3%
Total Fleet by type, %
Gondola cars 65% 65% – –
Rail tank cars 30% 30% – –
Locomotives 0.1% 0.1% – –
Other railcars (including flat, hopper cars, etc.) 2% 2% – –
Containers (including petrochemical and other) 3% 2% – –
Total 100% 100% – –
Average age of Owned Fleet
Gondola cars 10.0 9.9 – –
Rail tank cars 14.5 14.3 – –
Locomotives 14.7 13.7 – –
Other railcars 10.9 24.1 – –
Containers (including petrochemical and other) 1.8 1.2 – –
Total 11.0 11.1 – –
(1) At year-end.
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235
Operation of rolling stock (excluding Engaged Fleet) (1)
2018 2017 Change Change, %
Freight Rail Turnover, billion tonnes-km
Metallurgical cargoes 79.0 87.8 (8.8) -10%
– Ferrous metals 35.5 33.4 2.1 6%
– Scrap metal 3.7 4.1 (0.4) -11%
– Iron ore 39.8 50.2 (10.4) -21%
Oil products and oil 21.2 20.5 0.6 3%
Coal (incl. coke) 29.5 34.3 (4.8) -14%
Construction materials 5.8 8.0 (2.2) -28%
– Crushed stone 4.7 6.6 (1.9) -29%
– Cement 0.3 0.3 (0.1) -19%
– Other construction materials 0.8 1.1 (0.2) -23%
Other 10.7 9.4 1.3 14%
Total 146.2 160.1 (13.9) -9%
Freight Rail Turnover by cargo type, %
Metallurgical cargoes (including ferrous metal,
scrap metal and iron ore) 54% 55% – –
Oil products and oil 14% 13% – –
Coal (including coke) 20% 21% – –
Construction materials (including cement) 4% 5% – –
Other 7% 6% – –
Total 100% 100% – –
Transportation Volume, million tonnes
Metallurgical cargoes 45.0 45.5 (0.5) -1%
– Ferrous metals 16.8 16.1 0.7 5%
– Scrap metal 3.1 3.5 (0.3) -10%
– Iron ore 25.0 25.9 (0.9) -3%
Oil products and oil 20.7 20.2 0.5 2%
Coal (including coke) 9.6 10.4 (0.8) -8%
Construction materials 6.4 9.1 (2.7) -30%
– Crushed stone 5.6 8.2 (2.6) -31%
– Cement 0.3 0.2 0.0 7%
– Other construction materials 0.5 0.7 (0.2) -27%
Other 6.8 6.6 0.1 2%
Total 88.5 91.9 (3.4) -4%
(1) Excluding operational and financial information of container business segment.
The revenue from this segment is included in "Other" revenue in EU IFRS statements.
Globaltrans Investment PLC
Annual Report & Accounts 2018
236
SELECTED OPERATIONAL INFORMATION
continued
Operation of rolling stock (excluding Engaged Fleet) continued
2018 2017 Change Change, %
Average Rolling Stock Operated, units
Gondola cars 41,268 42,052 (783) -2%
Rail tank cars 11,832 10,961 871 8%
Locomotives 47 48 (2) -4%
Other railcars 415 523 (107) -21%
Total 53,562 53,584 (21) 0%
Average Number of Loaded Trips per Railcar
Gondola cars 24.3 25.1 (0.8) -3%
Rail tank cars 28.9 30.9 (1.9) -6%
Other railcars 66.4 69.0 (2.6) -4%
Total 25.6 26.7 (1.0) -4%
Average Distance of Loaded Trip, km
Gondola cars 1,885 1,985 (99) -5%
Rail tank cars 1,010 997 13 1%
Other railcars 766 808 (42) -5%
Total 1,644 1,720 (76) -4%
Average Price per Trip, RUB 41,859* 34,790* 7,068 20%
Net Revenue from Operation of Rolling Stock
by cargo type, RUB million
Metallurgical cargoes 23,346* 18,753* 4,593 24%
– Ferrous metals 11,772* 8,789* 2,982 34%
– Scrap metal 1,816* 1,503* 313 21%
– Iron ore 9,758* 8,460* 1,298 15%
Oil products and oil 19,207* 17,124* 2,084 12%
Coal (including coke) 8,115* 7,551* 564 7%
Construction materials (including cement) 2,761* 3,176* (416) -13%
Other 4,045* 3,105* 940 30%
Total 57,474* 49,709* 7,766 16%
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
237
Operation of rolling stock (excluding Engaged Fleet) continued
2018 2017 Change Change, %
Net Revenue from Operation of
Rolling Stock by cargo type, %
Metallurgical cargoes (including ferrous metal,
scrap metal and iron ore) 41% 38% – –
Oil products and oil 33% 34% – –
Coal (including coke) 14% 15% – –
Construction materials (including cement) 5% 6% – –
Other 7% 6% – –
Total 100% 100% – –
Net Revenue from Operation of
Rolling Stock by largest clients (incl. their
affiliates and suppliers), %
Rosneft 23% 25% – –
Metalloinvest 17% 15% – –
MMK 16% 15% – –
Gazprom Neft 5% 7% – –
Evraz 4% 5% – –
TMK 2% 2% – –
UGMK-Trans 2% 2% – –
SDS-Ugol 2% 2% – –
Severstal 1% 1% – –
ChelPipe 1% 1% – –
Other (including small and medium enterprises) 26% 26% – –
Empty Run Ratio, %
Gondola cars 38% 37% – –
Rail tank cars and other railcars 90% 95% – –
Total Empty Run Ratio, % 46% 45% – –
Empty Run Costs, RUB million 12,956* 12,154* 802 7%
Share of Empty Run Kilometres
paid by Globaltrans, % 89% 86% – –
Globaltrans Investment PLC
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238
SELECTED OPERATIONAL INFORMATION
continued
Operation of rolling stock (including Engaged Fleet) (1)
2018 2017 Change Change, %
Freight Rail Turnover, billion tonnes-km
Metallurgical cargoes 89.6 103.6 (14.0) -14%
– Ferrous metals 37.8 36.8 1.0 3%
– Scrap metal 3.7 4.1 (0.5) -11%
– Iron ore 48.1 62.7 (14.6) -23%
Oil products and oil 22.2 20.7 1.5 7%
Coal (including coke) 30.4 36.4 (5.9) -16%
Construction materials 5.8 8.0 (2.2) -28%
– Crushed stone 4.7 6.6 (1.9) -29%
– Cement 0.3 0.3 (0.1) -18%
– Other construction materials 0.8 1.1 (0.2) -23%
Other 10.9 9.5 1.4 15%
Total 158.9 178.2 (19.3) -11%
Transportation Volume, million tonnes
Metallurgical cargoes 50.4 53.2 (2.8) -5%
– Ferrous metals 18.0 17.9 0.1 0%
– Scrap metal 3.2 3.5 (0.3) -10%
– Iron ore 29.3 31.8 (2.6) -8%
Oil products and oil 22.0 20.5 1.5 7%
Coal (including coke) 10.0 11.4 (1.4) -12%
Construction materials 6.4 9.2 (2.8) -30%
– Crushed stone 5.7 8.3 (2.6) -31%
– Cement 0.3 0.2 0.0 8%
– Other construction materials 0.5 0.7 (0.2) -27%
Other 7.1 6.8 0.3 5%
Total 96.0 101.1 (5.2) -5%
(1) Excluding operational and financial information of container business segment.
The revenue from this segment is included in "Other" revenue in EU IFRS statements.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
239
Engaged Fleet
2018 2017 Change Change, %
Net Revenue from Engaged Fleet, RUB million 432* 173* 259 149%
Operating leasing of rolling stock (1)
2018 (2) 2017 (2) Change Change, %
Leased-out Fleet
Gondola cars 462 353 109 31%
Rail tank cars 7,098 8,631 (1,533) -18%
Other railcars (including flat, hopper cars, etc.) 67 96 (29) -30%
Total 7,627 9,080 (1,453) -16%
Leased-out Fleet as % of Total Fleet 11% 14% – –
Employees
2018 (2) 2017 (2) Change Change, %
Total 1,549 1,594 (45) -3%
(1) Excluding operational and financial information of container business segment.
The revenue from this segment is included in "Other" revenue in EU IFRS statements.
(2) At year-end.
Globaltrans Investment PLC
Annual Report & Accounts 2018
240
OWNERSHIP
The issued share capital of Globaltrans consists of 178,740,916 ordinary shares with a nominal value of USD 0.10 each, a certain portion of
which is held in the form of Global Depositary Receipts (“GDRs”). The GDRs represent one ordinary share each and are listed and traded on
the Main Market of the London Stock Exchange under the ticker GLTR. The free float of Globaltrans amounts to approximately 56.9% (1)
of the issued share capital. The Bank of New York Mellon is the depositary bank for the GDR programme of Globaltrans.
Shareholder structure (2)
Marigold Investments Ltd (3) 11.5%
Onyx Investments Ltd (3) 11.5%
Maple Valley Investments Ltd (3) 10.8%
Litten Investments Ltd (4) 5.1%
Goldriver Resources Ltd (5) 4.0%
Controlled by Directors and management of Globaltrans 0.2%
Free float 56.9%
(1) For these purposes, the free float consists of the ordinary shares and GDRs held by investors not
affiliated or associated with Globaltrans.
(2) The information is based upon notifications and other information received by the Company with
respect to beneficial ownership as of 18 April 2019.
(3) Andrey Filatov, Nikita Mishin and Konstantin Nikolaev are co-founders of Globaltrans and are
beneficiaries with regard to 11.5% and 11.5% and 10.8% respectively of Globaltrans’ ordinary share
capital each through their respective SPVs (Marigold Investments Ltd, Onyx Investments Ltd and
Maple Valley Investments Ltd).
(4) Beneficially owned by Alexander Eliseev, Executive Director and co-founder of Globaltrans.
(5) Beneficially owned by Sergey Maltsev, Chairman of the Board of Directors, Chief Strategy Officer
and co-founder of Globaltrans.
Overview Strategic Report Governance Financial Statements Additional Information
CORPORATE STRUCTURE
Globaltrans Investment PLC
Annual Report & Accounts 2018
241
Globaltrans’ corporate structure ensures efficient asset management and operational control, while creating logical business
segments. Since its creation, the Group has sought to streamline its structure to optimise management and ensure transparency.
Today, Globaltrans is a well-honed business and recognised as adhering to the highest corporate standards, as evidenced by the
listing on the London Stock Exchange.
Globaltrans Investment PLC (1)
New Forwarding Company, AO (Russia)
100%
65.25%
AS Spacecom (Estonia)
100%
100%
60%
GTI Management, OOO (Russia)
Ukrainian New Forwarding Company,
LLC (Ukraine)
BaltTransServis, OOO (Russia)
99%
RemTransServis, OOO (Russia)
Ural Wagonrepair Company, AO (Russia)
100%
100%
100%
AS Spacecom Trans (Estonia)
Ekolinja Oy (Finland)
60%
SyntezRail Limited (Cyprus)
100%
SyntezRail, OOO (Russia)
(1) As of 31 December 2018.
Globaltrans Investment PLC
Annual Report & Accounts 2018
242
DIVIDEND POLICY
As approved by the Board of Directors on 31 March 2017 and amended on 24 August 2018
1. Introduction
1.1. This Dividend Policy (hereinafter the Dividend Policy) of
Globaltrans Investment PLC (hereinafter GLTR or the Company)
is designed to provide the Company’s shareholders with an
opportunity to participate in the Company’s profits and free
cash flow and sets out the guiding principles to be followed by
the Board of Directors of the Company (hereinafter the Board)
when making recommendations to the shareholders or decisions,
when applicable, on declaration and distribution of dividends.
3. Amount of dividends. Decision on
payment of dividends
3.1. Depending on the actual Leverage Ratio of GLTR as at the end
of each financial year and subject to applicable laws and regulations,
the Articles of Association of GLTR and clause 3.2 below, the Board
will recommend the payment of dividends in the amounts of not less
than the following proportions of Attributable Free Cash Flow of
the Group for such financial year:
Leverage Ratio Dividends, % of Attributable Free Cash Flow
1.2. When adopting the Dividend Policy, the Board expects that it
will remain in force for an indefinite period of time. This Dividend
Policy replaces the dividend policy adopted by the Board of
Directors of the Company on 6 July 2012. The provisions of this
Dividend Policy are subject to modification from time to time as the
Board may deem appropriate, as a result of assessment of changes in
the applicable laws and regulations, the Articles of Association of
GLTR or as provided in clause 5.1 hereof.
1.3. This Dividend Policy outlines the basis upon which the Board
will assess and make its recommendations to the shareholders with
respect to dividends on shares and the terms and methods of
distribution of those dividends.
2. Main principles
2.1. Shareholders are entitled to receive dividends on their
shares in the Company out of a portion of the Company’s net
profits and under this Dividend Policy with reference to the
Attributable Free Cash Flow (as this term is defined in Annex 1
(Definitions) hereto) of the GLTR and its subsidiaries and
associates (hereinafter the Group).
2.2. Dividends shall be allotted to the shareholders in proportion
to the amount of GLTR shares owned by them.
2.3. The declaration and distribution of dividends on the shares
are subject to the Cyprus Companies Law, Cap. 113 and the Articles
of Association of GLTR.
2.4. The Company’s dividend policy is based on a balance of long-
term interests of the Group and its shareholders and respect for and
strict observation of the shareholders’ rights as provided by the
applicable laws and regulations.
Less 1.0x Not less than 50%
From 1.0x to 2.0x Not less than 30%
2.0x or higher 0% or more
3.2. The Board reserves the right to recommend to the general
meeting of the shareholders (the GM) the dividend in the amount
calculated on a reasonable basis other than described in clause 3.1.
above in its sole discretion. The factors that the Board should consider
include but are not limited to: (i) the Group’s needs for business
development and strategy implementation purposes; (ii) financial
resources for business expansion; (ii) any adverse changes in regulatory,
economic and market environment; (iii) the ability of the Company and
its subsidiaries to meet their obligations as they fall due; (iv) the
availability of distributable reserves at the Company’s and subsidiaries’
level and (v) other factors considered by the Board of Directors
important in light of the current circumstances, including maintenance
of the Company’s credit ratings.
3.3. The decision to pay the final dividend and the amount of
the total dividend in respect of each financial year shall be approved
by the GM upon the recommendation of the Board based on the
audited stand-alone financial statements of the Company, the
Company’s retained earnings and the Consolidated Financial
Statements of the Group for that financial year. The Board will
recommend to the GM to approve the final dividend and the final
decision regarding declaration or distribution of dividends, if any,
shall be taken by the GM at its sole discretion.
3.4. The distribution of dividends shall take place at least once a year.
3.5. Interim dividends, if declared, are declared and approved at
the discretion of the Board. When considering interim dividends, the
Board will take into account the interim performance results based
on the interim consolidated financial information provided by the
management of the Group (semi-annual accounts) and prospects of
the Group, its planned and committed capital expenditures, financial
flexibility requirements, the availability and cost of funds from
external sources, and other relevant matters.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
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243
3.6. From time to time, the Company may declare and approve a
special final dividend or special interim dividend, which shall be paid
together with the final dividend or interim dividend, in excess of
thresholds provided in clause 3.1. above. The Board of Directors at
its sole discretion shall determine the amount of such special final
dividend or special interim dividend and (a) recommend to the GM to
approve such special final dividend in case of a final dividend and (b)
approve such special interim dividend in case of an interim dividend.
3.7. The Company’s dividends per one share shall be calculated
according to the following formula:
D = Q / S
where D is the dividend to be paid by the Company per one share;
Q is the amount of dividends determined in accordance with
clause 3.1; and
S is the quantity of shares issued by the Company.
3.8. The decision on payment (declaration) of dividends /
interim dividends shall specify:
•
the class of shares on which dividend is declared;
•
the size of dividend corresponding to one share of a certain class;
•
period of payment, which commences on the date of resolution
to declare the dividends;
•
form of payment; and
•
dividend record day for owners of shares (1).
3.9. Dividends shall not be accrued and paid if shares are:
•
un-issued (unplaced);
•
held in treasury by the Company; and
•
in other cases provided for by the applicable laws and regulations.
4. Payment of dividends
4.1. Only shareholders recorded as such in the register of members
of GLTR as of the record date are entitled to receive dividends on
shares issued by GLTR. The record date is the date of the declaration
of dividends, unless otherwise determined by the Board.
4.2. GLTR is responsible for due and full distribution of declared
dividends on the basis of the relevant information provided by its
shareholders.
4.3. Certain dividend payments may be subject to withholding tax
on their gross amount in accordance with tax laws of Cyprus and
the countries of residence of shareholders. When calculating,
withholding and transferring the tax amounts, GLTR will act with
respect to taxes levied on dividends in the Republic of Cyprus as
prescribed by the applicable law, including, if applicable, any
international agreements for the avoidance of double taxation to
which the Republic of Cyprus is a party. The shareholders will take
all responsibility to pay taxes on the dividends received in the
countries of their residence.
4.4. When calculating the amount of withholding tax, subject to
clause 4.5 below, GLTR will take into account the existing Cyprus
legislation, EU legislation and double tax treaties with the countries
where shareholders are registered applicable as at the
date of the dividend payment.
4.5. The shareholders shall be responsible for providing the
information and documents necessary for proper taxation, including
but not limited to the information and documents required to apply
any international agreements for the avoidance of double taxation
to which the Republic of Cyprus is party, if applicable.
4.6. Unless the Board approves otherwise, dividends on GLTR
shares will be declared in Russian Roubles and paid in US Dollars at
the exchange rate of the Bank of Russia as at the date of the GM.
In case the Board declares interim dividends on GLTR shares, such
interim dividends will be declared in Russian Roubles and paid in US
Dollars at the exchange rate of the Bank of Russia as at the date of
the respective Board meeting, the record date or as at any other date
stipulated by the resolution of the Board meeting. Notwithstanding
the foregoing, with effect from the first dividend to be paid in 2019
(but not prior thereto), shareholders may request to receive payment
of dividends (including interim dividends) in Russian Roubles, if such
holder makes such request by the time, in the manner and pursuant
to such procedures as may be prescribed by the Company which will
be set forth on the Group’s website www.globaltrans.com (which
may be amended from time to time in the sole discretion of the
Company). The Board may in its sole discretion change or revoke this
policy from time to time, and shall be under no obligation to make
payments of dividends in Russian Roubles. (2)
(1) The dividend record date for holders of the Company’s shares may be different from dividend record
date set for owners of global depositary receipts, which is set and announced by the Depositary that
issued global depositary receipts.
(2) Only holders of ordinary shares may request to receive payment of dividends in Russian roubles; the
rights of holders of global depositary receipts are governed by the deposit agreement with the Depositary.
Globaltrans Investment PLC
Annual Report & Accounts 2018
244
DIVIDEND POLICY
continued
4.7. Unless the Board proposes and shareholders approve
otherwise, dividends on GLTR shares shall be paid in cash through a
cash transfer to the shareholders’ accounts provided by shareholders.
4.8. Unless the shareholders or the Board decide otherwise,
dividends shall be distributed not later than 30 (thirty) days after the
Board or the GM pass the respective resolution. No shareholders
shall enjoy the advantage of prior dividend payout.
5. Approval and updates to dividend policy
5.1. The way the Dividend Policy is applied might need to change
over time to reflect changes in circumstances under which the
Company operates. In these cases, the Company innovates and
adapts its Dividend Policy provisions to remain competitive in a
changing and uncertain world, so that it can respond to existing
and exploit new opportunities.
5.2. The resolution to approve the provisions of the Dividend Policy,
as well as any resolutions to make amendments or additions to these
provisions and any resolutions to cancel them, shall be made by the
Board. The provisions shall enter into force upon their approval by
the Board.
Annex 1: Definitions
Exclusively for the purpose of the current Dividend Policy, the
definitions of terms below shall have the following meaning.
The Board reserves the right to amend the definitions below on
the reasonable basis in its sole discretion.
Attributable Free Cash Flow (a non-GAAP financial measure)
means Free Cash Flow less Adjusted Profit Attributable to Non-
controlling Interests.
EBITDA (a non-GAAP financial measure) represents “Profit for
the period” before “Income tax expense”, “Finance costs – net”
(excluding “Net foreign exchange transaction (gains)/losses on
financing activities”), “Depreciation of property, plant and
equipment” and “Amortisation of intangible assets”.
Adjusted EBITDA (a non-GAAP financial measure) represents
EBITDA excluding “Net foreign exchange transaction
(gains)/losses on financing activities”, “Share of profit/(loss) of
associate”, “Other losses/(gains) – net”, “Net (gain)/loss on sale
of property, plant and equipment”, “Impairment of property,
plant and equipment”, “Impairment of intangible assets”, “Loss
on derecognition arising on capital repairs” and “Reversal of
impairment of intangible assets”.
Free Cash Flow (a non-GAAP financial measure) is calculated as
“Cash generated from operations” (after “Changes in working
capital”) less “Tax paid”, “Purchases of property, plant and
equipment” (which includes maintenance CAPEX), “Purchases
of intangible assets”, “Acquisition of subsidiary undertakings –
net of cash acquired”, “Finance lease principal payments” and
“Interest paid”.
Adjusted Profit Attributable to Non-controlling Interests
(a non-GAAP financial measure) is calculated as “Profit attributable
to non-controlling interests” less share of “Impairment of
property, plant and equipment” and “Impairment of intangible
assets” attributable to non-controlling interests.
Leverage Ratio or Net Debt to Adjusted EBITDA (a non-GAAP
financial measure) is the ratio of Net Debt on the last day of a
particular financial period to Adjusted EBITDA in respect of the
twelve months to the end of that same period.
Net Debt (a non-GAAP financial measure) is defined as the sum
of total borrowings (including interest accrued) less “Cash and
cash equivalents”.
Overview Strategic Report Governance Financial Statements Additional Information
DEFINITIONS
Globaltrans Investment PLC
Annual Report & Accounts 2018
245
Terms that require definitions are marked with capital letters in this Annual Report and
their definitions are provided below in alphabetical order:
Adjusted EBITDA (a non-GAAP financial measure) represents
EBITDA excluding “Net foreign exchange transaction (gains)/losses
on financing activities”, “Share of profit/(loss) of associate”, “Other
losses/(gains) – net”, “Net (gain)/loss on sale of property, plant and
equipment”, “Impairment of property, plant and equipment”,
“Impairment of intangible assets”, “Loss on derecognition arising on
capital repairs” and “Reversal of impairment of intangible assets”.
Adjusted EBITDA Margin (a non-GAAP financial measure) is
calculated as Adjusted EBITDA divided by Adjusted Revenue.
Adjusted Profit Attributable to Non-controlling Interests (a non-
GAAP financial measure) is calculated as “Profit attributable to non-
controlling interests” less share of “Impairment of property, plant
and equipment” and “Impairment of intangible assets” attributable
to non-controlling interests.
Adjusted Revenue (a non-GAAP financial measure) is calculated
as “Total revenue” less the following “pass through” items
“Infrastructure and locomotive tariffs: loaded trips” and “Services
provided by other transportation organisations”.
Attributable Free Cash Flow (a non-GAAP financial measure)
means Free Cash Flow less Adjusted Profit Attributable to Non-
controlling Interests.
Average Distance of Loaded Trip is calculated as the sum of the
distances of all loaded trips for a period divided by the number of
loaded trips for the same period.
Average Number of Loaded Trips per Railcar is calculated as the
total number of loaded trips in the relevant period divided by
Average Rolling Stock Operated.
Average Price per Trip is calculated as Net Revenue from Operation
of Rolling Stock divided by the total number of loaded trips during
the relevant period in the respective currency.
Average Rolling Stock Operated is calculated as the average
weighted (by days) number of rolling stock available for operator
services (not including rolling stock in maintenance, purchased
rolling stock in transition to its first place of commercial utilisation,
rolling stock leased out, Engaged Fleet, flat cars and containers used
in the container business segment).
EBITDA (a non-GAAP financial measure) represents “Profit for
the period” before “Income tax expense”, “Finance costs – net”
(excluding “Net foreign exchange transaction (gains)/losses on
financing activities”), “Depreciation of property, plant and
equipment” and “Amortisation of intangible assets”.
Empty Run or Empty Runs means the movement of railcars without
cargo for the whole or a substantial part of the journey.
Empty Run Costs (a non-GAAP financial measure meaning costs
payable to RZD for forwarding empty railcars) is derived from
management accounts and presented as part of the “Infrastructure
and locomotive tariffs: empty run trips and other tariffs” component
of “Cost of sales” reported under EU IFRS. Empty Run Costs do not
include costs of relocation of rolling stock to and from maintenance,
purchased rolling stock in transition to its first place of commercial
utilisation, rolling stock leased in or leased out, Engaged Fleet, flat
cars and containers used in the container business segment.
Empty Run Ratio is calculated as the total of empty trips in
kilometres by respective rolling stock type divided by total loaded
trips in kilometres of such rolling stock type. Empty trips are only
applicable to rolling stock operated (not including rolling stock in
maintenance, purchased rolling stock in transition to its first place of
commercial utilisation, rolling stock leased out, Engaged Fleet, flat
cars and containers used in the container business segment).
Engaged Fleet is defined as rolling stock subcontracted or otherwise
engaged from a third-party rail operator for a loaded trip from the
point of origination to the cargo’s destination, at which point the
railcar is then released to such third party.
Free Cash Flow (a non-GAAP financial measure) is calculated as
“Cash generated from operations” (after “Changes in working
capital”) less “Tax paid”, “Purchases of property, plant and equipment”
(which includes maintenance CAPEX), “Purchases of intangible
assets”, “Acquisition of subsidiary undertakings – net of cash
acquired”, “Finance lease principal payments” and “Interest paid”.
Freight Rail Turnover is a measure of freight carriage activity over a
particular period calculated as the sum of tonnage of each loaded
trip multiplied by the distance of each loaded trip, expressed in
tonnes-km. It excludes volumes transported by Engaged Fleet and
the performance of the container business segment, unless
otherwise stated.
Globaltrans Investment PLC
Annual Report & Accounts 2018
246
DEFINITIONS
continued
Infrastructure and Locomotive Tariffs – Other Tariffs (a non-
GAAP financial measure, derived from management accounts) is
presented as part of the ‘’Infrastructure and locomotive tariffs:
empty run trips and other tariffs’’ component of “Cost of sales”
reported under EU IFRS. This cost item includes the costs of
relocation of rolling stock to and from maintenance, transition of
purchased rolling stock to its first place of commercial utilisation,
and relocation of rolling stock in and from lease operations as well
as other expenses including the empty run costs attributable to the
container business segment.
Leased-in Fleet is defined as fleet leased in under operating leases,
including railcars, locomotives and containers.
Leased-out Fleet is defined as fleet leased out to third parties under
operating leases (excluding flat cars and containers used in the
container business segment).
Leverage Ratio or Net Debt to Adjusted EBITDA (a non-GAAP
financial measure) is the ratio of Net Debt on the last day of a
particular financial period to Adjusted EBITDA in respect of the
12 months to the end of that same period.
Net Revenue from Operation of Rolling Stock (a non-GAAP
financial measure, derived from management accounts) is defined as
the sum of “Revenue from railway transportation – operators
services (tariff borne by the Group)” and “Revenue from railway
transportation – operators services (tariff borne by the client)” less
“Infrastructure and locomotive tariffs: loaded trips”, “Services
provided by other transportation organisation” and Net Revenue
from Engaged Fleet.
Net Working Capital (a non-GAAP financial measure) is calculated
as the sum of the current portions of “Inventories”, “Current income
tax assets”, “Trade receivables – net”, “Other receivables – net”
(“Other receivables – third parties” and “Other receivables – related
parties” net of “Provision for impairment of other receivables”),
“Prepayments – third parties”, “Prepayments – related parties” and
“VAT recoverable”, less the sum of the current portions of “Trade
payables to third parties”, “Trade payables to related parties”,
“Other payables to third parties”, “Other payables to related
parties”, “Accrued expenses”, “Accrued key management
compensation, including share-based payment”, “Contract
liabilities”, “Advances from customers for transportation services”
and “Current tax liabilities”.
Market Share is calculated using the Group’s own information as
the numerator and information published by the Federal State
Statistics Service of Russia as the denominator. It is defined as a
percentage of the overall Russian freight rail transportation volume
or freight rail turnover and includes volumes transported by
Engaged Fleet, unless otherwise stated.
Other Operating Cash Costs (a non-GAAP financial measure)
include cost items such as “Advertising and promotion”, “Auditors’
remuneration”, “Communication costs”, “Information services”,
“Legal, consulting and other professional fees”, “Rental of tank
containers”, “Operating lease rentals – office”, “Taxes (other than
income tax and value added taxes)” and “Other expenses”.
Net Debt (a non-GAAP financial measure) is defined as the sum
of total borrowings (including interest accrued) less “Cash and
cash equivalents”.
Net Revenue from Engaged Fleet (a non-GAAP financial measure,
derived from management accounts) represents the net sum of the
price charged for transportation to clients by the Group utilising
Engaged Fleet less the loaded railway tariff charged by RZD
(included in the EU IFRS line item “Infrastructure and locomotive
tariffs: loaded trips”) less the cost of attracting fleet from third-party
operators (included in the EU IFRS line item “Services provided by
other transportation organisations”).
Owned Fleet is defined as the fleet owned and leased in under a
finance lease as at the end of the reporting period. It includes railcars,
locomotives and containers, unless otherwise stated, and excludes
Engaged Fleet.
Share of Empty Run Kilometres paid by Globaltrans is defined as
the percentage of empty run kilometres paid by Globaltrans divided
by the total amount of empty run kilometres incurred by the fleet
operated by Globaltrans (not including relocation of rolling stock to
and from maintenance, purchased rolling stock in transition to its
first place of commercial utilisation, and rolling stock leased-out,
Engaged Fleet, flat cars and containers used in the container business
segment) in the relevant period.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
247
Total Operating Non-Cash Costs (a non-GAAP financial measure)
include cost items such as “Depreciation of property, plant and
equipment”, “Amortisation of intangible assets”, “Loss on
derecognition arising on capital repairs”, “Net impairment losses
on trade receivables and prepayments”, “Impairment of property,
plant and equipment” and “Net (gain)/loss on sale of property,
plant and equipment”.
Transportation Volume is a measure of freight carriage activity
over a particular period, measuring weight of cargo carried in million
tonnes. It excludes volumes transported by Engaged Fleet and
the performance of the container business segment, unless
otherwise stated.
Total CAPEX (a non-GAAP financial measure) calculated on a cash
basis as the sum of “Purchases of property, plant and equipment”
(which includes maintenance CAPEX), “Purchases of intangible
assets”, “Acquisition of subsidiary undertakings – net of cash
acquired” and “Finance lease principal payments” (as part of the
capital expenditures was financed with a finance lease).
Total Empty Run Ratio is calculated as total kilometres travelled
empty divided by the total kilometres travelled loaded by the rolling
stock fleet operated by Globaltrans (not including the relocation of
rolling stock to and from maintenance, purchased rolling stock in
transition to its first place of commercial utilisation, or rolling stock
leased-out, Engaged Fleet, flat cars and containers used in the
container business segment) in the relevant period.
Total Fleet is defined as the fleet owned and leased in under finance
and operating leases as at the end of reporting period. It includes
railcars, locomotives and containers, unless otherwise stated, and
excludes Engaged Fleet.
Total Operating Cash Costs (a non-GAAP financial measure)
represent operating cost items payable in cash and calculated as
“Total cost of sales, selling and marketing costs and administrative
expenses” less the “pass through” items: “Infrastructure and
locomotive tariffs: loaded trips” and “Services provided by other
transportation organisations” and non-cash items: “Depreciation of
property, plant and equipment”, “Amortisation of intangible assets”,
“Net impairment losses on trade receivables and prepayments”,
“Impairment of property, plant and equipment”, “Net (gain)/loss
on sale of property, plant and equipment” and “Loss on
derecognition arising on capital repairs”.
Globaltrans Investment PLC
Annual Report & Accounts 2018
248
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial information
All financial information presented in this Annual Report is derived
from the Consolidated Management Report and Consolidated
Financial Statements of Globaltrans Investment PLC (the
“Company” and, together with its subsidiaries, “Globaltrans” or the
“Group”) and prepared in accordance with International Financial
Reporting Standards as adopted by the European Union and the
requirements of Cyprus Companies Law, Cap. 113 (EU IFRS).
The Group’s Consolidated Management Report and Consolidated
Financial Statements and the parent company financial statements
for the year ended 31 December 2018 are included in the Financial
Statements section of this Annual Report. Financial statements for
prior years can be found on Globaltrans’ corporate website
(www.globaltrans.com). Certain financial information derived from
the management accounts is marked in this Annual Report with an
asterisk (*). The presentational currency of the Group’s financial
results is Russian Roubles (RUB), which is the functional currency of
the Company as well as of its Cypriot and Russian subsidiaries.
Non-GAAP financial information
In this Annual Report, the Group has used certain measures not
recognised by EU IFRS or IFRS (referred to as “non-GAAP
measures”). The management believes that these non-GAAP
measures provide valuable information to readers, because they
enable them to focus more directly on the underlying day-to-day
performance of the Group’s business and are frequently used by
securities analysts, investors and other interested parties in the
evaluation of companies in the freight rail transportation sector.
Further explanations of the reasons for presenting such measures
are included in the Financial Review section of this Annual Report.
The non-GAAP measures that have been used in this Annual Report
as supplemental measures of the Group’s operating performance.
All non-GAAP financial information is calculated on the basis of
EU IFRS financial statements and/or management accounts.
Reconciliations to the closest IFRS measures are included in the
Financial Review section of this Annual Report. Non-GAAP
measures requiring additional explanation or definitions appear
with initial capital letters and the definitions and explanations are
provided in the Definitions section of this Annual Report. Other
companies in the freight rail transportation sector may calculate the
above non-GAAP measures differently or may use each of them for
different purposes than the Group, limiting their usefulness as
comparative measures. All non-GAAP financial information
presented in this Annual Report should be used only as an analytical
tool and investors should not consider such information, in isolation
or in any combination, as a substitute for analysis of the Group’s
Consolidated Financial Statements reported under EU IFRS and
included in the Financial Statements section of this Annual Report.
Operational and market information
Globaltrans reports certain operational information to illustrate the
changes in the Group’s operational and financial performance
during the reporting periods. This operational information is derived
from management accounts. The Group’s selected operational
information for the year ended 31 December 2018 is provided in
the Additional Information section of this Annual Report. Selected
operational information for prior years can be found on Globaltrans’
corporate website (www.globaltrans.com). Terms referring to such
operational information appear with initial capital letters with
definitions or explanations provided in the Definitions section of this
Annual Report. The Group has obtained certain statistical, market
and pricing information that is presented in this announcement on
such topics as the Russian freight rail transportation market and
related subjects from the following third-party sources: Federal State
Statistics Service of Russian Federation (“Rosstat”), OAO Russian
Railways (“RZD”) and the Federal Antimonopoly Service (“FAS”).
The Group has accurately reproduced such information and, as far
as it is aware and is able to ascertain from information published by
such third-party sources, no facts have been omitted that would
render the reproduced information inaccurate or misleading.
The Group has not independently verified this third-party
information. In addition, the official data published by Russian
governmental agencies may be substantially less complete or
researched than that of more developed countries.
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
249
Among others, these include general economic conditions, the
competitive environment, risks associated with operating in Russia,
market change in the Russian freight rail market and many other
risks specifically related to the Group and its operations. This
Annual Report has been prepared to assist shareholders to assess
the Group’s financial condition, results of operations, business,
strategies and prospects and for no other purpose. The Group, its
Directors, employees, agents and advisers do not accept or assume
responsibility for any other purpose or to any other person to
whom this Annual Report is shown or who may have access to it,
and any such responsibility or liability is expressly disclaimed.
Cautionary note
This Annual Report, including its appendices, may contain forward-
looking statements regarding future events or the future financial
performance of the Group. You can identify forward-looking
statements by terms such as expect, believe, estimate, anticipate,
intend, will, could, may or might, the negative of such terms or
other similar expressions. These forward-looking statements
include matters that are not historical facts and statements
regarding the Group’s intentions, beliefs or current expectations
concerning, among other things, the Group’s results of operations,
financial condition, liquidity, prospects, growth, strategies and the
industry in which the Group operates. By their nature, forward-
looking statements involve risks and uncertainties because they
relate to events and depend on circumstances that may or may not
occur in the future. The Group cautions that forward-looking
statements are not guarantees of future performance and that the
Group’s actual results of operations, financial condition, liquidity,
prospects, growth and strategies, and the development of the
industry in which the Group operates, may differ materially from
those described in or suggested by the forward-looking statements
contained in this Annual Report. In addition, even if the Group’s
results of operations, financial condition, liquidity, prospects,
growth and strategies and the development of the industry in which
the Group operates are consistent with the forward-looking
statements contained in these materials, those results or
developments may not be indicative of results or developments in
future periods. The Group does not intend to update these
statements to reflect events and circumstances occurring after the
date hereof or to reflect the occurrence of unanticipated events.
Many factors could cause the actual results to differ materially from
those contained in forward-looking statements of the Group.
Globaltrans Investment PLC
Annual Report & Accounts 2018
250
GRI CONTENT INDEX
Indicator
Definition
Report section / notes
Annual Report page
General disclosures
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
102-11
102-12
102-13
102-14
102-15
102-16
102-18
102-35
102-40
102-41
•
•
•
•
•
•
•
Name of the organisation
Activities, brands, products, and services
Location of headquarters
Location of operations
Number of countries where the
organisation operates
Ownership and legal form
Markets served
•
Scale of the organisation
•
•
•
•
•
•
•
•
Information on employees and
other workers
Supply chain
Significant changes to the organisation
and its supply chain
Precautionary Principle or approach
External initiatives
A list of externally developed economic,
environmental and social charters, principles
or other initiatives to which the organisation
subscribes or which it endorses
Membership of associations
A list of the main memberships of industry
or other associations, and national or
international advocacy organisations
•
Statement from senior decision-maker
•
Key impacts, risks opportunities
•
•
•
•
•
Values, principles, standards and norms
of behaviour
Governance structure
Remuneration policies
List of stakeholder groups
Collective bargaining agreements
102-42
•
Identifying and selecting stakeholders
with whom to engage
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Corporate Structure
At a Glance
Operational Performance
Key Contacts
At a Glance
Market Review
Corporate Structure
Market Review
Operational Performance
Operational Performance
Financial Review
Corporate Social Responsibility
Operational Performance
No significant changes in the supply chain
The Group does not explicitly use the
precautionary principle
The Group does not have membership in
external initiatives
Corporate Social Responsibility
Union of Railway Transport Operators –
SOZHT (AO New Forwarding Company)
Council of Russian Transport Workers –
STR (AO New Forwarding Company)
Railway Engineering Association – OPZHT
(AO Ural Wagonrepair Company)
Estonian Chamber of Commerce and
Industry (AS Spacecom (Estonia) and AS
Spacecom Trans (Estonia))
Chairman’s Statement
Chief Executive Officer’s Review
Risk Management
Corporate Social Responsibility
Corporate Social Responsibility
Board of Directors, Executive Management
Corporate Governance – Remuneration of
the Board of Directors and management
Corporate Social Responsibility
As at 31 December 2018, 51% of total
employees in OOO BaltTransServis were
covered by collective bargaining agreements.
In other Group subsidiaries there were no
collective bargaining agreements.
Corporate Social Responsibility
p.241
p.4
p.32-37
p.249
p.4
p.24-25
p.241
p.24
p.32-37
p.32-37
p.40
p.63-64
p.36
p.61
p.14-16
p.20-23
p.57
p.63
p.62
p.70-75
p.81
p.60-61
p.60-61
Overview Strategic Report Governance Financial Statements Additional Information
Globaltrans Investment PLC
Annual Report & Accounts 2018
251
Indicator
Definition
Report section / notes
Annual Report page
General disclosures continued
102-43
102-44
102-45
102-46
102-47
102-48
102-49
102-50
102-51
102-52
102-53
102-54
102-55
102-56
•
•
•
•
•
•
•
•
•
•
•
The organisation’s approach to
stakeholder engagement
Key topics and concerns that have been
raised through stakeholder engagement
Entities included in the consolidated
financial statements
Defining report content and topic boundaries
List of the material topics
Restatements of information given in
previous reports
Significant changes from previous
reporting periods in the list of material
topics and topic boundaries
Reporting period
Date of most recent report
Reporting cycle
Contact point for questions regarding
the report
•
Claims of reporting in accordance with
the GRI standards
•
•
GRI content index
External assurance
•
Corporate Social Responsibility
•
Corporate Social Responsibility
•
•
•
•
•
•
•
•
•
•
•
•
Notes to the Consolidated Financial
Statements
Corporate Social Responsibility
Corporate Social Responsibility
This is the second time the Group has
published a Corporate Social Responsibility
section in the Annual Report. No
restatements of information provided in
the previous report were made
No significant changes
Calendar year 2018
April 2017
Annual
Investor Relations
Phone: +357 25 328 860
Email: irteam@globaltrans.com
The Corporate Social Responsibility
Report was prepared in accordance
with the GRI Standards – core option
GRI content index
External assurance for the Group’s
Corporate Social Responsibility section was
not conducted in the reporting period
Management
103-1
103-2
103-3
•
•
•
Explanation of the material topic and
its boundary
The management approach and its
components
Evaluation of the management approach
•
Corporate Social Responsibility
•
Corporate Social Responsibility
•
Corporate Social Responsibility
Economic impact
Economic performance
p.60-61
p.60-61
p.154
p.60
p.60
p.250-252
p.60-67
p.60-67
p.60-67
201-1
•
Direct economic value generated
and distributed
•
•
Financial Review
Corporate Social Responsibility
p.38-52
p.67
Indirect economic impacts
203-2
•
Significant indirect economic impacts
•
Corporate Social Responsibility
p.67
Anti-corruption
205-3
•
Confirmed incidents of corruption
and actions taken
•
Corporate Social Responsibility
p.62
Globaltrans Investment PLC
Annual Report & Accounts 2018
252
GRI CONTENT INDEX
continued
Indicator
Definition
Report section / notes
Annual Report page
Environmental impact
Materials
301-1
301-2
Energy
302-1
•
•
Materials used by weight or volume
Recycled input materials used
•
•
Corporate Social Responsibility
Corporate Social Responsibility
•
Energy consumption within the organisation
•
Corporate Social Responsibility
Water and effluents (1)
303-5
•
Water consumption
•
Corporate Social Responsibility
Emissions
305-2
•
Direct (Scope 1) GHG emissions (2)
•
Corporate Social Responsibility
Environmental compliance
307-1
•
Non-compliance with environmental
laws and regulations
•
•
Corporate Social Responsibility
No incidents of non-compliance with
environmental laws and regulations
occurred in the reporting period
Social impact
Employment
401-1
401-2
•
•
New employee hires and employee turnover
Benefits provided to full-time employees
that are not provided to temporary or
part-time employees
•
•
•
Corporate Social Responsibility
Corporate Social Responsibility
Notes to the Consolidated Financial
Statement
Occupational health and safety
403-1
403-5
403-9
•
•
•
Occupational health and safety
management system
Worker training on occupational
health and safety
Work-related injuries
•
Corporate Social Responsibility
•
Corporate Social Responsibility
•
Corporate Social Responsibility
p.66
p.66
p.65
p.66
p.66
p.65
p.64
p.64
p.146
p.65
p.65
p.65
Training and education
404-1
•
Average hours of training per year per
employee by gender and employee category
•
Corporate Social Responsibility
p.64
Diversity and equal opportunity
405-1
•
Diversity of governance bodies
and employees
•
•
•
•
Corporate Social Responsibility
Corporate Governance
Consolidated Management Report
Management Report
p.64
p.79-80
p.93
p.176-181
(1) Given the fact that Globaltrans has decided to disclose data on water consumption only this year,
the mechanism for collecting, processing and presenting such information has not yet been fully
developed. Therefore, the Company does not have enough statistics to fully demonstrate the trends
occurring in all of its business units. Data only for BaltTransServis and Ural Wagonrepair were collected.
(2) Taking into account that this is the first year the Group has disclosed its indirect greenhouse gases
emissions, only data for 2018 is available.
OVERVIEW
Highlights of 2018 2
At a Glance 4
Large Modern Fleet 6
Efficient Operational Platform 8
Established Blue-chip Client Base
and Strong Market Positions 10
STRATEGIC REPORT
Chairman’s Statement 14
A Decade of Delivery 18
Chief Executive Officer’s Review 20
Market Review 24
Business Model and Strategy 30
Operational Performance 32
Financial Review 38
Risk Management 53
Corporate Social Responsibility 60
GOVERNANCE
Board of Directors 70
Executive Management 74
Corporate Governance 76
FINANCIAL STATEMENTS
Consolidated Management Report
and Consolidated Financial Statements 84
Board of Directors and Other Officers 85
Consolidated Management Report 86
Directors’ Responsibility 96
Independent Auditor’s Report 97
Consolidated Income Statement 102
Consolidated Statement
of Comprehensive Income 103
Consolidated Balance Sheet 104
Consolidated Statement
of Changes in Equity 105
Consolidated Cash Flow Statement 106
Notes to the Consolidated
Financial Statements 107
Management Report and Parent
Company Financial Statements 174
Board of Directors and Other Officers 175
Management Report 176
Directors’ Responsibility 184
Independent Auditor’s Report 185
Income Statement 189
Statement of Comprehensive Income 190
Balance Sheet 191
Statement of Changes in Equity 192
Cash Flow Statement 193
Notes to the Parent Company
Financial Statements 194
ADDITIONAL INFORMATION
Selected Operational Information 234
Ownership 240
Corporate Structure 241
Dividend Policy 242
Definitions 245
Presentation of Financial and
Other Information 248
GRI Content Index 250
Key Contacts IBC
10 YEAR
ANNIVERSARY
LONDON LISTING
Globaltrans 2008 - 2018, celebrating the 10 year anniversary
of listing on the London Stock Exchange.
Summary of presentation of financial and other information
All financial information presented in this Annual Report is derived from the Consolidated Management Report and
Consolidated Financial Statements of Globaltrans Investment PLC (the “Company” and, together with its subsidiaries,
“Globaltrans” or the “Group”) and has been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of Cyprus Companies Law, Cap. 113 (EU IFRS). The Group’s
Consolidated Management Report and Consolidated Financial Statements and the Parent Company Financial Statements for
the year ended 31 December 2018 are included in the Financial Statements section of this Annual Report. Financial statements
for prior years can be found on Globaltrans’ corporate website (www.globaltrans.com/download-centre).
The presentational currency of the Group’s financial results is the Russian Rouble (RUB), which is the functional currency of
the Company as well as of its Cypriot and Russian subsidiaries.
Certain financial information derived from management accounts is marked in this Annual Report with an asterisk (*). In this
Annual Report, the Group has used certain “non-GAAP financial information” (i.e. measures not recognised by EU IFRS or
IFRS) as supplementary explanations of the Group’s operating performance. Information (non-GAAP financial and operating
measures) requiring additional explanation or defining is marked with initial capital letters and the explanations or definitions
are provided at the end of this Annual Report. Reconciliations of the non-GAAP measures to the closest EU IFRS measures
are included in the body of this Annual Report. Rounding adjustments have been made in calculating some of the financial
and operational information included in this Annual Report. As a result, numerical figures shown as totals in some tables may
not be exact arithmetical aggregations of the figures that precede them.
This Annual Report, including its appendices, may contain forward-looking statements regarding future events or the future
financial performance of the Group. Forward-looking statements can be identified by terms such as expect, believe, estimate,
anticipate, intend, will, could, may or might, and the negative of such terms or other similar expressions. By their nature,
forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that
may or may not occur in the future. The Group cautions that forward-looking statements are not guarantees of future
performance and that the Group’s actual results of operations, financial condition, liquidity, prospects, growth and strategies,
and the development of the industry in which the Group operates, may differ materially from those described in or suggested
by the forward-looking statements contained in this Annual Report. For a detailed description of the presentation of financial
and other information, please see the Presentation of Financial and Other Information section of this Annual Report.
Stock Exchange
London Stock Exchange plc
10 Paternoster Square, London EC4M 7LS, UK
Phone: +44 20 7797 1000
Website: www.londonstockexchange.com
Auditors
PricewaterhouseCoopers Limited
City House, 6 Karaiskakis Street,
CY-3032 Limassol, Cyprus
Phone: +357 25 555 000
Fax: +357 25 555 001
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KEY CONTACTS
Globaltrans Investment PLC
Legal address
Omirou 20, Agios Nikolaos,
CY-3095 Limassol, Cyprus
Postal address
Office 201, 4 Profiti Ilia Street, Germasogeias,
CY-4046 Limassol, Cyprus
Phone: +357 25 212 382
Fax: +357 25 503 155
Website: www.globaltrans.com
Investor Relations
Phone: +357 25 328 860
Email: irteam@globaltrans.com
Media Relations
Phone: +357 25 328 863
Email: media@globaltrans.com
Company Secretary
Ms. Elia Nicolaou
Anastasio Building, 6th Floor,
15 Dimitriou Karatasou Street,
CY-2024 Strovolos, Nicosia, Cyprus
Depositary Bank
Bank of New York Mellon
Shareholder correspondence should be mailed to:
BNY Mellon Shareowner Services
PO BOX 30170
College Station, TX 77842-3170, USA
Phone for domestic callers:
+1 888 BNY ADRS (+1 888 269 2377)
Phone for international callers:
+1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Designed and produced by fourthquarter
RUSSIA’S LEADING
FREIGHT RAIL GROUP
10 YEAR IPO
ANNIVERSARY
2008-2018
A DECADE OF
SUCCESS
THE JOURNEY
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www.globaltrans.com
Globaltrans Investment PLC
Annual Report 2018