Annual Report
& Accounts
2019
Globaltrans
at a Glance
Globaltrans is a leading freight rail transportation group with operations across
Russia, Belarus, Ukraine, Kazakhstan and other countries. The Group operates one
of the largest railcar fleets in the region, providing sophisticated transport logistics
for major companies operating in key industries: metals, mining, oil products and oil,
and construction. Since 2008, Globaltrans has been listed on the Main Market
of the London Stock Exchange (ticker symbol: GLTR).
Large fleet
>70,000 units
consisting mainly
of gondola and tank cars
Focus on
outsourcing
contracts
with blue-chip clients
Best-in-class
24/7
logistics delivering industry
leading operational performance
Opportunistic
expansion strategy
to achieve strong returns
on invested capital
>10-year
track record
of first-rate corporate governance
Clear emphasis
on delivering
shareholder returns
with a dividend policy aimed
at distributing cash not used
for business expansion
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Contents
Overview
Highlights of 2019
Our Business
Our Operating Platform
Trusted Partner
Our Strategy
Our History
Strategic Report
Chairman’s Statement
Chief Executive Officer’s Review
Market Review
Operational Performance
Financial Review
Risk Management
Sustainability
4
6
8
10
12
14
18
22
26
32
40
60
70
Governance
Board of Directors
Executive Management
Corporate Governance Report
Share Capital
Corporate Structure
Financial Statements
Consolidated Management Report
and Consolidated Financial Statements
Management Report and Parent
Company Financial Statements
Additional Information
Selected Operational Information
Definitions
82
86
88
94
95
98
216
292
300
Presentation of Financial and Other Information
304
GRI Content Index
Contacts
306
310
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 2019 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).
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.
Annual Report & Accounts 2019
Globaltrans Investment PLC
1
CHAPTER 1
Overview
Highlights of 2019
Our Business
Our Operating Platform
Trusted Partner
Our Strategy
Our History
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Globaltrans Investment PLC
Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
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OVERVIEW
Highlights
of 2019
“2019 has been another excellent year for Globaltrans.
It was a year which saw the Group sustain its recent growth
momentum to deliver outstanding performance in volatile
market conditions and reward its shareholders with strong
dividend.
Our financial results provide further proof of the strength of
our business strategy and operating model. We successfully
grew our Market Share and outperformed the industry
whilst maintaining our track record of delivering consistent
profitable growth. That growth momentum saw the Group
extend important service contracts, sign new long-term
partnership, and expand its presence in key niche areas.”
Valery Shpakov
Chief Executive Officer
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+3.5%
7.8%
+9%
66%
Year-on-year
rise in
Transportation
Volumes
Market Share
(2018: 7.4%)
Year-on-year
increase in
Average Price
per Trip
Share of Net
Revenue from
Operation of
Rolling Stock
contributed
by service
contracts
+20%
Year-on-year
growth in
Adjusted
EBITDA
57%
Adjusted
EBITDA
Margin
(2018: 54%)
+16%
0.60x
Year-on-year
increase in
Profit for
the year
Net Debt to
Adjusted EBITDA
(end of 2018: 0.56x)
RUB93.1
Total dividend per
share/GDR
in respect of 2019
(+1% year-on-year) 2
The summary information on pages 4 and 5
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.
1 The Group’s Freight Rail Turnover increased 0.6% year on year.
2 Including interim, final and special dividends; Global Depositary
Receipts (GDRs).
Market outperformance, Market Share gains, strong pricing, new
long-term contract secured and other major service contracts
extended
― Market outperformance in Transportation Volumes 1 (up 3.5% year on year
compared to the overall Russian market decline of 0.9% year on year).
― Market Share increased to 7.8% (2018: 7.4%).
― Strong pricing maintained with Average Price per Trip up 9% year on year.
― New long-term contract secured with Gazprom Neft, major service contracts
with MMK and Metalloinvest extended.
― Operational excellence maintained. At 42% (2018: 38%), Globaltrans’ Empty Run
Ratio for gondola cars remains one of the lowest in the Russian market.
― Total Fleet increased 2% to 70,720 units at year-end 2019.
Share of Owned Fleet stood at 96%.
Excellent financial results
― Total revenue rose 9% year on year to
RUB 95.0 billion.
― Operating profit rose 19% year on year to
RUB 32.1 billion.
― Profit for the year climbed 16% year on
year to RUB 22.7 billion.
― Adjusted Revenue grew 13% year on year
to RUB 68.8 billion supported by growth in
all key business segments.
Continued strong cash generation
and low leverage
― Operating cash flows before working
capital changes grew 19% year on year
to RUB 39.5 billion.
― Strong Free Cash Flow of RUB 12.8 billion
(up 4% year on year) despite
a RUB 4.1 billion working capital build-up
(of which RUB 1.9 billion* was one-off)
and RUB 1.1 billion increase in Total
CAPEX.
― Total Operating Cash Costs increased
― Leverage kept at low level with
5% year on year due to cost inflation and
higher Empty Runs.
year-end Net Debt to Adjusted EBITDA
at 0.60x (2018 end: 0.56x).
― Adjusted EBITDA Margin expanded to 57%
(2018: 54%) with Adjusted EBITDA up 20%
year on year to RUB 39.6 billion.
Strong 2019 total shareholder
remuneration, attractive interim
2020 dividend targeted
― Total dividend payments in respect of
2019 slightly higher than the prior year at
RUB 16.6 billion or RUB 93.1 per share/
GDR 2 .
― Payouts reflect the Group’s dividend
policy and its intention to maintain
an efficient capital structure and return
excess capital to shareholders.
― Solid foundations to pay strong dividends
with about RUB 8.3 billion of dividends
targeted in respect of the first half
of 2020.
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Globaltrans Investment PLC
Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
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OVERVIEW
Our Business
What We Do
How We Do It
Gondola logistics key illustrative routes
Sophisticated rail
transportation solutions
We provide freight rail transportation
services along with railcar leasing and
ancillary services in Russia, Belarus,
Ukraine, Kazakhstan and other countries.
We work with over 500 customers in a range of industries. Our main freight cargo segments
in terms of Net Revenue from Operation of Rolling Stock are: metallurgical cargoes (41%),
oil products and oil (32%), coal (14%), and construction materials (5%).
We provide our customers with high-value freight transportation and logistics
solutions and we accomplish this by focusing on:
Operational excellence
High-quality customer base
Large modern fleet
Servicing leading industrial businesses,
we operate one of the largest railcar
fleets in Russia with over 70,000 units
operating round-the-clock 24/7.
Strong position
in priority cargo segments
Our Market Share of Russia’s overall
freight rail transportation volumes in
2019 was 7.8% and we have strong
Market Shares in some priority cargo
segments: metallurgical cargoes (22%)
and oil products and oil (9.5%).
We offer industry-leading logistics and
sophisticated route management systems.
This combination enables the Group to
deliver best-in-class service, high levels
of fleet utilisation and low Empty Runs,
which in turn deliver efficiency and drive
profitability.
We are trusted partners for our clients, who
range from large industrial groups to smaller,
more specialised companies. We focus
on long-term outsourcing partnerships,
whereby we handle most of a client’s freight
rail logistics. We currently have outsourcing
contracts with six major industrial groups:
Rosneft, Metalloinvest, MMK, Gazprom Neft,
TMK and ChelPipe Group. These contracts
together contributed 66% of the Group’s
Net Revenue from Operation of Rolling Stock
in 2019.
Globaltrans’ Market Share of overall Russia’s freight rail
transportation volumes by cargo, 2019
Market Share of overall Russia’s freight rail transportation volumes
7.8%
Metallurgical cargoes (including ferrous metals, scrap metal and ores)
22.0%
22%
Market Share in
metallurgical cargoes
More details of the Group’s results
are contained in our Operational
Performance on pages 32 to 38
Oil products and oil
9.5%
Construction materials (including cement)
4.8%
Coal (including coke)
3.2%
Source: Globaltrans, Rosstat
45,620
gondola cars
65% of Total Fleet
Kamennogorsk
Novy Port
Export
Khanty-Mansi AO
Yamalo-Nenets AO
Denisovsky
Cherepovets-2
Vorontskova
Lena
Vostochnaja
Berkakit
Moscow
Smychka
Yegozovo
Kiltchug
Zheleznogorsk
Pervouralsk
Polevskoy
Stoylenskaya
Trubnaya
Taganrog
Metallurgicheskaya
Ekaterinburg
Belovo
Kamensk-
Uralsky
Chelyabinsk
Yuzhny
Novokuznetsk
Mezhdurechensk
Novorossiysk
Export
Zhirnov
Magnitogorsk
Novotroitsk
Bazaikha
Grodekovo
Export
Vladivostok
Export
Zabaykalsk
Export
Cargo routes:
Metals
Iron ore
Pipes
Scrap metal
Crushed stone
Coal
Empty Runs
Net Revenue from Operation of Rolling Stock by cargo,
2019
Globaltrans’ Empty Run Ratio
(for gondola cars, 2015–2019)
2019
2018
2017
2016
2015
Source: Globaltrans
42%
38%
37%
38%
39%
41% Metallurgical cargoes (including ferrous metals,
scrap metal and iron ore)
32% Oil products and oil
14% Coal (including coke)
5% Construction materials (including cement)
8% Other
Source: Globaltrans
42%
The Group’s gondola
Empty Run Ratio
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Globaltrans Investment PLC
Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
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OVERVIEW
Our Operating
Platform
We Offer
Our powerful operating platform provides customers with a reliable,
flexible, full-service offering anchored on world-class logistics that
make their operations more efficient and more profitable.
Expertise in complex
freight rail logistics
Our experts employ advanced systems that
incorporate sophisticated route planning and
cargo management logistics creating ‘win-
wins’ for our customers, who save time and
money, and for our Group, which benefits from
greater productivity, driving profitability.
Industry leading
operational efficiency
Our expertise in complex freight logistics
delivers industry-leading levels of operational
efficiency and one of the sector’s lowest
Empty Run Ratios for gondola cars. The hub
of our logistics operations is our dispatching
centre, which monitors, manages, and
maintains all aspects of our fleet operations,
24 hours a day, seven days a week.
Specialist expertise
in long-term partnerships
Our experience of managing complex
long-term outsourcing contracts offers our
customers tailored freight rail solutions that
improve the speed and reliability of cargo
offtake and reduce their costs.
Our Fleet
Large modern fleet
Our own locomotive fleet
We operate a Total Fleet of 70,720 units,
split between universal gondola cars (65%
of total) and tank cars (28% of total) with the
balance made up of specialised containers
and flat cars. Our Owned Fleet is among
the most modern in the industry with an
average age of 11.5 years and is supported
by a comprehensive repair and maintenance
programme. Our Owned Fleet (96% of Total
Fleet) is complemented by our Leased-In
Fleet (4% of Total Fleet), enabling the Group to
retain maximum operational flexibility whilst
ensuring the resilience of the business.
Our fleet of 75 mainline locomotives is used
largely to transport oil products and oil in
“block trains” – where all cargo on the train is
shipped from a single loading point to a single
off-loading destination. Running client-
specific block trains removes time-consuming
delays associated with offloading individual
railcar cargoes at multiple destination points.
This greatly increases our railcars’ average
daily distances, improving both delivery times
and railcar utilisation.
70,720 units
Total Fleet
11.5 years
Average age of Owned Fleet
Gondola cars
Tank cars
Specialised containers
Flat cars
Other railcars
Locomotives
A gondola car is an open-top, high-sided
universal railcar designed to carry a variety
of bulk cargoes, such as metallurgical
cargoes, coal or construction materials.
A tank car is designed to carry liquid
cargoes including oil and petroleum
products, chemicals, liquefied gas and other
liquid substances.
Intermodal containers are designed to be
moved between different modes of
transportation without any handling
of the freight itself.
Gondolas are the backbone of the Group’s
fleet and their versatility means that they can
be quickly redeployed between different bulk
cargoes in response to changes in demand.
The Group’s tank cars are principally used to
transport oil products and oil.
The majority of the Group’s containers are tank
containers used to transport petrochemicals.
The Group also operates specialised containers
for transporting high-quality steel products.
Flat cars consist of a platform without
sides or top.
Globaltrans’ fleet of other railcars
primarily consists of hopper cars.
The Group uses its flat cars mostly to carry
specialised containers.
Globaltrans operates its own fleet of
mainline locomotives, which haul block
trains (cargo or client specific Group-
operated trains all bound for the same
direction).
Our locomotives are principally engaged in
the transportation of oil products and oil.
45,620 units
19,736 units
65% of Total Fleet
28% of Total Fleet
3,194 units
5% of Total Fleet
1,873 units
3% of Total Fleet
222 units
0.3% of Total Fleet
75 units
0.1% of Total Fleet
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Globaltrans Investment PLC
Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
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OVERVIEW
Trusted Partner
Globaltrans has over 500 industrial clients in the metals and mining, oil products and
oil and construction sectors whose businesses rely on the Group’s logistics skill, deep
sector experience and modern fleet. The Group is a trusted outsourcing partner to
some of Russia’s leading companies providing a significant proportion of their varied
freight rail transportation needs through extensive service contracts.
Andrey Varichev,
General Director,
HC Metalloinvest
“ Rail transportations are critical to Metalloinvest. They ensure
the smooth operation of supply chains within the Group and the
delivery of products to our customers.
Globaltrans has successfully managed Metalloinvest’s rail freight
transportation requirements for more than seven years, transporting
concentrate, pellets, briquettes, pig iron and steel both within Russia
and outside it.
The Globaltrans team are all highly experienced industry experts
with the deep knowledge and understanding of the rail industry.
The company has established itself as a reliable partner, which is able
to solve the most complex tasks, providing a high level of service.”
Sergey Nenashev,
Chief Commercial Officer,
PAO MMK
“ Rail business is tightly bound with the
steelmaking industry. Rail transport drives
our success by linking MMK to vendors and
customers and interconnecting our numerous
subsidiaries within the MMK Group.
For the past seven years, Globaltrans has been
responsible for transporting MMK’s steel cargoes
to our customers domestically as well as to our
export destinations. Over this time, Globaltrans
has performed as a trusted and efficient
transportation partner. Their broad regional
network and large up-to-date fleet ensure quick
customer response and guarantee the level of
service that we require at MMK.”
500+ clients
Globaltrans has over 500 industrial
clients in metals and mining, oil products
and oil and construction sectors
Largest clients
by share of Net Revenue from Operation of Rolling Stock, 2019 (including their affiliates and suppliers)
Alexander Nevsky,
Head of the Logistics and Transport,
Gazprom Neft
Sergey Marchenko,
Deputy General Director for Procurement
and Logistics, PAO TMK
Boris Kovalenkov,
General Director,
ChelPipe Group
“ At Gazprom Neft we have worked with
Globaltrans since 2004. As our preferred
transportation partner, their capabilities and
expertise have, over many years, enabled us to
deliver cargo to our customers efficiently and
on schedule, and to address multiple other
issues that arise during transportation.
“ We are one of the world’s leading
producers of tubular products for the oil
and gas industry, and our production sites
and our customers’ locations are scattered
across a wide geographical area. So for
TMK, being able to manage our cargo flow
efficiently and access a guaranteed supply
of rolling stock is a top priority.
The fact that Globaltrans provides block trains
to underpin our transport arrangements is
an indisputable advantage, ensuring the best
possible delivery times for our cargo. We are
very happy to continue our cooperation and
we appreciate the premium service provided
by the Globaltrans team.”
66%
Share of Net Revenue from
Operation of Rolling Stock
contributed by service contracts
Over the course of our cooperation,
Globaltrans has frequently proved itself
to be a highly professional and reliable
transportation partner, providing us with
rail freight services of the highest quality.
We value Globaltrans’ ability to provide its
clients with an individually-tailored service
that solves complex tasks fully and on
time. The Group has helped us to enhance
the efficiency of our logistics and maintain
our transportation security.”
“ At ChelPipe Group we are one of
the country’s biggest producers of steel
pipes, so we understand how important
efficient logistics solutions are for our
business.
We started our partnership with
Globaltrans back in 2018, and we have
been working closely with them ever
since. Their logistics expertise has been
instrumental in helping us improve our
transportation planning and the accuracy
of our transportation cost forecasting
and has helped us to service our key
production sites more efficiently. It also
means that we can now achieve a high
degree of adaptability around our internal
processes and external transportation
needs, enabling us to respond faster to
an ever-changing market and economic
environment.”
23%
Rosneft
21%
12%
5%
3%
Metalloinvest
MMK
Gazprom Neft
TAIF
3%
TMK
2%
UGMK-Trans
2%
Evraz
1%
1%
Severstal
ChelPipe
26%
Other (including small
and medium enterprises)
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Globaltrans Investment PLC
Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
11
OVERVIEW
Our Strategy
Vision
Strategy
Our vision is to develop our position as a leading independent freight rail group with
operations in Russia, Belarus, Ukraine, Kazakhstan and other countries and to be the
partner of choice for blue-chip industrial customers.
Increase
efficiency
wherever
possible
Retain
entrepreneurial
focus on
innovation and
technology
Focus on
client service
delivery
Invest
in people
D E L I V ER
o p erational
e x cellence
Our
strategic
priorities
1
2
4
3
opportun i s t i c
investments an d p u r
prudent capital a l
a
l o c
e
n
u
s
ti o
FOC U S O N
Ensure
the business
continues
to act
responsibly
Maintain
a well-balanced
Board with strong
independent
representation
E
T
O
M
O
R
P
Observe
international
governance
standards
ulture
g
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a
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Retain
a conservative
balance
sheet
Maintain
a large
modern fleet
b
u
s
i
n
e
s
s
p
r
o
file
a
s
o
l
i
d
R
E
T
A
I
N
Focus
on long-term
service
contracts and
blue-chip
clients
Broaden
customer
base
Maintain
a disciplined,
returns-driven
approach to
investment
Return
excess
capital to
shareholders
Expand into
value-added
niches
in the freight rail
market
Our strategy is to grow our business
by partnering with and offering cost-
effective, reliable, and innovative freight
transportation solutions to our clients.
Our ability to grow and compete
successfully is supported by our
business model that favours disciplined
opportunistic growth, operational
excellence, innovation, and strong capital
discipline. Together these underpin our
ability to create sustainable value for
our shareholders, employees and other
stakeholders.
Our independence, entrepreneurial spirit
and extensive sector experience are central
to delivering this strategy. Along with
our sizeable modern fleet and advanced
logistics platform, they form our key
competitive advantages. By focusing on
long-term outsourcing partnerships, we
use our deep understanding of our clients’
needs to improve our service quality whilst
increasing our logistical efficiency.
We allocate our capital prudently, investing
in attractive growth opportunities
when they arise and returning capital
to shareholders at times when such
opportunities are unavailable. All growth
opportunities, both organic and
non-organic, are carefully screened
against strict returns criteria. Retaining
a strong balance sheet is fundamental
for us, ensuring we can seize the right
opportunities and still remain flexible to
any changes in the business or market
environment.
Our shared principles
Value customers
Deliver excellence
They are at the heart of our business
and we work hard to exceed their
expectations
We strive to excel in everything
that we do
Prioritise safety
Respect people
Acting safely and responsibly at all
times is our number one priority
We respect the rights of all employees and
invest in their training and development
Uphold good
governance
Protect
our environment
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Key financial results
Adjusted Revenue — RUB mln
+13%
2019
2018
2017
68,840
60,859
52,094
Adjusted EBITDA — RUB mln
+20%
2019
2018
2017
39,552
33,070
25,789
Adjusted EBITDA Margin — %
2019
2018
2017
57%
54%
50%
Net Debt to Adjusted EBITDA — year-end
2019
2018
2017
0.60
0.56
0.44
Total dividends — RUB per share/GDR
1
+1%
2019
2018
2017
Source: Globaltrans
93.10
92.40
89.65
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Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
13
We aim to manage our business
responsibly for the benefit of all
stakeholders
We value our communities and the
world around us and treat them with the
respect and consideration they deserve
1 Total dividends (including interim, final and special)
in respect of declared year.
OVERVIEW
Our History
Over 15 years of Growth and Leadership
Globaltrans grew out of the rail freight sector of the early 2000s in Russia and was
the result of a merger in 2004 of two entrepreneurial-led businesses. Since then it
has grown to become one of the leading freight rail transportation groups in Russia
and the CIS. Through a combination of strong organic growth, targeted acquisitions,
and opportunistic fleet expansion, we have created a profitable company with
best-in-class capabilities.
The Group was the first freight rail group focused on Russia to list on an international
stock exchange, floating on the London Stock Exchange in 2008. Since that Initial
Public Offering (IPO), the Group has grown rapidly and we now operate a fleet that is
three times larger than at the time of our IPO.
>50 th
units
Total Fleet
>37 th
units
Total Fleet
>26 th
units
Total Fleet
>66 th
units
Total Fleet
>69 th
units
Total Fleet
>70 th
units
Total Fleet
2019
2004
2008
2009
2010
2012
2013
2014
2015
2016
2017
2018
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― Secondary
― Organic
― Acquired
― Acquired
― Group corporate
― Enhanced
― Established
as a merger
of two
entrepreneur-led
companies.
― Successful IPO
on the London
Stock Exchange.
― Ukrainian
subsidiary
created and
Estonian tank car
leasing business
acquired.
expansion of
the business –
purchases of
new rolling
stock and the
expansion of
leased-in fleet.
Public Offering
(SPO) to fund
further business
expansion.
― Acquisition of
50% stake in
BaltTransServis 1 ,
increasing
the Group’s
presence in the
oil products and
oil sector.
1 Increased to 60% in 2011.
14
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Annual Report & Accounts 2019
MMK-Trans, the
captive freight
rail operator of
MMK Group, one
of the world’s
largest steel
producers.
― Signed long-term
outsourcing
contract with
MMK.
― Created single
24/7 gondola
dispatching
centre.
Metalloinvesttrans,
captive freight
rail operator of
Metalloinvest,
a leading producer
of hot briquetted
iron (HBI), iron ore
products and high-
quality steel.
― Signed industry’s
first ever long-
term outsourcing
contract with
Metalloinvest.
― Successful
SPO to fund
further business
expansion.
structure
simplified to
drive efficiency
and cut costs.
― Formed
specialised
SyntezRail
subsidiary
with partners
to transport
petrochemicals
in tank
containers.
― Extended
long-term
partnerships
with Rosneft
(five years)
and with
Metalloinvest
(three years).
dividend policy
introduced
linking dividends
to Attributable
Free Cash Flow
and Leverage
Ratio.
― Group celebrated 10th
― Service contracts extended
anniversary of its Main Market
listing on the London Stock
Exchange.
― Partnership with MMK
extended to end September
2020.
― Two new five-year contracts
signed: with TMK, a leading
global manufacturer and
supplier of steel pipes for
the oil and gas industry and;
ChelPipe Group, a leading
Russian manufacturer of pipe
products and provider of
integrated solutions for fuel
and energy companies.
with MMK (to end September
2022) and Metalloinvest
(to end 2020), in line
with the Group’s strategy
to develop its outsourcing
client partnerships.
― New three-year service
contract (to end June 2022)
signed with Gazprom Neft,
a long-standing client of the
Group.
― New service for the
steel industry launched,
transporting high-quality,
rolled steel in specialised
containers.
Annual Report & Accounts 2019
Globaltrans Investment PLC
15
DIRECTORS’ RESPONSIBILITY
Each of the Directors confirms that, to the
best of his or her knowledge, the Strategic
Report presented on pages 18 to 79 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
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CHAPTER 2
Strategic
Report
Chairman’s Statement
Chief Executive Officer’s Review
Market Review
Operational Performance
Financial Review
Risk Management
Sustainability
18
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32
40
60
70
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STRATEGIC REPORT
Chairman’s
Statement
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Sergey Maltsev
Chairman
Chief Strategy Officer
Co-founder and shareholder
Globaltrans enjoyed another successful year in 2019 with revenue, EBITDA and
profitability all at record levels. The foundation for this result was a strong trading
performance, which saw the Group growing business volumes ahead of the market,
strengthening its Market Share, extending the portfolio of long-term partnerships
and sealing important contract extensions.
RUB 16.6 bln
Total 2019 dividends,
including interim, final
and special
RUB 93.1
Total dividends
per share/GDR
in respect of 2019
Dear Shareholders,
The results were all the more pleasing as they
were delivered in a period when the sector
battled demand volatility and rail network
bottlenecks caused by a number of ongoing
major rail infrastructure expansion projects.
As I have remarked before, moving freight
cargo is a highly complex operation and we
are experts at it, providing services that help
our clients to improve their own performance
whilst reducing their costs. Our performance
in 2019 affirmed our position as one of the
leaders in our industry and the partner of
choice for our customers. These results also
highlight that elusive factor, management
excellence. The timely move to purchase
additional rolling stock in 2018 meant the
Group was able to drive greater volumes
through the business without compromising
service levels to our clients. At the same time
management was again able to grow our
business while keeping costs in check.
Our outsourcing contracts also continued
to flourish and add value. We continued the
implementation phase on two major contracts
that we had signed in 2018 with TMK and
Chelpipe Group. We also sealed contract
extensions with two existing customers, MMK
and Metalloinvest and signed a three-year
service contract with Gazprom Neft, our
long-standing client. When existing customers
extend contracts, it is a welcome signal that
we are meeting or exceeding expectations.
Board and governance
Strong governance is critical to the sustainable
success of the Company and business.
One of my key responsibilities as Chairman
is to set the tone for the Group and ensure
good governance. I consider that our Board
is well balanced and, in terms of governance,
functioning effectively. By maintaining
high standards, we can enhance business
performance and support value creation for
our shareholders.
It was with great sadness that the Board
learned of the death in May 2019 of Michael
Zampelas, our Senior Independent Non-
executive director and former Chairman.
Michael joined the Board at the time of the IPO
in 2008 and was Chairman for five years until
2018. He made an invaluable contribution to
the Group’s development, most notably during
his time as Chairman. It was a privilege to know
him and work alongside him and he will be
greatly missed.
Dr. Johann Durrer took over as Senior
Independent Director in May 2019 and
in September 2019, Vasilis Hadjivassiliou,
formerly a partner of PricewaterhouseCoopers,
Cyprus, was elected to the Board as
an Independent Non-executive Director.
I welcome Vasilis to the Board and I look
forward to working with him.
Companies today are judged by their
trustworthiness and openness as much as by
their financial results. We devote considerable
time to our investor communications
to ensure that our business is properly
understood and there is clarity around
our strategy and objectives. It is therefore
a source of pride that our efforts have been
publicly recognised by investors. In 2019,
the Company earned the distinction of being
named a “Most Honoured Company” in the
Institutional Investor 2019 Emerging EMEA
Executive team rankings. The Group was
awarded top rankings in the transportation
sector for its CEO and CFO, and for its investor
relations programme.
Further details on our governance
structures and processes are set out in our
Corporate Governance Report on pages
88 to 95
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CHAIRMAN’S STATEMENT
Industry fundamentals
Sustainability
Russia’s future economic prosperity remains
inextricably linked to the health of its rail
network, which accounts for about 87% of
all non-pipeline freight turnover. Rail freight
has been one of the great success stories of
deregulation in Russia and as we enter a new
decade, the long-term prospects for the sector
remain attractive.
Looking ahead, as the economy seeks to
pivot towards Asia, the need for reliable
freight rail transportation becomes even
more pressing. The provision of adequate
freight carrying capacity on the rail network
to respond to demand will be a key enabler
for further growth. Without greater capacity,
Russia will struggle to accommodate the
expected growth in commodity flows to
Asia. In response, the government and
JSC “Russian Railways” (RZD) have been
steadily upgrading the carrying capacity of
the rail network, focusing particularly on
expanding the network’s Far Eastern routes.
The companies that stand most to gain from
these initiatives will be those rail operators
that, like Globaltrans, have the management
expertise, the client relationships and the fleet
and logistics capabilities to successfully handle
greater freight volumes.
In the short-term, the industry faces
a challenging time, made more difficult by the
ongoing spread of COVID-19 (coronavirus).
The markets we serve are predicted to remain
volatile, and as rail freight services operate
in response to customer and supply chain
demands, this is likely to make the task of
planning freight services rather challenging.
However as our performance in 2019
has again shown, Globaltrans has all the
experience and expertise needed to navigate
difficult conditions.
Freight rail also has a positive story to tell with
regard to sustainability and climate change.
On average, trains are more fuel efficient than
trucks. That means that moving freight by
rail instead of by road can contribute less to
greenhouse gas emission. Investment in new
infrastructure and next-generation technology
should help to further the sector’s green
credentials.
At Globaltrans, our goal is to lead the way
in moving freight in an environmentally
responsible way. We recognise our operations
have an impact on the environment and we
are working to reduce our carbon footprint
and help our customers do the same.
Capital allocation
and dividends
We recognise the importance our shareholders
attach to receiving a reliable dividend stream.
This was made clear in our dividend policy
introduced in 2017 that stated that any excess
capital not required for the expansion of the
business would be returned to shareholders,
subject to Leverage Ratio. And we have done
just that, paying solid dividends enabled by our
robust Free Cash Flow generation.
In 2019, our strong results and low leverage
enabled us again to reward our shareholders
with an attractive dividend for the year.
Total 2019 dividends, including interim, final
and special, amounted to RUB 16.6 billion,
equivalent to RUB 93.1 per share/GDR, slightly
ahead of the previous year and equivalent to
about 152% of the Group’s Attributable Free
Cash Flow.
More details of the Group’s progress
in sustainable development are contained
in our Sustainability section
on pages 70 to 79
The Board is targeting a total interim dividend,
including a special dividend, of about
RUB 8.3 billion in respect of the first half of
2020, which reflects our confidence in the
business and its future prospects.
Summary
2019 was a good year for Globaltrans and, on
behalf of the Board, I would like to thank all our
colleagues for their hard work and effort.
The Group enjoys a leading competitive
position in its markets underpinned by
a proven business model. We have a clear
strategy to achieve sustainable value growth
over time and a strong Board and Executive
team to implement it.
The Board is closely monitoring the rapidly
evolving COVID-19 outbreak. Our focus is on
ensuring the safety of our employees and
supporting our customers. We are fortunate
to have a highly skilled management team
in place who have successfully steered our
Company through market volatility before and
we remain confident they will do so again.
Our Approach to Dividends
The Group’s dividend policy strikes a balance between investing
in business expansion and delivering returns to shareholders.
This means:
― With a focus on maximising shareholder
value, the policy boosts pay-outs during
low investment cycles and limits them
in periods when sizeable expansion
opportunities meeting Globaltrans’ strict
return criteria are identified; and
― Having a clear formula linking dividends
to Attributable Free Cash Flow and
Leverage Ratio ¹ providing flexibility and
transparency in capital allocation.
Leverage Ratio
Less than 1.0х
From 1.0х to 2.0х
2.0х or higher
Dividends as a % of Attributable Free Cash Flow
Not less than 50%
Not less than 30%
0% or more
To view the dividend policy, please visit our corporate website www.globaltrans.com.
Dividend history, RUB per share/GDR, in respect of related financial year/period
2
Declared after approval of enchanced dividend policy
89.65
92.40
93.10
44.80
44.85
45.90
46.50
46.55
46.55
39.20
Sergey Maltsev
Chairman
Chief Strategy Officer
Co-founder and shareholder
22.20
22.28
18.86
12.41
10.34
4.42
2009
2010
2011
2012
2013
2014-
2015 3
2016
H1
2017 4
H2
2017 4
H1
2018 4
H2
2018 4
H1
2019 4
H2
2019 4
1 The Board of Directors of Globaltrans reserves the right to recommend to the general meeting of shareholders the dividend in the amount calculated on
a reasonable basis other than described in this Annual Report in its sole discretion. For more details please see the Dividend policy as adopted by the Board
on 31 March 2017 and amended on 24 August 2018, which is available at www.globaltrans.com.
2 Prior to 2016 dividends on Globaltrans shares/GDRs were declared and paid in US dollars, thus the amounts in Russian roubles are presented for information
purposes only and calculated at the Central Bank of Russia’s official exchange rate for the Russian rouble as of the date of the general meeting that approved
the respective dividend. From 2016 dividends on Globaltrans shares/GDRs are declared in Russian roubles and paid in US dollars.
3 The dividend declared in 2016 related to both the 2014 and 2015 financial years.
4 Including regular and special dividends.
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STRATEGIC REPORT
CEO
Review
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Valery Shpakov
Chief Executive Officer
2019 was another excellent year for Globaltrans with record financial results
and continued operational efficiency. In the face of a mixed freight rail market,
we delivered strong momentum in our own business, successfully executing against
our objectives, securing new outsourcing contract along with important existing
contract extensions and maintaining our track record of profitable growth.
RUB 39.6 bln
Adjusted EBITDA
57%
Adjusted EBITDA Margin
Dear Shareholders,
We were able to grow volumes, increase our
Market Share and significantly expand our
presence in the specialised container freight
segment. These results provide further
validation of our business model with its focus
on operational excellence, client service,
careful cost management and prudent capital
allocation.
Results highlights
We delivered a record set of financial results
in 2019. This was a great achievement,
particularly when set against the mixed market
conditions and record prior year comparators.
Adjusted Revenue increased 13% year on
year to RUB 68.8 billion, supported by solid
performance from both our gondola and
tank car operations. As usual, we were able to
deploy our entire fleet, including 2.5 thousand
units purchased in 2019.
By efficiently leveraging our operating
platform, we were able to deliver solid growth
in Transportation Volumes of 3.5%. Along with
strong pricing, this drove our revenue growth,
which we are pleased to say, again outpaced
the increase in our costs.
Adjusted EBITDA was up 20% year on year
to a record RUB 39.6 billion with Profit for
the year 16% higher at RUB 22.7 billion.
We further expanded our margin in 2019
with our Adjusted EBITDA Margin increasing
to 57% from 54% in the prior year. We kept
costs well managed, restricting the increase in
Total Operating Cash Costs to just 5% despite
underlying inflationary pressures.
Operating cash flows before working capital
were also strongly ahead during the year up
19% year on year to RUB 39.5 billion.
Free Cash Flow remained solid at
RUB 12.8 billion, up 4% compared to the prior
year, despite higher CAPEX for the period and
a partial one-off build-up of working capital.
The higher CAPEX figure was mostly due to
greater than anticipated capital expenditure
on maintenance, caused by speculative cost
inflation in certain replacement spare parts.
The financial profile of the Group remained
robust. Net Debt increased but leverage
remained at very conservative levels, with
the Net Debt to Adjusted EBITDA ratio at
0.60 times broadly in line with the prior year.
On the back of this strong performance, we
were able to slightly increase the level of
distributable total dividends in 2019 (including
interim, final and special) to RUB 93.1 per
share/GDR (2018: RUB 92.4 per share/GDR).
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CEO REVIEW
Our markets
Our performance
The performance of the freight rail industry
was mixed in 2019. After several years of
growth, the total volume of rail freight
moved in Russia fell by 0.9% year on year.
Performance varied somewhat across the
main cargo categories. In the non-oil (bulk)
cargo sector, overall volumes were fairly
stable with just a 0.7% decline year on year.
Coal volumes (including coke) fell 1% year on
year with global coal price weakness affecting
rail volumes. In the metallurgical segment
(including ferrous metals, scrap metal and
ores) volumes also saw a drop of 1% year on
year, with pressure in ferrous metals partially
offset by solid iron ore shipments. However,
construction materials fared better posting
a slight increase in volumes for the period, up
1% year on year. Overall freight rail volumes
in the oil products and oil segment dropped
2% year on year largely on the back of
scheduled repair and maintenance works at
some refineries and a decrease in heavy fuel
oil volumes combined with the launch of new
pipelines.
Overall growth in freight rail turnover
(measured in tonnes-km) was broadly flat,
rising 0.2% year on year. It should be noted
that the industry has enjoyed a period of very
strong growth over the last few years, and
the freight rail turnover figure for 2019 still
represents a five-year high for the industry.
The overall pricing environment in 2019 was
largely favourable. In the gondola segment
of the market, rates were generally healthy,
supported by stable volumes. There was
however, increasing pressure on pricing during
the second half of the year largely reflecting
an oversupply of new gondolas combined
with volatility in demand. In contrast, the
tank segment experienced healthy pricing
conditions, supported by balanced supply and
demand.
Operationally, it was a challenging year for the
Company, as we had to manage a decrease
in average speeds on the overall network and
a substantial shift in the logistics patterns of
our key clients. The first was largely caused by
a number of major rail infrastructure renewal
and extension projects that affected network
operations.
At Globaltrans we are well versed in managing
our business in adverse conditions and we
again managed to outperform the overall
market, growing our Transportation Volumes
3.5% year on year, against a market that fell by
0.9%. Our volumes grew both in our bulk cargo
segment, which improved by 3% year on year,
and in the oil products and oil segment which
grew 6% year on year. The Group’s Freight Rail
Turnover also increased, advancing 0.6% year
on year. Notably we also strengthened our
Market Share which rose to 7.8% from 7.4% in
the previous year.
Having completed a major rebalancing of the
fleet in 2018 by replacing leased-in gondolas
with owned units, we reaped the benefit of
the additional capacity we had added to our
gondola fleet. We were able to quickly deploy
all of the additional units into service, meaning
we could meet our existing commitments and
support the start of the ramp-up in operations
for two major service contracts we signed in
2018 with TMK and ChelPipe Group.
We continued to develop our outsourcing
strategy, signing a new three-year service
contract with Gazprom Neft, a long-standing
client that contributed 5% of the Group’s
2019 Net Revenue from Operation of Rolling
Stock. In addition, we secured two important
contract extensions with major customers.
Our service contract with MMK was extended
until the end of September 2022, while
Metalloinvest extended its agreement
through to the end of 2020. In both cases,
the contracts stipulate that Globaltrans will
transport at least 70% of each company’s rail
freight. Outsourcing contracts are a central
feature of our operating model and securing
large, long-term, contracted volumes provides
a solid level of protection in difficult markets,
underpinning our revenues. Outsourcing
contracts accounted for 66% of the Group’s
Net Revenue from Operation of Rolling Stock
in 2019.
Despite second half headwinds in the gondola
segment, we achieved further solid growth in
pricing in 2019 with the Group’s Average Price
per Trip up 9% year on year, supported by our
superior logistics capabilities and the quality of
our service offer to clients.
We were able to adapt to and profit from the
shift in client logistics patterns seen during
the year because of the size and flexibility
of our operating platform. Predictably, the
volatility in logistics patterns had an impact on
our ability to efficiently manage Empty Runs.
Consequently, there was a rise in our gondola
Empty Run Ratio which increased to 42% from
38% in 2018, and yet is still one of the lowest
in our industry.
At Globaltrans we are well versed in managing our business in adverse conditions
and we again managed to outperform the overall market, growing our
Transportation Volumes 3.5% year on year, against the market that fell by 0.9%.
Capital expenditure
We have a very clear policy about capital
allocation: all investments must meet strict
returns criteria in keeping with our aim of
delivering sustainable value growth through
the cycle. Total CAPEX, including maintenance
CAPEX, amounted to RUB 14.0 billion, 9%
higher than the previous year which, as
I mentioned, was largely due to higher than
anticipated maintenance capital expenditure
(up from RUB 3.5 billion* in 2018 to
RUB 6.9 billion*) related to speculative price
rises for certain spare parts. As anticipated,
the expansion CAPEX was moderate,
a decline from RUB 9.4 billion* in 2018 to
RUB 7.1 billion*.
The bulk of our expansion investment in
2019 was to support the further growth of
our SyntezRail subsidiary. SyntezRail, which
celebrated its fifth anniversary in 2019,
operates about 4.9 thousand units (including
specialised containers and flat cars) for clients
involved in the petrochemical, metallurgical
and industrial sectors. SyntezRail’s range of
specialist transport solutions is expanding;
in 2019, a new service for the steel industry
was launched, transporting high-quality,
rolled steel in specialised containers. This has
been well received by clients, and we
plan to expand our presence in this niche.
Net Revenue from Specialised Container
Transportation increased 45% year on year in
2019, contributing 2% of the Group’s Adjusted
Revenue.
We also strengthened our tank operations,
where we now operate our own fleet
of 75 locomotives. We made a one-off
purchase of ten brand-new, efficient mainline
locomotives as part of our drive to modernise
our locomotive fleet. Our rail tank customers
want faster, better and more reliable services.
The addition of these locomotives to our fleet
will help achieve that, improving reliability,
reducing repair and maintenance costs,
increasing fuel efficiency and reducing
emissions.
In total, we acquired 2,502 units over 2019,
including 700 flat cars and 1,154 specialised
container units. We also acquired 638 gondolas
alongside ten locomotives.
Outlook
The market has got off to a mixed start in
2020, as the issues that weighed on the
industry in 2019, namely pricing pressure in
the gondola segment and volatile demand in
bulk cargoes, look set to persist. In light of this,
our planned expansion CAPEX needs for this
year are modest, which will result in a sizeable
cut in our overall investment spend in 2020.
We are budgeting for a small incremental
addition of fewer than 1,000 units, primarily for
our niche operations, and consisting mainly of
flat cars and specialised container units.
We are closely monitoring the potential
economic impact of COVID-19 (coronavirus)
on the freight rail transport sector and our
business. Our primary concern is the welfare
of our staff and appropriate measures are in
place to ensure their health and safety. We are
also working hard to mitigate the potential
impact on our operations and those of our
clients, however at this stage it remains
difficult to assess the operational and financial
impact of COVID-19 on the Group.
While the market environment has
become more difficult, and COVID-19
is now an additional factor generating
uncertainty, our proven business model
and entrepreneurial can-do culture give me
confidence that we are well placed to navigate
the current volatility and deliver another year
of progress on our plans. Our approach to
capital allocation remains unchanged and, as
our actions prove, we continue to prioritise
our shareholders by returning excess capital to
them in the form of a reliable dividend stream.
Valery Shpakov
Chief Executive Officer
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Market
Review
Russia’s rail network at a glance
Globaltrans operating subsidiaries,
their branches and representative offices
Russia’s rail network’s key illustrative routes
FINLAND
BARENTS SEA
St. Petersburg
ESTONIA
Arkhangelsk
BELARUS
Moscow
Cherepovets
Zheleznogorsk
Stary Oskol
UKRAINE
Rostov-on-Don
Kstovo
Voronezh
Samara
Nizhny Tagil
Yekaterinburg
Taganrog
Krasnodar
Volzhsky
Magnitogorsk
Novotroitsk
Chelyabinsk
Tyumen
Omsk
Novorossiysk
Stavropol
KAZAKHSTAN
Orsk
Novosibirsk
Kemerovo
Krasnoyarsk
Novokuznetsk
Angarsk
Chita
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EAST SIBERIAN SEA
BERING SEA
SEA OF OKHOTSK
Komsomolsk-on-Amur
Khabarovsk
CHINA
SEA OF JAPAN
Vladivostok
17.6 mln
Russia covers 17 million square
kilometres, which is more than
10% of the Earth’s land mass
10,000 km
Served from east to west
4,000 km
Served from north to south
85,500 km
Third-longest rail track
in the world
MONGOLIA
87%
of the country’s overall
freight turnover,
excluding pipeline traffic,
travels by rail
2.6 tn
Overall freight rail
turnover in 2019
(tonnes-km)
1.3 bln
Freight transported
in 2019 (tonnes)
1.2 mln
Number of freight
railcars operating
at the end of 2019
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MARKET REVIEW
Rail network is fundamental
to Russia’s economic prosperity
Russia’s rail network, at over 85,500 km of
track is the third largest in the world and is
the backbone of the country’s economy,
accounting for about 87% of the country’s
overall freight turnover. Russia’s huge
territory – over 10% of the world’s land mass –
and large reserves of natural resources means
that a functioning rail network has long been
fundamental to the country’s prosperity.
It helps bind the country’s regions together,
connects businesses to markets and is the
bridge that links Russia to the global economy.
Over 2.6 trillion tonnes-km a year, around
1.3 billion tonnes of freight cargo, is carried
on the network annually. Freight rail volumes
consist largely of commodities such as
coal, oil products and oil, metals, ores and
construction materials.
Russia’s rolling stock fleet as at year-end 2019
totalled 1.2 million units. Gondola cars that
are used to carry a wide variety of cargoes
including metals, ores, crushed stone, coal and
timber accounted for just under half of the
total railcar fleet, 48%, or 557 thousand units.
1.3 bln tonnes
of freight cargo is carried
on the network annually
Tank cars, used mainly to transport oil
products and oil, are the second most
common type of railcar in Russia and
accounted for about 21% of the fleet (or
247 thousand units) as at year-end 2019.
The remaining 31% of the fleet consists of
other types of rolling stock including flat cars,
which are mainly used to ship containers,
and hopper cars that transport a variety of
specialised cargoes such as fertilisers, cement
and grain.
Deregulation has transformed
the freight rail market
Market reforms, first introduced in 2001 to
attract private investment and encourage
competition in the freight transportation, have
helped to transform the sector, modernising
working practices, increasing efficiency, and
improving the economics of the industry.
The market environment continues to evolve
with private freight rail operators significantly
expanding their fleets. Private freight rail
operators represented almost 85% of all
Russian railcars in 2019, up from about 30% at
the end of 2005.
While the Russian state railway company
JSC Russian Railways (RZD) retains its
monopoly over rail track infrastructure, and
remains the largest provider of locomotive
traction services, third-party rail operators are
free to access the rail network on an equal
basis. The pricing for rail freight services is
also deregulated with the exception of those
elements that are provided by RZD (such as
infrastructure and locomotive traction for
loaded and empty trips).
85%
Share of private freight rail
operators
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Russia’s freight rail turnover,
2015–2019 — billion tonnes-km
2019
2018
2017
2016
2015
+0.2%
2,602
2,597
2,493
2,344
2,306
Russia’s freight rail transportation volumes,
2015–2019 — million tonnes
−0.9%
2019
2018
2017
2016
2015
1,279
1,292
1,266
1,227
1,218
Source: Rosstat
Source: Rosstat
Total Russia’s railcar fleet
at year-end, 2015–2019 — thousand units
+5%
Total Russia’s railcar fleet by car type,
at the end of 2019 — thousand units
2019
2018
2017
2016
2015
1,170
1,113
1,078
1,073
1,151
366
247
557
48% Gondola cars
21% Tank cars
31% Other railcars
Source: RZD, Company estimations
Source: RZD, Company estimations
+0.2 %
Russia’s freight rail turnover
growth
1,170 th units
Total Russia’s railcar fleet
Russia’s monthly freight rail turnover, 2018–2019 — billion tonnes-km
+2%
+2%
215
220
197
200
+3%
232
225
+4%
+2%
−2%
−3%
−2%
+1%
0%
−3%
−3%
225
216
225
219
210
206
220
213
218
214
210
213
223
222
220
213
225
219
Jan
Feb
Mar
Apr
May
Jun
July
Aug
Sep
Oct
Nov
Dec
2018
2019
Source: Rosstat
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2,602
bln tonnes-km
Russia’s freight rail turnover
MARKET REVIEW
The market in 2019
Overall industry demand in 2019 remained
solid despite unsupportive and volatile macro-
economic conditions. Although industrial
production in Russia increased 2.4% year on
year, progress was uneven with considerable
volatility being seen on a monthly basis.
Added to this, a number of industries endured
difficult trading conditions caused by volatile
end markets which in turn put additional
pressure on demand.
The freight rail industry recorded a slight
rise in freight rail turnover in 2019, up 0.2%
year on year to 2,602 billion tonnes-km.
While transportation volumes nudged
down slightly, this was compensated by
an increase in average distances travelled.
Freight transportation volumes fell by 0.9%
year on year to 1,279 million tonnes, reflecting
volatility in demand across different segments
through the year.
Average speeds across the rail network
continued to decline in 2019 impacted by
ongoing large infrastructure projects aimed
at removing bottlenecks in parts of the rail
network and expanding the rail network
eastwards as part of the government’s
commitment to support greater volumes of
exports to Asian markets.
Coal (including coke) was the largest cargo
segment, making up about 30% of Russia’s
overall freight volumes in 2019. Coal volumes
dipped slightly, falling 1% year on year, as
a decline in domestic demand due to milder
winter weather more than offset a slight
increase in thermal coal export volumes.
Metallurgical cargo volumes (including
ferrous metals, scrap metal and ores) were
also slightly down declining 1% year on year.
Volume patterns differed markedly by cargo:
iron ore volumes grew 3% year on year driven
by favorable global demand trends and pricing
whereas ferrous metal volumes were impacted
by lower export demand only partially offset
by solid domestic demand and fell 6% year
on year. This segment accounted for 18% of
overall Russian freight rail volumes in 2019.
In the construction materials segment,
volumes grew in line with the level of overall
construction activity in the economy, with
volumes up 1% year on year.
Within the gondola segment, pricing conditions
were generally solid over the first part of the
year but started to deteriorate during the
second half of 2019 reflecting largely volatility
in demand in a number of cargo segments.
Non-oil (bulk) cargo segment
Oil products and oil segment
In the non-oil (bulk) cargo segment,
performance was muted with the sector
recording a slight fall in volumes of 0.7%
year on year. This decline reflected demand
volatility in a number of key commodities
including coal and metals.
The oil products and oil transport segment
recorded a volume decline of 2% year on year.
This largely reflected the impact of scheduled
repair and maintenance works at a number of
refineries over the summer months, a decrease
in heavy fuel oil volumes combined with launch
of new pipelines. The pricing environment in
the tank segment remained healthy during
2019 on the back of favorable supply and
demand dynamics. This segment accounted
for 18% of overall Russian freight rail volumes
in 2019.
Russia’s freight rail transportation volumes by cargo, 2015–2019 — million tonnes
Coal (including coke)
-1%
Oil products and oil
2019
2018
2017
2016
2015
383
386
373
343
336
2019
2018
2017
2016
2015
Source: Rosstat
Source: Rosstat
Metallurgical cargoes (including ferrous
metals, scrap metal and ores)
2019
2018
2017
2016
2015
−1%
228
231
219
217
216
Construction materials
(including cement)
2019
2018
2017
2016
2015
Source: Rosstat
Source: Rosstat
Breakdown of Russia’s freight rail transportation volumes by cargo, 2019
−2%
232
237
236
236
251
+1%
150
149
160
168
160
1,279
mln tonnes
Russia’s freight rail
transportation volumes
30% Coal (including coke)
18%
18%
Oil products and oil
Metallurgical cargoes (including
ferrous metals, scrap metal, ores)
12% Construction materials (including cement)
22% Other
Source: Rosstat
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30%
Coal (including coke) was
the largest cargo segment
18%
Share of metallurgical cargo
in overall Russian freight rail
volumes
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STRATEGIC REPORT
Operational
Performance
Globaltrans produced a solid operational performance in 2019 driven by its superior
service offering, strong operating platform and large outsourcing contracts.
The Group outperformed the broader market, growing its volumes ahead of market
and increasing its Market Share. Furthermore, Globaltrans signed a new long-term
contract and secured other important contract extensions, whilst maintaining
an Empty Run Ratio at industry-leading levels and improving its Average Price per Trip.
Globaltrans’ Market Share of overall Russia’s freight rail
transportation volumes by cargo, 2019
Breakdown of Globaltrans’ Freight Rail Turnover
by cargo, 2019
Market Share of overall Russia’s freight rail transportation volumes
7.8%
Metallurgical cargoes (including ferrous metals, scrap metal and ores)
22.0%
Oil products and oil
9.5%
Construction materials (including cement)
4.8%
Coal (including coke)
3.2%
50% Metallurgical cargoes (including ferrous metals,
scrap metal and iron ore)
15% Oil products and oil
23% Coal (including coke)
4% Construction materials (including cement)
8% Other
Key operational information, 2018–2019
Freight Rail Turnover, billion tonnes-km (excluding Engaged Fleet)
Transportation Volume, million tonnes (excluding Engaged Fleet)
Average Price per Trip, RUB
Average Rolling Stock Operated, units
Average Distance of Loaded Trip, km
Average Number of Loaded Trips per Railcar
Total Empty Run Ratio, %
Empty Run Ratio for gondola cars, %
Share of Empty Run kms paid by Globaltrans
Total Fleet, units (year-end)
— Owned Fleet, units (year-end)
— Leased-in Fleet, units (year-end)
Leased-out Fleet (year-end)
Average age of Owned Fleet (year-end)
Total headcount (year-end)
2018
146.2
88.5
41,950
53,562
1,644
25.6
46%
38%
89%
69,023
65,405
3,618
7,627
11.0
1,549
2019
147.1
91.6
45,807
56,845
1,591
25.0
49%
42%
89%
70,720
67,669
3,051
6,842
11.5
1,640
Change
0.6%
3.5%
9%
6%
-3%
-3%
–
–
–
2%
3%
-16%
-10%
–
6%
Source: Globaltrans, Rosstat
Source: Globaltrans
Source: Globaltrans
Market outperformance in Transportation
Volumes ¹ (up 3.5% year on year compared
to the overall Russian market decline of
0.9% year on year).
― Market Share increased to 7.8% (2018: 7.4%).
― Volumes grew in the segments for bulk (up 3%
year on year) and oil products and oil (up 6% year
on year).
― Freight Rail Turnover ¹ increased 0.6% year on
year mainly reflecting a 3% year-on-year decline
in Average Distance of Loaded Trip on the back of
changed client logistics.
― Average Number of Loaded Trips per Railcar
decreased 3% year on year primarily due to
changed client logistics and a deterioration in
average speeds on the Russian Railways rail
network, caused mainly by ongoing major rail
infrastructure modernisation projects.
Strong pricing maintained with Average
Price per Trip up 9% year on year.
― Broadly stable Average Price per Trip in the
second half of 2019, despite headwinds in the
gondola segment and supported by healthy
pricing in tank cars.
Total Fleet increased 2% to 70,720 units
with the share of Owned Fleet at 96%.
― Limited acquisitions in 2019 with 2,502 units
delivered in the year, driving Owned Fleet to
67,669 units ² .
― Leased-in Fleet reduced 16% compared to the
end of 2018 to 3,051 units (mostly tank cars).
― Average Rolling Stock Operated was up 6% year
on year to 56,845 units.
1 Excluding Engaged Fleet.
The Group’s Transportation
Volumes and Freight Rail
Turnover including Engaged
Fleet were up 3.5% and 1.7%
year on year respectively.
2 In 2019 the Group took
delivery of 2,502 units
(including 1,154 specialised
containers, 700 flat cars,
638 gondola cars and
10 locomotives) and
disposed of 238 units (mostly
tank and flat cars).
New long-term contract secured with Gazprom
Neft, major service contracts extended. Service
contracts contributed 66% of the Group’s
Net Revenue from Operation of Rolling Stock.
― New three-year service contract to the end of June
2022 signed with Gazprom Neft, a long-standing client
that contributed 5% of the Group’s 2019 Net Revenue
from Operation of Rolling Stock.
― MMK service contract extended until the end of
September 2022; Globaltrans will continue to transport
at least 70% of MMK’s rail freight.
― Metalloinvest service contract extended until the end
of 2020; Globaltrans will transport at least 70% of
Metalloinvest’s rail freight, providing both parties with
flexibility and aligning the contract with general market
practice.
― Volumes serviced under the contract with TMK
increased to a minimum of 75%.
― Net Revenue from Operation of Rolling Stock from new
five-year contracts signed with TMK and ChelPipe
Group in 2018 was up 60% year on year.
Operational excellence maintained
despite volatility in clients’ logistics.
― Substantial shift in clients’ logistics patterns
drove anticipated increase in Empty Run Ratio
for gondola cars in the first half of 2019, which
remained stable thereafter.
― As anticipated, the Empty Run Ratio for
gondola cars increased to 42% (2018: 38%)
yet remained one of the lowest on the Russian
market.
― Total Empty Run Ratio (for all types of rolling
stock) rose to 49% (2018: 46%).
― Share of Empty Run Kilometers paid by
Globaltrans remained stable year on year
at 89%.
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OPERATIONAL PERFORMANCE
Market outperformance and Market Share gains
The Group grew its Transportation Volumes
3.5% year on year to 91.6 million tonnes
compared to the overall Russian freight
market where transportation volumes shrank
0.9% over the same period. Core cargo
segments showed strong momentum,
with the bulk cargo and oil products and oil
segments reporting volumes ahead by 3% and
6% year on year respectively.
The Group’s Freight Rail Turnover was slightly
higher at 147.1 billion tonnes-km, an increase
of 0.6% year on year, as changes to customer
transport patterns resulted in shorter average
journeys.
The key operational metrics including
Engaged Fleet also increased with
Transportation Volumes and Freight Rail
Turnover up 3.5% and 1.7% year on year
respectively.
The Group strengthened its Market Share of
the overall industry transportation volumes to
7.8% compared to 7.4% in the previous year.
Asset utilisation was strong, with the
Globaltrans fleet fully deployed in operations
in 2019. As a result, the Average Rolling Stock
Operated by the Group increased 6% year on
year to 56,845 units in 2019 from 53,562 in
2018.
Average Number of Loaded Trips per Railcar
declined 3% year on year to 25.0 trips per
annum. This reflected volatility in client
logistics and a decrease in average speeds on
the RZD rail network; the result of ongoing
major rail infrastructure expansion projects
whose objective is to expand the network’s
freight-carrying capacity to the Russian Far
East regions. The Average Distance of Loaded
Trips also decreased, down 3% year on year.
Bulk cargo segment
The bulk cargo segment, which covers main
cargo categories such as coal, metals and
construction materials, is the backbone
of the Group’s freight operations. In 2019,
the segment contributed about 85% of the
Group’s total Freight Rail Turnover and 76% of
Transportation Volumes.
The Group’s bulk cargo volumes grew 3%
year on year to reach 69.7 million tonnes,
outperforming the market, which saw
a decrease in bulk cargo (non-oil) volumes of
about 0.7% year on year. Solid volume gains
in the coal and construction segments were
partially offset by modest declines recorded
in transport volumes in the metallurgical
segment. The Group’s Freight Rail Turnover
in this segment was stable, in line with the
previous year.
Metallurgical cargoes (including ferrous
metals, scrap metal and iron ore) remain the
Group’s largest individual operating category.
Globaltrans has a strong presence in this
segment through its large outsourcing
contracts with major customers, with the
Group servicing the majority of their freight
transport requirements. Globaltrans held
a 22% Market Share in the segment in
2019 and accounted for 48% of the Group’s
Transportation Volumes in the reporting year.
In 2019, the Group’s Transportation Volumes
declined 3% year on year to 43.9 million
tonnes in this category, the result of volumes
volatility for ferrous metals, which was only
partially offset by a rise in iron ore shipments.
The Group’s Freight Rail Turnover in this
segment declined 7% year on year.
The Group’s performance in the coal segment
(including thermal and coking coal) was strong
in 2019, with coal volumes up 19% year on
year, with 11.4 million tonnes transported by
the Group. As a category, coal made up 12% of
the Group’s Transportation Volumes in 2019.
The Group’s Market Share in this segment
was 3.2% with Freight Rail Turnover from the
segment up 14% year on year.
In the construction materials segment
(including cement), the Group also grew its
Transportation Volumes, increasing them
11% year on year to 7.1 million tonnes.
In 2019, the construction materials segment
contributed 8% of the Group’s Transportation
Volumes, and the Group held a 4.8%
Market Share. Freight Rail Turnover in this
segment was up 10% year on year.
Globaltrans is also involved in the
transportation of other bulk cargoes.
This category includes non-ferrous ores,
slags, timber and others. The Group’s
combined transportation volumes from
these cargoes increased 8% year on year
to 7.3 million tonnes. The Group’s Freight
Rail Turnover generated by other cargoes
increased 11% year on year.
Because of the size of Russia, construction
sites tend to be widely dispersed.
Consequently, construction materials and
other bulk cargoes are key shipments for
gondolas travelling on return routes thus
helping to minimise the incidence of Empty
Runs.
Oil products and oil
In the oil products and oil segment Globaltrans
provides transportation services to several
major oil companies and a number of
small and medium-sized players. In 2019,
the Group’s Transportation Volumes in
this segment grew 6% year on year to
reach 21.9 million tonnes, significantly
outperforming the market which declined
by 2% year on year. Volume growth was
supported by an increase in the tank fleet
in operation as some leased out units were
switched and put into operation for the Group.
On certain routes the Group runs block trains
for clients, consisting exclusively of company-
operated tank cars and locomotives. This is
a customised service for clients that results in
faster, more reliable cargo shipments for them.
Globaltrans had a 9.5% Market Share in this
segment in 2019.
+3%
Year-on-year increase in
the Group’s bulk cargo volumes
+6%
Year-on-year increase in
the Group’s oil products and oil volumes
Globaltrans’ Freight Rail Turnover, 2018–2019 (billion tonnes-km)
Globaltrans’ Transportation Volume, 2018–2019 (million tonnes)
Metallurgical cargoes (including ferrous metal, scrap metal and iron ore)
Oil products and oil
Coal (including coke)
Construction materials (including cement)
Other
TOTAL
Source: Globaltrans
2018
79.0
21.2
29.5
5.8
10.7
2019
73.1
22.0
33.8
6.3
11.8
146.2
147.1
Change
-7%
4%
14%
10%
11%
0.6%
Metallurgical cargoes (including ferrous metal, scrap metal and iron ore)
Oil products and oil
Coal (including coke)
Construction materials (including cement)
Other
TOTAL
Source: Globaltrans
2018
45.0
20.7
9.6
6.4
6.8
88.5
2019
43.9
21.9
11.4
7.1
7.3
91.6
Change
-3%
6%
19%
11%
8%
3.5%
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OPERATIONAL PERFORMANCE
Operational excellence maintained
despite volatility in clients’ logistics
Strong pricing
maintained
New long-term contract secured with Gazprom Neft,
other major service contracts extended
Operational excellence, continuously
improving the business performance day by
day, is part of the DNA of a high performance
logistics business like Globaltrans. The Group
has consistently proved itself one of the
industry’s most reliable operators by
leveraging its in-depth understanding
of customers’ transport patterns and
supply chains, providing its customer
with sophisticated logistics solutions, and
remaining highly efficient.
High productivity demands efficient
management of routes and careful matching
of inbound and outbound freight. The Empty
Run Ratio is one of the Group’s key operational
metrics used to measure the efficiency of its
logistics. Converting Empty Runs into loaded
shipments increases revenue, as more cargo
can be carried, and reduces costs, as rolling
stock units travel empty less often.
2019 saw a substantial change in the logistics
patterns of a number of key customers.
Due to its powerful operating platform,
the Group was able to quickly adapt to the
changed circumstances whilst retaining its
high levels of productivity and client service.
The resulting dislocation to logistics patterns
caused the Group’s gondola Empty Run Ratio
to increase to 42% from 38% in the previous
year. Despite this, Globaltrans’ gondola Empty
Run Ratio in 2019 remained among the lowest
in the Russian market. As a result, the Group’s
Total Empty Run Ratio, which encompasses
its entire rolling stock, increased to 49% from
46% in 2018. However, the share of Empty
Run Kilometres paid by Globaltrans held
steady at 89%.
The Group benefitted from a supportive
pricing environment for most of the reporting
year; this reflected healthy demand for the
Group’s services in both its gondola and
tank segments. The Group’s differentiated
customer proposition, based on its best-
in-class service offering and sophisticated
operating model, helped drive a 9% year on
year increase in the Average Price per Trip
to RUB 45,807, even though the bulk cargo
segment experienced some pricing pressure
in the second half of the year.
The combination of rising business volumes
and strong pricing drove growth in revenues,
with the Group growing its Net Revenue from
Operation of Rolling Stock by 13% year on year
to RUB 64,994 million*. Net revenue increases
were recorded in all of the Group’s business
segments with net revenue in bulk cargo rising
15% year on year, while in the oil products
and oil segments revenues were up 9% year
on year.
Globaltrans continues to pursue its strategy
of long-term client partnerships which the
Group pioneered in 2012. The Company’s
wide geographical presence, modern asset
base and reputation for operational excellence
makes it an attractive long-term strategic
partner for companies that require specialist,
freight solutions. The integrated partnership
model creates a win-win for both the client
and Globaltrans. The client benefits from
reduced freight costs and greater operational
flexibility, while for Globaltrans such contracts
secure predictable volumes, enabling efficient
logistics and driving efficient long-term
deployment of assets.
As a result, Globaltrans has established
outsourcing partnerships with six leading
Russian blue-chip companies: Metalloinvest,
MMK, TMK and ChelPipe Group in the
metallurgical industry and Rosneft and
Gazprom Neft in the oil products and oil
sector. This outsourcing client portfolio
contributed 66% of the Group’s Net
Revenue from Operation of Rolling Stock
in 2019. The Group also works with other
well-respected companies such as TAIF,
UGMK-Trans, Evraz and Severstal. The Group
provides freight services to a total of over
500 businesses in Russia, Belarus, Ukraine,
Kazakhstan and other countries.
In 2019, the Group secured a new three-year
service contract to the end of June 2022
with Gazprom Neft, a long-standing client
of the Group.
In 2019, a key focus for the Group was the
efficient ramp-up in operations to support
the two new five-year service contracts with
TMK and ChelPipe Group, signed in 2018.
As a result, there was a substantial expansion
in the Group’s business volumes with Net
Revenue from Operation of Rolling Stock
related to these service contracts up 60% year
on year.
In addition, the Group signed important
contract extensions with two of its major
metallurgical customers, MMK and
Metalloinvest. The MMK contract was
extended until the end of September 2022,
with Globaltrans contracting to carry at least
70% of the client’s rail freight. The Group also
renewed its contract with Metalloinvest, which
was prolonged until the end of 2020, ensuring
Globaltrans will transport at least 70% of
Metalloinvest’s freight rail needs, providing
both parties with flexibility and aligning the
contract with general market practice.
Globaltrans’ Total Empty Run Ratio
(for all types of rolling stock, 2015–2019)
Globaltrans’ Empty Run Ratio
(for gondola cars, 2015–2019)
2019
2018
2017
2016
2015
Source: Globaltrans
49%
46%
45%
48%
51%
2019
2018
2017
2016
2015
42%
38%
37%
38%
39%
+13%
year-on-year increase
in Net Revenue from
Operation of Rolling Stock
42%
The Group’s gondola
Empty Run Ratio
Breakdown of Globaltrans’ Net Revenue from Operation of Rolling Stock by largest clients, 2018–2019 (including their affiliates and suppliers)
Rosneft
Metalloinvest
MMK
Gazprom Neft
TAIF
TMK
UGMK-Trans
Evraz
Severstal
ChelPipe
2018
23%
17%
16%
5%
3%
2%
2%
4%
1%
1%
2019
23%
21%
12%
5%
3%
3%
2%
2%
1%
1%
Other (including small and medium enterprises)
26%
26%
Source: Globaltrans
66%
Share of Net
Revenue from
Operation of
Rolling Stock
contributed by
service contracts
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Globaltrans Investment PLC
37
OPERATIONAL PERFORMANCE
Continued fleet expansion
96%
Share of Globaltrans’ Owned Fleet
Gondola cars
Globaltrans’ Fleet
45,620 gondolas
65% of Total Fleet
Scale allows Globaltrans to service large clients
with complex and sophisticated logistics.
Having expanded the fleet considerably in
2018 in response to new contract wins, and
as part of a rebalancing exercise that saw
expensive leased-in units replaced by wholly
owned units, investment in the fleet in 2019
was largely confined to individual specialist
niches. This involved, for example, further
modernisation of the locomotive fleet and the
acquisition of specialised containers and flat
cars for transporting high-quality steel.
Purchasing activity during 2019 was
modest with the Group taking delivery of
2,502 units in total including 1,154 specialised
containers, 700 flat cars, 638 gondola cars and
10 mainline locomotives. At the same time,
the Group disposed of 238 units (mostly tank
and flat cars).
2019, universal gondola cars remained the
largest segment accounting for 65% of the
Total Fleet.
As at year-end 2019, the Group’s Total Fleet
amounted to 70,720 units, an increase of 2%
over the prior year period. The Group’s Owned
Fleet stood at 67,669 units, having grown
by 3% over 2019. The share of Owned Fleet
increased to 96% versus 95% as at year-end
2018. Meanwhile, the Leased-in Fleet shrank
by 16% as the Group decreased the number
of tank cars it leased. The total Leased-in
Fleet amounted to 3,051 units as at the end
of 2019. In terms of the fleet composition in
Tank cars, used primarily to transport oil
products and oil, accounted for 28% of the
Total Fleet. The average age of the Globaltrans’
Owned Fleet at the end of 2019 stood at
11.5 years per unit, making the fleet one of
the most modern in the industry.
Over 90% of the Group’s total fleet continues
to be deployed in its core freight rail
transportation business, while the balance is
mostly represented by leased-out tank cars.
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Globaltrans’ Total Fleet by type, end-2019 (units)
Gondola cars
Tank cars
Locomotives
Specialised containers (including petrochemical and other)
Flat cars
Other railcars (including hopper cars, etc)
TOTAL
2018
69,023
units
Total Fleet
65,405 Owned
3,618 Leased-in
-16%
+2%
+3%
Owned
45,516
17,767
75
2,814
1,407
90
Leased-in
Total
% of total
104
1,969
–
380
466
132
45,620
19,736
75
3,194
1,873
222
65%
28%
0.1%
5%
3%
0.3%
100%
67,669
3,051
70,720
A gondola car is an open-top, high-sided universal railcar designed
to carry a variety of bulk cargoes, such as metallurgical cargoes, coal
or construction materials. Gondolas are the backbone of the Group’s
fleet and their versatility means that they can be quickly redeployed
between different bulk cargoes in response to changes in demand.
GENERAL CARGOES
― Coal
― Ferrous metals
― Ores
― Crushed stones
― Construction materials
Technical specification (illustrative)
Payload capacity, t
Tare weight, t
70
24
Maximum static load of wheel set on rails, kN (tf)
230.3 (23.5)
Body space, m³
Base, mm
Design speed, km/h
Number of unloading hatches
Useful life, years
88
8,650
120
14
22
2019
70,720
units
Total Fleet
67,669 Owned
3,051 Leased-in
38
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Globaltrans Investment PLC
39
STRATEGIC REPORT
Financial
Review
“It is pleasing to report that the Group
delivered excellent financial results in 2019,
with strong revenue and profit growth,
driven by performance improvement
together with cost management
measures. Our underlying cash flow was
again a feature of our results, enabling
us to fund further strong cash dividends
to shareholders while continuing to
moderately invest in the business.
We achieved these excellent results whilst
maintaining a solid financial profile and low
leverage.”
Alexander Shenets
Chief Financial Officer
Excellent financial results, continued strong cash generation and low leverage.
― Total revenue rose 9% year on year to RUB 95.0 billion.
― Operating profit rose 19% year on year to RUB 32.1 billion.
― Profit for the year climbed 16% year on year to RUB 22.7 billion.
― Cash flows from operating activities (before changes in working capital) up 19% year on year to RUB 39.5 billion.
― Adjusted Revenue up 13% year on year to RUB 68.8 billion supported by growth across all key business segments.
― Total Operating Cash Costs increased 5% year on year due to cost inflation and higher Empty Runs.
― Adjusted EBITDA Margin expanded to 57% (2018: 54%) with Adjusted EBITDA up 20% year on year to RUB 39.6 billion.
― Strong Free Cash Flow at RUB 12.8 billion (up 4% year on year) despite a RUB 4.1 billion build-up of working capital
(of which RUB 1.9 billion* was one-off) and RUB 1.1 billion increase in Total CAPEX.
― Leverage continued to be held at a low level with Net Debt to Adjusted EBITDA at 0.60x at the end of 2019 (2018 end: 0.56x).
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Results in detail
The following tables provide the Group’s key financial and operational information for the years ended 31 December 2019 and 2018.
EU IFRS financial information
Revenue
Total cost of sales, selling and marketing costs and administrative
expenses
Operating profit
Finance costs – net
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
— Owners of the Company
— Non-controlling interests
Basic and diluted earnings per share for profit attributable to the equity
holders of the Company during the year (expressed in RUB per share)
Cash flows from operating activities (before changes in working capital)
Cash generated from operations (after changes in working capital)
Tax paid
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
2018
RUB mln
86,773
(60,004)
26,901
(1,441)
25,460
(5,876)
19,583
17,672
1,911
98.87
33,087
32,602
(5,766)
26,837
(10,645)
(14,003)
2019
RUB mln
94,994
(62,908)
32,120
(2,375)
29,745
(7,091)
22,653
20,808
1,846
116.41
39,506
35,422
(6,018)
29,404
(12,765)
(16,939)
Change
%
9%
5%
19%
65%
17%
21%
16%
18%
-3%
18%
19%
9%
4%
10%
20%
21%
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41
FINANCIAL REVIEW
Non-GAAP financial information
Revenue
Adjusted Revenue
Including
— Net Revenue from Operation of Rolling Stock
— Net Revenue from Specialised Container Transportation
— Operating lease of rolling stock
Total Operating Cash Costs
Including
— Empty Run Cost
— Employee benefit expense
— Repairs and maintenance
— Fuel and spare parts – locomotives
Adjusted EBITDA
Adjusted EBITDA Margin, %
Total CAPEX (including maintenance CAPEX)
Free Cash Flow
Attributable Free Cash Flow
Debt profile
Total debt
Cash and cash equivalents
Net Debt
Net Debt to Adjusted EBITDA (x)
2018
RUB mln
60,859
57,600*
1,122*
1,394
27,894
2019
RUB mln
68,840
64,994*
1,623*
1,634
29,409
12,956*
14,752*
4,367
3,821
1,935
33,070
54%
12,889
12,314
10,403
4,483
4,403
1,914
39,552
57%
14,006
12,762
10,916
As of
31 December 2018
As of
31 December 2019
RUB mln
RUB mln
25,729
7,130
18,599
0.56
30,095
6,522
23,574
0.60
Change
%
13%
13%
45%
17%
5%
14%
3%
15%
-1%
20%
–
9%
4%
5%
Change
%
17%
-9%
27%
–
The Group’s Total revenue increased 9% year on year to RUB 94,994 million in 2019, resulting primarily from the 13% year-on-year rise in Adjusted
Revenue. Net Revenue from Operation of Rolling Stock (a key component of Adjusted Revenue) increased 13% year on year with a strong
performance from the Group’s freight rail transportation business.
The following table provides details of Total revenue, broken down by revenue-generating activity, for the years ended 31 December 2019
and 2018.
Railway transportation – operators services (tariff borne by the Group) 1
Railway transportation – operators services (tariff borne by the client)
Revenue from specialised container transportation
Operating leasing of rolling stock
Other
Total revenue
Adjusted Revenue
2018
RUB mln
48,130
35,690
1,247
1,394
311
86,773
2019
RUB mln
49,141
42,018
1,815
1,634
386
94,994
Change
%
2%
18%
45%
17%
24%
9%
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.
The Group’s Adjusted Revenue rose 13% year on year to RUB 68,840 million, primarily due to the 13% year-on-year increase in Net Revenue from
Operation of Rolling Stock and supported by a strong performance in both the gondola and tank car segments.
The following table provides details of Adjusted Revenue for the years ended 31 December 2019 and 2018 and its reconciliation to Total revenue.
Total revenue
Minus pass-through items
— Infrastructure and locomotive tariffs: loaded trips
— Services provided by other transportation organisations
Adjusted Revenue
2018
RUB mln
86,773
22,682
3,231
60,859
2019
RUB mln
94,994
22,020
4,134
68,840
Change
%
9%
-3%
28%
13%
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1 Includes “Infrastructure and locomotive tariffs: loaded trips” for 2019 of RUB 22,020 million (2018: RUB 22,682 million) and “Services provided by other transportation
organisations” of RUB 4,134 million (2018: RUB 3,231 million).
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FINANCIAL REVIEW
The principal components of Adjusted Revenue include: (i) Net Revenue from Operation of Rolling Stock, (ii) Net Revenue from Specialised
Container Transportation, (iii) Revenue from operating lease of rolling stock, (iv) Net Revenue from Engaged Fleet, and (v) other revenues generated
by the Group’s auxiliary business activities, including freight forwarding, 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 2019 and 2018.
Net Revenue from Operation of Rolling Stock
Net Revenue from Specialised Container Transportation
Operating lease of rolling stock
Net Revenue from Engaged Fleet
Other
Adjusted Revenue
Net Revenue from Operation of Rolling Stock
2018
RUB mln
57,600* 1i
1,122*
1,394
432*
311
60,859
2019
RUB mln
64,994*
1,623*
1,634
202*
386
68,840
Change
%
13%
45%
17%
-53%
24%
13%
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 services which is adjusted for respective pass-through loaded railway tariffs charged by RZD (included in
the EU IFRS line item “Infrastructure and locomotive tariffs: loaded trips”).
The Group’s Net Revenue from Operation of Rolling Stock, which contributed 94% of the Group’s Adjusted Revenue in 2019, climbed 13% year on
year to RUB 64,994 million*, with a strong performance across the key business segments of rail transportation in gondola and tank cars.
― Average Price per Trip rose 9% year on year to RUB 45,807 on the back of solid pricing in both gondola and tank car segments.
― Average Rolling Stock Operated increased 6% year on year to 56,845 units due to fleet acquisition along with the transition of some
leased-out tank cars into operation.
― Average Number of Loaded Trips per Railcar was down 3% year on year primarily due to changed client logistics and a deterioration
in average speeds on the RZD rail network, caused principally by ongoing major rail infrastructure modernisation projects.
Net Revenue from Specialised Container Transportation
Net Revenue from Specialised Container Transportation is a non-GAAP financial measure, derived from management accounts, that represents
the revenue generated from the specialised container operations (included in the EU IFRS line item: “Revenue from specialised container
transportation”) less the respective pass-through loaded railway tariffs charged by RZD (included in the EU IFRS line item “Infrastructure and
locomotive tariffs: loaded trips”).
Net Revenue from Specialised Container Transportation rose 45% year on year to RUB 1,623 million* in 2019 benefitting from the sizable fleet
expansion. This revenue contributed 2% of the Group’s Adjusted Revenue in the reporting year. The Group’s total fleet employed in this segment
amounted to 4,879 units at the end of 2019 including specialised containers and flat cars. This business segment is mostly focused on rail
transportation of petrochemicals and high-quality steel and has EVRAZ, SayanskKhimPlast, KuibyshevAzot, Bashkir Soda Company and NLMK
among its key clients.
Revenue from operating leasing of rolling stock
Revenue from operating leasing of rolling stock, which contributed 2% of the Group’s Adjusted Revenue in 2019, rose 17% year on year to
RUB 1,634 million, reflecting the favourable tank car leasing market conditions.
1 Data for 2018 was restated due to segregation of Net Revenue from Specialised Container Transportation.
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 respective pass-through loaded railway tariffs charged by RZD
(included in the EU IFRS line item “Infrastructure and locomotive tariffs: loaded trips”) and less the pass-through cost of engaging fleet from third-
party rail operators (included in the EU IFRS line item “Services provided by other transportation organisations”).
In 2019, Net Revenue from the Engaged Fleet, comprising less than 1% of the Group’s Adjusted Revenue, fell 53% year on year to RUB 202 million*
largely reflecting a decline in the number of Engaged Fleet operations in the tank car segment due to substitution by owned units.
Other revenue
Other revenue (1% of the Group’s Adjusted Revenue), which includes the revenues generated by the Group’s auxiliary business activities, including
freight forwarding, repair and maintenance services provided to third parties, and other, rose 24% year on year to RUB 386 million in 2019.
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 2019 and 2018.
Cost of sales
Selling and marketing costs
Administrative expenses
Total cost of sales, selling and marketing costs
and administrative expenses
2018
RUB mln
55,154
221
4,629
60,004
2019
RUB mln
58,833
216
3,859
62,908
Change
%
7%
-2%
-17%
5%
In 2019, the Group’s Total cost of sales, selling and marketing costs and administrative expenses were RUB 62,908 million, up 5% year on year, due
to the factors described below.
― Pass-through cost items (a combination of “Infrastructure and locomotive tariffs: loaded trips” and “Services provided by other
transportation organisations”) increased 1% year on year to RUB 26,154 million.
― The Group’s Total cost of sales, selling and marketing costs and administrative expenses adjusted for pass-through cost items rose
8% year on year to RUB 36,754 million in 2019, which reflected:
― Ongoing efficient cost management with Total Operating Cash Costs rising just 5% year on year to RUB 29,409 million despite
continued cost pressures (related primarily to the rise in the regulated RZD infrastructure and locomotive traction tariffs for
empty trips, a higher level of Empty Runs stemming from changes to client logistics and increased repairs and maintenance
costs), which were mitigated by lower-than-inflation growth in Employee benefit expense, a decline in costs related to the
usage of own locomotives and a decline in Other Operating Cash Costs in large part due to the cancellation of property tax on
movable assets in Russia.
― Total Operating Non-Cash Costs climbed 19% year on year to RUB 7,345 million for the most part due to an asset-expansion
driven increase in the Depreciation of property, plant and equipment and the application of the IFRS 16 “Leases”.
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FINANCIAL REVIEW
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:
Services provided by other transportation organisations
2018
RUB mln
25,913
22,682
3,231
34,091
27,894
12,956*
4,367
3,821
1,935
892*
795
–
827
2,300
6,197
5,111
697
377
–
30
(27)
10
2019
RUB mln
26,154
22,020
4,134
36,754
29,409
14,752*
4,483
4,403
1,914
987*
775
722
–
1,372
7,345
5,795
697
472
424
13
10
(65)
60,004
62,908
Change
%
1%
-3%
28%
8%
5%
14%
3%
15%
-1%
11%
-3%
NM
-100%
-40%
19%
13%
0%
25%
NM
-57%
NM
NM
5%
Pass-through cost items
— Infrastructure and locomotive tariffs: loaded trips
— Services provided by other transportation organisations
Total cost of sales, selling and marketing costs and administrative
expenses (adjusted for pass-through cost items)
Total Operating Cash Costs
— Empty Run Costs
— Employee benefit expense
— Repairs and maintenance
— Fuel and spare parts – locomotives
— Infrastructure and Locomotive Tariffs – Other Tariffs
— Engagement of locomotive crews
— Expense relating to short-term leases (rolling stock)
— Operating lease rentals – rolling stock
— Other Operating Cash Costs
Total Operating Non-Cash Costs
— Depreciation of property, plant and equipment
— Amortisation of intangible assets
— Loss on derecognition arising on capital repairs
— Depreciation of right-of-use assets (IFRS 16)
— Net impairment losses on trade and other receivables
— Net (gain)/loss on sale of property, plant and equipment
— Impairment/(reversal of impairment) of property, plant and
equipment
Total cost of sales, selling and marketing costs
and administrative expenses
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 decreased 3% year on year to RUB 22,020 million in 2019 reflecting largely changes in
clients’ logistics.
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 rose 28% year on year to RUB 4,134 million in 2019 principally due to increase in Engaged
Fleet operations in the gondola segment.
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 rose 5% year on year to RUB 29,409 million in 2019 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 2019 and 2018.
Empty Run Costs
Employee benefit expense
Repairs and maintenance
Fuel and spare parts – locomotives
Infrastructure and Locomotive Tariffs – Other Tariffs
Engagement of locomotive crews
Expense relating to short-term leases (rolling stock)
Operating lease rentals – rolling stock
Other Operating Cash Costs
Total Operating Cash Costs
Empty Run Costs
2019
% of total
50%
15%
15%
7%
3%
3%
2%
0%
5%
100%
2018
RUB mln
12,956*
4,367
3,821
1,935
892*
795
–
827
2,300
27,894
2019
Change
RUB mln
14,752*
4,483
4,403
1,914
987*
775
722
–
1,372
29,409
%
14%
3%
15%
-1%
11%
-3%
NM
-100%
-40%
5%
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 50% of the Group’s Total Operating Cash Costs in 2019. This cost item increased 14% year on year to
RUB 14,752 million* in 2019 due to a combination of the following factors:
― Higher regulated RZD tariffs for the traction of empty railcars (up 9.8% year on year for gondola cars and 3.6% year on year for all
other types of rolling stock).
― As anticipated, the Empty Run Ratio for gondola cars rose to 42% (2018: 38%) contributing to a Total Empty Run Ratio (for all types
of rolling stock) of 49% (2018: 46%).
― Share of Empty Run Kilometres paid by Globaltrans continued to be stable at 89% compared to the previous year.
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, and bears credit risk and controls the flow of receipts and payments.
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FINANCIAL REVIEW
Employee benefit expense
The following table provides a breakdown of the Other Operating Cash Costs for the years ended 31 December 2019 and 2018.
Employee benefit expense, comprising 15% of the Group’s Total Operating Cash Costs, rose 3% year on year to RUB 4,483 million in 2019 due to
a combination of inflation driven growth in wages and salaries and a related increase in social insurance costs, as well as a 2% year-on-year rise in
average headcount due to the move to have in-house locomotive crews, which were partially offset by a reduction in bonuses.
Repairs and maintenance
Repairs and maintenance costs, which comprised 15% of the Group’s Total Operating Cash Costs in 2019, grew 15% year on year to
RUB 4,403 million primarily due to the increase in the cost of both certain spare parts and repair works along with an increase in the number of
mileage-based depot repairs.
Fuel and spare parts – locomotives
Fuel and spare parts – locomotives expenses, which accounted for 7% of the Group’s Total Operating Cash Costs, were RUB 1,914 million in 2019,
1% lower compared to the previous year as inflationary growth in the cost of fuel was more than offset by changed client logistics driving lower fuel
consumption.
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 specialised container transportation business.
Infrastructure and Locomotive Tariffs – Other Tariffs, representing 3% of the Group’s Total Operating Cash Costs, were RUB 987 million* in 2019,
up 11% year on year, impacted by the rise in regulated RZD tariffs and the higher costs of relocating rolling stock to and from maintenance due to
an increase in the number of mileage-based depot repairs.
Engagement of locomotive crews
Expense relating to short-term leases – office (IFRS 16)
Auditors’ remuneration
Legal, consulting and other professional fees
Advertising and promotion
Communication costs
Information services
Rental of tank-containers
Operating lease rentals – office
Taxes (other than on income and value added taxes)
Other expenses
Other Operating Cash Costs
2018
RUB mln
–
59
70
38
33
27
44
183
681
1,165
2,300
2019
RUB mln
139
55
48
39
35
19
–
–
(9)
1,046
1,372
Change
%
NM
-7%
-31%
3%
4%
-30%
-100%
-100%
NM
-10%
-40%
Other Operating Cash Costs, which represented 5% of the Group’s Total Operating Cash Costs, dropped 40% to RUB 1,372 million in 2019
compared to the previous year. The decline was mainly due to a decrease in Taxes (other than income tax and value added taxes) resulting from the
cancellation of property tax on movable assets in Russia.
Total Operating Non-Cash Costs
Total Operating Non-Cash Costs (a non-GAAP financial measure) include the following cost items: “Depreciation of property, plant and equipment”,
“Amortisation of intangible assets”, “Loss on derecognition arising on capital repairs”, “Depreciation of right-of-use assets (IFRS 16)”, “Net
impairment losses on trade and other receivables”, “Impairment/(reversal of impairment) of property, plant and equipment” and “Net (gain)/loss
on sale of property, plant and equipment”.
Costs related to the engagement of locomotive crews from RZD (3% of the Group’s Total Operating Cash Costs) were 3% lower year on year at
RUB 775 million in 2019 following changes to client logistics.
The following table provides a breakdown of the Total Operating Non-Cash Costs for the years ended 31 December 2019 and 2018.
Expense relating to short-term leases (rolling stock)/Operating lease rentals – rolling stock
From 1 January 2019 the Group adopted IFRS 16 “Leases”, which resulted in changes in the Group’s accounting for leases.
Under IFRS 16, the Group accounts for short-term leases (with a term of twelve months or less) and leases of low value assets by recognising the
lease payments as an expense on a straight-line basis. In 2019, the Expense relating to short-term leases (rolling stock), mainly for leased-in tank
cars, was RUB 722 million, comprising 2% of the Group’s Total Operating Cash Costs. In 2018, costs related to the short-term leases of rolling stock
were included in Operating lease rentals – rolling stock and were RUB 827 million.
The Group’s non-cancellable lease contracts with terms exceeding twelve months (primarily related to the leasing of offices and certain specialised
rolling stock) are recognised as both right-of-use-assets or property, plant and equipment and corresponding lease liabilities on the balance sheet
and depreciated over the term of lease period. Please refer to the Group’s management report and consolidated financial statements for the year
ended 31 December 2019 for more details on the adoption of IFRS 16.
Other Operating Cash Costs
Other Operating Cash Costs (a non-GAAP financial measure) include the following cost items: “Advertising and promotion”, “Auditors’ remuneration”,
“Communication costs”, “Information services”, “Legal, consulting and other professional fees”, “Rental of tank-containers”, “Operating lease rentals –
office”, Expense relating to short-term leases – office (IFRS 16)”, “Taxes (other than income tax and value added taxes)” and “Other expenses”.
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on derecognition arising on capital repairs 1
Depreciation of right-of-use assets (IFRS 16)
Net impairment losses on trade and other receivables
Net (gain)/loss on sale of property, plant and equipment
Impairment/(reversal of impairment) of property, plant and equipment
Total Operating Non-Cash Costs
2018
RUB mln
5,111
697
377
–
30
(27)
10
6,197
2019
RUB mln
5,795
697
472
424
13
10
(65)
7,345
Change
%
13%
0%
25%
NM
-57%
NM
NM
19%
Total Operating Non-Cash Costs increased 19% year on year to RUB 7,345 million in 2019, largely due to the 13% year-on-year rise in Depreciation
of property, plant and equipment (reflecting the growth in the Group’s Owned Fleet) and the application of the IFRS 16 “Leases”.
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.
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FINANCIAL REVIEW
Adjusted EBITDA (non-GAAP financial measure)
EBITDA (a non-GAAP financial measure) represents “Profit for the year” before “Income tax expense”, “Finance costs – net” (excluding “Net foreign
exchange transaction (gains)/losses on financing activities”), “Depreciation of property, plant and equipment”, “Amortisation of intangible assets”
and “Depreciation of right-of-use assets (IFRS 16)”.
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/(reversal of 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 2019 was RUB 39,552 million, up 20% on the previous year. The Adjusted EBITDA Margin expanded to 57% in 2019
from 54% in 2018 following 13% year-on-year growth in Adjusted Revenue and a 5% year-on-year increase in Total Operating Cash Costs.
The following table provides details on Adjusted EBITDA for the years ended 31 December 2019 and 2018, and its reconciliation to EBITDA and
Profit for the year.
Profit for the year
Plus (Minus)
— Income tax expense
— Finance costs – net
— Net foreign exchange transaction losses on financing activities
— Amortisation of intangible assets
— Depreciation of right-of-use assets (IFRS 16)
— Depreciation of property, plant and equipment
EBITDA
Plus (Minus)
— Loss on derecognition arising on capital repairs
— Net foreign exchange transaction losses on financing activities
— Other losses – net
— Impairment/(reversal of impairment) of property, plant and equipment
— Net (gain)/loss on sale of property, plant and equipment
Adjusted EBITDA
2018
RUB mln
19,583
2019
RUB mln
22,653
Change
%
16%
5,876
1,441
(40)
697
–
5,111
32,668
377
40
1
10
(27)
33,070
7,091
2,375
(380)
697
424
5,795
38,656
472
380
99
(65)
10
39,552
21%
65%
844%
0%
NM
13%
18%
25%
844%
NM
NM
NM
20%
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Globaltrans’ Fleet
19,736 tank cars
28% of Total Fleet
A tank car is designed to carry liquid cargoes including oil
and petroleum products, chemicals, liquefied gas and other
liquid substances. The Group’s tank cars are principally used to
transport oil products and oil.
GENERAL CARGOES
― Oil products (fuel oil,
diesel, gasoline, etc.)
― Crude oil
Technical specification (illustrative)
Payload capacity, t
Tare weight, t
Maximum static load of wheel set on rails, kN (tf)
Boiler space, m³
Base, mm
Design speed, km/h
Useful life, years
66
26.95
230.3 (23.5)
76.3
7,800
120
32
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FINANCIAL REVIEW
Finance income and costs
Finance costs
The following table provides a breakdown of Finance income and costs for the years ended 31 December 2019 and 2018.
Total finance costs grew 42% year on year to RUB 2,529 million in 2019 following a rise in the Group’s total borrowings, a slight year-on-year
increase in the weighted average effective interest rate and the application of the IFRS 16 “Leases”.
2018
RUB mln
2019
RUB mln
Change
%
Interest expense:
— Bank borrowings
— Non-convertible bonds
— Interest expense on loans
— Other interest expense
Total interest expense calculated using the effective interest rate
method
— Leases with financial institutions (2018: Finance leases)
— Lease liabilities (IFRS 16)
Total interest expense
— Other finance costs
Total finance costs
Interest income:
— Bank balances
— Short term deposits
— Loans to third parties
Total interest income calculated using the effective interest rate
method
— Finance leases – third parties
Total finance income
Net foreign exchange transaction gains on borrowings and other
liabilities
Net foreign exchange transaction losses on cash and cash equivalents
and other monetary assets
Net foreign exchange transaction losses on financing activities
Net finance costs
(1,344)
(315)
–
–
(1,659)
(108)
–
(1,767)
(11)
(1,778)
141
193
1.4
335
42
377
36
(76)
(40)
(1,441)
(1,456)
(743)
(5)
(9)
(2,214)
(165)
(118)
(2,497)
(32)
(2,529)
122
374
0.6
497
37
534
207
(587)
(380)
(2,375)
8%
136%
NM
NM
33%
53%
NM
41%
191%
42%
-13%
94%
-57%
48%
-13%
41%
481%
674%
844%
65%
Finance income
In 2019, the Group’s Total finance income rose 41% year on year to RUB 534 million, mainly due to the higher amount of short-term deposits.
Net foreign exchange transaction losses on financing activities
In 2019 the Group had Net foreign exchange transaction losses on financing activities of RUB 380 million compared to RUB 40 million in the
previous year primarily resulting from 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 29,745 million in 2019, up 17% compared to the previous year, reflecting:
― 19% year-on-year increase in the Group’s Operating profit to RUB 32,120 million, resulting primarily from the factors described
above.
― Partially offset by a 65% year-on-year increase in Net finance costs to RUB 2,375 million.
Income tax expense
Income tax expense grew 21% year on year to RUB 7,091 million in 2019 reflecting a 17% year-on-year rise in Profit before income tax and a slight
increase in the weighted average annual income tax rate for 2019 to 23.8% compared to 23.1% in 2018.
Profit for the year
The Group’s Profit for the year was 16% higher year on year at RUB 22,653 million reflecting the factors described above.
Profit for the year attributable to the owners of the Company climbed 18% year on year to RUB 20,808 million due to the strong business
performance.
Liquidity and Capital Resources
In 2019, the Group’s capital expenditure consisted primarily of maintenance CAPEX (including capital repairs) and the selective acquisition of rolling
stock, specialised containers and locomotives.
The Group was able to meet its liquidity and capital expenditure needs comfortably through operating cash flow, available cash and cash equivalents
and proceeds from borrowings and bond issues.
The Group manages its liquidity based on expected cash flows. As at 31 December 2019, the Group had Net Working Capital of RUB 6,710 million*.
Given its anticipated operating cash flow and borrowings, the Group believes that it has sufficient working capital to operate successfully.
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FINANCIAL REVIEW
Cash flows
The following table sets out the principal components of the Group’s consolidated cash flow statement for the years ended 31 December 2019 and 2018.
Cash flows from operating activities
Changes in working capital:
— Inventories
— Trade receivables
— Other assets
— Other receivables
— Trade and other payables
— Contract liabilities
Cash generated from operations
Tax paid
Net cash from operating activities
Cash flows from investing activities
— Purchases of property, plant and equipment
— Purchases of intangible assets
— Proceeds from sale of property, plant and equipment
— Interest received
— Receipts from finance lease receivable
— Loan repayments received from third parties
Net cash used in investing activities
Cash flows from financing activities
— Net cash inflows from borrowings and financial leases:
Proceeds from bank borrowings
Proceeds from issue of non-convertible unsecured bonds
Repayments of borrowings
Principal elements of lease payments for leases with financial institutions
(2018: Finance lease principal payments)
— Interest paid on bank borrowings and non-convertible unsecured bonds
— Interest paid on leases with financial institutions (2018: Interest paid on
finance leases)
— Interest paid on lease liabilities (IFRS 16)
— Principal elements of lease payments (IFRS 16)
— Dividends paid to owners of the Company
— Dividends paid to non-controlling interests in subsidiaries
— Payments from non-controlling interests for share capital increase of
subsidiary
— Acquisition of non-controlling interest
— Payments to non-controlling interests
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
— Exchange losses on cash and cash equivalents
— Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
2018
RUB mln
33,087
(485)
170
(317)
(1,042)
(66)
263
508
32,602
(5,766)
26,837
2019
RUB mln
39,506
(4,084)
(394)
(713)
(1,299)
10
(270)
(1,418)
35,422
(6,018)
29,404
(11,568)
(13,516)
(0.1)
410
377
129
6
(10,645)
5,748
15,197
5,000
(13,128)
(1,321)
(1,533)
(100)
–
–
(16,221)
(1,723)
–
(6)
(169)
(14,003)
2,188
(24)
4,966
7,130
(0.8)
92
534
124
3
(12,765)
4,183
10,408
5,000
(10,737)
(489)
(2,018)
(167)
(112)
(340)
(16,632)
(1,602)
200
–
(451)
(16,939)
(300)
(308)
7,130
6,522
Tank containers
Globaltrans’ Fleet
3,194
specialised containers ¹
5% of Total Fleet
Intermodal containers are designed to be moved between different
modes of transportation without any handling of the freight itself.
The majority of the Group’s containers are tank containers used
to transport petrochemicals. The Group also operates specialised
containers for transporting high-quality steel products.
Technical specification (illustrative)
Size, ft
Body space, m³
Tare weight, kg
Gross weight, kg
20
25
3,700
36,000
Operating temperature
between −40° and +70° C
GENERAL CARGOES
― Distillate oil
― Gasoline
― Naphtha
― Coal tar
― Paraffins
― Liquid caprolactam
― Benzene
― Ethyl benzene
― Kerosene
1 Including petrochemical and other specialised containers.
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FINANCIAL REVIEW
Net cash from operating activities
Net cash from operating activities increased 10% year on year to RUB 29,404 million, reflecting the combination of the following factors:
― Cash flows from operating activities increased 19% year on year to RUB 39,506 million.
― RUB 4,084 million increase in working capital with RUB 1,890 million* due to one-off prepayments for wheels to be used during 2020.
― Tax paid was 4% higher year on year at RUB 6,018 million mainly as a result of the increase in the taxable profits in the reporting year.
Net cash used in investing activities
Net cash used in investing activities rose 20% year on year to RUB 12,765 million. This resulted from increased capital expenditure in the reporting
year. Purchases of property, plant and equipment (on a cash basis; including maintenance CAPEX) were up 17% to RUB 13,516 million resulting
primarily from a higher-than-expected rise in maintenance CAPEX from RUB 3,520 million* in 2018 to RUB 6,908 million* in 2019 largely due to the
speculative increase in the cost of wheel pairs.
Net cash used in financing activities
Net cash used in financing activities was RUB 16,939 million in 2019, 21% higher compared to the previous year. This was due to a combination of
the following factors:
― Net cash inflows from borrowings and finance leases 1 were RUB 4,183 million compared to RUB 5,748 million in 2018.
― Interest paid (including “Interest paid on bank borrowings and non-convertible unsecured bonds” and “Interest paid on leases with financial
institutions”) increased 34% year on year to RUB 2,185 million in 2019 due to the rise in the Group’s total borrowings along with the slightly
higher weighted average effective interest rate.
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The following table sets out details on Free Cash Flow and Attributable Free Cash Flow for the years ended 31 December 2019 and 2018, and its
reconciliation to Cash generated from operations.
Cash generated from operations (after “Changes in working capital”)
Total CAPEX (including maintenance CAPEX)
Purchases of property, plant and equipment
Principal elements of lease payments for leases with financial institutions
(2018: Finance lease principal payments)
Purchases of intangible assets
Tax paid
Interest paid on bank borrowings and non-convertible unsecured bonds
Interest paid on leases with financial institutions (2018: Interest paid on
finance leases)
Principal elements of lease payments (IFRS 16)
Interest paid on lease liabilities (IFRS 16)
Free Cash Flow
Minus
Adjusted Profit Attributable to Non-controlling Interests
2018
RUB mln
32,602
(12,889)
(11,568)
(1,321)
(0.1)
(5,766)
(1,533)
(100)
–
–
12,314
1,911
10,403
2019
RUB mln
35,422
(14,006)
(13,516)
(489)
(0.8)
(6,018)
(2,018)
(167)
(340)
(112)
12,762
1,846
10,916
Change
%
9%
9%
17%
-63%
656%
4%
32%
67%
NM
NM
4%
-3%
5%
― The increase in Dividends paid to owners of the Company to RUB 16,632 million compared to RUB 16,221 million in 2019 on the back of the
Attributable Free Cash Flow
continued strong business performance.
― Dividends paid to non-controlling interests in subsidiaries fell to RUB 1,602 million in 2019 compared to RUB 1,723 million in 2018.
Capital expenditure
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” (including maintenance CAPEX), “Purchases of intangible assets”, “Acquisition of subsidiary
undertakings - net of cash acquired”, “Principal elements of lease payments for leases with financial institutions”, “Principal elements of lease
payments (IFRS 16)”, “Interest paid on lease liabilities (IFRS 16)”, “Interest paid on bank borrowings and non-convertible unsecured bonds” and
“Interest paid on leases with financial institutions”.
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 “Principal elements of
lease payments for leases with financial institutions” (as part of the capital expenditures was financed with a finance lease).
The Group’s Total CAPEX (on cash basis, including maintenance CAPEX) rose 9% to RUB 14,006 million 2 in 2019, compared to the previous year.
The increase in capital expenditures was primarily due to the following factors:
― A higher-than-expected rise in maintenance CAPEX from RUB 3,520 million* in 2018 to RUB 6,908 million* in 2019 largely due to
The Group’s Free Cash Flow was RUB 12,762 million in 2019, up 4% compared to the previous year. This was mostly related to the factors below.
the speculative increase in the cost of wheel pairs.
― Cash generated from operations (after “Changes in working capital”) rose 9% or RUB 2,820 million to RUB 35,422 million despite
a RUB 4,084 million build-up of working capital (of which RUB 1,890 million* was one-off), partially offset by the combination of:
― 9% or RUB 1,117 million year-on-year increase in Total CAPEX (including “Purchase of property, plant and equipment”, “Principal
elements of lease payments for leases with financial institutions” and “Purchases of intangible assets”) to RUB 14,006 million.
― 4% or RUB 253 million year-on-year increase in Tax paid to RUB 6,018 million as described above.
― 34% or RUB 552 million year-on-year increase in Interest paid (including “Interest paid on bank borrowings and non-convertible
unsecured bonds” and “Interest paid on leases with financial institutions”) to RUB 2,185 million.
― RUB 340 million of Principal elements of lease payments (IFRS 16) and RUB 112 million of Interest paid on lease liabilities (IFRS 16)
booked in 2019 due to the application of IFRS 16 “Leases”.
― A decrease in expansion CAPEX from RUB 9,369 million* in 2018 to RUB 7,098 million* in 2019, reflecting moderate investments.
In 2019, the Group took delivery of 2,502 units (including 1,154 specialised containers, 700 flat cars, 638 gondola cars and 10 locomotives)
compared to 4,747 units in the previous year.
1 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
2 The Group’s capital expenditure (including maintenance CAPEX) on an accrual basis was RUB 14,136 million in 2019 compared to RUB 14,527 million in the previous year.
bank borrowings”, “Proceeds from issue of non-convertible unsecured bonds”, “Repayments of borrowings” and “Principal elements of lease payments for leases with financial
institutions”.
The difference between capital expenditure given on a cash basis and on an accrual basis is principally because of a time lag between prepayments for and delivery of rolling
stock and due to a part of the capital expenditure being financed with leases with financial institutions.
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FINANCIAL REVIEW
The following table sets out the principal components of the Group’s Total CAPEX for the years ended 31 December 2019 and 2018.
The following table gives the maturity profile of the Group’s borrowings (including accrued interest of RUB 396 million*) as of 31 December 2019.
Purchase of property, plant and equipment
Principal elements of lease payments for leases with financial institutions
Purchased of intangible assets
Total CAPEX
Capital resources
2018
RUB mln
11,568
1,321
0.1
12,889
2019
RUB mln
13,516
489
0.8
14,006
Change
%
17%
-63%
656%
9%
As of 31 December 2019, the Group’s financial indebtedness consisted of borrowings, non-convertible unsecured bonds and finance lease
liabilities for an aggregate principal amount of RUB 30,095 million (including accrued interest of RUB 396 million*).
Under IFRS 16, Lease liabilities of RUB 1,531 million were recognised on the balance sheet as of 31 December 2019 1 which primarily related to the
long-term leasing of offices and certain specialised fleet.
The Group’s Net Debt was RUB 23,574 million as of 31 December 2019, 27% higher than at the end of 2018.
The following table sets out details on the Group’s total debt, Net Debt and Net Debt to Adjusted EBITDA at 31 December 2019 and 2018, and the
reconciliation of Net Debt to Total debt.
Total debt
Minus
Cash and cash equivalents
Net Debt
Net Debt to Adjusted EBITDA
As of
31 December 2018
As of
31 December 2019
Change
RUB mln
25,729
7,130
18,599
0.56
RUB mln
30,095
6,522
23,574
0.60
%
17%
-9%
27%
–
Q1 2020
Q2 2020
Q3 2020
Q4 2020
2021
2022
2023
2024
Total
As of 31 December 2019
RUB mln
1,848*
2,074*
1,821*
2,058*
9,019*
6,708*
4,980*
1,588*
30,095
Related party transactions
For the purposes of the 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.
Litten Investments Ltd, controlled by a Director of the Company 2 , has a shareholding in the Company of 5.1% as at 31 December 2019
(31 December 2018: 5.8%). Goldriver Resources Ltd, controlled by member of key management of the Group 3 , has a shareholding in the Company
of 4.0% as at 31 December 2019 (31 December 2018: 4.7%). As at 31 December 2019, 0.2% (2018: 0.2%) of the shares of the Company are
controlled by 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 2019 and 2018.
2018
RUB mln
1,912
2019
RUB mln
1,501
Rouble-denominated borrowings accounted for 100% of the Group’s debt portfolio as of 31 December 2019. The Russian rouble is the functional
currency of the Company.
Key management personnel compensation 4
The weighted average effective interest rate rose to 8.1% as of 31 December 2019 compared to 7.9% as of the end of 2018. The vast majority of
the Group’s debt had fixed interest rates as of the end of the reporting year.
The following table gives the year-end balances with related parties arising from sale of shares/purchases of services.
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 of RUB 4,665 million as of 31 December 2019.
Other receivable from related parties
Accrued key management remuneration – current
Accrued key management remuneration – non-current
2018
RUB mln
200
648
115
2019
RUB mln
–
539
82
More information is available in Note 35 to the Group’s Consolidated Management Report and Consolidated Financial Statements included in the
Financial Statements section of this Annual Report.
2 Beneficially owned by Alexander Eliseev, Non-executive Director, co-founder and shareholder of Globaltrans.
3 Beneficially owned by Sergey Maltsev, Chairman of the Board, Executive Director, Chief Strategy Officer, co-founder and shareholder of Globaltrans.
1 Not included in Total debt.
4 The key management compensation includes directors’ remuneration paid to the directors of the Company by the Group amounting to RUB 508 million (2018: RUB 409 million).
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59
STRATEGIC REPORT
Risk
Management
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 risks 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.
Ultimately, risk management aims to
establish and maintain a holistic view of risks
across the enterprise, so capabilities and
performance objectives are achieved via risk-
informed resources and investment decisions.
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Globaltrans bases its risk management activity on a series of well-defined risk
management principles, derived from experience, best practice and in accordance
with corporate governance principles. The Group’s risk management principles
consist of nine interdependent and interconnected components, that aim to provide
a holistic view of risk across the whole organisation.
1
Enterprise-wide
2
Systematic and structured
3
Forward-thinking approach
― Risks that the Group faces should be
― Risk management should involve
― Risk management should be forward
managed on an enterprise-wide basis as
a continuous and developing process that
runs throughout the Group’s strategy and
the implementation of that strategy.
recognised processes and activities
in a systematic, methodical way
that ensures the results of risk
management activities are reliable,
robust and comparable.
thinking. It should involve identifying and
preparing for what might happen rather
than always managing retrospectively.
Risk management should encourage the
Group to manage proactively rather than
reactively.
4
Based on top-down
and bottom-up approach
5
Aligned with the Group’s
objectives
6
Integrated into the Group’s
business
― Risk management should evaluate the
potential upside and downside of all risks
that could affect the Group. It should
increase the probability of success and
reduce both the probability of failure and
the uncertainty of achieving the Group’s
overall objectives. Risk management
activity should include the development
and implementation of risk response
actions to remove or mitigate all risks the
Group faces, transfer them to a third party
or accept them.
― Risk management should be aligned with the
Group’s objectives and provide reasonable
assurance regarding the achievement of
those objectives.
― Risk management should be embedded in all
the Group’s practices and business processes
(including business and strategic planning,
budgeting and decision-making) so that it is
relevant, effective, efficient and sustained.
All Group staff should be responsible and
accountable for managing the risks in their
activities.
7
Integrated into corporate culture
8
Clear and understandable
9
Evolving
― Risk management should be a part of the
Group’s corporate culture. All employees
should be aware of the relevance of risk to the
achievement of their objectives.
― Risk management principles, methods and
tools should be clear and easily understood
by the Group’s employees.
― The Group’s risk management system should
be continually evolving. The management
of risk is an ongoing process and it is
recognised that the level and extent of the
risk management system will evolve as the
Group evolves.
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RISK MANAGEMENT
Principal risks and uncertainties
Globaltrans has grouped the risks that it considers to be significant into key categories – strategic, operational, compliance and financial.
This list is not exhaustive, and the order of information does not reflect the probability of occurrence or the magnitude of any potential effect.
Additional risks not currently known or that are 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”). We monitor and assess risks
on an ongoing basis and we make efforts to control and mitigate such risks.
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 and
other emerging markets. 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.
In addition to the human impact, the spread of Coronavirus
(COVID-19) affects global businesses and may lead to trade wars
and turbulence in different currencies. The Group’s outlook
for 2020 may be impacted by the Coronavirus outbreak, which
has significantly lowered visibility on what to expect in 2020.
The freight rail market may experience reduced demand
stemming from the effects of COVID-19. The Company cannot
predict the full impact of COVID-19 on its markets, business or
prospects although they may be materially adversely impacted
by the rapidly evolving situation.
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. The potential decrease in
demand for Russian commodities or change in directions of
supply for Russian commodities may have a negative impact on
the freight rail transportation market and the Group’s business.
The threat of sanctions against the Group’s existing customers,
any deterioration in or threat to their financial condition and/or
the temporary closure of certain markets 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 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.
Management is closely monitoring the
implications of the global outbreak of Coronavirus
(COVID-19) and is ready to act depending on the
development of the situation.
STRATEGIC: RISKS THAT INFLUENCE THE GROUP’S ABILITY TO ACHIEVE ITS STRATEGY (CONTINUED)
Risk
Description
Regulatory risk
and relations with
government authorities
and state-owned
enterprises
Growth strategies
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.
Business growth can be constrained by an increase in prices
for new rolling stock and spare parts, overproduction of rolling
stock, 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 expiry of long-term service contracts with its key customers
may also limit the Group’s growth opportunities as these may
result in volatility in logistics, a reduction in the Group’s business
volumes and/or profitability of its operations.
Controls and mitigating factors
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 is also focused on the diversification of
its business, including by 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.
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RISK MANAGEMENT
STRATEGIC: RISKS THAT INFLUENCE THE GROUP’S ABILITY TO ACHIEVE ITS STRATEGY (CONTINUED)
OPERATIONAL: RISKS THAT INFLUENCE THE GROUP’S OPERATIONAL EFFICIENCY
Risk
Description
Controls and mitigating factors
Competition
and customer
concentration
The Russian freight rail transportation market is highly
competitive in terms of unregulated operators’ services tariffs.
The ongoing market consolidation may lead to greater price
competition. The risk of an irrational supply of railcars on
the market by railcar producers and/or irrational behaviour
of competitors (including new market entrants) may place
additional pressure on the profitability of railcar operations 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 2019. While the Group has long-term service 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 66% of the Group’s Net
Revenue from Operation of Rolling Stock in 2019
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 2019, the share of small
and medium companies amounted to 26% of
Net Revenue from Operation of Rolling Stock
(2018: 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 continued deregulation of locomotive
traction. In addition, the Group’s management
actively participates in the development of the
required regulation through various dedicated
industrial organisations and partnerships.
Risk
Infrastructure
Employees
Customer satisfaction
Description
The rail network and physical infrastructure in Russia, owned
and operated by RZD, as well as the networks and infrastructure
of other countries on which the Group depends to operate its
rolling stock, like Kazakhstan, Ukraine and other neighbouring
countries, largely date back to the Soviet era. In some cases,
these rail networks have not been adequately maintained, which
could negatively affect the condition of the Group’s rolling
stock, performance and business. In addition, the oversupply
of rolling stock, inefficient logistics at local destinations as
well as maintenance and modernisation of rail infrastructure
undertaken from time to time by RZD could negatively 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.
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 to the
Group’s customers.
Controls and mitigating factors
With immaterial exceptions, 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 to detect possible changes in tariff-
setting methodology and tries to reflect relevant
changes in contracts with customers.
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 the
Group for many years. In addition, the Group
serves several key clients on a long-term basis and
has recently added new contracts and extended
others.
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RISK MANAGEMENT
OPERATIONAL: RISKS THAT INFLUENCE THE GROUP’S OPERATIONAL EFFICIENCY (CONTINUED)
COMPLIANCE: RISKS THAT INFLUENCE THE GROUP’S ADHERENCE TO RELEVANT LAWS AND REGULATIONS
Risk
Operational
performance
IT availability/
continuity
Risks of terrorist
attacks, natural
disasters or other
catastrophic events
beyond the Group’s
control
Description
Controls and mitigating factors
Risk
Description
Among the Group’s key objectives are to increase
operational efficiency and to focus on controlling
and reducing costs. The Group seeks to diversify
and control its supply chain to maintain cost
efficiency.
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.
Pending and potential
legal actions
The Group is involved in 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 the 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.
Rising inflation in Russia and an increase in prices for spare
parts and railcar repair works, may increase the Group’s costs
and maintenance CAPEX, while the Group may have limited
opportunities to increase tariffs to customers.
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 face 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, 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.
Controls and mitigating factors
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 in place 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.
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RISK MANAGEMENT
FINANCIAL: RISKS THAT INFLUENCE THE GROUP’S FINANCIAL PERFORMANCE
Risk
Currency risks
Interest-rate risks
Description
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.
However, the Group may keep bank balances in US dollars and
other currencies. The Group, therefore, has limited exposure to
the effects of currency fluctuations on bank balances 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).
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.
Credit risk
Liquidity risk
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 71% of
the Group’s trade and other receivables as of 31 December 2019
and around 74% of the Group’s Net Revenue from Operation of
Rolling Stock in 2019.
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.
Controls and mitigating factors
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 2019, all the
Group’s debt was denominated in Russian roubles.
The Group enters into long-term borrowing
and leases with financial institutions 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
2019, 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 Group’s bank balances are held with
reputable banks.
The Group has a budgeting policy in place that
allows the management to control current
liquidity based on expected cash flows.
These include, among other things, operating cash
flows, capital expenditure needs, funds borrowed
from financial institutions and funds raised from
listed debt instruments.
Flat cars
Globaltrans’ Fleet
1,873 flat cars
3% of Total Fleet
Flat cars consist of a platform without sides or top.
The Group uses its flat cars mostly to carry specialised containers.
GENERAL CARGOES
― Heavyweight containers
― Tank containers
― Other specialised
containers
Technical specification (illustrative)
Payload capacity, t
Tare weight, t
Maximum static load of wheel set on rails, kN (tf)
Base, mm
Design speed, km/h
Container pins
Rail nominal gauge,mm
Useful life, years
72
19.5 +/- 0.25
230.3 (23.5)
9,720
120
16
1,520
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STRATEGIC REPORT
Sustainability
Our approach
Our report has been prepared in accordance
with the sustainability reporting guidelines of
the Global Reporting Initiative (GRI) and in line
with the non-financial and diversity disclosure
information contained in the EU’s 2014/95/
EU Directive.
We defined our sustainability report’s content
by applying the relevant GRI Reporting
Principles. 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.
The details within this Sustainability
section cover the key results and activities
of Globaltrans Investment PLC and its
subsidiaries in the field of sustainable
development for the year ended
31 December 2019.
Stakeholder engagement
Globaltrans recognises the importance of
stakeholder engagement for its long-term
success. We place great emphasis on
ensuring that our stakeholders are provided
with the information they need about our
policies, practices and strategic direction.
We believe that relationships built on trust
and dialogue lead to better business decisions
and help underpin the Group’s ability to act
sustainably and deliver consistent value
to all stakeholders: employees, investors,
customers, government and regulators, media
and local communities.
Communication with stakeholders is
an ongoing process throughout the year.
This includes regular engagement with
financial stakeholders via one-to-one and
group meetings, results presentations,
investor roadshows and attendance at
conferences. More generally, results,
acquisitions, appointments and contract
wins are published on the Group’s website.
The corporate website is the main repository
of information about the Company.
In addition, our approach encourages regular
dialogue with governments, regulators
and local authorities at all levels, led by our
Government Relations team and supported
by management.
How it works:
Materiality matrix
― Step 1.
Identification of material topics
We identified material topics relevant to
the Group’s business operation by carefully
reviewing and analysing our internal
regulations, non-financial reports issued
by peer companies and global sustainability
trends.
― Step 2.
Prioritisation of material topics
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.
― Step 3.
Preparation of materiality matrix
We developed a materiality matrix to
identify those topics that are deemed
most important/significant to 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 the
Annual Report.
5.00
4.50
4.00
3.50
3.00
6
2
2.50
3.00
5
14
3.50
3
15
4
13
11
1
10
8
9
7
12
Materiality for business
4.00
4.50
5.00
Economic impact
Environmental impact
Social impact
1 Economic performance
2 Socioeconomic
development of regions
3 Business ethics, risk
management and
anti-corruption
4 Customer satisfaction
Source: Globaltrans
5 Risks and opportunities
posed by climate change
9 Employment, staff and
management relationship
6 Responsible water use
and reduction of water
consumption
7 Reduction of energy
consumption
8 Non-compliance with
environmental laws and
regulations
10 Employee education
and development
11 Employee motivation
12 Diversity and equal
opportunity
13 Occupational health
and safety
14 Corporate volunteering
15 Charity
STAKEHOLDER ENGAGEMENT MECHANISMS
Stakeholder group Mechanisms of stakeholder engagement
Outcomes in 2019
Employees
Shareholders and
investors
Customers
and business
partners
Government,
regulators and
professional
authorities
Local
communities
Media
― Labour-management consultations
― Staff surveys
― Corporate booklets, information boards
― Networking events
― Regular, direct communication between managers,
teams and individuals
― Career development, training and performance reviews
― Provision of social benefits and guarantees, including
medical insurance
― Improved working conditions
― 28,447 hours of training
― Increased number of health and safety checks
― Zero fatalities, 2 minor accidents and zero cases
of occupational illness
― Open, effective and transparent communication
― Investor Relations website
― Dedicated Investor Relations team
― General Meetings of Shareholders
― Corporate reporting, webcasts
― Broker-hosted investor events and roadshows,
― Information disclosure on a semi-annual basis
― Analyst and investor conference calls and webcasts
― Non-deal roadshows in the UK, Europe and the US.
Over 300 meetings held with investors in 2019
― Regular dividend payments 1
― Publication of the Annual Report and integrated
conference calls and Company-initiated roadshows
sustainability report
― Globaltrans was awarded “Most Honored Company”
by Institutional Investor
― Face-to-face formal and informal meetings, as well as
― Service contracts extensions with two major metallurgical
formal consultations
customers, MMK and Metalloinvest
― Customer analytics, customer evaluation system
― Conferences and forums
― Customer satisfaction surveys
― Transparent supply chain
― New long-term contract with Gazprom Neft secured
― Maintained long-term partnerships with clients – 66% of
the Group’s 2019 Net Revenue from Operation of Rolling
Stock was covered by service contracts
― Strengthened customer privacy and data security
― Regular communication with regulators/policy makers
on issues affecting the freight rail transportation
industry
― Participation in industry associations including
the Council of Railway Operators and the Russian
Union of Transport Workers
― Industry and regulatory forums
― Corporate philanthropy and charitable contributions
― Community investment
― Contributions supporting the socioeconomic
development of our communities
― Regular contributions to aid various charitable projects
― Communication with media representatives
― Transparent disclosure through various channels
― Dedicated Media section on corporate website
― Dedicated media relations contacts
― Press-conferences and exhibitions
― Distribution of news and information announcements
― Providing access to results calls with CEO and CFO
― Responding to media queries
― Participation at events and exhibitions (e.g. the annual
TransRussia Exhibition for Transport and Logistics
Services and Technologies)
1 Total dividends in respect of 2019 amounted to RUB 16.6 billion (Including interim, final and special dividends).
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SUSTAINABILITY
Ethics and behaviour
In 2008, the Group established its ethics
programme to define the values, standards
and behaviours expected of everyone
who works for Globaltrans. These are
formally enshrined in our Code of Ethics
and Conduct which defines the way we
think and should act as an organisation,
helping to drive consistent responsibility
and behaviours across the Group. The Code
also describes the Group’s principles with
respect to confidential information, anti-
bribery, conflicts of interest and reporting
concerns.
All Globaltrans employees are expected
to know, use and behave in accordance
with our Code, and are required to sign
an acknowledgement to this effect. We
have zero tolerance for any behaviour that
is contrary to the core values contained
within the Code.
Tolerance
Understanding and respecting diverse
cultures and people with different views
Impartiality
Acting objectively and professionally
Respect
Acknowledging people’s abilities, qualities
and achievements and complying with all
applicable labour laws
Equality for all
Creating opportunities and a working
environment that excludes any form of
discrimination
Safety
Compliance with required rules to create
a safe and healthy workplace
Globaltrans has an active process of
compliance, monitoring and reporting.
We strive to ensure that all our policies are
clear, publicly available and communicated
to all employees.
As part of our ongoing commitment to
improving the Group’s overall compliance,
the Board has formally adopted Group-wide
policies covering: Human Rights, Freedom
of Association, Diversity and Inclusion, and
Supplier Conduct.
The Group’s Human Rights Policy sets out
our commitment to promoting respect for
human rights in line with internationally
accepted standards. We expect all our
employees, suppliers and customers to
share this commitment. In order to support
and promote acceptance and compliance
among our people, in line with our values,
we regularly evaluate human rights issues,
conduct any necessary training, and
integrate the results into our business
activities.
Our Diversity and Inclusion Policy
sets out what having a diverse workforce
and inclusive workplace means to us as
an organisation. At Globaltrans we value
difference and promote respect and
dignity for all people. We acknowledge the
benefits which different backgrounds, skills
and perspectives can bring and actively
seek to increase diversity in our business.
We target career development across
a range of employees to support this aim.
Inclusion is based on respect and we care
about our employees, customers and the
communities we serve and treat them
professionally, fairly and equally.
Our Freedom of Association Policy
recognises the fundamental right of
Globaltrans employees to form and join
workers’ organisations without interference
and to engage in collective bargaining.
We respect our employees’ choice on the
matter and are committed to maintaining
a constructive regular dialogue with them
and their representatives.
At Globaltrans, we treat our suppliers fairly
and choose to work with those suppliers who
conduct their businesses in a just and ethical
manner. In 2020 we formally introduced our
Supplier Code of Conduct, based on the
UN Global Compact’s principles, which sets out
the standards we expect them to comply with
when conducting their business operations.
Globaltrans does not tolerate bribery and
corruption in any form. Our policy on this
issue is summarised in our Anti-Fraud Policy.
We have established rules and procedures for
dealing with suspected violations, overseen by
a team responsible for internal controls and
investigations. Each employee is required to
understand the types of violations that may
occur within the area of his/her responsibility
and closely monitor for any indications of
potential non-compliance.
The Group’s Whistleblowing Policy governs
the investigation and reporting of improper
activities, including non-compliance with
our Code of Ethics and Conduct. We actively
encourage employees to speak up and report
any concerns that they may have regarding
workplace issues. We provide confidential,
safe and secure mechanisms to report any
suspected violations of the Group’s standards.
The Group’s executive management meets
regularly to discuss, among other things,
anti-fraud and anti-corruption measures.
During 2019, there were no reported cases
within the Group of alleged fraud, bribery or
corruption.
We respect and protect the privacy of personal
information of our stakeholders and comply
with the EU general data protection regulation,
adopted by the EU Parliament in April 2016.
The Group has adopted a Privacy Policy
which can be viewed on the Group’s website.
Covid-19
From the start of 2020, like many other companies, Globaltrans has adapted to
measures undertaken by nations to address the global spread of coronavirus
(Covid-19). While this is a new situation for the Group and the world, we have taken the
necessary steps to keep our staff and clients safe, closely following recommendations
and requirements. At the same time, we are playing our part to ensure that rail freight
keeps moving as it is vital for the supply of goods within Russia and abroad. The Group
continues to function at full capacity and to meet its contractual obligations with
clients, all while safeguarding the interests of our employees, clients and other
stakeholders.
Risk Management
Key ESG activities:
To satisfy regulatory obligations
and meet stakeholder
expectations, Globaltrans is
constantly seeking to improve
how it controls, manages
and mitigates the impact of
non-financial risks, comprised
of strategic, operational and
compliance risks.
Further details are set out
on pages 60 to 68
Corporate governance
Employees
We have in place a corporate governance
framework that is in line with the highest
international standards. This supports the
Board in its objective to provide effective,
transparent and ethical oversight of the
Group and to take decisions that will create
value for all the Group’s stakeholders,
as well as that promote the long-term
interests and welfare of the Group and the
communities where it operates.
We believe the role of a responsible
employer is to create and sustain a place
of work that is safe, allows people to work
with dignity and respect, offers a rewarding
and fair-minded work culture, presents
opportunities to grow and develop and,
importantly, that complies fully with all
relevant employment legislation.
Environment
Communities
Minimising the adverse impact of
Globaltrans’ activities on the environment
is at the that heart of our business and is
principally achieved by employing more
energy efficient practices across the
Group, reducing carbon emissions and
emphasising the importance of recycling.
We impact our communities at every
level – through our employees and the
opportunities our business can create for
them, through the economic value created
by our Company, through participation in
community initiatives and through direct
support of good causes through charitable
giving.
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SUSTAINABILITY
Employees
Globaltrans aspires to be a great place to
work. Our business performance and future
success depends on our ability to attract,
develop and retain talented individuals
at all levels. We strive to be an employer
of choice by providing attractive job
opportunities, investing in training and
development, rewarding performance and
creating a supportive and respectful working
environment.
We are committed to ensuring the safety and
wellbeing of our people no matter where they
are working. We maintain well-run and safe
sites and operate a zero tolerance approach
to any form of hostility, harassment or
unprofessional behaviour.
We have comprehensive human resources
strategies and policies for managing our
employee and labour relations:
― Human Rights policy
― Diversity and Inclusion policy
― Internal Code of Labour Conduct
― Freedom of Association policy
― Workplace Safety Guidelines,
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
The average employee headcount in 2019
rose 2% year on year to 1,569 employees.
The overall headcount at the end of the year
increased 6% compared to 2018 to 1,640 1 .
New Forwarding Company and BaltTransServis
continued to employ the most people within
the Group.
Diversity
Training and education
Headcount by companies in 2019 and 2018 (at year-end)
Developing our employees’ skills is essential
in order to keep pace with change and
meet current and future business needs.
We encourage every employee to take
advantage of the learning and development
opportunities we offer at Globaltrans.
We have many different types of programmes
tailored to individuals’ work requirements.
These range from structured training courses,
workshops and seminars through on-line
learning and individual coaching. During
2019, 343 employees undertook training
and the Group spent a total of 28,447 hours
on training and development. During the
year, training was provided in a range of areas
including accounting, business administration,
environmental safety, information security,
health and safety, financial management and
marketing.
We value a diverse workforce and respect
differences regardless of an individual’s
age, disability, ethnicity, nationality, gender,
race, colour, religion or sexual orientation.
The Group is committed to creating equality
of opportunity and an inclusive work
environment in which all our people are
treated fairly and with respect and dignity.
We have zero tolerance for any form of
discrimination. Our approach to diversity
is set out in our newly published Diversity
and Inclusion Policy, violations of which are
grounds for disciplinary action.
While the historic nature of the freight rail
transportation industry means that the
majority of our workforce is male, we continue
to explore ways to encourage greater female
representation. As at year-end 2019, females
made up 36% of our workforce. At board and
senior management level, women represented
13% of the Board of Directors (two board
members) and 10% of senior management
(one senior executive).
In line with our commitment to equality
and impartiality, we seek to select the best
candidates based on performance, skills,
experience and qualifications. We aim to offer
equal pay opportunities for both women and
men.
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The overall headcount
at the end of the year
551
555
567
495
383
393
New Forwarding Company
BaltTransServis
2018
2019
Ural Wagonrepair
Company
GTI Management
Other subsidiaries
54
50
66
75
Headcount by gender in 2019 (at year-end)
Headcount by age in 2019 (at year-end)
64% Men
36% Women
13% < 30 years
64% 30–50 years
23%
> 50 years
Permanent contract
Temporary contract
Average training hours by gender
Part-Time
62%
Full-Time 35%
Women
Men
38%
65%
Part-Time
Full-Time
56%
100%
44%
2019
2018
80
72
84
108
Women
Men
Women
Men
Distribution of training among employees
by employee categories in 2019
Main types of training formats
in 2019
28,447
training hours
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 2019, while the
average headcount is calculated by summing up the number of employees on the list in each month of the reporting period and dividing this sum by the number of months.
22% Managers
78% Employees
75% On-site learning
25% Distance learning
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SUSTAINABILITY
Motivation
We operate in a competitive and dynamic
market so having the right team is absolutely
critical to our future success as a business.
Ensuring that colleagues are engaged,
motivated and happy is at the heart of our
people strategy.
We offer a competitive reward package
for our employees which encourages high
performance and helps us attract and retain
key talent. Employee benefits include health
insurance, childcare support, additional
holidays and other benefits. Eligible employees
can participate in the various incentivisation
schemes that the Group operates for different
groups of employees.
We continually benchmark our rewards
packages against our industry peers in order
to ensure we continue to attract and retain
the best talent. We are committed to retaining
a motivated and productive workforce that
values being a part of Globaltrans and believe
our success can be measured by our low level
of staff turnover of only 14% (11% among men
and 3% among women).
Corporate culture
and internal communications
Globaltrans aims to provide its people with
a great working environment based on
a strong collaborative culture of shared
values where everyone feels valued and
each member of staff plays their part in the
team, working collegiately with others to
get better results. That is why teamwork and
collaboration are at the core of our business.
Listening and responding to our employees
is a priority. We actively encourage employee
involvement as we want each individual
to feel that their views are heard and that
they are empowered at work. We conduct
regular employee surveys to identify those
issues that most concern employees and
to then respond to the feedback. Some of
the Group’s subsidiaries have employee
hotlines to enable them to deal quickly and
effectively with employees’ concerns or
questions. Our protocols stipulate that each
and every call to a hotline is dealt with and no
communication is left unanswered.
We also regularly hold sports, cultural and
leisure events for our employees and their
families. These help to foster a sense of
community, increase employee engagement
and promote better teamwork.
Health and safety
Globaltrans is dedicated to providing a safe
and healthy working environment and
improving the quality of work-life for all
its employees. We believe that integrating
wellbeing into our work practices serves to
create a positive environment and culture that
contributes to our business success. We are
committed to operating in a zero-harm work
environment and to ensuring that our people,
suppliers and partners share this commitment.
The Group ensures all safety procedures are
carried out and that they are compliant with all
policies and legislation.
To guarantee that safety compliance is met,
our 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.
We actively promote our safety culture by
encouraging our people to take the initiative
in managing health and safety risks. We do this
through a programme of education, training,
instruction, and supervision.
We actively train our people in occupational
safety as part of our drive to develop
a workplace culture of awareness and
responsibility. We also carry regular spot-checks
at our operations to ensure that they continue
to meet high safety standards. In 2019,
we significantly upped our focus on safety
performance across the Group, more than
doubling the number of workplace safety
checks we carried out to 769 visits (2018:
373 visits):
― 414 locations in New Forwarding
Company;
― 355 locations in BaltTransServis.
We remain committed to a zero-harm work
environment. In 2019 there were no fatalities
and just two minor reported incidents involving
two workers at BaltTransServis. All incidents are
thoroughly investigated and findings shared
across the Group.
Energy usage
As a responsible business, we are committed
to promoting efficient and wise use of our
energy sources. Given the particular nature
of the industry, the Group’s operations
consume energy from various sources,
namely fuel (petrol, diesel, and gas) and
electricity. To reduce energy consumption
we are constantly developing our approach
to effective energy management. In 2019,
we again reduced our energy consumption
in three key areas and further energy
optimisation measures are planned.
The significant decline in electricity
consumption came as a result of the Group
relocating a number of offices to a single
office building in 2019.
Petrol consumption — litres per employee
2018–2019
−17%
2019
2018
134
162
Diesel consumption — litres per employee
2018–2019
−5%
2019
2018
33,895
35,553
Environment
We believe that business success should not
come at a cost to the environment. We are
committed to following sustainable business
practices that limit the impact our operations
have on the environment. By doing so and
encouraging our employees, customers
and suppliers to follow suit, we help deliver
sustainable value for society.
In 2019, Globaltrans continued to refresh our
environmental strategy, focusing on improving
the transparency and effectiveness of our
sustainability performance. We established
a formal Environmental and Energy Policy
to reinforce our commitment to doing
business sustainably and introduced internal
reporting systems to monitor group-wide
environmental performance.
We comply with all requirements of applicable
legislation, including local and internal
regulations. We had no incidents of non-
compliance with environmental laws and
regulations in the reporting period.
We seek to be an eco-friendly company in
other ways too, with a focus on improvement
in our energy efficiency, the rational use
of water and reducing our paper and fuel
consumption, the results of which are set out
below 1 .
Total consumption of energy resources by type, 2018–2019
Electricity (KWh)
Diesel (litres)
Petroleum (litres)
2018
2019
Change
7,347,827
4,795,686
54,752,185
53,184,738
250,051
210,715
-35%
-3%
-16%
−35%
decrease in total
consumption of electricity
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1 While the Company is making great strides in collecting, processing and presenting information on rational use of water, energy and paper the process is on-going and there is
still insufficient data to fully demonstrate the trends occurring in all of its business units. Addressing this remains a key focus for the Group.
SUSTAINABILITY
−3%
Decrease of GHG emissions
Paper consumption — kg per employee
2018–2019
−20%
2019
2018
12
15
Use of water
Greenhouse gas management
Our operations do not consume significant
amounts of water. Nevertheless, we want
to raise awareness about the importance of
water conservation within the business and
among employees. We implemented internal
environmental management systems in
2018 to improve the monitoring of water
usage and progress continues to be made.
Both BaltTransServis and Ukrainian New
Forwarding Company made further reductions
in their use of water in 2019:
― Total consumption of cold water by
BaltTransServis decreased 6% year on
year.
― Total consumption of cold water by
Ukrainian New Forwarding Company
decreased 7% year on year.
The system for capturing and processing water
use data elsewhere across the Group remains
under development, but we have made
considerable progress. Further improvements
to the monitoring system around water quality
and consumption are planned.
Paper Recycling
We are keen to reduce the negative
environmental impact of paper consumption.
As an organisation, Globaltrans consumes
significant amounts of paper and as our
business volumes grow, the need for more
documentation is likely to grow with it.
We continue to promote the merits of a green
workplace, encouraging staff across the Group
to recycle waste paper, monitoring usage
particularly with regard to photocopying,
and introducing the use of electronic
documentation. The new initiatives are
leading to a significant reduction in paper
consumption, with paper consumption
per employee reducing by 20% in 2019.
Recycling continues to be an area of focus
across all our business units.
Rail remains one of the greenest, most
fuel-efficient modes of transport with, for
instance, just one litre of fuel needed to move
one tonne of freight over a distance of about
200 km by rail. Nevertheless, we continue to
focus on measures to reduce the greenhouse
gas emissions associated with our operations.
We achieve this by constantly seeking ways to
reduce our energy consumption, by ensuring
optimal efficiency in how we manage our
railcar fleet, and through innovation and
investment in new rolling stock and services.
Operating a modern, well-maintained fleet
is key to minimising our environmental
footprint. A strong focus for us over the last
year has been our locomotive fleet, as diesel
locomotives are the biggest contributor
to our GHG emissions. In 2019, to further
improve our operational and environmental
performance, we acquired 10 new modern
diesel locomotives, bringing our total fleet
of locomotives to 75 units as of the end of
2019. These new locomotives are significantly
more fuel efficient, cleaner and more
reliable. The other key driver to reducing
GHG emissions is operational efficiency, in
particular, reducing the incidence of Empty
Runs as there is a direct environmental impact
from having trains moving while carrying
empty railcars. Globaltrans continues to lead
the industry, delivering one of the lowest
Empty Run Ratios for gondola cars in the
sector.
Since 2018, we have undertaken an annual
data capture exercise for the purposes of
measuring and reporting our GHG emissions.
In 2019, GHG emissions from the Group’s
locomotive fleet were 161,299 tonnes of CO2
equivalent 1 , a pleasing 3% lower than in 2018
(166,129 tonnes of CO2 equivalent). Whilst we
can rightly be considered a low emitter of
CO2, we recognise there is more work to do in
improving our environmental management
system. We remain committed to reducing
further our GHG emissions and improving
our understanding of how we impact the
environment in a way consistent with our
values.
1 The Group’s greenhouse gas emissions were calculated in accordance with IPCC Guidelines for National Greenhouse Gas Inventories (2006).
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Communities
We want to do everything we can to make
a positive difference to the communities
where we operate. We work closely with
local communities and look to find ways to
best contribute to the regions where we
are present both economically and socially.
This can be achieved in a variety of ways
from targeted contributions of time, skills
or financial aid to charitable organisations,
support for volunteer work, internship,
workplace development programmes which
increase the capabilities and potential
earnings power of employees as well as
contributions through local and national taxes,
licenses or other fees which help provide the
resources needed to support the broader
economy.
Wherever possible we try to employ people
from the communities where we operate
and work with them to develop their skills
and potential. We provide a workplace
environment that is fair, respectful, fulfilling
and safe in order to contribute to their
sense of well-being and that of the broader
community. Health insurance, childcare
support and part-time employment are just
some of the elements of employment at
Globaltrans that can benefit our employees
and their families. And beyond this, we
encourage and support participation by our
businesses and our employees in community
initiatives and charitable organisations that are
aligned with our values.
We believe ensuring we have an employee
base that is happy, healthy and valued enables
them to better support and add value to their
own families and communities. In addition
to this, we create economic well-being for
them and our other stakeholders. How we as
a company create wealth for our stakeholders
is reflected in the table on the right.
We want to be a company that makes
a positive difference to society as a whole, and
improves the lives of those in the communities
where we operate.
While remaining a successful company
ensures that we can continue to create
opportunities, wealth and a sense of value for
people in our communities, we also contribute
directly to charitable efforts in these areas.
We consider this to be a core part of how we
conduct business as a sustainable company,
and in 2019, the majority of our operating
companies were involved in supporting
community schemes and charitable activities.
Our charitable activities are focused on:
― Supporting vulnerable groups;
― Supporting health and well-being
initiatives;
― Supporting sports activities;
― Supporting cultural activities;
― Supporting education.
Alongside providing support for vulnerable
groups in society such as the disabled, military
veterans, and pensioners, the area of child
health is one where we particularly seek to
make a positive difference.
GTI Management, New Forwarding Company
and BaltTransServis are long-time supporters
of the Life Line Fund which assists children
with life-threatening illnesses. Additionally,
New Forwarding Company has been
supporting a regional charitable foundation
which provides ‘illustrated’ books that cater for
blind children.
The preservation and promotion of Russia’s
rich cultural heritage is another focus for our
companies’ charitable activities. For examples,
BaltTransServis supports the International
Charitable Fund “Constantine” which works
to restore monuments and safeguard and
promote Russia’s cultural heritage.
Additionally, we play an active role in
improving the quality of education and the
development of sports. New Forwarding
Company, for instance, made charitable
donations to the Fencing Federation of Russia
in 2019 to support access to and appreciation
of this unique sport.
Direct economic value generated, distributed and retained 2
Direct economic value generated 3
Economic value distributed
Total cost of sales (excluding Employee benefit expense)
Total selling, marketing and administrative expenses (Community
investments and excluding Employee benefit expense and Taxes
(other than income tax and value added tax)
Employee benefit expense
Payments to the providers of capital 4
Payments to the government 5
Economic value retained
2019
RUB mln
94,994
89,458
57,322
1,112
4,483
20,531
6,009
5,536
2 Information in the table is derived from the Consolidated Management Report and Consolidated Financial Statements for the year ended 31 December 2019.
3 Direct economic value generated includes “Revenue”.
4 Payments to providers of capital include “Interest paid”, “Dividends paid to owners of the Company” and “Dividends paid to non-controlling interests in subsidiaries”.
5 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.
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CHAPTER 3
Governance
Board of Directors
Executive Management
Corporate Governance Report
Share Capital
Corporate Structure
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CORPORATE GOVERNANCE
Board
of Directors
Globaltrans is led by a highly experienced Board, which provides entrepreneurial leadership for the
Group and strategic direction to management. The composition of the Board includes a variety of
skills and competences needed to lead the Group effectively. In reviewing strategy and performance
matters, the Board Directors are able to offer constructive support and challenge to management
drawing on their wide-ranging commercial experience and business expertise.
Sergey Maltsev
John Carroll Colley
Dr. Johann Franz Durrer
Vasilis Hadjivassiliou
George Papaioannou
Alexander Eliseev
Andrey Gomon
Elia Nicolaou
Chairman of the Board, Executive
Director, Chief Strategy Officer,
co-founder and shareholder
of Globaltrans
Appointment: Mr. Maltsev was
elected Chairman of the Board
of Directors in April 2018 and has
served as Chief Strategy Officer
since 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. At that point he served
as Senior Vice President for strategy
and corporate governance at
JSC Russian Railways, until his return
to Globaltrans as Chief Strategy
Officer in 2017.
Mr. Maltsev was a founding 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 “Honoured
Railwayman of Russia” award.
He has a degree in railway
engineering.
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.
Senior Independent Non-executive
Director ¹ , Chairman of the
Remuneration and Nomination
committees
Appointment: Dr. Durrer was
appointed to the Board as
an Independent Non-executive
Director in March 2008.
Committee membership: Mr. Colley
is Chairman of the Audit Committee
and member of Nomination and
Remuneration committees.
Committee membership: Dr. Durrer
is Chairman of the Remuneration
and Nomination committees.
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.
Other appointments: Dr. Durrer
currently serves on the Board
of IMT-Dienst AG, a transport
company and is an executive board
member of several privately held
companies.
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 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.
Other appointments: Mr. Colley is
currently the principal of Highgate
Consulting LLC, a global advisory
consulting company.
Independent Non-executive Director
Appointment: Mr. Hadjivassiliou
was appointed to the Board as
an Independent Non-executive
Director in September 2019.
Skills and Experience:
Mr. Hadjivassiliou was a partner in
Assurance and Advisory services
in PricewaterhouseCoopers (PwC),
Cyprus, from 1990 until 2018 when
he retired. During this time he held
various leadership positions with PwC,
including as an elected member of the
Executive Board, Head of the Limassol
office as well as a number of other
offices in Cyprus and was a leading
figure in business development.
He has extensive experience in
auditing, International Financial
Reporting Standards and business
advisory services having advised
major local and international groups
including companies publicly listed on
the London Stock Exchange as well as
in Cyprus.
Mr. Hadjivassiliou is a graduate
of the University of Manchester and
a Fellow of the Institute of Chartered
Accountants of England and Wales.
Other appointments:
Mr. Hadjivassiliou holds directorships
in a number of companies affiliated
with his family and is also a Board
member in a number of other
private companies.
Independent Non-executive
Director
Appointment: Mr. Papaioannou
joined the Board as an Independent
Non-executive Director in April
2013.
Committee membership:
Mr. Papaioannou is a member
of 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 in Cyprus.
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.
Non-executive Director,
co-founder and shareholder
of Globaltrans
Appointment: Mr. Eliseev joined
the Board in March 2008.
Non-executive Director
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. Eliseev
co-founded Globaltrans in 2004
and has played a leading role
in introducing market-based
reforms to the Russian freight rail
transportation market. He has
spent more than 17 years in senior
management positions, mostly
within the rail sector, and 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.
Skills and Experience: Mr. Gomon
has over 13 years management
experience in the railway industry.
From 2006 to 2012 he was CEO
of Transoil, one of the largest oil
rail transportation companies
in Russia, having previously
served as CFO between 2003
and 2006. He sits on 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.
Other appointments: Mr. Eliseev
is Chairman of the Board of
Globaltruck, a leading freight
trucking operator in Russia, listed
on the Moscow Exchange.
Non-executive Director, Company
Secretary, Secretary to the Board
Appointment: Ms. Nicolaou joined
the Board as a Non-executive
Director in March 2008. She is the
Company Secretary.
Committee membership:
Ms. Nicolaou is 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 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 has an advanced diploma in
Business Administration from the
Cyprus International Institute of
Management.
1 Served as Independent Non-executive Director until May 2019.
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BOARD OF DIRECTORS
Melina Pyrgou
Konstantin Shirokov
Alexander Storozhev
Alexander Tarasov
Michael Thomaides
Marios Tofaros
Sergey Tolmachev
Non-executive Director
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 and is a member of various
business associations.
Ms. Pyrgou graduated from the
University of Keele with a degree
in Law and Sociology, and 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.
Other appointments: Ms. Pyrgou
currently serves as a member of
the Cyprus Investments Promotion
Agency (CIPA). She also sits on
the Disciplinary Committee of
the Institute of Certified Public
Accountants of Cyprus (ICPAC).
Executive Director,
Head of Internal Audit
Executive Director,
Chief Procurement Officer
Non-executive Director
Non-executive Director
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 and holds a degree in
Economics from the Moscow State
University of Commerce.
Appointment: Mr. Thomaides was
appointed to the Board as a Non-
executive Director in April 2014.
Appointment: Mr. Tofaros was
appointed to the Board as a Non-
executive Director in April 2013.
Skills and Experience:
Mr. Thomaides served as a director
at Globaltrans from 2004 to 2008
and sat on the Board 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 degree in Consumer Product
Management.
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 finance officer
at Louis Catering Ltd from 2003 to
2004. He has 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 holds a chartered certified
accountant (FCCA) diploma and is a
member of the Institute of Certified
Public Accountants of Cyprus.
Appointment: Mr. Shirokov
was appointed to the Board as
an Executive Director in March 2008
and heads 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 served as a non-
executive member on the board
of Global Ports Investments PLC
between 2008 and April 2018
where he was a member of both the
Audit and Risk committees.
Mr. Shirokov graduated from the
Finance Academy under the Russian
government and studied business
management at Oxford Brookes
University.
Appointment: Mr. Storozhev joined
the Board as an Executive Director
in April 2013.
Skills and Experience: Mr. Storozhev
has held senior management
roles over the course of a 20-year
career in the rail industry and has
been with Globaltrans since it was
established. He is chairman of
a number of Globaltrans subsidiary
boards, including AS Spacecom,
AS Spacecom Trans, GTI
Management and BaltTransServis
and serves on the boards of other
Globaltrans’ subsidiaries, including
New Forwarding Company and Ural
Wagonrepair Company.
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 holds a diploma from the Mirbis
Business School in Moscow and
a Master’s degree in Business
Administration and Finance.
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.
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CORPORATE GOVERNANCE
Executive
Management
The executive leadership comprises the senior management
team which is responsible for the Group’s business operations
and key support functions. In 2019, the team underlined its
reputation for management excellence delivering strong
results in a volatile market environment.
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Valery Shpakov
Sergey Maltsev
Alexander Shenets
Vyacheslav Stanislavsky
Alexander Storozhev
Kirill Prokofiev
Roman Goncharov
Sergey Avseykov
Svetlana Brokar
Artem Gabestro
Deputy Chief Executive
Officer, Head of Operations
Mr. 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 and is a recipient
of the “Honoured
Railwayman of Russia”
award.
Chief Financial Officer
Mr. Shenets has been 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.
Chief Executive Officer
Mr. 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.
Chief Strategy Officer,
Chairman of the Board,
Executive Director,
co-founder and sharefolder
Mr. Maltsev has served as
Chief Strategy Officer of
the Group since August
2017 and was elected as
Chairman of the Board of
Directors of Globaltrans in
April 2018.
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 a founding
member and Chairman of
the non-profit partnership
“Council of Railway
Operators”.
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 JSC Russian
Railways. He is a recipient of
the “Honoured Railwayman
of Russia” award.
Chief Procurement Officer,
member of the Board,
Executive Director
Mr. 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.
CEO of BaltTransServis
Head of Treasury
Business Development
Officer
Government Relations
Officer
General Counsel, Corporate
Governance Advisor to CEO
Mr. Goncharov has served
as CFO of New Forwarding
Company, a Globaltrans
subsidiary, since 2005
and has over 15 years of
management experience.
He has an MBA from the
Moscow International
School of Business.
Mr. 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 Saint
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.
Artem Gabestro joined the
Group in 2007 as a lawyer
before becoming general
counsel of Globaltrans two
years later. He is a member
of the Audit Committee
of Globaltrans’ subsidiary
New Forwarding Company
and in January 2020 was
appointed as an advisor to
Globaltrans’ CEO on issues
of corporate governance.
Mr. Gabestro is a graduate
of Moscow State University
of International Affairs and
holds a Master’s degree
in law.
Mr. Avseykov is in charge
of business development
for the Group. He
joined New Forwarding
Company, a 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 JSC
Russian Railways before
rejoining Globaltrans in
2018.
Mr. Avseykov graduated
from Tomsk State
University and holds a PhD
in political science from
the Russian Presidential
Academy of National
Economics.
Ms. Brokar joined as
Government Relations
Officer in December 2018.
She is an attorney with
significant expertise in civil,
tax, commercial, corporate,
finance and railway
transport matters. She has
worked with government
departments including the
Russian Transport, Finance
and Railway Ministries.
From 2009 to 2013,
Ms. Brokar was a member
of the Board of New
Forwarding Company,
a Globaltrans subsidiary,
and since 2014 has acted
as its 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.
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CORPORATE GOVERNANCE
Corporate
Governance Report
Sergey Maltsev
Chairman
Chief Strategy Officer
co-founder and shareholder
“I am pleased to introduce our Corporate Governance Report for 2019. As a Company, we
have a long-standing commitment to high standards of corporate governance. As a Board,
we continue to believe that strong corporate governance is vital to good decision making
and underpins our ability to create long-term sustainable value for our shareholders
and other stakeholders.”
“ The Board is responsible for the management, direction and performance of the
Group. My role as Chairman is to manage the Board so that it operates effectively
and has the right balance of skills, knowledge, independence and experience. In this
regard, I am pleased to report that we have a strong group of experienced directors,
with diverse backgrounds and skills, all of whom are fully committed to the Group’s
continued success.
How companies behave, their culture and their values have become increasingly
important. And they matter precisely because they are the underpinning for our
business and guide how we work. The Board understands the importance of its role
in setting the right tone for the culture of Globaltrans.
The Board is committed to understanding the views of all of Globaltrans’
stakeholders, as understanding their opinions is a vital part of the Board’s decision-
making process.
Our ethos as a company is one of proactive and open engagement with
stakeholders. The Board has long supported this approach, as we believe that
understanding stakeholders’ opinions is crucial for good decision-making
and fundamental to building a sustainable business. We spend a lot of time
communicating with and listening to our key stakeholders: shareholders, clients,
colleagues, suppliers and officials. This remains a key focus for the Board.
Led by me, the Board will continue to focus on the progress made against
our strategic priorities and performance targets. We will continue to align our
governance structure to international best practice.”
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Globatrans’ policies
include, inter alia:
Corporate documents
and policies
― Articles of Association
― Appointment policy for the Board
of Directors and committees
― Audit Committee – terms of reference
― Board of Directors – terms of
reference
― Dividend policy
― Nomination Committee – terms
of reference
― Policy on assessment
of independence and objectivity
of external auditor
― Remuneration Committee – terms
of reference
Business ethics
― Anti-Fraud policy
― Business continuity policy
― Code of Ethics and Conduct
― Policy on reporting and investigating
allegations of suspected improper
activities (whistleblowing policy)
― Corporate Diversity and Inclusion
Corporate governance framework
Corporate governance policies
Globaltrans’ corporate governance policies and practices are designed to ensure that the
Group upholds its responsibilities to shareholders and other stakeholders. This key principle
is promoted and applied across all levels of the Group in order to establish effective and
transparent corporate governance. To that end, Globaltrans’ Board of Directors has adopted
the Company’s Code of Corporate Governance (based on the principles of the UK Corporate
Governance Code), guaranteeing that the interests of all shareholders are given due
consideration.
The Board responsibilities and activities
Globaltrans’ Board of Directors is accountable to the Company’s shareholders for standards
of governance across the Group’s activities. The Board is committed to providing effective,
transparent and ethical oversight of the Group so that the Board can take decisions which it
believes benefit all its stakeholders and communities and create value for the Group.
Responsibilities
― Providing leadership, setting the overall strategy and ensuring that the necessary
policy
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.
― Assessing from time to time whether the Independent Non-executive Directors continue
― Environmental and Energy policy
― Freedom of Association policy
― Human Rights policy
― Supplier Code of Сonduct
Disclosure, transparency
and market abuse regulation
to demonstrate independence.
Membership
The process for the Board appointments is led by the Nomination Committee and members
of the Board 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.
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 working with and for large international organisations. In addition,
the Group selects Independent Directors intending to ensure that the views of the free-float
shareholders are represented and that the interests of all stakeholders are taken into account.
The Board comprises 15 members, eleven of whom are Non-executive Directors.
Four of the Non-executive Directors are independent. Globaltrans separates the positions
of Chairman and CEO to ensure appropriate segregation of roles and a clear division
of responsibilities.
In 2019, members of the Board of Directors held 16,326,121 shares and GDRs in Globaltrans.
Although Dr. Durrer has served on the Board for eleven years the Board of Directors still
considers him independent.
― Corporate policy on the treatment
of the rights of minority shareholders
― Disclosure policy
― Securities dealing Code and the PDMR
securities dealing Code
Privacy
― Privacy policy
For the Group’s corporate governance
documents and policies, please visit
our corporate website at:
www.globaltrans.com
The composition of the Board and the
Directors’ biographies are available
on pages 82 to 85 of this Annual Report
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CORPORATE GOVERNANCE REPORT
Diversity
Activities
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 take into account these aspects
when making new Board appointments and
considering the composition of the Board.
There are two female members on the Board,
who make up about 13% of the Board.
The Board ranges in age from 40 to over
70 years old, with the average age being
52 years. Board members have experience
across the following areas: the transportation
and ports industry, accounting, economics
and finance, the banking sector and legal,
engineering and mechanics, biophysics and
mathematics, history, international affairs
and risk management.
Induction and professional
development
The Chairman is responsible for ensuring
that there is a properly constructed and
timely induction for new directors upon
joining the Board. Directors have full access
to a regular supply of financial, operational,
strategic and regulatory information to help
them discharge their responsibilities.
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.
The Board met 14 times during 2019 and considered 60 items.
Regular meetings
Ad hoc meetings
― Review of the Group’s financial
and operational performance.
― Approval of the annual budget.
― 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.
― 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
― Review of the results of risk assessments.
― Approval of the Annual General Meeting
agenda, including dividend proposals
and Board reappointments.
by subsidiaries.
― Review and consideration of various
business development opportunities
and major transactions.
― Approval of appointments to the Board
of Directors of subsidiaries.
― Changes in responsibilities of Board
members and other matters.
The Board and the Board Committees meetings in 2019 and the attendance of Directors
Board
of Directors
Nomination
Committee
Remuneration
Committee
Audit
Committee
Performance evaluation
Sergey Maltsev (Chairman)
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.
John Carroll Colley
Dr. Johann Franz Durrer
Alexander Eliseev
Andrey Gomon
Vasilis Hadjivassiliou 1
Elia Nicolaou
George Papaioannou
Melina Pyrgou
Konstantin Shirokov
Alexander Storozhev
Alexander Tarasov
Michael Thomaides
Marios Tofaros
Sergey Tolmachev
Michael Zampelas 2
E
14
14
14
14
14
6
14
14
14
14
14
14
14
14
14
3
A
12
14
14
13
12
6
14
14
12
14
13
12
14
14
14
1
E
1
1
A
1
1
E
2
3
A
2
3
E
5
5
5
A
5
5
5
1
1
1 Appointed as a member of the Board on 20 September 2019.
2 Michael Zampelas passed away on 15 May 2019. Mr. Zampelas was a Senior Independent Non-executive Director, Chairman of the Nomination Committee and member
of the Remuneration Committee. He served on the Board of Globaltrans since 2008; and from 2013 to 2018 was Chairman.
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Remuneration of the Board
and the management
Directors serve on the Board under letters
of appointment, which 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 2019
at the Annual General Meeting held on 22 April
2019 and on Extraordinary General Meeting
held on 20 September 2019. For details of
the remuneration paid to the Board and key
executives in 2019, please refer to Note 35a
of the Group’s 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 paid by the Group
in 2019 amounted to RUB 508 million.
Shareholder engagement
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
and shareholders 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 2019, the Company held more than
300 meetings with investors and shareholders,
visited about 15 investor conferences and
arranged 4 non-deal roadshows. There are
currently 11 sell-side analysts who monitor
Globaltrans.
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; and
― 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
For details of the main risks facing
the Group, please refer to the Risk
Management section of this report and
the Principal Risks and Uncertainties
subsection, included in the Financial
Statements section of this Annual Report
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.
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 2019
and 2020. The appointment for 2019 was
approved by the Group’s shareholders at the
Annual General Meeting on 22 April 2019.
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CORPORATE GOVERNANCE REPORT
The Board committees
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.
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. Each committee has written terms of
reference, approved by the Board, that summarise the committee’s role and responsibilities.
Audit Committee
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 2019
and meetings 3 members,
Members
including two
independent
John Carroll Colley, Independent
Non-executive Director (Chairman)
Elia Nicolaou, Non-executive
Director
George Papaioannou, Independent
Non-executive Director
Four
John Carroll Colley
George Papaioannou
Elia Nicolaou
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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.
― Review of the Group’s Consolidated Financial Statements and Parent company financial statements for 2018 and
interim financial results for the six months ended 30 June 2019.
― Review of the external auditor’s report to the Audit Committee following its full-year audit for 2018 and review
for the six months ended 30 June 2019.
Issues considered
in 2019
― Consideration of the independence of the external auditor.
― Review of the Group’s external auditor and terms of reappointment for 2019. 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.
― Review of the report of the external auditor on the audit strategy for 2019.
― 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.
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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 2019
and meetings 2 members,
Members
including two
independent
Johann Franz Durrer, Senior
Independent Non-executive
Director (Chairman)
John Carroll Colley, Independent
Non-executive Director
One
Dr. Johann Franz Durrer
John Carroll Colley
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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 2019
― 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 2019
and meetings 2 members,
Members
including two
independent
Johann Franz Durrer, Senior
Independent Non-executive
Director (Chairman)
John Carroll Colley, Independent
Non-executive Director
One
John Carroll Colley
Dr. Johann Franz Durrer
Michael Zampelas ¹
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― Remuneration of Executive Directors (Chairman and Executive Directors determine the remuneration for independent
Responsibilities
members).
― Review of the Group’s remuneration policies.
Issues considered
in 2019
― Remuneration of new member of the Board and key management.
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1 Michael Zampelas passed away on 15 May 2019. Mr. Zampelas was a Senior Independent Non-executive Director, Chairman of the Nomination Committee and member
of the Remuneration Committee. He served on the Board of Globaltrans since 2008; and from 2013 to 2018 was Chairman.
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CORPORATE GOVERNANCE REPORT
Share Capital
Corporate Structure
The Company was formed in 2004 when
a group of like-minded entrepreneurs brought
their freight rail businesses together to form
Globaltrans, giving it the scale, governance
and focus to become one of the leading
players in the region. Those founders continue
to be shareholders today with a combined
stake of about 43% in total and their
entrepreneurial spirit remains at the heart of
the Group’s culture and approach. In addition,
other directors and management of
Globaltrans are shareholders in the Company
representing about 0.2% of the issued share
capital.
In 2008, Globaltrans’ founders recognised
the benefits of an international listing and
undertook an Initial Public Offering on the
London Stock Exchange, becoming the first
freight rail company serving Russian cargo
flows to be listed internationally. Today, the
majority of the Company’s shares are in the
hands of the public with Globaltrans’ free float
amounting to approximately 56.9% ¹ of the
issued share capital.
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 Bank of New York Mellon is
the depositary bank for the GDR programme
of Globaltrans.
Globaltrans provides freight rail transportation,
railcar leasing and other ancillary services to
clients in Russia, the CIS and Baltic countries
through its subsidiaries – New Forwarding
Company, BaltTransServis, GTI Management,
SyntezRail, Spacecom, Spacecom Trans and
Ukrainian New Forwarding Company.
The Group’s corporate structure ¹ ensures
efficient asset management and operational
control while creating logical business
segments.
Globaltrans Investment PLC
New Forwarding Company,
AO (Russia)
BaltTransServis,
OOO (Russia)
BTS-Locomotive Solutions,
OOO (Russia)
Breakdown of Globaltrans’ Share capital, 31 December 2019
100%
60%
5 founders
11.5% Marigold Investments Ltd ²
11.5% Onyx Investments Ltd ²
10.8% Maple Valley Investments Ltd ²
5.1% Litten Investments Ltd ³
4.0% Goldriver Resources Ltd ⁴
0.2% Controlled by Directors and
the management of Globaltrans
56.9% Free float ¹
Source: The information is based upon notifications and other information received by the Company with respect to beneficial ownership
as of 31 December 2019.
GTI Management,
OOO (Russia)
100%
Ural Wagonrepair Company
AO (Russia)
100%
Ukrainian New Forwarding
Company, LLC (Ukraine)
100%
1 For these purposes, the free float consists of the ordinary shares and GDRs held by investors not affiliated or associated with Globaltrans.
2 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).
3 Beneficially owned by Alexander Eliseev, Non-executive Director and co-founder of Globaltrans.
4 Beneficially owned by Sergey Maltsev, Chairman of the Board of Directors, Chief Strategy Officer and co-founder of Globaltrans.
1 Corporate structure as of 31 March 2020.
AS Spacecom,
(Estonia)
65.25%
SyntezRail Limited,
(Cyprus)
60%
100%
RemTransServis,
OOO (Russia)
100%
AS Spacecom Trans,
(Estonia)
100%
Ekolinja Oy,
(Finland)
100%
SyntezRail Limited,
ООО (Russia)
100%
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CHAPTER 4.
Financial
Statements
Board of Directors and Other Officers
Consolidated Management Report
Directors’ Responsibility
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
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17.
18.
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20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
General information
Basis of preparation
Adoption of new or revised standards and interpretations
Summary of significant accounting policies
New accounting pronouncements
Financial risk management
Critical accounting estimate and judgements
Segmental information
Non-GAAP financial information
Revenue
Expenses by nature
Other losses – net
Employee benefit expense
Finance income and costs
Income tax expense
Net foreign exchange losses
Property, plant and equipment
Right-of-use assets
Intangible assets
Principal subsidiaries
Share-based payments
Financial assets
Other assets
Inventories
Cash and cash equivalents
Share capital and share premium
Dividends
Borrowings
Lease liabilities (IFRS 16)
Deferred income tax
Trade and other payables
Earnings per share
Contingencies
Commitments
Related party transactions
Events after the balance sheet date
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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
Board of Directors
and Other Officers
Board of Directors
Dr. Johann Franz Durrer
Senior Independent Non-Executive Director since
24 May 2019
Chairman of the Remuneration Committee
Chairman of the Nomination Committee (Member of the Nomination
Committee till 24 May 2019)
Vasilis P. Hadjivassiliou
Independent Non-Executive Director
Appointed on 20 September 2019
Mr. John Carroll Colley
Independent Non-Executive Director
Chairman of the Audit Committee
Member of Remuneration Committee since 24 May 2019
Member of Nomination Committee since 24 May 2019
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
Alternate director: Mr. Yuri Isaev
Mr. Sergey Tolmachev
Executive Director
Mr. Alexander Storozhev
Executive Director
Alternate Director: Ms. Elia Nicolaou
Mr. Konstantin Shirokov
Executive Director
Mr. Alexander Eliseev
Non-executive Director
Alternate Director: Ms Ekaterina Golubeva
Mr. Andrey Gomon
Non-executive Director
Alternate Director: Ms. Melina Pyrgou
Mr. Alexander Tarasov
Non-executive Director
Mr. Michael Zampelas
Passed away on 15 May 2019,
Mr. Zampelas was a Senior Independent Non-executive Director
Chairman of the Nomination Committee
Member of Remuneration Committee
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Consolidated
Management Report
The Board of Directors presents its report together with the audited consolidated financial statements for the year ended 31 December 2019.
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 and fleet engaged from third party rail operators, as well as the operating lease of rolling stock.
Review of developments, position and performance
of the Group’s business
In 2019, management continued to make disciplined decisions on capital allocation whilst pursuing cost improvement and productivity measures.
The Total Capex rose 9% year on year to RUB 14,005,540 thousand (2018: RUB 12,888,898 thousand). This higher capital expenditure was largely
due to higher than expected increase in maintenance CAPEX from RUB 3,520 million in 2018 to RUB 6,908 million in 2019, together with decrease
in expansion CAPEX from RUB 9,369 million in 2018 to RUB 7,098 million in 2019, reflecting moderate investments. In 2019, the Group acquired
2,502 units (including 1,154 specialised containers, 700 flat cars, 638 gondola cars and 10 locomotives) compared to 4,747 units (including 3,862
gondola cars, 481 flat cars and 404 containers) in the previous year.
Operational information
In 2019, the Group’s Transportation Volume and Freight Rail Turnover (both excluding Engaged Fleet) increased 4% and 1% year on year
respectively, impacted by the increase in volumes in the segments for non-oil (up 3% year on year) and oil products and oil (up 6% year on year),
and 3% year-on-year decline in Average Distance of Loaded Trip on the back of changed client logistics. The Group’s Transportation Volume was
91.6 million tones in 2019 (2018: 88.5 million tones) with Freight Rail Turnover amounting to 147.1 billion tonnes-km (2018: 146.2 billion tonnes-
km).
The Average Number of Loaded Trips per Railcar decreased by 3% year on year and the Average Distance of Loaded Trips reduced by 3% year on
year.
Globaltrans produced a solid overall financial performance in 2019. 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.
Average Price per Trip increased 9% year on year to RUB 45,807 (2018: 41,950).
IFRS financial information
Management considers amongst others the following IFRS measures in analysing the performance of the Group.
The Group’s Total revenue rose 9% year on year to RUB 94,993,874 thousand in 2019 (2018: RUB 86,772,742 thousand). Operating profit increased
19% year on year to RUB 32,119,830 thousand in 2019 (2018: RUB 26,901,055 thousand). The Profit for the year ended 31 December 2019 grew
16% year on year to RUB 22,653,332 thousand (2018: RUB 19,583,435 thousand).
On 31 December 2019 the total assets of the Group were RUB 99,574,549 thousand (2018: RUB 91,217,322 thousand) and net assets were
RUB 56,526,065 (2018: RUB 53,525,434 thousand).
On 31 December 2019 the total debt of the Group was RUB 30,095,218 thousand and increased by 17% as compared to end of 2018
which amounted to RUB 25,728,911 thousand. Total cash and cash equivalents on 31 December 2019 decreased by 9% and amounted to
RUB 6,521,543 thousand (31 December 2018: 7,129,918 thousand).
Non-IFRS financial information
Amongst 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.
Adjusted Revenue increased 13% year on year to RUB 68,839,669 thousand (2018: RUB 60,859,424 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 5% year on year to RUB 29,408,565 thousand (2018: RUB 27,893,504 thousand).
Adjusted EBITDA rose 20% year on year to RUB 39,551,913 thousand (2018: RUB 33,069,961 thousand) with the Adjusted EBITDA
Margin expanding to 57% (2018: 54%), partly impacted by the positive impact of the adoption of IFRS 16. The Group’ Free Cash Flow was
RUB 12,761,836 thousand, a 4% improvement compared RUB 12,314,346 thousand in 2018.
The Group had a strong balance sheet with Net Debt to Adjusted EBITDA increasing to 0.60x (2018 end: 0.56x). Net Debt rose by 27% to
RUB 23,573,675 thousand (2018 end: RUB 18,598,993 thousand). As at 31 December 2019 and 31 December 2018 almost 100% of the Group’s
debt was denominated in Russian roubles.
The increase in the Empty Run Ratio for gondola cars to 42% (2018: 38%) was due to changed client logistics resulting in increase in the Total
Empty Run Ratio to 49% (2018: 46%).
Total Fleet increased by 2% to 70,720 units (2018 end: 69,023 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.
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 loss/(gain) on sale of property, plant and equipment”, “Reversal of impairment/(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.
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”.
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.
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).
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EBITDA represents “Profit for the year” before “Income tax expense”, “Finance costs - net” (excluding “Net foreign exchange transaction losses on
financing activities”), “Depreciation of property, plant and equipment”, “Amortisation of intangible assets” and “Depreciation of right-of-use assets”.
Changes in group structure
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.
Free Cash Flow is calculated as “Cash generated from operations” (after “Changes in working capital”) less “Tax paid”, “Purchases of property,
plant and equipment”, “Purchases of intangible assets”, “Acquisition of subsidiary undertakings - net of cash acquired”, “Principal elements of
lease payments for leases with financial institutions” (2018: “Finance lease principal payments”), “Principal elements of lease payments (IFRS 16)”,
“Interest paid on lease liabilities (IFRS 16)”, “Interest paid on bank borrowings and non-convertible unsecured bonds” and “Interest paid on leases
with financial institutions” (2018: “Interest paid on finance leases”).
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.
Net Debt is defined as the sum of total borrowings (including interest accrued) less “Cash and cash equivalents”.
There were no changes in the Group structure of the Company during the year ended 31 December 2019. For the principal subsidiaries of
the Company, refer to Note 20 of 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.
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”).
Human resources
Owned Fleet is defined as the fleet owned and leased in under finance lease as at the end of the reporting period. It includes railcars, locomotives
and containers, unless otherwise stated, and excludes Engaged Fleet.
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 “Principal elements of lease payments for leases with financial institutions” (2018: “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”,
“Depreciation of right-of-use assets”, “Loss on derecognition arising on capital repairs”, “Net impairment losses on trade and other receivables”,
“Reversal of impairment/(impairment) of property, plant and equipment” and “Net loss/(gain) 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 petrochemical tank container segment.
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 Group 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 Group has grouped the risks that it considers to be significant into key categories – strategic, operational, compliance and financial – and they
are presented below.
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Consolidated Management Report
(continued)
Strategic risks
Operational 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 2019; cost of borrowing and/or deterioration in market conditions with potential impacts on
the profitability and recoverability 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 66% of the Group’s Net Revenue from the Operation of
Rolling Stock in 2019 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.
The Group’s outlook for 2020 may be impacted by the Coronavirus (COVID-19) outbreak, which has significantly lowered visibility on what to expect
in 2020. The negative impact on global trade may be more severe than originally expected. Certain currencies to which the Group is exposed have
weakened, stock markets have declined, and commodity prices are lower. The Management is closely monitoring the situation with the outbreak of
Coronavirus (COVID-19) and is ready to act depending on the development of the situation.
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 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.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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(continued)
Financial risks
Results
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 program focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group’s financial results.
The Group’s results for the year are set out on pages 124 and 125. The Board of Directors recommends the payment of a dividend as detailed below
and the remaining net profit for the year is retained.
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.
The Group is exposed to the effects of currency fluctuations between (i) the Russian Rouble and the US Dollars 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.
Cash flow and fair value interest rate risk
The Group’s income and operating cash flows are exposed to changes in market interest rates. The Group obtains borrowings at current market
interest rates and does not use any hedging instruments to manage 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, trade receivables, loans and other receivables as well as finance lease receivables.
Liquidity risk
The Group has an excess of current assets over current liabilities of RUB 4,848,317 thousand as at 31 December 2019. Due to availability of
committed credit lines amounting to, together with long-term borrowings (Note 28) the Group has the ability to meet its liabilities as they fall due
and mitigate risks of adverse changes in the financial markets environment.
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.
Further details on the Group’s exposure to financial risks are presented in Note 6 to the consolidated financial statements.
Contingencies
The Group’s contingencies are disclosed in Note 33 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.
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 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 US$ 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 US$ 119,724 thousand), including interim dividend
in the amount of RUB 3,771,433 thousand (US Dollar equivalent of US$ 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 US$ 64,687 thousand) or RUB 24.80 per ordinary share/GDR.
In April 2019, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2018 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 (US Dollar equivalent of US$ 129,727 thousand).
In August 2019, the Board of Directors of the Company approved payment of total dividend in the amount of 46.55 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,320,390 thousand (US Dollar equivalent of US$ 124,655 thousand), including interim dividend
in the amount of RUB 3,548,007 thousand (US Dollar equivalent of US$ 53,156 thousand) or RUB 19.85 per ordinary share/GDR and a special
interim dividend in the amount of RUB 4,772,382 thousand (US Dollar equivalent of US$ 71,499 thousand) or RUB 26.70 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 2019 in the amount of 46.55 Russian Roubles per ordinary share/GDR, amounting to a total
dividend of RUB 8,320,390 thousand, including final dividend for 2019 in the amount of RUB 1,903,591 thousand or RUB 10.65 per ordinary
share/GDR and a special final dividend in the amount of RUB 6,416,799 thousand or RUB 35.90 per ordinary share/GDR. Such dividends subject
to the approval of the shareholders at the Annual General Meeting on 30 April 2020 and shall be paid in US Dollars at the average of the official
exchange rates of the Russian Central Bank for eight business days in Russia from 20 April 2020 to 29 April 2020 inclusive. Holders of GDRs will
receive the dividend approximately three business days after the payment date, which will be not later than 30 business days after the approval of
the dividends by the Annual General Meeting.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Share capital
Corporate governance
As at 31 December 2019 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 US$0.10 per share.
Research and development activities
The Group has not undertaken any research and development activities during the year ended 31 December 2019.
Events after the balance sheet date
The events after the balance sheet date are disclosed in Note 36 to the consolidated financial statements.
Branches
The Group operates through branches and representative offices, maintaining eight branches and eight representative offices during 2019 (eight
branches and eight representative offices during 2018).
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 https://globaltrans.com/governance/corporate-documents.
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.
Treasury shares
In 2019 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.
Members of the Board of Directors
Going concern
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 2020,
including cash flows and borrowing facilities, the Directors consider that the Group has adequate resources to continue in operation for
the foreseeable future.
Auditors
The Board of Directors, in accordance with the requirements of the EU Regulation introduced into Cypriot legislation, undertook a mandatory audit
tender in respect of the audit for the year ended 31 December 2019. Following this, the Independent Auditor, PricewaterhouseCoopers Limited,
was appointed as the statutory auditor of the Company in respect of the audit for the year ended 31 December 2019.
As at 31 December 2019 and at the date of this report, the Board comprises 15 members (2018: 15 members),11 (2018: 9 members) of whom are
non-executive directors. Four (2018: 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
judgment with a view to the best interests of the Company, and they are able to exercise objective judgment on corporate affairs independently
from management.
The members of the Board of Directors at 31 December 2019 and at the date of this report are shown on page 98. All of them were members of
the Board throughout the year 2019 except for Mr. Michael Zampelas, who passed away on 15 May 2019, and Mr Vasilis P. Hadjivassiliou, who was
appointed as an Independent director on 20 September 2019.
There were no significant changes in the assignment of responsibilities of the Board of Directors.
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.
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 total gross remuneration of the members of the Board of Directors incurred by the Group in 2019 amounted to RUB 507,802 thousand (2018:
RUB 408,987 thousand).
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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(continued)
Board performance
The Board held 14 meetings in 2019. The Directors’ attendance is presented in the table below.
Michael Zampelas
Johann Franz Durrer
Carroll Colley
George Papaioannou
Alexander Eliseev
Melina Pyrgou
Konstantin Shirokov
Alexander Storozhev
Marios Tofaros
Elia Nicolaou
Sergey Tolmachev
Sergey Maltsev (Chairman)
Andrey Gomon
Alexander Tarasov
Vasilis P. Hadjivassiliou
Michael Thomaides
Eligible
Attended
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14
14
14
14
14
14
14
14
14
14
14
14
14
6
14
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14
13
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14
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12
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6
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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. Until May 2019 the Nomination Committee
was chaired by Mr. Zampelas and Dr. Durrer was the other member. Since 24 May 2019 the Nomination Committee is chaired by Dr. Durrer and
Carroll Colley 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. Until May 2019 the Remuneration Committee
was chaired by Dr. Durrer and Mr. Zampelas was the other member. Since 24 May 2019 the Remuneration Committee is chaired by Dr. Durrer and
Carroll Colley 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.
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Consolidated Management Report
(continued)
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 22 April 2019.
Refer to Note 35 of the consolidated 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 2 females representing approximately 13.3% from the total number of
directors. The age of the members of the Board of Directors starts from over 40 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:
https://globaltrans.com/governance/corporate-documents
Regulations with regards to the amendment
of the article 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 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.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Consolidated Management Report
(continued)
Significant direct or indirect holdings (including indirect
shareholding though structures or cross shareholdings)
The holders of special titles that provide special control rights
and description of such rights
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 56.9%
The Bank of New York Mellon is the depositary bank for the GDR programme of the Company.
1 of the issued share capital.
The shareholder structure of the Company as at 31 December 2019 was as follows:
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.
Onyx Investments Ltd 2
Marigold Investments Ltd 2
Maple Valley Investments Ltd 2
Litten Investments Ltd 3
Goldriver Resources Ltd 4
Controlled by Directors and management of Globaltrans
Free float 1
11.5%
11.5%
10.8%
5.1%
4.0%
0.2%
56.9%
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, Non-Executive Director and co-founder of the Company.
4 Beneficially owned by Sergey Maltsev, Chairman of the Board, Executive Director, Chief strategy officer and co-founder of the Company.
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 2019 and 31 December 2018 are shown below:
Name
Type of holding
Alexander Eliseev
Sergey Maltsev
Indirect holding of ordinary shares and GDRs
Holding of ordinary shares and GDRs
Johann Franz Durrer
Holding of GDRs
2019
9,065,790
7,099,725
160,606
2018
10,315,790
8,382,860
160,606
By Order of the Board
..................................................
Sergey Tolmachev
Director
Limassol, 27 March 2020
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Directors’
Responsibility
Independent
Auditor’s Report
To the Members of Globaltrans Investment PLC
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.
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 2019, 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.
Each of the Directors confirms to the best of his or her knowledge that the consolidated financial statements (presented on pages 124 to 213)
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 2019 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.
What we have audited
We have audited the consolidated financial statements which are presented in pages 124 to 213 and comprise:
― the consolidated balance sheet as at 31 December 2019;
Further, each of the Directors confirms to the best of his or her knowledge that:
― the consolidated income statement for the year then ended;
(i) proper books of account have been kept by the Company;
― the consolidated statement of comprehensive income for the year then ended;
(ii) the Company’s consolidated financial statements are in agreement with the books of account;
― the consolidated statement of changes in equity for the year then ended;
(iii) the consolidated financial statements give the information required by the Cyprus Companies Law, Cap.113 in the manner so required;
― the consolidated cash flow statement for the year then ended; and
(iv) the Consolidated Management Report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap.113, and
― the notes to the consolidated financial statements, which include a summary of significant accounting policies.
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
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’ International Code of Ethics for Professional Accountants (including International Independence Standards) (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.
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.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Independent Auditor’s Report
(continued)
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.
Overall group materiality: RUB 1,487,200 thousand, which represents 5% of
profit before tax (rounded).
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 determined that there are no key audit matters to communicate in
our report.
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 1,487,200 thousand
How we determined it
5% of profit before tax (rounded)
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.
We agreed with the Audit Committee that we would report to them misstatements identified during our
audit above RUB 73,360 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 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.
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(continued)
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.
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 11 years.
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Independent Auditor’s Report
(continued)
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
26 March 2020 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.
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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 Tasos Nolas.
Tasos Nolas
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
27 March 2020
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Consolidated Income
Statement
Consolidated Statement
of Comprehensive Income
for the year ended 31 December 2019
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Selling and marketing costs
Administrative expenses
Other income
Other losses – net
Operating profit
Finance income
Finance costs
Net foreign exchange transaction losses on financing activities
Finance costs – net
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Owners of the Company
Non-controlling interest
Note
10
11
11
11
12
14
14
14
14
15
Weighted average number of ordinary shares in issue (thousand)
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
32
2019
RUB’000
94,993,874
(58,833,383)
36,160,491
(216,298)
(3,858,549)
133,508
(99,322)
32,119,830
533,857
(2,529,098)
(379,824)
(2,375,065)
29,744,765
(7,091,433)
22,653,332
20,807,651
1,845,681
22,653,332
178,741
116.41
2018
RUB’000
86,772,742
(55,154,376)
31,618,366
(220,542)
(4,629,044)
133,754
(1,479)
26,901,055
377,445
(1,778,460)
(40,219)
(1,441,234)
25,459,821
(5,876,386)
19,583,435
17,671,968
1,911,467
19,583,435
178,741
98.87
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.
Profit for the year
22,653,332
19,583,435
2019
RUB’000
2018
RUB’000
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Currency translation differences
Items that will not be reclassified to profit or loss
(925,000)
1,282,549
Currency translation differences attributable to non-controlling interest
(493,622)
622,618
Other comprehensive income for the year, net of tax
(1,418,622)
1,905,167
Total comprehensive income for the year
21,234,710
21,488,602
Total comprehensive income for the year attributable to:
— owners of the Company
— non-controlling interest
19,882,651
1,352,059
21,234,710
18,954,517
2,534,085
21,488,602
Items in the statement above are disclosed net of tax. There is no income tax relating to the components of other comprehensive income above.
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The notes on pages 132 to 213 these consolidated financial statements are an integral part of these consolidated financial statements.
The notes on pages 132 to 213 these consolidated financial statements are an integral part of these consolidated financial statements.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Consolidated
Balance Sheet
at 31 December 2019
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Other assets
Trade receivables
Loans and other receivables
Total non-current assets
Current assets
Inventories
Other assets
Loans and other receivables
Trade receivables
Current income tax assets
Cash and cash equivalents
Assets classified as held for sale
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to the owners of the Company
Share capital
Share premium
Common control transaction reserve
Translation reserve
Capital contribution
Retained earnings
Total equity attributable to the owners of the Company
Non-controlling interest
Total equity
Note
31 December
2019
RUB’000
31 December
2018
RUB’000
Note
31 December
2019
RUB’000
31 December
2018
RUB’000
17
18
19
23
22
22
24
23
22
22
25
26
26
80,532,645
1,410,448
61,316
336,416
197,284
10,374
74,764,903
-
757,209
1,019,572
221,805
11,904
82,548,483
76,775,393
1,722,781
5,190,504
37,645
3,012,282
501,087
6,521,543
904,375
3,587,790
262,846
2,365,723
191,277
7,129,918
Non-current liabilities
Borrowings
Lease liabilities (IFRS 16)
Trade and other payables
Contract liabilities
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Borrowings
Lease liabilities (IFRS 16)
Trade and other payables
Contract liabilities
Current tax liabilities
Total current liabilities
TOTAL LIABILITIES
16,985,842
14,441,929
TOTAL EQUITY AND LIABILITIES
28
29
31
10
30
28
29
31
10
22,294,914
17,269,321
881,706
90,742
11,191
7,592,182
30,870,735
7,800,304
649,177
2,355,872
1,244,702
127,694
12,177,749
43,048,484
99,574,549
-
404,357
-
6,284,868
23,958,546
8,459,590
-
2,549,337
2,673,467
50,948
13,733,342
37,691,888
91,217,322
40,224
17,026,066
99,574,549
-
14,441,929
91,217,322
516,957
27,929,478
(10,429,876)
3,392,675
2,694,851
26,774,750
50,878,835
5,647,230
56,526,065
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
On 27 March 2020, the Board of Directors of Globaltrans Investment PLC authorised these financial statements for issue.
By order of the Board
............................................
.............................................
Sergey Tolmachev, Director
Konstantin Shirokov, Director
The notes on pages 132 to 213 these consolidated financial statements are an integral part of these consolidated financial statements.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Consolidated Statement
of Changes in Equity
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2019
for the year ended 31 December 2019
Attributable to the owners of the Company
Attributable to the owners of the Company
Share
capital
RUB’000
Share
premium
RUB’000
Note
Common
control
transaction
reserve
RUB’000
Translation
reserve
RUB’000
Capital
contribution
RUB’000
Retained
earnings
RUB’000
Total
RUB’000
Non-
controlling
interest
RUB’000
Total
RUB’000
Share
capital
RUB’000
Share
premium
RUB’000
Note
Common
control
transaction
reserve
RUB’000
Translation
reserve
RUB’000
Capital
contribution
RUB’000
Retained
earnings
RUB’000
Total
RUB’000
Non-
controlling
interest
RUB’000
Total
RUB’000
Balance at
1 January 2018
Comprehensive
income
Profit for the year
Other
comprehensive
income
Currency
translation
differences
Total
comprehensive
income for 2018
Transactions with
owners
Dividends to
owners of the
Company
Dividends to
non-controlling
interest
Increase in
share capital of
subsidiary
Payments to
non-controlling
interest
Acquisition of
non-controlling
interest
Total transactions
with owners
Balance at
31 December 2018
27
27
20
20
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 17,671,968 17,671,968
1,911,467 19,583,435
- 1,282,549
-
-
1,282,549
622,618
1,905,167
- 1,282,549
- 17,671,968 18,954,517
2,534,085 21,488,602
-
-
-
-
-
-
-
-
-
-
-
-
- (16,220,738) (16,220,738)
- (16,220,738)
-
-
-
-
-
-
-
-
-
-
(1,723,005)
(1,723,005)
200,061
200,061
(831,136)
(831,136)
1,516
1,516
(7,496)
(5,980)
- (16,219,222) (16,219,222)
(2,361,576) (18,580,798)
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
Balance at
1 January 2019
Comprehensive
income
Profit for the year
Other
comprehensive
income
Currency
translation
differences
Total
comprehensive
income for 2019
Transactions with
owners
Dividends to
owners of the
Company
Dividends to
non-controlling
interest
Total transactions
with owners
Balance at
31 December 2019
27
27
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 20,807,651 20,807,651
1,845,681
22,653,332
-
(925,000)
-
-
(925,000)
(493,622)
(1,418,622)
-
(925,000)
- 20,807,651 19,882,651
1,352,059
21,234,710
-
-
-
-
-
-
- (16,631,842) (16,631,842)
-
(16,631,842)
-
-
-
(1,602,237)
(1,602,237)
- (16,631,842) (16,631,842)
(1,602,237)
(18,234,079)
516,957 27,929,478 (10,429,876) 3,392,675 2,694,851 26,774,750 50,878,835
5,647,230
56,526,065
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129
The notes on pages 132 to 213 these consolidated financial statements are an integral part of these consolidated financial statements.
CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Note
2019
RUB’000
2018
RUB’000
Cash flows from financing activities
Proceeds from bank borrowings
Consolidated Cash Flow
Statement
for the year ended 31 December 2019
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Net loss/(gain) on sale of property, plant and equipment
Loss on derecognition arising on capital repairs
(Reversal of impairment)/impairment of property, plant and equipment
Net impairment losses on trade and other receivables
Interest income
Interest expense and other finance costs
Net foreign exchange transaction losses on financing activities
Other losses/(gains)
Changes in working capital:
Inventories
Trade receivables
Other assets
Other receivables
Trade and other payables
Contract liabilities
Cash generated from operations
Tax paid
Net cash from operating activities
Cash flows from investing activities
Loans repayments received from third parties
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of property, plant and equipment
17
Interest received
Receipts from finance lease receivable
Net cash used in investing activities
17
18
19
17
17
17
11
14
14
14
29,744,765
25,459,821
5,794,912
5,110,715
424,220
696,725
10,047
471,746
(64,889)
12,699
(533,857)
2,529,098
379,824
41,197
-
696,702
(27,347)
377,284
10,073
29,713
(377,445)
1,778,460
40,219
(10,940)
39,506,487
33,087,255
(394,213)
(712,934)
169,562
(316,527)
(1,299,140)
(1,042,367)
9,816
(270,224)
(1,417,574)
35,422,218
(6,018,371)
29,403,847
(66,210)
262,742
507,939
32,602,394
(5,765,818)
26,836,576
2,728
5,984
(13,515,985)
(11,567,554)
(832)
91,649
533,857
123,598
(110)
409,794
377,445
129,251
(12,764,985)
(10,645,190)
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28
28
28
28
28
28
27
27
20
20
25
25
10,408,000
5,000,000
(10,736,723)
(488,723)
(339,597)
(2,017,915)
(167,048)
(111,911)
(16,631,842)
(1,602,237)
200,060
-
15,197,467
5,000,000
(13,127,743)
(1,321,234)
-
(1,533,268)
(100,064)
-
(16,220,738)
(1,723,005)
-
(5,980)
(450,934)
(168,604)
(16,938,870)
(14,003,169)
(300,008)
(308,367)
7,129,918
6,521,543
2,188,217
(24,470)
4,966,171
7,129,918
Proceeds from issue of non-convertible unsecured bonds
Repayments of borrowings
Principal elements of lease payments for leases with financial institutions (2018:
Finance lease principal payments)
Principal elements of lease payments (IFRS 16)
Interest paid on bank borrowings and non-convertible unsecured bonds
Interest paid on leases with financial institutions (2018: Interest paid on finance
leases)
Interest paid on lease liabilities (IFRS 16)
Dividends paid to owners of the Company
Dividends paid to non-controlling interests in subsidiaries
Payments from non-controlling interest for share capital increase of subsidiary
Acquisition of non-controlling interest
Distribution to NCI
Payments to non-controlling interest
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Exchange losses on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
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 23) and leases with
the Group acting as the lessee (Notes 28 and 29).
The notes on pages 132 to 213 these consolidated financial statements are an integral part of these consolidated financial statements.
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CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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 Nizhnyayа Krasnoselskaya st. 39, bld. 1, Moscow, Russia.
Approval of the consolidated financial statements
These consolidated financial statements were authorised for issue by the Board of Directors on 27 March 2020.
Global Depositary Receipts
Global Depositary Receipts, each representing one ordinary share of the Company, are listed on the London Stock Exchange International Main Market.
Impact of adoption
As part of its operating activities, the Group leases rolling stock from third parties. In addition, the Group leases offices and other property, plant and
equipment. Rental contracts are typically made for fixed periods but may have extension options. Lease terms are negotiated on an individual basis
and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in
the leased assets that are held by the lessor. The leased assets may not be used as security for borrowing purposes.
The Group has adopted IFRS 16 retrospectively on 1 January 2019, using the modified retrospective approach with certain simplifications, and
has not restated comparatives for the 2018 reporting period, as permitted under the transitional provisions of IFRS 16. The reclassifications and
the adjustments arising from the new leasing requirements are, therefore, recognised in the opening consolidated balance sheet as of 1 January
2019. Accordingly, the comparative information is prepared and disclosed in accordance with IAS 17 “Leases”.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as “operating leases”
under the principles of IAS 17 “Leases”. These liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average incremental borrowing rates applied to the lease liabilities
on 1 January 2019 were between 4% and 10%, depending on the specifics of each lease. The Group opted 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 lease payments).
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 and fleet engaged from third party rail operators, as well as the operating lease of rolling stock.
For leases previously classified as finance leases the Group recognised the carrying amount of the leased asset and lease liability immediately
before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application. The measurement
principles of IFRS 16 are only applied after 1 January 2019.
2. Basis of preparation
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
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.
― use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
― accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases;
― exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
― use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts
entered into before the transition date the Group relied on its assessment made applying IAS 17 and Interpretation 4 “Determining whether an
Arrangement contains a Lease”.
As of the date of the authorization of these financial statements, all International Financial Reporting Standards issued by the International
Accounting Standards Board (IASB) that are relevant to the Group’s operations and are effective as at 1 January 2019 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 2019. None of these has affected these consolidated financial statements, with the exception of IFRS 16 “Leases”,
the adoption of which resulted in changes in the Group’s accounting policies for leases for which it is acting as a lessee.
IFRS 16 “Leases”
IFRS 16 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.
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1 January 2019
RUB’000
590,656
27,421
102,803
720,880
3,414,376
3,414,376
4,135,256
The following table presents a reconciliation of the operating lease commitments as at 31 December 2018 to the recognised lease liability as at
1 January 2019:
The recognised right-of-use assets because of the adoption of IFRS 16 relate to the following types of assets:
Operating lease commitments disclosed as at 31 December 2018 (Note 34)
Adjustments to lease commitments:
- (Less): short-term leases recognised on a straight-line basis as expense
1
- (Less): payments for lease not yet commenced
2
- Add: adjustment because of different treatment of extension and termination options
Effect of discounting
Add: finance lease liabilities recognised as at 31 December 2018
3
Other
Lease liability recognised as at 1 January 2019
Of which are:
Lease liabilities (IFRS 16) (recognised on the face of the balance sheet)
Current lease liabilities (IFRS 16)
Non-current lease liabilities (IFRS 16)
Lease liabilities with financial institutions (included within borrowings)
Current lease liabilities with financial institutions
Non-current lease liabilities with financial institutions
Total
RUB’000
1,378,832
(270,671)
(1,056,590)
805,343
(136,034)
2,212,668
(42,185)
2,891,363
153,182
525,513
678,695
496,874
1,715,794
2,212,668
2,891,363
1 As at 31 December 2018, the Group had 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.
2 The Group’s non-cancellable operating lease commitments as at 31 December 2018 included an amount of RUB 1,056,590 thousand relating to a lease contract entered in
the year 2018 for the lease of offices. In accordance with the terms of the agreement, the Group obtained right to use the offices within the first half of the year 2019 and thus
no lease liability was recognised in respect of this lease on 1 January 2019.
3 The Group had finance lease liabilities recognised as at 31 December 2018 with a carrying amount of RUB 2,212,668 thousand and leased assets with a carrying amount of
RUB 3,414,376 thousand. Upon adoption of IFRS 16, the Group recognised 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 IAS 17.
Right-of-use assets (recognised on the face of the balance sheet)
Rolling stock
Land and buildings
Other
Right-of-use assets (included within property, plant and equipment)
Rolling stock
Total
The application of IFRS 16 affected the following items in the balance sheet on 1 January 2019:
Right-of-use assets
Prepayments
Lease liabilities (IFRS 16)
Increase/(decrease)
increase by
decrease by
increase by
RUB’000
720,880
42,185
678,695
Impact on segment disclosures
Segment assets as at 1 January 2019 increased by RUB 590,656 thousand as a result of the recognition of right-of-use assets relating to rolling
stock. The increase impacted the following segments:
Reportable segment assets
Other railcars (platforms)
Increase/(decrease)
RUB’000
increase by
590,656
The Group did not need to make any adjustments to the accounting for assets held as lessor under operating leases as a result of the adoption of
IFRS 16. The Group’s new accounting policies following adoption of IFRS 16 at 1 January 2019 are set out in Note 4.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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 16, effective from 1 January 2019, these policies have been consistently applied
to all the years presented.
(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.
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 the income
statement.
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 the income statement.
Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
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.
(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 the income statement. 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.
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
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 recognized 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.
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
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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(i) Operator’s services
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 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.
― 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.
(ii) Freight rail transportation services using specialised tank containers
The Group provides freight rail transportation services using specialised tank containers for clients using its own, leased or engaged rolling stock
(platforms).
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. Impairments of contract assets are measured,
presented and disclosed on the same basis as 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.
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.
Foreign currency translation
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).
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.
(a) Functional and presentation currency
Items included in the financial statements of each entity of the Group 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 of the majority of its 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 (losses) – net’.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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(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 yearly 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);
and
― 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 a 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.
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 begins when it is available for use and is calculated using the straight-line method to allocate their
cost, less residual value, over their estimated useful lives, as follows:
Buildings
Rolling stock: (except locomotives)
Gondola cars
Rail tank cars
Rail tank cars (specialised types)
Hoppers
Flat cars
Tank containers
Locomotives
Mounted wheels
Motor vehicles and other property, plant and equipment
Number of years, range
30
22
32
30-40
15-26
20-32
20
9-45
7
3 to 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’.
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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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) The Group is the lessee
Until 31 December 2018, leases of property, plant and equipment were classified as either finance leases or operating leases. In particular, leases of
property, plant and equipment where the Group had substantially all the risks and rewards of ownership were classified as finance leases. Finance
leases were 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 was 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, were included in borrowings. The interest element of the finance cost
was 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 were depreciated over the shorter of the useful life of the asset and the lease term,
except for instances, where the Group had the option to obtain ownership of the assets and it is reasonable certain that such ownership will be
obtained, in which case the asset was depreciated over the useful economic life of the asset.
Leases in which a significant portion of the risks and rewards of ownership were retained by the lessor were classified as operating leases. Payments
made under operating leases (net of any incentives received from the lessor) were charged to the income statement on a straight-line basis over
the period of the lease.
From 1 January 2019, the date of initial application of IFRS 16, leases are recognised as a right-of-use asset and a corresponding liability at the date
at which the leased asset is available for use by the Group, with limited exceptions as set out below. Each lease payment is allocated between
the liability and finance cost. 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.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of
the following lease payments:
― fixed payments (including in-substance fixed payments), less any lease incentives receivable;
― variable lease payments that are based on an index or a rate;
― amounts expected to be payable by the Group under residual value guarantees;
― the exercise price of a purchase option, if the Group is reasonably certain to exercise that option; and
― payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Contracts may contain both lease and non-lease components. The Group accounts for each lease component within such contracts as a lease
separately from the non-lease components. The consideration in the contract is allocated to each lease component on the basis of the relative
standalone price of the lease component and the aggregate standalone price of the non-lease components. The consideration for non-lease
components relating to services is recognised as an expense in the income statement.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental
borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to
the right-of-use asset in a similar economic environment with similar terms and conditions. To determine the incremental borrowing rate,
the Group, where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in
financing conditions since third party financing was received.
The Group is exposed to potential future increases in variable lease payments based on an index or a rate, which are not included in the lease
liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and
adjusted against the right-of-use asset.
Right-of-use assets are measured at cost comprising the following:
― the amount of the initial measurement of lease liability;
― any lease payments made at or before the commencement date less any lease incentives received;
― any initial direct costs; and
― restoration costs.
Any remeasurement of the lease liability arising if the cash flows change based on the original terms and conditions of the lease results in
a corresponding adjustment to the right-of-use asset. The adjustment can be positive or negative.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension option,
or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is
reasonably certain to be extended (or not terminated).
Right-of-use assets are reviewed for impairment in accordance with the Group’s accounting policy for impairment of non-financial assets.
As an exception to the above, the Group accounts for short-term leases and lease of low value assets by recognising the lease payments as an
expense on a straight-line basis in the income statement. Short-term leases are leases with a lease term of 12 months or less.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Right-of-use assets and associated lease liabilities are presented as separate lines on the face of the balance sheet, except for right-of-use
assets and associated lease liabilities arising from leases with financial institutions that include purchase options that are reasonably certain to
be exercised due to the exercise price being a nominal amount compared to the fair value of the leased asset on the exercise date. The latter
are presented within the same line item as the corresponding underlying assets would be presented if they were owned and within borrowings,
respectively. Management believes that this presentation best reflects the substance of the leases with financial institutions, being similar to that
of purchases via collateralised borrowings.
Impairment of lease receivables
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.
Sale and leaseback
A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset.
Until 31 December 2018, if a sale and leaseback transaction resulted in a finance lease, any excess of sales proceeds over the carrying amount was
deferred and amortised over the lease term. When the overall economic effect of a sale and leaseback transaction could not be understood without
reference to the series of transactions as a whole (i.e. when the series of transactions were closely interrelated, negotiated as a single transaction,
and took place concurrently or in a continuous sequence) the transaction was accounted for as one transaction, usually a collateralized borrowing.
If a sale and leaseback transaction resulted in an operating lease any profit or loss was recognised immediately. If the sale price was below fair
value any profit or loss was recognised immediately except that, if the loss was compensated for by future lease payments at below market price, it
was deferred and amortised in proportion to the lease payments over the period for which the asset was expected to be used. If the sale price was
above fair value, the excess over fair value was deferred and amortised over the period for which the asset was expected to be used.
From 1 January 2019, the accounting of a sale and leaseback transaction depends on whether the transfer of the asset qualifies as a sale. In making
this assessment, the Group assessed whether the buyer-lessor obtained control of the underlying asset.
If the transfer qualifies as a sale of the asset, the Group measures the right-of-use asset arising from the leaseback at the proportion of the previous
carrying amount of the asset that relates to the right of use retained by the Group. Accordingly, the Group recognises only the amount of any gain
or loss that relates to the rights transferred to the buyer-lessor. If the fair value of the consideration for the sale of the asset does not equal the fair
value of the asset, or if the payments for the lease are not at market rates, the Group accounts for any below-market terms as a prepayment of
lease payments; and any above-market terms as additional financing provided by the buyer-lessor to the Group. This is measured on the basis
of the more readily determinable of the difference between the fair value of the consideration for the sale and the fair value of the asset; and
the difference between the present value of the contractual payments for the lease and the present value of payments for the lease at market
rates.
If the transfer does not qualify as a sale, the Group continues to recognise the transferred asset and recognises a financial liability equal to
the transfer proceeds.
(b) The Group is the lessor
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.
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.
Revenues from operating leasing
Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.
Financial instruments
(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.
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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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.
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.
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.
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.
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.
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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Inventories
Group entities usually maintain a store of spare parts and servicing equipment. These are carried as inventory and recognised in the income
statement as consumed, unless they meet the definition of property, plant and equipment in which case they are classified as such. Major spare
parts are also recognised within property, plant and equipment when they meet the definition of property, plant and equipment. Spare parts in
inventory as well as other 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 and takes into account, amongst others, evidence of damage or obsolescence.
Cash flow statement
Cash flow statement is prepared under the 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.
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. In accounting for the tax effects of
on-balance sheet leases, the Group considers the right-of-use asset and lease liability separately and recognises deferred tax on the net temporary
difference.
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)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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.
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 2020. 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.
― 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.
― 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.
― Definition of a business – Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning
of annual reporting period that starts on or after 1 January 2020)*. The amendments revise definition of a business. A business must
have inputs and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides
a framework to evaluate when an input and a substantive process are present, including for early stage companies that have not generated
outputs. An organised workforce should be present as a condition for classification as a business if are no outputs. The definition of the term
‘outputs’ is narrowed to focus on goods and services provided to customers, generating investment income and other income, and it excludes
returns in the form of lower costs and other economic benefits. It is also no longer necessary to assess whether market participants are
capable of replacing missing elements or integrating the acquired activities and assets. An entity can apply a ‘concentration test’. The assets
acquired would not represent a business if substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group
of similar assets). The amendments are prospective.
― Classification of liabilities as current or non-current – Amendments to IAS 1 (issued on 23 January 2020 and effective for annual
periods beginning on or after 1 January 2022)*. These narrow scope amendments clarify that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a substantive
right, at the end of the reporting period, to defer settlement for at least twelve months. The guidance no longer requires such a right to be
unconditional. Management’s expectations whether they will subsequently exercise the right to defer settlement do not affect classification
of liabilities. The right to defer only exists if the entity complies with any relevant conditions as of the end of the reporting period. A liability
is classified as current if a condition is breached at or before the reporting date even if a waiver of that condition is obtained from the lender
after the end of the reporting period. Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting date.
In addition, the amendments include clarifying the classification requirements for debt a company might settle by converting it into equity.
“Settlement” is defined as the extinguishment of a liability with cash, other resources embodying economic benefits or an entity’s own equity
instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where
the conversion option is classified as an equity instrument as a separate component of a compound financial instrument.
None of the new standards, amendments to existing standards or interpretations is expected to have a significant effect on the consolidated
financial statements.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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 program 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 2019, 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 2019 there was increased volatility in currency markets and the Russian Rouble has appreciated significantly against some major
currencies, especially in the second half of the year. As of the end of December 2019 the Russian Rouble has appreciated against the US Dollar
from 69.4706 as of 31 December 2018 to 61.9057 Russian Roubles (10.9% revaluation).
The Group is exposed to the effects of currency fluctuations between (i) the Russian Rouble and the US Dollars 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 2019 and 31 December 2018 are as follows:
Assets
Liabilities
2019
RUB’000
468,321
9,038
2018
RUB’000
1,013,937
101,055
Had US Dollar exchange rate strengthened/weakened by 10% against the Russian Rouble and all other variables remained unchanged, the post-tax
profit of the Group for the year ended 31 December 2019, would have increased/decreased by RUB 21,831 thousand (2018: 20% change, effect
RUB 93,454 thousand) and equity would have increased/decreased by RUB 210,073 thousand (2018: 20% change, effect RUB 528,447 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 2019, would have increased /decreased by RUB 20,698 thousand (2018: 10% change, effect
RUB 37,260 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 (2018: 20% change, no effect on post-tax profit) and the equity of the Group for the year
ended 31 December 2019, would have decreased/increased by RUB 210,073 thousand (2018: 20% change, effect RUB 528,447 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.
(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 maximizing the estimated future profit.
As at 31 December 2019 and 31 December 2018, 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 finance 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 ten
customers accounting for 70.71% of the Group’s trade receivables as at 31 December 2019 (2018: 58.65%).
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.
Impairment of financial assets
(ii)
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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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:
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.
― For trade receivables and finance lease receivables the Group applies the simplified approach permitted by IFRS 9 for calculating expected
The Group’s exposure to credit risk for each class of asset subject to the expected credit loss model is set out below:
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.
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
― 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.
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).
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.
As at 31 December 2019
Current (not past due)
1-30 days past due
31-90 days past due
more than 90 days past due
Total
As at 31 December 2018
Current (not past due)
1-30 days past due
31-90 days past due
more than 90 days past due
Total
Trade receivables
RUB’000
Finance lease
receivables
RUB’000
2,184,210
279,070
741,905
76,027
346,339
-
-
-
3,348,481
279,070
Trade receivables
RUB’000
Finance lease
receivables
RUB’000
1,583,886
316,668
762,210
18,294
369,180
-
-
-
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 2019 and 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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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The movement in the credit loss allowance for trade receivables during the years 2019 and 2018 is presented in the table below:
The movement in the credit loss allowance for other receivables during the years 2019 and 2018 is presented in the table below:
Trade receivables
Non-performing
Opening balance as at 1 January
New assets originated or purchased
Net loss allowance of financial assets at the start of the year
Receivables modified during the year
Assets written off during the year as uncollectible
Recoveries
Other
Closing balance as at 31 December
2019
RUB’000
(146,042)
(4,461)
(5,269)
(9,300)
13,791
9,196
3,170
(138,915)
2018
RUB’000
(141,336)
(12,044)
-
-
13,071
4,534
(10,267)
(146,042)
The estimated expected credit loss allowance on finance lease receivables as at 31 December 2019 and 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 2019
and 2018
Internal credit risk rating grade
Company definition of category
Performing
Under-performing
Stage 1 – Counterparties have a low risk of default and
a strong capacity to meet contractual cash flows
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
2019
RUB’000
20,071
20,107
2018
RUB’000
263,653
18,017
Non-performing or Credit-
impaired
Stage 3 – Interest and/or principal repayments are more than
90 days past due
29,341
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 2019 and 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 or
other receivable balances.
Opening balance as at 1 January
New assets originated or purchased
Assets written off during the year as uncollectible
Other
Closing balance as at 31 December
2019
RUB’000
(49,652)
-
13,358
6,953
(29,341)
2018
RUB’000
(39,786)
(14,882)
18,403
(13,387)
(49,652)
The estimated expected credit loss allowance on loans receivable as at 31 December 2019 and as at 31 December 2018 was immaterial.
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 2019 and 2018:
Moody’s 1
Moody’s 1
Moody’s 1
Moody’s 1
Standard & Poor’s 2
Fitch 3
Other external non-rated banks – satisfactory credit quality (performing)
Rating
A3 – Aaa
Ba1 – Baa1
B1
Caa1 - Caa3
B - BB+
BBB- BBB+
2019
RUB’000
1,021,969
5,462,852
-
-
31,373
619
4,628
2018
RUB’000
1,462,017
5,659,996
152
2,748
3,349
652
439
Total cash at bank and bank deposits 4
6,521,441
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 2019 and 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 2019 and as at
31 December 2018.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Liquidity risk
The Group has an excess of current assets over current liabilities of RUB 4,848,317 thousand as at 31 December 2019 (2018: excess of current
assets over current liabilities RUB 708,587 thousand).
(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.
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 4,665,000 thousand as of 31 December 2019 (2018: RUB 4,515,000 thousand), together
with long-term borrowings (Note 28) the Group has the ability to meet its liabilities as they fall due and mitigate risks of adverse changes in
the financial markets environment.
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 2019 and 31 December 2018.
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.
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 2019 and 31 December 2018 are as follows:
2019
RUB’000
30,095,218
80,974,053
37.17%
2018
RUB’000
25,728,911
73,356,937
35.07%
Less
than one month
RUB’000
Between
one month and
three months
RUB’000
Between three
and six months
RUB’000
Between
6 months and less
than one year
RUB’000
Between
1 and 2 years
RUB’000
Between
2 and 5 years
RUB’000
Total
RUB’000
Total borrowings
Total capitalisation
Total borrowings to total capitalisation ratio (percentage)
31 December 2019
Borrowings
Trade and other
payables
Lease liabilities with
financial institutions
Lease liabilities
(IFRS 16)
31 December 2018
Borrowings
Trade and other
payables
Finance lease
liabilities
360,617
849,725
1,691,040
2,280,662
4,605,615
9,955,939
13,748,473
32,642,346
29,986
28,251
78,922
-
-
986,884
59,219
104,168
154,532
302,194
573,499
781,441
1,975,053
63,280
130,273
213,761
346,615
409,252
578,619
1,741,800
1,332,841
1,955,467
2,677,206
5,333,346
10,938,690
15,108,533
37,346,083
427,029
820,446
2,273,971
1,893,914
5,195,738
6,186,061
11,273,818
27,250,531
35,390
34,458
115,318
197,689
98,844
1,302,145
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
Note: statutory liabilities are excluded as the analysis is provided for financial liabilities only.
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 2019 and 2018. 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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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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 one are measurements at quoted prices (unadjusted)
in active markets for identical assets or liabilities, (ii) level two 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 three 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 2019 and 31 December 2018 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 2019 and 31 December 2018 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 2019 and 31 December 2018, respectively. The discount rate used was 7.5% p.a. (2018: 9.5% p.a.) (Note 28).
The fair value as at 31 December 2019 and 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.
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:
Tax legislation
i)
Russian tax, currency and customs legislation is subject to varying interpretations (Note 34).
(b) Critical judgements in applying in 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:
Revenue recognition
The assessment of the accounting treatment of certain of the Group’s revenue contracts requires management to make certain critical judgments.
The judgments 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’s position is that the Group acts as a principal in these arrangements and the Group accounts for full receipts from customers as sales
revenue and the OAO “Russian Railways” tariff is also included in cost of sales. 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 2019 both would have decreased by RUB 22,019,963 thousand (2018: RUB 22,682,168 thousand).
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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 for reportable segments 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 tariff paid for the loaded trips of the relevant rolling stock and services
provided by other transportation organisations. Further, the Board receives information in respect of depreciation charges for rolling stock and
right-of-use assets relating to rolling stock, amortisation charges for customer relationships, impairment charges/reversals of impairment in
respect of rolling stock, right-of-use assets relating to rolling stock and customer relationships and loss on derecognition arising on capital repairs.
All other information provided to the Board is measured in a manner consistent with that in the financial statements.
The Board also reviews additions to segment assets. Segment assets consist of rolling stock, right-of-assets relating to rolling stock and customer
relationships. Unallocated assets comprise all the assets of the Group except for rolling stock, right-of-assets relating to rolling stock and customer
relationships, as included within 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 and additions of right-of-use
assets relating to rolling stock.
Year ended 31 December 2018
Total revenue – operator’s services
Total revenue – operating lease
Inter-segment revenue
Revenue (from external customers)
Gondola cars
RUB’000
Rail tank cars
RUB’000
Other railcars
RUB’000
Total
RUB’000
56,578,061
26,171,577
1,070,226
83,819,864
217,875
1,131,730
44,631
1,394,236
-
-
-
-
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
Adjusted revenue for reportable segments
Depreciation and amortisation
Impairment of property, plant and equipment
Loss on derecognition arising on capital repairs
Additions to non-current assets (included in reportable segment
assets)
(2,631,711)
(571,819)
38,091,728
20,637,788
(4,445,258)
(1,085,940)
(10,073)
-
(27,620)
571,266
(84,314)
-
(142,020)
(217,593)
(17,671)
(3,231,150)
59,300,782
(5,615,512)
(10,073)
(377,284)
12,117,088
658,041
1,190,307
13,965,436
Reportable segment assets
50,970,274 2
20,517,936
1,531,496
73,019,706
The Group does not have transactions between different business segments.
2
Includes RUB 752,718 thousand of intangible assets representing customer relationships.
Year ended 31 December 2019
Total revenue – operator’s services
Total revenue – operating lease
Inter-segment revenue
Revenue (from external customers)
Gondola cars
RUB’000
Rail tank cars
RUB’000
Other railcars
RUB’000
Total
RUB’000
62,009,387
27,955,714
1,194,311
91,159,412
148,207
1,434,219
51,340
1,633,766
-
-
-
-
62,157,594
29,389,933
1,245,651
92,793,178
less Infrastructure and locomotive tariffs - loaded trips
(14,596,983)
(6,856,635)
(566,345)
(22,019,963)
less Services provided by other transportation organisations
(4,046,206)
(85,793)
(2,243)
(4,134,242)
Adjusted revenue for reportable segments
43,514,405
22,447,505
677,063
66,638,973
Depreciation and amortisation
Impairment of property, plant and equipment
Loss on derecognition arising on capital repairs
Additions to non-current assets (included in reportable segment
assets)
(4,958,834)
(1,259,444)
(302,671)
(6,520,949)
-
-
(133,987)
(336,103)
64,889
(1,656)
64,889
(471,746)
6,720,628
4,760,126
2,215,587
13,696,341
Reportable segment assets
52,534,359 1
21,925,369
3,769,887
78,229,615
1
Includes RUB 57,903 thousand of intangible assets representing customer relationships.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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A reconciliation of total adjusted revenue to total profit before income tax is provided as follows:
Segment assets and liabilities are reconciled to the Group assets and liabilities as follows:
Adjusted revenue for reportable segments
Other revenues
Total adjusted revenue
Cost of sales (excl. Infrastructure and locomotive tariffs - loaded trips, services provided by
other transportation organisations, impairment and reversal of impairment of property, plant
and equipment, depreciation of property, plant and equipment and right-of-use assets and
amortisation of intangible assets, loss on derecognition arising on capital repairs)
Selling, marketing and administrative expenses (excl. depreciation, amortisation and
impairments)
Depreciation and amortisation
Net impairment losses on trade and other receivables
Reversal of impairment/(impairment) of property, plant and equipment
Loss on derecognition arising on capital repairs
Other income
Other losses – net
Operating profit
Finance income
Finance costs
Net foreign exchange transaction losses on financing activities
Profit before income tax
2019
RUB’000
66,638,973
2,200,696
68,839,669
2018
RUB’000
59,300,782
1,558,642
60,859,424
(25,523,727)
(23,094,638)
(3,894,885)
(4,771,519)
Segment assets/ liabilities
Unallocated:
Deferred tax liabilities
Current income tax assets/liabilities
Property, plant and equipment
Right-of-use assets
Intangible assets
(6,915,857)
(5,807,417)
Assets classified as held for sale
(12,699)
64,889
(471,746)
133,508
(99,322)
(29,713)
(10,073)
(377,284)
133,754
(1,479)
Other assets
Trade receivables
Loans and other receivables
Inventories
Cash and cash equivalents
32,119,830
26,901,055
Borrowings
533,857
(2,529,098)
(379,824)
29,744,765
377,445
(1,778,460)
(40,219)
25,459,821
Lease liabilities (IFRS 16)
Trade and other payables
Contract liabilities
Total
2019
Assets
RUB’000
78,229,615
Liabilities
RUB’000
2018
Assets
RUB’000
-
73,019,706
-
501,087
3,187,618
583,763
3,413
40,224
5,526,920
3,209,566
48,019
1,722,781
6,521,543
-
-
-
-
7,592,182
127,694
-
-
-
-
-
-
-
-
-
30,095,218
1,530,883
2,446,614
1,255,893
-
191,277
2,497,915
-
4,491
-
4,607,362
2,587,528
274,750
904,375
7,129,918
-
-
-
-
Liabilities
RUB’000
-
6,284,868
50,948
-
-
-
-
-
-
-
-
-
25,728,911
-
2,953,694
2,673,467
99,574,549
43,048,484
91,217,322
37,691,888
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Geographic information
Revenues from external customers
Revenue
Russia
Estonia
Finland
Ukraine
2019
RUB’000
2018
RUB’000
93,365,285
1,288,712
-
339,877
85,532,368
929,319
741
310,314
94,993,874
86,772,742
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 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.
The following table provides details of Adjusted revenue for 2019 and 2018 and its reconciliation to Total revenue.
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:
Revenue
Customer A – rail tank cars segment
Customer B – gondola cars segment
Customer C – gondola cars segment
2019
2018
RUB’000
% revenue
RUB’000
% revenue
17,913,115
28,837,359
11,684,413
19
30
12
17,162,366
24,939,534
13,397,567
20
29
15
The table below presents the Group’s non-current assets, other than financial instruments, deferred tax assets, post-employment benefit assets,
and rights arising under insurance contracts:
Non-current assets
Russia
Estonia
Ukraine
Cyprus
2019
RUB’000
2018
RUB’000
71,440,343
10,163,687
524,024
11,716
63,583,859
12,149,137
512,102
7,212
82,139,770
76,252,310
Total revenue
Minus “pass through” items
Infrastructure and locomotive tariffs: loaded trips
Services provided by other transportation organisations
Adjusted Revenue
2019
RUB’000
2018
RUB’000
94,993,874
86,772,742
(22,019,963)
(22,682,168)
(4,134,242)
68,839,669
(3,231,150)
60,859,424
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”, “Depreciation of right-of-use assets”,
“Amortisation of intangible assets”, “Net impairment losses on trade and other receivables”, “Reversal of impairment/(impairment) of property,
plant and equipment”, “Net loss/(gain) 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”, “Depreciation of right-of-use
assets”, “Amortisation of intangible assets”, “Loss on derecognition arising on capital repairs”, “Net impairment losses on trade and other
receivables” “Reversal of impairment/(impairment) of property, plant and equipment” and “Net loss/(gain) on sale of property, plant and
equipment”.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Other Operating Cash Costs include cost items such as “Advertising and promotion”, “Auditors’ remuneration”, “Communication costs”,
“Information services”, “Legal, consulting and other professional fees”, “Expense relating to short-term leases – office”, “Taxes (other than income
tax and value added taxes)” (in 2018: “Rental of tank containers”, “Operating lease rentals - office”) and “Other expenses”.
“Pass through” cost items
Infrastructure and locomotive tariffs: loaded trips
Services provided by other transportation organisations
Total cost of sales, selling and marketing costs and administrative expenses (adjusted
for “pass through” cost items)
Total Operating Cash Costs
Infrastructure and locomotive tariffs - empty runs and other tariffs
2019
RUB’000
2018
RUB’000
(26,154,205)
(25,913,318)
(22,019,963)
(22,682,168)
(4,134,242)
(3,231,150)
(36,754,025)
(34,090,644)
(29,408,565)
(27,893,504)
(15,739,194)
(13,848,049)
Repairs and maintenance
Employee benefit expense
Operating lease rentals - rolling stock
Expense relating to short-term leases – rolling stock
Fuel and spare parts – locomotives
Engagement of locomotive crews
Other Operating Cash Costs
Advertising and promotion
Auditors’ remuneration
Communication costs
Information services
Legal, consulting and other professional fees
Rental of tank-containers
Operating lease rentals – office
Expense relating to short-term leases – office
Taxes (other than on income and value added taxes)
Other expenses
Total Operating Non-Cash Costs
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Loss on derecognition arising on capital repairs
Net impairment losses on trade and other receivables
Reversal of impairment/(impairment) of property, plant and equipment
Net loss/(gain) on sale of property, plant and equipment
(4,403,342)
(4,483,225)
-
(721,529)
(1,914,447)
(774,990)
(1,371,838)
(38,992)
(54,780)
(34,776)
(18,666)
(48,469)
-
-
(139,214)
9,031
(1,045,972)
(7,345,460)
(5,794,912)
(424,220)
(696,725)
(471,746)
(12,699)
64,889
(10,047)
(3,821,338)
(4,366,804)
(826,937)
-
(1,935,278)
(795,289)
(2,299,809)
(37,716)
(58,760)
(33,391)
(26,626)
(70,084)
(43,770)
(183,188)
-
(681,263)
(1,165,011)
(6,197,140)
(5,110,715)
-
(696,702)
(377,284)
(29,713)
(10,073)
27,347
Adjusted EBITDA
Adjusted EBITDA represents EBITDA excluding “Net foreign exchange transaction losses from financing activities”, “Share of loss of associate”,
“Other losses - net”, “Net loss/(gain) on sale of property, plant and equipment”, “Reversal of impairment/(impairment) of property, plant and
equipment”, “Loss on derecognition arising on capital repairs” and “Reversal of impairment of intangible assets”.
EBITDA represents “Profit for the period” before “Income tax expense”, “Finance costs - net” (excluding “Net foreign exchange transaction losses
on financing activities), “Depreciation of property, plant and equipment”, “Depreciation of right-of-use assets” and “Amortisation of intangible
assets”.
The following table provides details on Adjusted EBITDA for 2019 and 2018 and its reconciliation to EBITDA and Profit for the year:
Profit for the year
Plus (Minus)
Income tax expense
Finance costs – net
Net foreign exchange transaction losses on financing activities
Amortisation of intangible assets
Depreciation of right-of-use assets
Depreciation of property, plant and equipment
EBITDA
Plus (Minus)
Loss on derecognition arising on capital repairs
Net foreign exchange transaction losses on financing activities
Other losses – net
Net loss/(gain) on sale of property, plant and equipment
Reversal of impairment/(impairment) of property, plant and equipment
2019
RUB‘000
2018
RUB‘000
22,653,332
19,583,435
7,091,433
2,375,065
(379,824)
696,725
424,220
5,794,912
38,655,863
471,746
379,824
99,322
10,047
(64,889)
5,876,386
1,441,234
(40,219)
696,702
-
5,110,715
32,668,253
377,284
40,219
1,479
(27,347)
10,073
Adjusted EBITDA
39,551,913
33,069,961
Total cost of sales, selling and marketing costs and administrative expenses
(62,908,230)
(60,003,962)
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Free Cash Flow
Free Cash Flow is calculated as “Cash generated from operations” (after “Changes in working capital”) less “Tax paid”, “Interest paid on
bank borrowings and non-convertible unsecured bonds”, “Interest paid on leases with financial institutions (2018: Interest paid on finance
leases)”, “Interest paid on lease liabilities (IFRS 16)”, “Purchases of property, plant and equipment”, “Purchases of intangible assets”,
“Acquisition of subsidiary undertakings - net of cash acquired” and “Principal elements of lease payments for leases with financial institutions”
(31 December 2018: “Finance lease principal payments”), “Principal elements of lease payments (IFRS 16)”.
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 “Principal elements of lease payments for leases with financial institutions” (2018: “Finance
lease principal payments”) (as part of the capital expenditures was financed with a finance lease).
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 2019 and 2018, and its reconciliation to Cash generated
from operations.
Cash generated from operations
Tax paid
Interest paid on bank borrowings and non-convertible unsecured bonds
Interest paid on leases with financial institutions (2018: Interest paid on finance leases)
Interest paid on lease liabilities (IFRS 16)
Purchases of property, plant and equipment
Principal elements of lease payments for leases with financial institutions (third parties)
(2018: Finance lease principal payments)
Principal elements of lease payments (IFRS 16)
Purchases of intangible assets
Total CAPEX
Free Cash Flow
Attributable Free Cash Flow
2019
RUB’000
35,422,218
(6,018,371)
(2,017,915)
(167,048)
(111,911)
2018
RUB’000
32,602,394
(5,765,818)
(1,533,268)
(100,064)
-
(13,515,985)
(11,567,554)
(488,723)
(1,321,234)
(339,597)
(832)
14,005,540
12,761,836
10,916,155
-
(110)
12,888,898
12,314,346
10,402,879
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 2019 and 2018, and
reconciliation of Net Debt to Total Debt.
Total debt
Minus
Cash and cash equivalents
Net Debt
Net Debt to Adjusted EBITDA
10. Revenue
(a) Disaggregation of revenue
Railway transportation – operator’s services (tariff borne by the Group)
Railway transportation – operator’s services (tariff borne by the client)
Revenue from specialised container transportation
Other
Total revenue from contracts with customers recognised over time
Operating lease of rolling stock
Total revenue
2019
RUB’000
2018
RUB’000
30,095,218
25,728,911
6,521,543
23,573,675
0.60x
7,129,918
18,598,993
0.56x
2019
RUB’000
49,141,357
42,018,055
1,814,551
386,145
93,360,108
1,633,766
94,993,874
2018
RUB’000
48,129,793
35,690,071
1,247,293
311,349
85,378,506
1,394,236
86,772,742
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 2019 amounting to RUB 22,019,963 thousand (for the year ended 31 December 2018:
RUB 22,682,168 thousand) and the cost of engaging the fleet from third parties recharged to clients of the Group amounting to
RUB 4,134,242 thousand (2018: RUB 3,231,150 thousand).
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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(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 and 31 December 2019:
11. Expenses by nature
Contract liabilities relating to railway transportation contracts
(current)
Contract liabilities relating to railway transportation contracts (non-
current)
31 December
2019
RUB’000
1,244,702
31 December
2018
RUB’000
2,673,467
1 January
2018
RUB’000
2,229,306
11,191
-
-
Total contract liabilities
1,255,893
2,673,467
2,229,306
Contract liabilities represent advances from customers for transportation services.
(c) Revenue recognised in relation to contract liabilities
The Group’s revenue for the year ended 31 December 2019 includes the entire contract liability balance of RUB 2,673,467 thousand as of
1 January 2019 (year ended 31 December 2018: RUB 2,229,306 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.
Cost of sales
Infrastructure and locomotive tariffs: loaded trips
Infrastructure and locomotive tariffs: empty run trips and other tariffs
Services provided by other transportation organisations
Operating lease rentals – rolling stock
Expense relating to short-term leases (rolling stock)
Rental of tank-containers
Employee benefit expense
Repairs and maintenance
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Loss on derecognition arising on capital repairs
Amortisation of intangible assets
Fuel and spare parts – locomotives
Engagement of locomotive crews
Loss/(gain) on sale of property, plant and equipment
Reversal of impairment/(impairment) of property, plant and equipment
Other expenses
Total cost of sales
2019
RUB’000
2018
RUB’000
22,019,963
15,739,194
4,134,242
-
721,529
-
1,511,766
4,403,342
5,735,069
316,818
471,746
696,707
22,682,168
13,848,049
3,231,150
826,937
-
43,770
1,450,366
3,821,338
5,062,376
-
377,284
696,687
1,914,447
1,935,278
774,990
11,495
(64,889)
446,964
795,289
(20,754)
10,073
394,365
58,833,383
55,154,376
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Selling, marketing and administrative expenses
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Gain on sale of property, plant and equipment
Employee benefit expense
Net impairment losses on trade and other receivables
Operating lease rental – office
Expense relating to short-term leases (office)
Auditors’ remuneration
Legal, consulting and other professional fees
Advertising and promotion
Communication costs
Information services
Taxes (other than income tax and value added taxes)
Other expenses
Total selling, marketing and administrative expenses
2019
RUB’000
2018
RUB’000
59,843
107,402
18
(1,448)
2,971,459
12,699
-
139,214
54,780
48,469
38,992
34,776
18,666
(9,031)
599,008
4,074,847
48,339
-
15
(6,593)
2,916,438
29,713
183,188
-
58,760
70,084
37,716
33,391
26,626
681,263
770,646
4,849,586
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Total expenses
Depreciation of property, plant and equipment (Note 17)
Depreciation of right-of-use assets (Note 18)
Loss on derecognition arising on capital repairs (Note 17)
Amortisation of intangible assets (Note 19)
Reversal of impairment/(impairment) of property, plant and equipment (Note 17)
Net loss/(gain) on sale of property, plant and equipment (Note 17)
Employee benefit expense (Note 13)
Net impairment losses on trade and other receivables
Operating lease rentals – rolling stock
Expense relating to short-term leases (rolling stock)
Operating lease rental – office
Expense relating to short-term leases (office)
Repairs and maintenance
Fuel and spare parts – locomotives
Engagement of locomotive crews
Infrastructure and locomotive tariffs: loaded trips
Infrastructure and locomotive tariffs: empty run trips and other tariffs
Services provided by other transportation organisations
Rental of tank-containers
Auditors’ remuneration
Legal, consulting and other professional fees
Advertising and promotion
Communication costs
Information services
Taxes (other than income tax and value added taxes)
Other expenses
Total cost of sales, selling and marketing costs and administrative expenses
2019
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2018
RUB’000
5,794,912
5,110,715
424,220
471,746
696,725
(64,889)
10,047
4,483,225
12,699
-
721,529
-
139,214
4,403,342
1,914,447
774,990
22,019,963
15,739,194
4,134,242
-
54,780
48,469
38,992
34,776
18,666
(9,031)
1,045,972
62,908,230
-
377,284
696,702
10,073
(27,347)
4,366,804
29,713
826,937
-
183,188
-
3,821,338
1,935,278
795,289
22,682,168
13,848,049
3,231,150
43,770
58,760
70,084
37,716
33,391
26,626
681,263
1,165,011
60,003,962
1 Depreciation of property, plant and equipment for the year ended 31 December 2019 includes RUB 216,114 thousand relating to depreciation of right-of-use assets
presented within property, plant and equipment (Note 17). The entire amount is recognised within ‘Cost of sales’.
Note: The auditors’ remuneration stated above includes fees of RUB 16,398 thousand (2018: RUB 16,798 thousand) for statutory audit services
and RUB 4,762 thousand (2018: RUB 5,235 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 502 thousand for the year 2019 (RUB 1,548 thousand for the year 2018) in relation to
fees paid to the Company’s statutory audit firm for tax consultancy services.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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12. Other losses – net
14. Finance income and costs
Other gains
Other losses
Net foreign exchange gains (Note 16)
Total other losses – net
13. Employee benefit expense
Wages and salaries
Termination benefits
Bonuses
Share based payment expense (Note 21)
Social insurance costs
Total employee benefit expense
2019
RUB’000
37,245
(217,289)
80,722
(99,322)
2019
RUB’000
2,199,520
5,212
1,454,292
83,319
740,882
2018
RUB’000
25,100
(90,954)
64,375
(1,479)
2018
RUB’000
2,020,679
8,467
1,382,287
236,572
718,799
Interest expense:
Bank borrowings
Non-convertible bonds
Interest expenses on loans
Other interest expense
Total interest expense calculated using the effective interest rate method
Leases with financial institutions (2018: Finance leases)
Lease liabilities (IFRS 16)
Total interest expense
Other finance costs
Total finance costs
Interest income:
Bank balances
Short term deposits
Loans to third parties
4,483,225
4,366,804
Total interest income calculated using the effective interest rate method
Average number of employees during the year
1,569
1,540
Finance leases – third parties
Total finance income
Net foreign exchange transaction gains on borrowings and other liabilities
Net foreign exchange transaction losses on cash and cash equivalents and other monetary
assets
Net foreign exchange transaction losses on financing activities (Note 16)
Net finance costs
2019
RUB’000
2018
RUB’000
(1,456,246)
(743,298)
(5,207)
(9,039)
(2,213,790)
(165,242)
(117,589)
(1,344,208)
(314,869)
-
-
(1,659,077)
(108,216)
-
(2,496,621)
(1,767,293)
(32,477)
(11,167)
(2,529,098)
(1,778,460)
122,278
374,302
616
497,196
36,661
533,857
206,966
(586,790)
141,095
192,917
1,425
335,437
42,008
377,445
35,631
(75,850)
(379,824)
(40,219)
(2,375,065)
(1,441,234)
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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.
For subsidiaries in Estonia, the annual profit earned by enterprises is not taxed and thus no income tax arise. Instead of taxing the net profit,
the distribution of statutory retained earnings is subject to a 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:
Finance income and costs (Note 14)
Other losses – net (Note 12)
2019
RUB’000
(379,824)
80,722
(299,102)
2018
RUB’000
(40,219)
64,375
24,156
15. Income tax expense
Current tax:
Corporation tax
Withholding tax on dividends
Total current tax
Deferred tax (Note 30):
Origination and reversal of temporary differences
Total deferred tax
Income tax expense
2019
RUB’000
2018
RUB’000
4,767,114
1,017,005
5,784,119
1,307,314
1,307,314
7,091,433
4,751,834
748,003
5,499,837
376,549
376,549
5,876,386
2018
RUB’000
25,459,821
5,846,000
255,960
(128,703)
-
59,899
(156,770)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
Profit before tax
Tax calculated at domestic tax rates applicable to profits in the respective countries
Tax effects of:
Expenses not deductible for tax purposes
Allowances and income not subject to tax
Tax effect of tax losses for which no deferred tax asset was recognised
Withholding taxes:
Estonian income tax arising on distribution
1
Dividend withholding tax provision in relation to intended dividend distribution of
subsidiaries
2019
RUB’000
29,744,765
6,484,368
234,253
(3,476)
(14,427)
23,656
367,059
Tax charge
7,091,433
5,876,386
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 years 2019 and 2018, the Group incurred taxes
on distributions from Estonian subsidiaries.
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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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17. Property, plant and equipment
Rolling stock
RUB’000
Land and buildings
RUB’000
Motor vehicles
RUB’000
Other
RUB’000
Total
RUB’000
Rolling stock
RUB’000
Land and buildings
RUB’000
Motor vehicles
RUB’000
Other
RUB’000
Total
RUB’000
At 1 January 2018
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2018
Opening net book amount
Additions
Disposals
Depreciation charge (Note 11)
Transfers
Impairment charge (Note 11)
Transfer to inventories
Derecognition arising on capital repairs
Currency translation differences
Closing net book amount
At 31 December 2018
Cost
Accumulated depreciation
Net book amount
94,103,663
358,239
210,070
2,319,710
96,991,682
(31,472,280)
(90,537)
(121,503)
(536,455)
(32,220,775)
62,631,383
267,702
88,567
1,783,255
64,770,907
62,631,383
13,965,522
(429,359)
(4,920,692)
2,021
(10,073)
(328,418)
(377,284)
1,733,888
72,266,988
107,436,162
(35,169,174)
267,702
-
88,567
51,054
1,783,255
510,617
(103)
(15,353)
(238)
64,770,907
14,527,193
(445,053)
(12,388)
(30,390)
(147,245)
(5,110,715)
-
-
-
-
1,828
(3,849)
-
-
-
-
(12)
-
481
1,729
2,260
-
(10,073)
(328,430)
(377,284)
1,738,358
256,940
97,966
2,143,009
74,764,903
347,949
201,242
2,662,667
110,648,020
At 1 January 2019
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2019
Opening net book amount
Additions
Disposals
Assets classified as held for sale
Depreciation charge (Note 11)
Transfers
Impairment charge (Note 11)
Transfer to inventories
Derecognition arising on capital repairs
Currency translation differences
Closing net book amount
At 31 December 2019
(91,009)
(103,276)
(519,658)
(35,883,117)
Cost
72,266,988
256,940
97,966
2,143,009
74,764,903
Accumulated depreciation
Net book amount
107,436,162
(35,169,174)
72,266,988
72,266,988
13,179,785
(92,175)
(40,224)
347,949
201,242
2,662,667
110,648,020
(91,009)
(103,276)
(519,658)
(35,883,117)
256,940
97,966
2,143,009
74,764,903
256,940
4,133
-
-
97,966
59,192
(3,025)
-
2,143,009
892,686
(6,496)
-
74,764,903
14,135,796
(101,696)
(40,224)
(5,546,150)
(12,446)
(34,022)
(202,294)
(5,794,912)
4,526
64,889
(523,000)
(471,746)
(1,497,866)
77,345,027
113,371,461
(36,026,434)
77,345,027
103
(2,704)
(1,925)
-
-
-
-
(432)
-
(1,652)
(1,062)
-
(87)
-
(266)
247,078
115,913
2,824,627
-
64,889
(523,519)
(471,746)
(1,500,846)
80,532,645
349,562
218,066
3,491,879
117,430,968
(102,484)
(102,153)
(667,252)
(36,898,323)
247,078
115,913
2,824,627
80,532,645
The net carrying amount of rolling stock as at 1 January 2019 and for the year ended 31 December 2019 includes right-of-use assets relating to
rolling stock held under leases with financial institutions that include purchase options that are reasonably certain to be exercised, in accordance
with the Group’s accounting policy for leases effective from 1 January 2019, as disclosed in Note 4.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
The table below shows the movement in the said right-of-use assets within the year 2019:
In the cash flow statement, proceeds from sale of property, plant and equipment comprise:
Year ended 31 December 2019
Opening net book amount
Impact of adoption of IFRS 16 (Note 3)
Restated opening net book amount
Depreciation charge (Note 11)
Closing net book amount
At 31 December 2019
Cost
Accumulated depreciation
Net book amount
RUB’000
-
3,414,376
3,414,376
(216,114)
3,198,262
3,525,750
(327,488)
3,198,262
Net book amount
Loss/(gain) on sale of property, plant and equipment (Note 11)
Consideration from sale of property, plant and equipment
The consideration from sale of property, plant and equipment is further analysed as follows:
Cash consideration received within year
Movement in advances received for sales of property, plant and equipment
2019
RUB’000
101,696
(10,047)
91,649
2019
RUB’000
91,649
-
91,649
2018
RUB’000
445,053
27,347
472,400
2018
RUB’000
409,794
62,606
472,400
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Useful lives of rolling stock
The estimation of the useful lives of items of rolling stock is a matter of judgment 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 2019 is considered appropriate.
(1) Impairment assessment of rolling stock as of 31 December 2019 and as of 31 December 2018
The Group assessed whether there were any indications for impairment of its rolling stock as at 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 as of 31 December 2018.
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.
Rolling stock
1
As at 31 December 2018, property, plant and equipment included the following amounts where the Group was the lessee under a finance lease:
Cost – capitalised finance leases
Accumulated depreciation
2019
RUB’000
-
-
-
2018
RUB’000
5,646,924
(744,353)
4,902,571
As at 31 December 2018, the net carrying amount of property, plant and equipment that was leased under finance leases, was analysed as follows:
2019
RUB’000
-
-
2018
RUB’000
3,414,376
3,414,376
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.
1 As at 31 December 2018, rolling stock with a net carrying amount of RUB 1,488,195 thousand was pledged under finance leases that were repaid by the Group as at
31 December 2018 for which the Group had the unilateral right to request for release of the pledged rolling stock with immediate effect. During the year 2019 the pledge was
terminated, and the rolling stock was released.
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.
Based on the Group’s assessment as at 31 December 2019, no impairment indicators were identified in respect of its property, plant and
equipment.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Until 31 December 2018 the Group was identified as a lessee under a finance lease in the following cases:
(a) The lease transferred ownership of property, plant and equipment to the Group at the end of the lease term;
18. Right-of-use assets
(b) The Group had the option to purchase the property, plant and equipment at a price that was 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 would be
exercised.
From 1 January 2019, the Group recognises right-of-use assets for all its leases, with limited exceptions as set out in its accounting policy in Note 4.
Refer to Note 18 for more details.
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 28):
Rolling stock
Other (tank-containers)
2019
RUB’000
15,190,536
1,516,212
16,706,748
2018
RUB’000
22,372,026
572,499
22,944,525
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 6 months from the date of bank loan agreement; being 4 July 2018. The relevant pledge
agreement was concluded in January 2019.
Depreciation expense of RUB 5,735,069 thousand in 2019 (2018: RUB 5,062,376 thousand) has been charged to “cost of sales” and
RUB 59,843 thousand in 2019 (2018: RUB 48,339 thousand) has been charged to “selling, marketing and administrative expenses”. Reversal of
Impairment charge of RUB 64,889 thousand in 2019 (2018: Impairment charge of RUB 10,073 thousand) has been charged to “cost of sales”.
Year ended 31 December 2019
Opening net book amount
Impact of adoption of IFRS 16 (Note 3)
Restated opening net book amount
Additions
Disposals through subleases
Depreciation charge (Note 11)
Currency translation differences
Other
As at 31 December 2019
Rolling stock
RUB’000
Land and buildings
RUB’000
-
590,656
590,656
516,556
-
(279,984)
-
(543)
826,685
-
27,421
27,421
685,589
(85,474)
(107,939)
(2,340)
-
517,257
Other
RUB’000
-
102,803
102,803
-
-
(36,297)
-
-
Total
RUB’000
-
720,880
720,880
1,202,145
(85,474)
(424,220)
(2,340)
(543)
66,506
1,410,448
Summarised information for the Group’s right-of-use assets
In accordance with the Group’s accounting policy for leases effective from 1 January 2019, as disclosed in Note 4, right-of-use assets and
associated lease liabilities are presented as separate lines on the face of the balance sheet, except for right-of-use assets and associated lease
liabilities arising from leases with financial institutions that that include purchase options that are reasonably certain to be exercised due
to the exercise price being a nominal amount compared to the fair value of the leased asset on the exercise date. The latter are presented
within the same line item as the corresponding underlying assets would be presented if they were owned and within borrowings, respectively.
Management believes that this presentation best reflects the substance of the leases with financial institutions, being similar to that of purchases
via collateralised borrowings.
The net carrying amount of the Group’s right-of-use assets as at 1 January 2019 and 31 December 2019 is as follows:
Rolling stock
RUB’000
Land and buildings
RUB’000
1 January 2019
- recognised on the face of the balance sheet
- included within property, plant and equipment
Net book amount
31 December 2019
- recognised on the face of the balance sheet
- included within property, plant and equipment
Net book amount
590,656
3,414,376
4,005,032
826,685
3,198,262
4,024,947
27,421
-
27,421
517,257
-
517,257
Other
RUB’000
102,803
-
102,803
66,506
-
66,506
Total
RUB’000
720,880
3,414,376
4,135,256
1,410,448
3,198,262
4,608,710
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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The additions to the Group’s right-of-use assets and depreciation charge during the year ended 31 December 2019 are as follows:
19. Intangible assets
Additions
- recognised on the face of the balance sheet
- included within property, plant and equipment
Total
Depreciation charge
- recognised on the face of the balance sheet
- included within property, plant and equipment
Total
Rolling stock
RUB’000
Land and buildings
RUB’000
Other
RUB’000
Total
RUB’000
516,556
-
516,556
(279,984)
(216,114)
(496,098)
685,589
-
685,589
(107,939)
-
(107,939)
-
-
-
(36,297)
-
(36,297)
1,202,145
-
1,202,145
(424,220)
(216,114)
(640,334)
The total cash outflow for leases in 2019 was RUB 2,110,197 thousand.
Impairment of right-of-use assets
Management has assessed whether there were any impairment indicators for right-of-use assets as of 31 December 2019. No impairment
indicators have been identified as of 31 December 2019.
At 1 January 2018
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2018
Opening net book amount
Amortisation charge (Note 11)
Additions
Transfers
Closing net book amount
At 31 December 2018
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2019
Opening net book amount
Amortisation charge (Note 11)
Additions
Closing net book amount
At 31 December 2019
Cost
Accumulated amortisation
Net book amount
Computer software
RUB’000
Customer relationships
RUB’000
Total
RUB’000
10,772
(4,530)
6,242
6,242
(1,888)
110
27
4,491
10,934
(6,443)
4,491
4,491
(1,910)
832
3,413
11,766
(8,353)
3,413
6,780,787
6,791,559
(5,333,228)
(5,337,758)
1,447,559
1,453,801
1,447,559
(694,814)
-
(27)
1,453,801
(696,702)
110
-
752,718
757,209
4,863,734
4,874,668
(4,111,016)
(4,117,459)
752,718
757,209
752,718
(694,815)
-
57,903
757,209
(696,725)
832
61,316
4,863,734
4,875,500
(4,805,831)
(4,814,184)
57,903
61,316
As of 31 December 2019, the Group’s intangible assets include a customer relationship with MMK Group with a carrying amount of
RUB 57,903 thousand (2018: RUB 752,718 thousand). The customer relationship was allocated to the Russian gondola cars/operator’s services
CGU.
Amortisation of RUB 696,707 thousand (2018: RUB 696,687 thousand) has been charged to cost of sales’ in the income statement and
RUB 18 thousand (2018: RUB 15 thousand) to ‘administrative expenses’.
Assessment for impairment as of 31 December 2019 and 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 2019 and
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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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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20. Principal subsidiaries
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 Group had the following subsidiaries at 31 December 2019 and 31 December 2018:
The accumulated non-controlling interest as of 31 December 2019 and 31 December 2018 comprised the following:
Name
Principal activities
Place of
business/
country of
incorporation
Proportion of
ordinary shares held
by the Company (%)
Proportion of
ordinary shares held
by the Group (%)
Proportion of ordinary
shares held by non-
controlling interest (%)
BaltTransServis, OOO (including RemTransservis, OOO and BTS-Locomotive Solutions, OOO)
2019
2018
Spacecom AS (including Spacecom Trans AS and Ekolinja Oy)
SyntezRail, OOO; SyntezRail Limited
Total
2019
RUB’000
1,931,282
3,544,360
171,588
5,647,230
2018
RUB’000
1,848,646
3,888,841
159,921
5,897,408
New Forwarding Company,
АО
Russia
GTI Management, OOO
Russia
Ural Wagonrepair Company,
AO
Russia
Ukrainian New Forwarding
Company OOO
BaltTransServis, OOO
BTS-Locomotive Solutions
OOO
1
Ukraine
Russia
Russia
RemTransServis, OOO
2
Russia
SyntezRail LLC
3
SyntezRail Ltd
Spacecom AS
Russia
Cyprus
Estonia
Ekolinja Oy
4
Finland
Spacecom Trans AS4
Estonia
Railway
transportation
Railway
transportation
Repair and
maintenance of
rolling stock
Railway
transportation
Railway
transportation
Support activities
for locomotive
traction
Repair and
maintenance of
rolling stock
Railway
transportation
Intermediary
holding company
Operating lease
of rolling stock
and provision of
forwarding services
Operating sub-lease
of rolling stock
Operating lease of
rolling stock
2019
100
100
100
2018
100
100
100
2019
100
100
100
2018
100
100
100
100
100
100
100
60
-
60
60
-
-
-
-
40
40
-
-
-
-
40
-
59.4
59.4
40.6
40.6
60
60
60
60
40
40
40
40
65.25
65.25
65.25
65.25
34.75
34.75
-
-
-
-
65.25
65.25
34.75
34.75
65.25
65.25
34.75
34.75
60
60
-
-
-
-
-
-
60
60
Transactions with non-controlling interests
During the year 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 related 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 450,934 thousand was paid to the non-controlling interest within 2019 (RUB 168,804 thousand 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.
1 BTS-Locomotive Solutions, OOO is a 100% subsidiary of BaltTransServis, OOO and was incorporated during 2019.
2 RemTransServis, OOO is a 99% subsidiary of BaltTransServis, OOO.
3 SyntezRail LLC is a 100% subsidiary of SyntezRail Ltd.
4 Ekolinja Oy and Spacecom Trans AS are 100% subsidiaries of Spacecom AS.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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 includes Spacecom Trans AS and Ekolinja Oy 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
Current
Assets
Liabilities
Total current net assets
Non-current
Assets
Liabilities
Total non-current net assets
Net assets
Summarised income statement
Revenue
Profit before income tax
Income tax expense
Post-tax profit from continuing operations
Other comprehensive income
Total comprehensive income
Total comprehensive income allocated to
non-controlling interests
Dividends paid to non-controlling interest
BaltTransServis OOO
2019
RUB’000
4,015,712
3,130,804
884,908
8,345,817
4,402,519
3,943,298
4,828,206
2018
RUB’000
2,863,563
1,713,310
1,150,253
5,571,362
2,099,999
3,471,363
4,621,616
Spacecom AS
2019
RUB’000
261,333
483,347
(222,014)
2018
RUB’000
568,845
916,598
(347,753)
10,368,791
12,252,920
7,879
10,360,912
10,138,898
827,446
11,425,474
11,077,721
BaltTransServis OOO
Spacecom AS
2019
RUB’000
27,994,828
5,170,098
(1,063,438)
4,106,660
-
4,106,660
1,642,664
2018
RUB’000
26,128,533
5,726,124
(1,175,858)
4,550,266
2019
RUB’000
1,288,712
578,549
(23,656)
554,893
-
(1,278,787)
4,550,266
1,820,106
(723,894)
192,825
2018
RUB’000
943,402
276,877
(59,289)
217,588
1,824,144
2,041,732
710,615
(1,560,000)
(1,640,000)
(42,237)
(83,005)
Summarised cash flow statements
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Net cash generated from/(used in) investing
activities
BaltTransServis OOO
2019
RUB’000
6,194,775
(810,307)
5,384,468
2018
RUB’000
6,288,546
(1,209,550)
5,078,996
Spacecom AS
2019
RUB’000
1,007,302
(18,592)
988,710
2018
RUB’000
642,591
(59,289)
583,302
(3,324,236)
(799,737)
(982,034)
(936,540)
Net cash used in financing activities
(1,163,927)
(4,416,883)
(145,235)
(99,337)
Net increase/(decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
year
Exchange differences on cash and cash
equivalents
Cash and cash equivalents at end of year
896,305
(137,624)
(138,559)
(452,575)
995,046
1,132,945
195,513
581,995
-
(275)
(18,666)
66,093
1,891,351
995,046
38,288
195,513
The information above includes the amounts before inter-company eliminations.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
21. Share-based payments
The Group maintains a remuneration program for some of the members of management, including members of key management of the Group.
This includes, amongst other things, a three-year compensation scheme in accordance to which, members of management receive a yearly cash
compensation calculated based on the weighted average market quotations of the GDRs of the Company. This compensation is set for a three-year
period and divided on three instalments to be paid after the end of each assessment period which equals to one year. The award is 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 falls within the scope of IFRS 2 “Share-based payment” and has therefore been classified as a cash-settled share-based payment
arrangement.
In accordance with the terms of the remuneration program, 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 83,319 thousand in this respect for the year ended 31 December 2019
(2018: RUB 236,572 thousand) and the Group’s liability in respect of this amounted to RUB 205,604 as of 31 December 2019 (2018:
RUB 290,805 thousand).
The share-based payment liability as of 31 December 2019 and 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.
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22. Financial assets
(a) Trade receivables
Trade receivables – third parties
Less: Provision for impairment of trade receivables
Trade receivables – net
Less non-current portion:
Trade receivables – third parties
Less: Provision for impairment of trade receivables
Total non-current portion
Current portion
2019
RUB’000
3,348,481
(138,915)
3,209,566
218,392
(21,108)
197,284
2018
RUB’000
2,733,570
(146,042)
2,587,528
245,537
(23,732)
221,805
3,012,282
2,365,723
Trade receivables amounting to RUB 245,537 thousand as of 31 December 2018 related 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 in order to account for the expected time until receipt of the amount due (Note 33). This balance was
reclassified as asset held-for-sale within the year 2019. Refer to Note 36.
The carrying amounts of the Group’s trade receivables are denominated in the following currencies:
Currency:
US Dollar
Russian Roubles
Euro
Ukrainian Hryvnia
2019
RUB’000
2018
RUB’000
209,094
2,820,759
177,080
2,633
3,209,566
250,245
2,183,841
137,472
15,970
2,587,528
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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
(b) Loans and other receivables
Loans receivables – third parties
Other receivables
Other receivables – related parties (Note 35)
Less: Provision for impairment of other receivables
Loans and other receivables – net
Less non-current portion:
Loans receivables – third parties
Other receivables - third parties
Total non-current portion
Current portion
The carrying amounts of the Group’s loans and other receivables are denominated in the following currencies:
Currency:
US Dollar
Russian Roubles
Ukrainian Hryvnia
Euro
Other
2019
RUB’000
7,841
69,519
-
(29,341)
48,019
7,820
2,554
10,374
37,645
2019
RUB’000
-
39,760
416
2
7,841
48,019
2018
RUB’000
11,904
112,434
200,064
(49,652)
274,750
11,904
-
11,904
262,846
2018
RUB’000
2,207
260,247
392
-
11,904
274,750
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.
23. Other assets
Prepayments – third parties
Finance leases to third parties
VAT recoverable
Other assets
Less non-current portion:
Finance leases to third parties
Prepayments for property, plant and equipment
VAT recoverable
Total non-current portion
Current portion
2019
RUB’000
3,805,346
279,070
1,442,504
5,526,920
241,279
95,137
-
336,416
5,190,504
The Group’s finance leases as at 31 December 2019 and 31 December 2018 are denominated in Russian Roubles.
The finance lease receivables are scheduled as follows:
At 31 December 2019
Minimum lease receivable
Less: Unearned finance income
Present value of minimum lease receivables
At 31 December 2018
Minimum lease receivable
Less: Unearned finance income
Present value of minimum lease receivables
Less than one year
RUB’000
Between 1 to 5 years
RUB’000
Over 5 years
RUB’000
64,499
(26,708)
37,791
61,311
(34,017)
27,294
297,795
(56,516)
241,279
291,591
(97,059)
194,532
-
-
-
96,489
(1,647)
94,842
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RUB’000
2,857,251
316,668
1,433,443
4,607,362
289,374
693,267
36,931
1,019,572
3,587,790
Total
RUB’000
362,294
(83,224)
279,070
449,391
(132,723)
316,668
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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:
Finance leases to third parties
2019
%
10.4
2018
%
11.17
Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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24. Inventories
26. Share capital and share premium
At 1 January 2018 /31 December 2018 /
1 January 2019 / 31 December 2019
At 1 January 2018 /31 December 2018 /
1 January 2019 / 31 December 2019
Number of shares
178,740,916
Share capital
USD’000
17,875
Share premium
USD’000
949,471
Total
USD’000
967,346
Number of shares
178,740,916
Share capital
RUB’000
516,957
Share premium
RUB’000
Total
RUB’000
27,929,478
28,446,435
The total authorised number of ordinary shares at 31 December 2019 was 233,918,128 shares with a par value of US$0.10 per share
(31 December 2018: 233,918,128 shares with a par value of US$0.10 per share). All issued shares are fully paid.
Raw materials, spare parts and consumables
All inventories are stated at cost.
25. Cash and cash equivalents
Cash at bank and in hand
Short term bank deposits
Total cash and cash equivalents
2019
RUB’000
1,722,781
1,722,781
2018
RUB’000
904,375
904,375
2019
RUB’000
4,333,201
2,188,342
6,521,543
2018
RUB’000
6,685,392
444,526
7,129,918
The weighted average effective interest rate on short-term deposits was 4.20-5.80% in 2019 (2018: 6.46%) and these deposits have a maturity of 1
to 30 days (2018: 1 to 30 days).
Cash and cash equivalents include the following for the purposes of the cash flow statement:
Cash and cash equivalents
Total cash and cash equivalents
Cash and cash equivalents are denominated in the following currencies:
Russian Rouble
US Dollar
Euro
Ukrainian Hryvnia
2019
RUB’000
6,521,543
6,521,543
2019
RUB’000
5,884,983
257,799
338,802
39,959
2018
RUB’000
7,129,918
7,129,918
2018
RUB’000
5,485,393
759,190
838,956
46,379
Total cash and cash equivalents
6,521,543
7,129,918
The carrying value of cash and cash equivalents approximates their fair value.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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27. Dividends
In April 2018, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2017 in the amount
of 44.85 Russian Roubles per ordinary share/GDR, amounting to a total dividend of RUB 8,016,530 thousand, including final dividend for 2017
in the amount of RUB 4,155,726 thousand or RUB 23.25 per ordinary share/GDR and a special final dividend in the amount of RUB 3,860,804
thousand or RUB 21.60 per ordinary share/GDR (US Dollar equivalent of US$ 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 US$ 119,724 thousand), including interim dividend
in the amount of RUB 3,771,433 thousand (US Dollar equivalent of US$ 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 US$ 64,687 thousand) or RUB 24.80 per ordinary share/GDR.
In April 2019, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2018 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 (US Dollar equivalent of US$ 129,727 thousand).
In August 2019, the Board of Directors of the Company approved payment of total dividend in the amount of 46.55 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,320,390 thousand (US Dollar equivalent of US$ 124,655 thousand), including interim dividend
in the amount of RUB 3,548,007 thousand (US Dollar equivalent of US$ 53,156 thousand) or RUB 19.85 per ordinary share/GDR and a special
interim dividend in the amount of RUB 4,772,382 thousand (US Dollar equivalent of US$ 71,499 thousand) or RUB 26.70 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 2019 in the amount of 46.55 Russian Roubles per ordinary share/GDR, amounting to a total
dividend of RUB 8,320,390 thousand, including final dividend for 2019 in the amount of RUB 1,903,591 thousand or RUB 10.65 per ordinary
share/GDR and a special final dividend in the amount of RUB 6,416,799 thousand or RUB 35.90 per ordinary share/GDR. Such dividends subject
to the approval of the shareholders at the Annual General Meeting on 30 April 2020 and shall be paid in US Dollars at the average of the official
exchange rates of the Russian Central Bank for eight business days in Russia from 20 April 2020 to 29 April 2020 inclusive. Holders of GDRs will
receive the dividend approximately three business days after the payment date, which will be not later than 30 business days after the approval of
the dividends by the Annual General Meeting.
During the years ended 31 December 2019 and 2018, 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.
Dividends declared to equity holders of the Company
Dividends paid to equity holders of the Company
Dividends declared to non-controlling interest
Dividends paid to non-controlling interest
2019
RUB’000
16,631,842
16,631,842
1,602,237
1,602,237
2018
RUB’000
16,220,738
16,220,738
1,723,005
1,723,005
28. Borrowings
Current
Bank borrowings
Non-convertible unsecured bonds
Loans from third parties
Lease liabilities with financial institutions (2018: Finance lease liabilities)
Total current borrowings
Non-current
Bank borrowings
Non-convertible unsecured bonds
Loans from third parties
Lease liabilities with financial institutions (2018: Finance lease liabilities)
Total non-current borrowings
Total borrowings
Maturity of non-current borrowings (excluding lease liabilities with financial institutions (2018:
finance lease liabilities))
Between 1 and 2 years
Between 2 and 5 years
2019
RUB’000
2018
RUB’000
7,013,856
290,000
355
496,093
7,800,304
10,959,851
9,989,017
120,000
1,226,046
22,294,914
30,095,218
8,528,123
12,540,745
21,068,868
7,831,616
131,100
-
496,874
8,459,590
10,568,008
4,985,519
-
1,715,794
17,269,321
25,728,911
5,186,713
10,366,814
15,553,527
Bank borrowings
Bank borrowings mature by 2024 (2018: by 2023) and bear average interest of 8.07% per annum (2018: 7.99% per annum).
There were no defaults or breaches of loan terms during the years ended 31 December 2019 and 31 December 2018.
The current and non-current bank borrowings amounting to RUB 5,501,805 thousand and RUB 8,797,604 thousand respectively (2018:
RUB 6,775,211 thousand and RUB 9,681,198 thousand respectively) are secured by pledge of rolling stock and tank-containers with a total carrying
net book value of RUB 16,706,748 thousand (2018: RUB 22,944,525 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 6 months from the date of bank loan agreement; being 4 July 2018. The relevant pledge
agreement was concluded in January 2019.
Non-convertible bonds
New Forwarding Company AO (“NFC”) issued non-convertible Russian Rouble denominated bonds for amount of RUB 5 billion in 2018, priced
at a coupon rate of 7.25% p.a. and with maturity in 2023 and for amount of RUB 5 billion in 2019, priced at a coupon rate of 8.8% p.a. and with
maturity in 2024 out of a total RUB 100 billion registered program.
The Company acts as the guarantor for the bond issue.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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Finance lease liabilities at 31 December 2018
Finance lease liabilities at 31 December 2018 were 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.
Movements in borrowings are analysed as follows:
Finance lease liabilities – minimum lease payments
Not later than 1 year
Later than 1 year and not later than 5 years
Future finance charges of finance leases
Present value of finance lease liabilities
The present value of finance lease liabilities is as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
2019
RUB’000
-
-
-
-
-
-
-
2018
RUB’000
662,116
1,968,708
(418,156)
2,212,668
496,874
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:
Closing amount as at 31 December 2018
18,399,624
2,212,668
6 months or less
6 to 12 months
1 to 5 years
Note: The amounts above are based on the earliest of their contractual re-pricing dates and maturity dates.
2019
RUB’000
3,917,181
3,875,216
22,302,821
30,095,218
2018
RUB’000
2,742,720
5,716,870
17,269,321
25,728,911
Year ended 31 December 2019
Opening amount as at 1 January 2019
18,399,624
2,212,668
-
-
18,399,624
2,212,668
678,695
678,695
Bank borrowings
and loans (excl.
overdrafts)
Lease liabilities
with financial
institutions
Lease liabilities
(IFRS 16)
Non-convertible
unsecured bonds
Total
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
Year ended 31 December 2018
Opening amount as at 1 January 2018
16,331,356
Cash flows:
Amounts advanced
Repayments of borrowings
Interest paid
Non-cash changes:
Interest charged
Net foreign exchange
Finance lease liability
Impact of adoption of IFRS 16 (Note 3)
Restated opening amount
Cash flows:
Amounts advanced
Repayments of borrowings
Interest paid
Non-cash changes:
Interest charged
Net foreign exchange
Lease liability
Other
-
-
15,197,467
(13,127,743)
(1,321,234)
(1,335,018)
(100,064)
1,344,208
108,216
294
-
(10,940)
3,525,750
-
-
-
-
-
-
-
-
-
-
16,331,356
5,000,000
20,197,467
-
(14,448,977)
(198,250)
(1,633,332)
314,869
1,767,293
-
-
294
3,514,810
5,116,619
25,728,911
5,116,619
25,728,911
-
678,695
5,116,619
26,407,606
10,408,000
-
-
5,000,000
15,408,000
(10,736,723)
(488,723)
(339,597)
-
(11,565,043)
(1,437,015)
(167,048)
(111,911)
(580,900)
(2,296,874)
1,461,453
165,242
(394)
-
(883)
-
-
-
117,589
(10,956)
1,197,063
743,298
-
-
-
2,487,582
(11,350)
1,197,063
(883)
Closing amount as at 31 December 2019
18,094,062
1,722,139
1,530,883
10,279,017
31,626,101
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
The carrying amount and fair value of current and non-current borrowings are as follows:
The weighted average effective interest rates at the balance sheet were as follows:
Bank borrowings
Non-convertible unsecured bonds
Loans from third parties
Lease liabilities with financial institutions
(2018: Finance lease liabilities)
Carrying amount
Fair value
2019
RUB’000
17,973,707
10,279,017
120,355
1,722,139
2018
RUB’000
18,399,624
5,116,619
-
2,212,668
2019
RUB’000
16,536,507
10,317,500
125,833
1,635,779
2018
RUB’000
18,087,461
4,940,619
-
2,166,542
30,095,218
25,728,911
28,615,619
25,194,622
The fair value as at 31 December 2019 and 31 December 2018 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 2019 and 31 December 2018. The discount rate was 7.5% p.a. (2018: 9.5% p.a.). The fair value measurements
are within level 2 of the fair value hierarchy (2018: level 2). The fair value as at 31 December 2019 and 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.
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Russian Rouble
Euro
The Group has the following undrawn borrowing facilities:
Fixed rate:
Expiring within one year
Expiring beyond one year
2019
RUB’000
2018
RUB’000
30,095,218
25,724,528
-
4,383
30,095,218
25,728,911
2019
RUB’000
2,320,000
2,345,000
4,665,000
2018
RUB’000
1,490,000
3,025,000
4,515,000
Bank borrowings
Non-convertible unsecured bonds
Loans from third parties
Lease liabilities with financial institutions (2018: Finance lease liabilities)
29. Lease liabilities (IFRS 16)
Lease liabilities (IFRS 16)
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
Maturity of lease liabilities (IFRS 16)
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
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8.1
8.1
9.0
8.4
2018
%
8.0
7.3
-
8.4
2019
RUB’000
649,177
881,706
1,530,883
2019
RUB’000
340,021
535,144
6,541
881,706
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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30. 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:
Beginning of year
Income statement charge (Note 15)
End of year
2019
RUB’000
6,284,868
1,307,314
7,592,182
2018
RUB’000
5,908,319
376,549
6,284,868
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:
Deferred tax liabilities
At 1 January 2018
Charged/(credited) to:
Income statement (Note 15)
At 31 December 2018
Impact of adoption of IFRS 16
Restated balance – 1 January 2019
Charged/(credited) to:
Income statement (Note 15)
At 31 December 2019
Property, plant and
1
equipment
Withholding tax provision
Intangible assets
Total
RUB’000
5,479,990
1,385,566
6,865,556
-
6,865,556
1,156,002
8,021,558
RUB’000
709,233
(224,097)
485,136
-
485,136
30,308
515,444
RUB’000
289,507
(139,181)
150,326
-
150,326
(138,958)
11,368
RUB’000
6,478,730
1,022,288
7,501,018
-
7,501,018
1,047,352
8,548,370
1 The deferred tax liability arising from property, plant and equipment as at 31 December 2019 includes RUB 639 652 thousand relating to temporary differences arising from
right-of-use assets recognised within property, plant and equipment (Note 17).
Deferred tax assets
At 1 January 2018
Charged/(credited) to:
Income statement (Note 15)
At 31 December 2018
Impact of adoption of IFRS 16
Tax losses
Trade and other
payables
Lease liabilities with
financial institutions
(2018: Lease liabilities)
and
Borrowings
Other assets/
liabilities
Total
RUB’000
(59,908)
896
(59,012)
-
RUB’000
(82,864)
(103,606)
(186,470)
-
RUB’000
RUB’000
(276,927)
(150,712)
RUB’000
(570,411)
(546,414)
3,385
(645,739)
(823,341)
(147,327)
(1,216,150)
-
-
-
Restated balance – 1 January 2019
(59,012)
(186,470)
(823,341)
(147,327)
(1,216,150)
Charged/(credited) to:
Income statement (Note 15)
At 31 December 2019
10
(59,002)
(119,591)
(306,061)
108,990
(714,351)
270,553
123,226
259,962
(956,188)
Deferred tax assets are recognised for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable
profits is probable. The Group has not recognised deferred tax assets in the amount of RUB 312,221 thousand (2018: RUB 433,600 thousand) for
tax losses amounting to RUB 1,668,111 thousand (2018: RUB 2,721,000 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.
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. The Group
recognises provisions for such taxes based on management’s estimates and intention for future dividend distribution by each respective subsidiary
out of profits of subsidiaries as of 31 December 2019.
Deferred income tax liabilities of RUB 2,575,594 thousand (2018: RUB 3,474,968 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 22,679,368 thousand as at 31 December 2019 (2018: RUB 28,932,126 thousand).
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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31. Trade and other payables
Current
Trade payables to third parties
Other payables to third parties
VAT payable and other taxes
Accrued expenses
Accrued key management compensation, including share-based payment (Note 35)
Non-current
Accrued key management compensation, including share-based payment (Note 35)
Accrued expenses
Other payables to third parties
2019
RUB’000
659,891
462,021
561,393
133,482
539,085
2018
RUB’000
539,995
569,084
685,328
106,789
648,141
2,355,872
2,549,337
82,256
8,486
-
90,742
114,751
-
289,606
404,357
The fair value of trade and other payables approximates their carrying amount at the balance sheet date.
32. 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.
Profit attributable to equity holders of the company (RUB thousand)
Weighted average number of ordinary shares in issue (thousand)
Basic and diluted earnings per share (expressed in RUB per share) attributable to the equity
holders of the Company during the year
2019
2018
20,807,651
17,671,968
178,741
116.41
178,741
98.87
33. 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 2019. 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 Cooperation 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 2019 and 2018 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. As at 1 January 2019, there was an ongoing tax investigation in one of the Russian subsidiaries
of the Group, which was concluded within the first half of 2019 with no significant impact on the financial position and overall operations of
the Group. Management will vigorously defend the positions and interpretations applied in determining taxes recognised in these financial
statements 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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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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.
Legal proceedings
During the years ended 31 December 2019 and 31 December 2018, the Company’s subsidiaries were involved as a claimants and defendants in
a number of court proceedings.
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.
Since 2016 the Ukrainian economy has demonstrated recovery amid overall macroeconomic stabilisation supported by structural reforms, a rise
in domestic investment, revival in household consumption, increase in industrial production, construction activity and improved environment
on external markets. In 2019 GDP continued to grow to 3.5 % (as compared to 3.3% growth in 2018). In addition, there was further progress
in monetary policy. The National Bank of Ukraine (“NBU”) conducts an interest rate policy that is consistent with inflation targets and keeps
the hryvnia floating. The inflation rate in Ukraine slowed to 4.1% in 2019.
Starting from 2016, the NBU has made certain steps to ease the currency control restrictions introduced in 2014–2015. In particular, the required
share of foreign currency proceeds subject to mandatory sale on the interbank market was gradually decreased starting from 1 March 2019 is
30%. Additionally, the settlement period for export-import transactions in foreign currency was steadily increased to 180 days starting from 26 May
2017. Also starting from 3 March 2018, the NBU increased the amount of dividends payments allowed by Ukrainian companies to non-residents to
USD 7 million per month. This restriction has been eased to EUR 7 million since 7 February 2019.
In 2019-2020, Ukraine faces major public debt repayments, which will require mobilizing substantial domestic and external financing in an
increasingly challenging financing environment for emerging markets. Further, in March-April 2010 Ukraine faced presidential elections and
then early parliamentary elections in July 2019. Amid double elections, the degree of uncertainty including in respect of the future direction of
the reforms in 2020 remains very high.
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 2019 and
31 December 2018 (Note 28).
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.
Georgian Railways case
In March 2016, Georgian Railways initiated a claim of approximately GEL 16,122 thousand against a subsidiary of the Company claiming
compensation for storage costs incurred for wagons leased out to Georgian Railways that remained in Georgia for a period after 1 April 2015.
As explained in Note 22, as at 31 December 2019 the Group has an outstanding receivable amounting to EUR 3,150 thousand/RUB 218,392
thousand (2018: EUR 3,090 thousand/RUB 245,537 thousand) from Georgian Railways relating to invoices issued for services rendered prior to 1
April 2015. The Group also issued invoices of EUR 1,555 thousand to Georgian Railways; the revenue of which has not been recognised as it was not
assessed as probable at that time that future economic benefits would flow to the Group.
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 2019, management recognised a loss allowance of EUR 304 thousand/ RUB 21,108 thousand (2018: EUR 299 thousand/
RUB 23,732 thousand).
In March 2018, the Georgian Court ruled in favor of the Group an amount of US$10 million. Both parties have appealed this decision. The Group has
not recognised a receivable for the amount awarded as this might not constitute a final decision on the matter.
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 May 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 and announced a new court hearing in September 2019.
The amount of claim was decreased to RUB 727 million. Based on the results of the re-examination of the case in September 2019, the court of
1st instance ruled to partially satisfy the requirements of the third party in the amount of RUB 554 million, plus penalties in amount of RUB 27
million. Both parties have appealed this decision and on 12 March 2020 the court appointed an independent expert to determine the current value
of the disputed rolling stock. 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 was recognised by the Group in respect of this claim as the Group was of the opinion
that it was not probable that it will be required to make a payment under this claim. In July 2019 there was a favourable court decision for the Group
regarding this case.
In the opinion of management, there are no other legal proceedings or other claims outstanding, as of 31 December 2019 and 2018 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.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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34. Commitments
(a) Capital commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
Property, plant and equipment
2019
RUB’000
21,419
2018
RUB’000
2,707,799
(b) Operating lease commitments – Group as lessee
During the year 2018, the Group leased offices under non-cancellable operating lease agreements.
The Group also leased various types of rolling stock under cancellable and non-cancellable operating lease agreements. The lease expenditure
charged to the income statement during the year 2018 is disclosed in Note 11.
The future aggregate minimum lease payments under non-cancellable operating leases as at 31 December 2018 were as follows:
Not later than 1 year
Later than 1 year not later than 5 years
Later than 5 years
2019
RUB’000
-
-
-
-
2018
RUB’000
477,188
882,449
19,195
1,378,832
35. Related party transactions
Litten Investments Ltd, controlled by a Director of the Company, has a shareholding in the Company of 5.1% as at 31 December 2019
(31 December 2018: 5.8%).
Goldriver Resources Ltd, controlled by a member of key management personnel of the Group, has a shareholding in the Company of 4.0% as at
31 December 2019 (31 December 2018: 4.7%).
As at 31 December 2019, another 0.2% (2018: 0.2%) of the shares of the Company is 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.
The following transactions were carried out with related parties:
(a) Key management compensation
Key management salaries and other short-term employee benefits
Share based compensation (Note 21)
2019
RUB’000
1,417,535
83,319
1,500,854
2018
RUB’000
1,675,673
236,572
1,912,245
(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:
The key management compensation above includes directors’ remuneration paid to the directors of the Company both by the Company and
by subsidiaries of the Company in respect of services provided to such subsidiaries amounting to RUB 507,802 thousand (2018: RUB 408,987
thousand) and analysed as follows:
Not later than 1 year
Later than 1 year not later than 5 years
2019
RUB’000
368,888
-
368,888
2018
RUB’000
348,257
28,182
376,439
Non-executive directors’ fees
Emoluments in their executive capacity
Share based compensation in their executive capacity
There were no contingent-based rents to be recognised in the income statement for the year ended 31 December 2019 and 31 December 2018.
2019
RUB’000
20,868
474,950
11,984
507,802
2018
RUB’000
22,200
386,787
-
408,987
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
(c) Year-end balances arising from sale of shares/purchases of services
Other receivable from related parties (Note 22):
Receivable from entity controlled by key management
Accrued key management remuneration – current (Note 31):
Accrued salaries and other short-term employee benefits
Share based payment liability (Note 21)
Accrued key management remuneration – non-current (Note 31):
Share based payment liability (Note 21)
2019
RUB’000
-
-
2019
RUB’000
415,737
123,348
539,085
2019
RUB’000
82,256
82,256
2018
RUB’000
200,064
200,064
2018
RUB’000
472,087
176,054
648,141
2018
RUB’000
114,751
114,751
36. Events after the balance sheet date
The Group’s outlook for 2020 may be impacted by the Coronavirus (COVID-19) outbreak, which has significantly lowered visibility on what to expect
in 2020. While this is still an evolving situation at the time of issuing these consolidated financial statements, it appears that the negative impact on
global trade may be more severe than originally expected. Certain currencies to which the Group is exposed have weakened, stock markets have
declined, and commodity prices are lower. Management considers this outbreak to be a non-adjusting post balance sheet event.
The Management is closely monitoring the situation with the outbreak of Coronavirus (COVID-19) and is ready to act depending on
the development of the situation.
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 2019 in the amount of 46.55 Russian Roubles per ordinary share/GDR, amounting to a total
dividend of RUB 8,320,390 thousand, including final dividend for 2019 in the amount of RUB 1,903,591 thousand or RUB 10.65 per ordinary
share/GDR and a special final dividend in the amount of RUB 6,416,799 thousand or RUB 35.90 per ordinary share/GDR. Such dividends subject
to the approval of the shareholders at the Annual General Meeting on 30 April 2020 and shall be paid in US Dollars at the average of the official
exchange rates of the Russian Central Bank for eight business days in Russia from 20 April 2020 to 29 April 2020 inclusive. Holders of GDRs will
receive the dividend approximately three business days after the payment date, which will be not later than 30 business days after the approval of
the dividends by the Annual General Meeting.
There were no other material post balance sheet events which have a bearing on the understanding of these consolidated financial statements.
Independent Auditor’s Report on pages 117 to 123.
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Notes to the Consolidated Financial Statements (continued)CONSOLIDATED MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
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CHAPTER 4. PARENT COMPANY
Financial
Statements
Board of Directors and Other Officers
Management Report
Directors’ Responsibility
Independent Auditor’s Report
Income Statement
Statement of Comprehensive Income
Balance Sheet
Statement of Changes in Equity
Cash Flow Statement
Notes to the Parent Company Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
General information
Basis of preparation
Adoption of new or revised standards and interpretations
Summary of significant accounting policies
New accounting pronouncements
Financial risk management
Critical accounting estimate and judgements
Revenue
Other gains – net
Expenses by nature
Employee benefit expense
Finance costs – net
Income tax expense
Net foreign exchange (losses)/gains
Dividends
Property, plant and equipment
Right-of-use assets
Investments in subsidiary undertakings
Loans and other receivables
Other assets
Cash and cash equivalents
Share capital and share premium
Borrowings
Lease liabilities (IFRS 16)
Payables and accrued expenses
Related party transactions
Commitments
Contingencies
Events after the balance sheet date
216
218
232
233
239
240
241
243
244
246
246
246
247
248
257
258
268
268
268
269
269
270
271
272
272
273
274
274
277
278
279
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283
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288
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289
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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
Board of Directors
and Other Officers
Board of Directors
Dr. Johann Franz Durrer
Senior Independent Non-Executive Director since 24 May 2019
Chairman of the Remuneration Committee
Chairman of the Nomination Committee (Member of the Nomination
Committee till 24 May 2019)
Vasilis P. Hadjivassiliou
Independent Non-Executive Director
Appointed on 20 September 2019
Mr. John Carroll Colley
Independent Non-Executive Director
Chairman of the Audit Committee
Member of Remuneration Committee since 24 May 2019
Member of Nomination Committee since 24 May 2019
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
Alternate director: Mr. Yuri Isaev
Mr. Sergey Tolmachev
Executive Director
Mr. Alexander Storozhev
Executive Director
Alternate Director: Ms. Elia Nicolaou
Mr. Konstantin Shirokov
Executive Director
Mr. Alexander Eliseev
Non-executive Director
Alternate Director: Ms Ekaterina Golubeva
Mr. Andrey Gomon
Non-executive Director
Alternate Director: Ms. Melina Pyrgou
Mr. Alexander Tarasov
Non-executive Director
Mr. Michael Zampelas
Passed away on 15 May 2019,
Mr. Zampelas was a Senior Independent Non-executive Director
Chairman of the Nomination Committee
Member of Remuneration Committee
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Report
The Board of Directors presents its report together with the audited parent company financial statements for the year ended 31 December 2019.
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.
Human resources
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
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.
The Company’s profit for the year increased to RUB 18,773,265 thousand compared to RUB 15,847,719 thousand for the year ended 31 December
2018. This was mainly the result of the increase in the dividend income earned from the subsidiaries from RUB 15,112,974 thousand during
the year ended 31 December 2018 to RUB 20,417,895 thousand in the current year.
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.
The net asset position of the Company has increased as of 31 December 2019 compared to 31 December 2018, with net assets as of 31 December
2019 amounting to RUB 42,979,337 thousand compared to RUB 40,837,914 thousand as of 31 December 2018.
The financial position, development and performance of the Company as presented in the financial statements is considered satisfactory.
Changes in group structure
There were no changes in the group structure of the Company during the year ended 31 December 2019. For the principal subsidiaries of
the Company, refer to Note 18 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.
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Strategic risks
Operational 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 2019; cost of borrowing and/or deterioration in
market conditions with potential impacts on the profitability and recoverability of investments; and reliance on RZD for issuing permits allowing
the Group to operate locomotives.
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 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 66% of the Group’s Net Revenue from the Operation of
Rolling Stock in 2019 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.
The Group’s outlook for 2020 may be impacted by the Coronavirus (COVID-19) outbreak, which has significantly lowered visibility on what to expect
in 2020. The negative impact on global trade may be more severe than originally expected. Certain currencies to which the Group is exposed have
weakened, stock markets have declined, and commodity prices are lower. The Management is closely monitoring the situation with the outbreak of
Coronavirus (COVID-19) and is ready to act depending on the development of the situation.
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 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.
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Financial risks
Dividends
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.
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. 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. The Company’s current policy is not to hedge this foreign exchange risk.
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. The Company’s current policy is not to hedge 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.
Liquidity risk
As at 31 December 2019, the Company has an excess of current liabilities over current assets of RUB 791,351 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.
Further details on the Company’s exposure to financial risks are presented in Note 6 to the financial statements.
Contingencies
The Company’s contingencies are disclosed in Note 28 to the financial statements.
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 239 and 240. The Board of Directors recommends the payment of a dividend as detailed
below and the remaining net profit for the year is retained.
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 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 US$ 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 US$ 119,724 thousand), including interim dividend
in the amount of RUB 3,771,433 thousand (US Dollar equivalent of US$ 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 US$ 64,687 thousand) or RUB 24.80 per ordinary share/GDR.
In April 2019, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2018 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 (US Dollar equivalent of US$ 129,727 thousand).
In August 2019, the Board of Directors of the Company approved payment of total dividend in the amount of 46.55 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,320,390 thousand (US Dollar equivalent of US$ 124,655 thousand), including interim dividend
in the amount of RUB 3,548,007 thousand (US Dollar equivalent of US$ 53,156 thousand) or RUB 19.85 per ordinary share/GDR and a special
interim dividend in the amount of RUB 4,772,382 thousand (US Dollar equivalent of US$ 71,499 thousand) or RUB 26.70 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 2019 in the amount of 46.55 Russian Roubles per ordinary share/GDR, amounting to a total
dividend of RUB 8,320,390 thousand, including final dividend for 2019 in the amount of RUB 1,903,591 thousand or RUB 10.65 per ordinary
share/GDR and a special final dividend in the amount of RUB 6,416,799 thousand or RUB 35.90 per ordinary share/GDR. Such dividends subject
to the approval of the shareholders at the Annual General Meeting on 30 April 2020 and shall be paid in US Dollars at the average of the official
exchange rates of the Russian Central Bank for eight business days in Russia from 20 April 2020 to 29 April2020 inclusive. Holders of GDRs will
receive the dividend approximately three business days after the payment date, which will be not later than 30 business days after the approval of
the dividends by the Annual General Meeting.
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Share capital
Corporate governance
As at 31 December 2019 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 US$0.10 per share.
Research and development activities
The Company has not undertaken any research and development activities during the year ended 31 December 2019.
Events after the balance sheet date
The events after the balance sheet date are disclosed in Note 29 to the financial statements.
Branches
The Company\ does not operate through any branches.
Treasury shares
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 https://globaltrans.com/governance/corporate-documents.
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.
In 2019 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.
Members of the Board of Directors
Going concern
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 2020, including cash flows
and borrowing facilities, the Directors consider that the Company has adequate resources to continue in operation for the foreseeable future.
Auditors
The Board of Directors, in accordance with the requirements of the EU Regulation introduced into Cypriot legislation, undertook a mandatory audit
tender in respect of the audit for the year ended 31 December 2019. Following this, the Independent Auditor, PricewaterhouseCoopers Limited,
was appointed as the statutory auditor of the Company in respect of the audit for the year ended 31 December 2019.
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.
As at 31 December 2019 and at the date of this report, the Board comprises 15 members (2018: 15 members), 11 (2018: 9 members) of whom are
non-executive directors. Four (2018: 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
judgment with a view to the best interests of the Company, and they are able to exercise objective judgment on corporate affairs independently
from management.
The members of the Board of Directors at 31 December 2019 and at the date of this report are shown on page 216. All of them were members of
the Board throughout the year 2019, with the exception of Mr Michael Zampelas, who passed away on 15 May 2019, and Mr Vasilis P. Hadjivassiliou,
who was appointed as Director on 20 September 2019.
There were no significant changes in the assignment of responsibilities of the Board of Directors.
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 2019 amounted to RUB 352,881 thousand
(2018: RUB 186,911 thousand).
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(continued)
Board performance
The Board held 14 meetings in 2019. The Directors’ attendance is presented in the table below.
Michael Zampelas
Johann Franz Durrer
Carroll Colley
George Papaioannou
Alexander Eliseev
Melina Pyrgou
Konstantin Shirokov
Alexander Storozhev
Marios Tofaros
Elia Nicolaou
Sergey Tolmachev
Sergey Maltsev (Chairman)
Andrey Gomon
Alexander Tarasov
Vasilis P. Hadjivassiliou
Michael Thomaides
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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. Until May 2019 the Nomination Committee
was chaired by Mr. Zampelas and Dr. Durrer was the other member. Since 24 May 2019 the Nomination Committee is chaired by Dr. Durrer and
Caroll Colley 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. Until May 2019 the Remuneration Committee
was chaired by Dr. Durrer and Mr. Zampelas was the other member. Since 24 May 2019 the Remuneration Committee is chaired by Dr. Durrer and
Caroll Colley 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.
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Management Report
(continued)
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 22 April 2019.
Refer to Note 26 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 2 females representing approximately 13% from the total number of
directors. The age of the members of the Board of Directors starts from over 40 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:
https://globaltrans.com/governance/corporate-documents
Regulations with regards to the amendment of the article
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.
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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Management Report
(continued)
Significant direct or indirect holdings (including indirect
shareholding though 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 56.9%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 2019 was follows:
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 2019 and 31 December 2018 are shown below:
Name
Type of holding
Alexander Eliseev
Indirect holding of ordinary shares and GDRs
Sergey Maltsev
Holding of ordinary shares and GDRs
Johann Franz Durrer
Holding of GDRs
2019
9,065,790
7,099,725
160,606
2018
10,315,790
8,382,860
160,606
Onyx Investments Ltd ²
Marigold Investments Ltd ²
Maple Valley Investments Ltd ²
Litten Investments Ltd ³
Goldriver Resources Ltd ⁴
Controlled by Directors and management of Globaltrans
Free float ¹
11.5%
11.5%
10.8%
5.1%
4.0%
0.2%
56.9%
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, Non-executive Director and co-founder of the Company.
4 Beneficially owned by Sergey Maltsev, Chairman of the Board, Executive Director, Chief strategy officer and co-founder of the Company.
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, 27 March 2020
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Directors’
Responsibility
Independent
Auditor’s Report
To the Members of Globaltrans Investment PLC
The Company’s 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 it necessary to enable the preparation of parent company financial
statements that are free from material misstatement, whether due to fraud or error.
Report on the Audit of the Parent Company
Financial Statements
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.
Each of the Directors confirms to the best of his or her knowledge that the parent company financial statements (presented on pages 240 to
289) give a true and fair view of the financial position of Globaltrans Investment PLC (the “Company”) as at 31 December 2019 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.
Our opinion
In our opinion, the accompanying parent company financial statements give a true and fair view of the financial position of parent company
Globaltrans Investment PLC (the “Company”) as at 31 December 2019, 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 240 to 289 and comprise:
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;
― the balance sheet as at 31 December 2019;
― the income statement for the year then ended;
(ii) the Company’s parent company financial statements are in agreement with the books of account;
― the statement of comprehensive income for the year then ended;
(iii) the parent company financial statements give the information required by the Cyprus Companies Law, Cap.113 in the manner so required;
― the statement of changes in equity for the year then ended;
(iv) the Management Report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap.113, and the information
― the cash flow statement for the year then ended; and
given therein is consistent with the parent company 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 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; 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
― 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.
Independence
We remained independent of the Company throughout the period of our appointment in accordance with the International Ethics Standards
Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (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.
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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Independent Auditor’s Report
(continued)
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.
Materiality
Key audit matters
Overall materiality: RUB 990,000 thousand, which represents 5% of
profit before tax (rounded).
We have determined that there are no key audit matters to
communicate in our report.
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.
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 990,000 thousand
How we determined it
5% of profit before tax (rounded)
Rationale for the materiality
benchmark applied
We chose profit before tax as the benchmark, because in our view,
it is 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 49,500 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.
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Independent Auditor’s Report
(continued)
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.
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 11 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
26 March 2020 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.
― 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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Independent Auditor’s Report
(continued)
Income Statement
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 2019.
The engagement partner on the audit resulting in this independent auditor’s report is Tasos Nolas.
Tasos Nolas
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
27 March 2020
for the year ended 31 December 2019
Revenue
Marketing costs
Administrative expenses
Reversal of impairment losses on loans receivable
Other income
Other gains - net
Operating profit
Finance income
Finance costs
Net foreign exchange transaction (losses)/gains on financing activities
Finance costs – net
Profit before tax
Income tax expense
Profit for the year
Note
8
2019
RUB’000
2018
RUB’000
20,470,164
15,160,887
26
9
12
12
12
12
13
(3,771)
(473,657)
312,980
133,508
4,805
20,444,029
63,630
(462,562)
(244,426)
(643,358)
19,800,671
(1,027,406)
18,773,265
(6,406)
(347,143)
728,378
133,754
1,133,853
16,803,323
22,181
(349,985)
121,892
(205,912)
16,597,411
(749,692)
15,847,719
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The notes on pages 246 to 289 are an integral part of these financial statements.
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Statement of
Comprehensive Income
Balance Sheet
for the year ended 31 December 2019
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
2019
RUB’000
2018
RUB’000
18,773,265
15,847,719
-
-
at 31 December 2019
ASSETS
Non-current assets
18,773,265
15,847,719
Investments in subsidiary undertakings
Property, plant and equipment
Right-of-use assets
Other assets
Loans and other receivables
Total non-current assets
Current assets
Loans and other receivables
Other assets
Income tax assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Share premium
Capital contribution
Retained earnings
Total equity
Non-current liabilities
Borrowings
Lease liabilities (IFRS 16)
Total non-current liabilities
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Note
31 December 2019
RUB’000
31 December 2018
RUB’000
18
16
17
20
19
19
20
21
22
22
23
24
45,151,248
45,151,248
6,652
5,064
-
696,548
45,859,512
2,572
-
4,640
876,476
46,034,936
508,281
1,379,274
848
-
982,797
1,491,926
2,296
11,919
1,268,049
2,661,538
47,351,438
48,696,474
516,957
27,929,478
2,694,851
11,838,051
42,979,337
2,086,465
2,359
2,088,824
516,957
27,929,478
2,694,851
9,696,628
40,837,914
4,231,313
-
4,231,313
The notes on pages 246 to 289 are an integral part of these financial statements.
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241
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Statement of Changes in Equity
Balance Sheet
(continued)
Current liabilities
Borrowings
Lease liabilities (IFRS 16)
Payables and accrued expenses
Total current liabilities
TOTAL LIABILITIES
Note
31 December 2019
RUB’000
31 December 2018
RUB’000
for the year ended 31 December 2019
23
24
25
2,175,477
2,054
105,746
2,283,277
3,241,204
-
386,043
3,627,247
Balance at 1 January 2018
Comprehensive income
Profit for the year
Total comprehensive income
for 2018
Transactions with owners
4,372,101
7,858,560
Dividend to owners of
the Company
15
TOTAL EQUITY AND LIABILITIES
47,351,438
48,696,474
On 27 March 2020 the Board of Directors of Globaltrans Investment PLC authorised these financial statements for issue.
____________________
_____________________
Sergey Tolmachev, Director
Konstantin Shirokov, Director
Total distributions to owners of
the Company
Total transactions with owners
Balance at 31 December 2018/1
January 2019
Comprehensive income
Profit for the year
Total comprehensive income
for 2019
Transactions with owners
Dividend to owners of the
Company
Total distributions to owners of
the Company
Total transactions with owners
Balance at 31 December 2019
15
Note
Share capital
RUB’000
Share premium
RUB’000
Capital contribution
RUB’000
Retained earnings
RUB’000
Total
RUB’000
516,957
27,929,478
2,694,851
10,069,647
41,210,933
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,847,719
15,847,719
15,847,719
15,847,719
(16,220,738)
(16,220,738)
(16,220,738)
(16,220,738)
(16,220,738)
(16,220,738)
516,957
27,929,478
2,694,851
9,696,628
40,837,914
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,773,265
18,773,265
18,773,265
18,773,265
(16,631,842)
(16,631,842)
(16,631,842)
(16,631,842)
(16,631,842)
(16,631,842)
516,957
27,929,478
2,694,851
11,838,051
42,979,337
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The notes on pages 246 to 289 are an integral part of these financial statements.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Cash Flow
Statement
for the year ended 31 December 2019
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Interest on loans to related parties
Bank interest income
Interest income on other receivables from related parties
Interest expense
Reversal of impairment losses on loans receivable
Profit from sale of property, plant and equipment
Profit from sale of subsidiaries
Net foreign exchange transaction losses/(gains) on financing activities
Operating cash flows before working capital changes
Changes in working capital:
Other assets
Payables and accrued expenses
Net cash generated from operations
Interest received from loans from related parties
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Proceeds from sale of subsidiary
Contribution into the capital of subsidiary
Purchases of property, plant and equipment
Loans granted to related parties
Loan repayments received from related parties
Bank interest received
Net cash generated from investing activities
Note
2019
RUB’000
2018
RUB’000
Note
2019
RUB’000
2018
RUB’000
19,800,671
16,597,411
Cash flows from financing activities
Proceeds from bank borrowings
Repayments of bank borrowings
Principal elements of lease payments (IFRS 16)
Interest paid on bank borrowings
Interest paid on lease liabilities (IFRS 16)
Dividends paid to the Company’s shareholders
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
23
23
23
23
23
15
21
-
(3,199,576)
(2,031)
(473,296)
(265)
(16,631,842)
(20,307,010)
(170,705)
(114,547)
1,268,049
982,797
8,000,000
(5,558,000)
-
(345,224)
-
(16,220,738)
(14,123,962)
817,910
28,058
422,081
1,268,049
16
17
8
12
12
12
26
9
12
18
18
16
26
26
2,586
2,228
(52,269)
(46,696)
(16,934)
462,562
(312,980)
(1,028)
-
244,426
20,082,566
(6,088)
33,126
20,109,604
175,821
(1,017,005)
19,268,420
528,127
(300,089)
(6,666)
(180,000)
779,817
46,696
867,885
1,896
-
(47,913)
(22,181)
-
349,985
(728,378)
-
(1,134,752)
(121,892)
14,894,176
(741)
44,107
14,937,542
21,743
(748,003)
14,211,282
671,441
-
-
(900,000)
936,968
22,181
730,590
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245
The notes on pages 246 to 289 are an integral part of these financial statements.
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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 27 March 2020.
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 authorization 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 2019 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 the 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 2019 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.
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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 2019. None of these has affected these financial
statements, with the exception of IFRS 16 “Leases”, the adoption of which resulted in changes in the Company’s accounting policies for leases
for which it is acting as a lessee.
IFRS 16 “Leases”
IFRS 16 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.
Impact of adoption
The Company has adopted IFRS 16 retrospectively on 1 January 2019 using the modified retrospective method with certain simplifications, and
has not restated comparatives for the 2018 reporting period, as permitted under the transitional provisions of IFRS 16. The reclassifications
and the adjustments arising from the new leasing requirements are, therefore, recognised in the opening balance sheet as of 1 January 2019.
Accordingly, the comparative information is prepared and disclosed in accordance with IAS 17 “Leases”.
On adoption of IFRS 16, the Company recognised a lease liability in relation to a lease contract relating to offices which previously was classified as
an “operating lease” under the principles of IAS 17 “Leases”. This liability was measured as of 1 January 2019 at the present value of the remaining
lease payments, discounted using an incremental borrowing rate of 4%. The Company opted 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).
In applying IFRS 16 for the first time, the Company has used the practical expedient permitted by the standard and opted to account for operating
leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases. The Company has also elected not to reassess
whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Company
relied on its assessment made applying IAS 17 and Interpretation 4 “Determining whether an Arrangement contains a Lease”.
The following table presents a reconciliation of the operating lease commitments as at 31 December 2018 to the recognised lease liability as at
1 January 2019:
Total future minimum lease payments for non-cancellable operating leases (Note 27)
Effect of discounting to present value
Total lease liabilities
The Company’s new accounting policies following adoption of IFRS 16 at 1 January 2019 are set out in Note 4.
1 January 2019
RUB’000
7,758
(466)
7,292
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247
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
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 16 effective from 1 January 2019, 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.
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)/gains 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 – net”.
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.
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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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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financial statements
(continued)
Leases
Until the 2018 financial year, leases in which a significant portion of the risks and rewards of ownership were retained by the lessor were classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the income statement
on a straight-line basis over the period of the lease.
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.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for
use by the Company, with limited exceptions as set out below. Assets and liabilities arising from a lease are initially measured on a present value
basis. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Company’s incremental
borrowing rate is used, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value in
a similar economic environment with similar terms and conditions.
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.
Each lease payment is allocated between the liability and finance cost. 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.
Right-of-use assets are measured at cost. Any remeasurement of the lease liability arising if the cash flows change based on the original terms and
conditions of the lease results in a corresponding adjustment to the right-of-use asset. The adjustment can be positive or negative. Right-of-use
assets are reviewed for impairment in accordance with the Company’s accounting policy for impairment of non-financial assets.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. In determining
the lease term, the Company considers all facts and circumstances that create an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated).
As an exception to the above, the Company accounts for short-term leases and leases of low value assets by recognising the lease payments as an
expense on a straight-line basis in the interim income statement. Short-term leases are leases with a lease term of 12 months or less.
Right-of-use assets and associated lease liabilities are presented as separate lines on the face of the balance sheet.
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.
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:
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.
Motor vehicles
Number of years
3-5
Impairment of non-financial assets
Assets that have indefinite useful life and goodwill are not subject to amortisation and are tested annually for impairment.
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.
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.
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financial statements
(continued)
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.
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.
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 Company’s financial assets at amortised cost comprise of loans and other receivables and cash and cash equivalents on
the balance sheet.
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.
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.
Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised
in the income statement, unless the substance of the difference is attributed to a capital transaction with owners.
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. 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.
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 since initial recognition (“SICR”), 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.
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 assess 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 the income statement.
Following a renegotiation or otherwise modification of the contractual cash flows of a financial asset, the Company assesses whether the financial
asset ceased to meet the definition of credit-impaired and, in such case, should be transferred out of Stage 3. In a situation where the modification
involved only the deferral of the contractual payments (rather than waiver) and interest accrues on the unpaid deferred amounts, with the result
that there is not a detrimental impact on the estimated future cash flows of the loan, the borrower has demonstrated consistently good payment
behaviour over a period of time and there are no significant concerns regarding the repayment of the exposure, the Company considers that
the financial asset is not credit-impaired.
At the time the financial asset exits Stage 3, the Company compares the risk of default occurring on the asset to that at origination. If the risk
of default is lower than or equal to the risk of default as at the date of initial recognition it is transferred to Stage 1, otherwise it is transferred to
Stage 2.
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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(continued)
Financial liabilities
Classification. The Company’s financial liabilities are initially recognised at fair value and classified as subsequently measured at amortised cost.
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 – net” in the income statement.
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.
Modifications of financial liabilities. An exchange between the Company 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 the income statement, unless the economic substance of the difference in carrying values is attributed to a capital
transaction with owners and is recognised directly to equity.
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, when material, as a financial liability at the time the guarantee is issued. Financial guarantees are initially
At the end of each reporting period, the guarantee is 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.
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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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(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, 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”.
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 the income statement 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 of subsidiaries is recognised within financing activities. Principal payments of deferred consideration are
recognised as acquisition of subsidiaries within cash flows from investing activities.
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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 2020. 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.
― 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.
― Definition of a business – Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning
of annual reporting period that starts on or after 1 January 2020)*. The amendments revise definition of a business. A business must
have inputs and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides
a framework to evaluate when an input and a substantive process are present, including for early stage companies that have not generated
outputs. An organised workforce should be present as a condition for classification as a business if are no outputs. The definition of the term
‘outputs’ is narrowed to focus on goods and services provided to customers, generating investment income and other income, and it excludes
returns in the form of lower costs and other economic benefits. It is also no longer necessary to assess whether market participants are
capable of replacing missing elements or integrating the acquired activities and assets. An entity can apply a ‘concentration test’. The assets
acquired would not represent a business if substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group
of similar assets). The amendments are prospective.
― 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.
― Classification of liabilities as current or non-current – Amendments to IAS 1 (issued on 23 January 2020 and effective for annual
periods beginning on or after 1 January 2022)*. These narrow scope amendments clarify that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a substantive
right, at the end of the reporting period, to defer settlement for at least twelve months. The guidance no longer requires such a right to be
unconditional. Management’s expectations whether they will subsequently exercise the right to defer settlement do not affect classification
of liabilities. The right to defer only exists if the entity complies with any relevant conditions as of the end of the reporting period. A liability
is classified as current if a condition is breached at or before the reporting date even if a waiver of that condition is obtained from the lender
after the end of the reporting period. Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting date.
In addition, the amendments include clarifying the classification requirements for debt a company might settle by converting it into equity.
“Settlement” is defined as the extinguishment of a liability with cash, other resources embodying economic benefits or an entity’s own equity
instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where
the conversion option is classified as an equity instrument as a separate component of a compound financial instrument.
None of the new standards, amendments to existing standards or interpretations is expected to have a significant effect on the financial
statements of the Company.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(continued)
6. Financial risk management
(b) Cash flow and fair value interest rate risk
The Company holds interest bearing financial instruments at fixed interest rates.
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 2019 there was increased volatility in currency markets and the Russian Rouble has appreciated against some major currencies,
especially in the second half of the year. As of the end of December 2019 the Russian Rouble has increased against the US Dollar from 69.4706 as
of 31 December 2018 to 61.9057 Russian Roubles (10.9% revaluation).
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 2019 and 31 December 2018 are as follows:
Assets
Liabilities
2019
RUB’000
581,734
7,429
2018
RUB’000
865,298
7,315
The carrying amounts of monetary assets and liabilities denominated in Euro as at 31 December 2019 and 31 December 2018 are as follows:
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 2019 and 31
December 2018 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 2019 and 31 December
2018 the Company did not have any material floating interest rate financial instruments, therefore was not exposed to significant cash flow interest
rate risk.
The Company’s current policy is not to hedge 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.
Impairment of financial assets
(ii)
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.
Assets
Liabilities
2019
RUB’000
583,204
72,598
2018
RUB’000
1,656,925
77,822
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 instrument 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.
Had US Dollar exchange rate strengthened/weakened by 10% (2018: 20% change) against the Russian Rouble and all other variables remained
unchanged, the post-tax profit of the Company for the year ended 31 December 2019 would have increased/decreased by RUB 50,252 thousand
(2018: RUB 150,147 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 2019 and as of 31 December 2018.
Had Euro exchange rate strengthened/weakened by 10% (2018: 20% change) against the Russian Rouble and all other variables remained
unchanged, the post-tax profit of the Company for the year ended 31 December 2019 would have increased/decreased by RUB 44,678 thousand
(2018: by RUB 276,343 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 2019 and as of 31 December 2018.
The Company’s current policy is not to hedge this foreign exchange risk.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
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)
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.
― actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change
The gross carrying amounts below represent the Company’s maximum exposure to credit risk on these assets as at 31 December 2018:
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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
― 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 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.
Internal credit risk
rating grade
Company definition of category
Performing
Stage 1 - Counterparties have a low risk of default and a strong capacity
to meet contractual cash flows
Underperforming
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
Gross carrying amount
Loans receivable
RUB’000
Other receivables
RUB’000
450,401
883,203
-
-
-
Non-performing or
Credit-impaired
Stage 3 - Interest and/or principal repayments are 90 days past due
2,824,107
The gross carrying amounts below represent the Company’s maximum exposure to credit risk on these assets as at 31 December 2019:
Internal credit risk
rating grade
Company definition of category
Gross carrying amount
Loans receivable
RUB’000
Other receivables
RUB’000
Performing
Stage 1 - Counterparties have a low risk of default and a strong capacity
to meet contractual cash flows
Underperforming
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
180,533
382,384
Non-performing or
Credit-impaired
Stage 3 - Interest and/or principal repayments are 90 days past due
1,749,986
277,246
-
-
The gross carrying amounts, as per above, represent the Company’s maximum exposure to credit risk on these assets as at 31 December 2019 and
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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
The movement in the credit loss allowance for loans receivable during the years 2019 and 2018 is presented in the table below:
Opening balance
Recoveries
Foreign exchange difference
Closing balance
Loans Receivable
Non-performing
2019
RUB’000
2018
RUB’000
(1,901,961)
(2,258,613)
312,980
203,661
728,378
(371,726)
(1,385,320)
(1,901,961)
During the year 2019, the only movement in the gross carrying amount of the credit impaired loans receivable were recoveries 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 and underperforming loans receivable and other receivable balances as at 31 December 2019
and 31 December 2018 was not material.
During the years 2019 and 2018, the contractual cash flows of the Company’s credit-impaired loans receivable as at 1 January 2019 and
1 January 2018, respectively, 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.
On 31 December 2019, the Company transferred a modified credit-impaired loan receivable with a carrying amount of RUB 382,384 thousand out
of Stage 3 to Stage 2 as this ceased to meet the definition of credit-impaired since the modification involved only the deferral of the contractual
payments (rather than waiver) and interest accrues on the unpaid deferred amounts, with the result that there is not a detrimental impact on
the estimated future cash flows of the loan, the borrower has demonstrated consistently good payment behaviour over a period of time and there
are no significant concerns regarding the repayment of the exposure.
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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 2019 and 31 December 2018:
Moody’s ¹
Moody’s ¹
Moody’s ¹
Moody’s ¹
Moody’s ¹
Moody’s ¹
Total
1
International rating agency Moody’s Investors Service.
Rating
A3
Aa2
B3
Ba2
Baa3
Caa1
Gross carrying amount
2019
RUB’000
886,446
94,662
937
-
752
-
2018
RUB’000
1,157,196
108,737
-
1,119
-
997
982,797
1,268,049
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 2019 and 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 2019 and 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 26).
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 2019 and 31 December 2018, none of the Company’s subsidiaries had defaulted on or breached any covenants on their borrowings/
bonds.
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263
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
The following table contains an analysis of the exposure to credit risk on financial guarantees 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 2019 and 31 December 2018.
Liquidity risk
As at 31 December 2019, the Company has an excess of current liabilities over current assets of RUB 791,351 thousand (2018: RUB 965,709
thousand). Management believes that the Company will be able to meet its obligations as they fall due.
- Performing
- Underperforming
- Non-performing
Stage 1
2019
RUB’000
8,687,822
-
-
2018
RUB’000
12,993,934
-
-
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 summarizes the analysis of financial liabilities of the Company by maturity as of 31 December 2019 and 31 December 2018.
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.
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Total unrecognised gross amount
8,687,822
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 2019 and
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 31 December 2019 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 31 December 2019 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 are not pledged at the time of the assessment. 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.
Less than
one month
RUB’000
Between one
month and
three months
RUB’000
Between three
and six months
RUB’000
Between
6 months
to 1 year
RUB’000
Between
1 and 2 years
RUB’000
Between
2 and 5 years
RUB’000
31 December 2019
Payables and accrued
expenses ¹
Borrowings
-
-
15,408
-
-
-
398,726
677,453
1,342,418
2,159,476
Lease liabilities (IFRS 16)
171
342
Financial guarantee
contracts ²
7,299,169
1,388,653
514
-
1,027
-
2,359
-
7,299,340
1,803,129
677,967
1,343,445
2,161,835
31 December 2018
Payables and accrued
expenses ¹
Borrowings
Financial guarantee
contracts ²
-
311,398
-
-
-
20,384
506,041
746,563
2,457,111
2,663,258
1,869,822
8,263,179
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
Total
RUB’000
15,408
4,578,073
4,413
8,687,822
13,285,716
311,398
-
-
-
-
-
-
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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(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.
The Company manages the capital based on borrowings to total capitalization ratio. Borrowings include loan liabilities.
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 capitalization.
The rate of borrowings to total capitalisation as at 31 December 2019 and 31 December 2018 are as follows:
Total borrowings
Total capitalisation
Total borrowings to total capitalisation ratio (percentage)
2019
RUB’000
4,261,942
47,241,279
9.02%
2018
RUB’000
7,472,517
48,310,431
15.47%
External requirements are imposed on the capital of the Company as defined by management in relation to long-term loans provided by financial
institutions to the Company. The Company analyses compliance with external requirements to the capital at each reporting date and when
entering into new loan agreements. There were no instances of non-compliance with externally imposed capital requirements during 2019
and 2018. Management believes that the Company will be able to comply with its external requirements to the capital during the whole term
of agreements.
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, where relevant. 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 one measurements are measurements at quoted
prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two 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 three 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/paid 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 19.
The fair value as at 31 December 2019 and 31 December 2018 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 2019 was 8% (31 December 2018: 8%). The discount
rates used for Russian Rouble denominated loans to related parties as at 31 December 2019 were 9% and 17.7% (31 December 2018: 6.5% and
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 2019 and 31 December 2018 are within level 3 of the fair value hierarchy. Refer to Note 19.
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 2019 and 31 December 2018, 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 Company or the subsidiaries of the Company on their bank borrowings close to 31 December 2019 and 31 December 2018.
The discount rate used for Russian Rouble denominated bank borrowings as at 31 December 2019 was 7.5% (2018: 9.5%) (Note 23). There were no
US Dollar denominated borrowings as at 31 December 2019 and 31 December 2018. The fair value measurements of liabilities as at 31 December
2019 and 31 December 2018 are within level 2 (2018: 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.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(continued)
7. Critical accounting estimate and judgements
10. Expenses by nature
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.
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:
― Income taxes
Significant judgment 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 28.
8. Revenue
Interest on loans to related parties calculated using the effective interest rate method (Note
26)
Dividend income (Note 26)
Total
9. Other gains – net
Net foreign exchange transaction gains/(losses) on non-financing activities (Note 14)
Profit from sale of subsidiaries (Note 18)
Other gains - net
2019
RUB’000
52,269
20,417,895
20,470,164
2019
RUB’000
4,805
-
4,805
2018
RUB’000
47,913
15,112,974
15,160,887
2018
RUB’000
(899)
1,134,752
1,133,853
Statutory auditor’s remuneration for statutory audit services
Statutory auditor’s remuneration for other assurance services
Advertising and marketing expenses
Expenses relating to short-term leases (2018: Office rent)
Depreciation of property, plant and equipment (Note 16)
Depreciation of right-of-use assets (Note 17)
Employee benefit expense (Note 11)
Legal, consulting and other professional services ¹
Bank charges
Non-executive directors’ fees (Note 26)
Travel expenses
Stock exchange and financial regulator fees
Taxes other than on income
Other expenses
Total marketing costs and administrative expenses
2019
RUB’000
16,026
4,762
3,771
325
2,586
2,228
2018
RUB’000
16,343
5,293
6,406
2,291
1,896
-
358,275
221,845
25,441
2,019
20,868
15,163
4,054
8,173
13,737
477,428
35,085
2,260
22,200
13,836
4,754
10,043
11,297
353,549
1
Includes RUB 502 thousand for the year 2019 (RUB 1,388 thousand for the year 2018) in fees paid to the Company’s statutory audit firm for tax consultancy services.
11. Employee benefit expense
Salaries
Bonuses
Social security costs
Total employee benefit expense
2019
RUB’000
160,035
188,705
9,535
358,275
2018
RUB’000
123,123
92,539
6,183
221,845
Average number of staff employed during the year
7
7
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(continued)
12. Finance costs - net
13. Income tax expense
Included in finance costs:
Interest expense on bank borrowings (Note 23)
Total interest expense calculated using the effective interest rate method
Interest expense on lease liabilities (IFRS 16) (Note 23)
Total finance costs
Included in finance income:
Interest income on bank balances
Interest income on other receivables from related parties (Note 26)
Total interest income calculated using the effective interest rate method
Total finance income
Net foreign exchange transaction (losses)/gains on cash and cash equivalents, loans and
other receivables and dividends receivable
Net foreign exchange transaction gains on other financial liabilities
Net foreign exchange transactions (losses)/gains from financing activities (Note 14)
Finance costs – net
2019
RUB’000
(462,297)
(462,297)
(265)
(462,562)
46,696
16,934
63,630
63,630
(442,416)
197,990
(244,426)
(643,358)
2018
RUB’000
(349,985)
(349,985)
-
(349,985)
22,181
-
22,181
22,181
86,267
35,625
121,892
(205,912)
Current tax:
Corporation tax
Withholding tax on dividends receivable
Total tax expense
2019
RUB’000
10,401
1,017,005
1,027,406
2018
RUB’000
1,689
748,003
749,692
The tax on the Company’s results before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
Profit before tax
Tax calculated at the applicable tax rate
Tax effect of expenses not deductible for tax purposes
Tax effect of allowances and income not subject to tax
Foreign withholding tax on dividends receivable
Tax charge
2019
RUB’000
19,800,671
2,475,084
152,154
(2,616,837)
1,017,005
1,027,406
2018
RUB’000
16,597,411
2,074,676
64,150
(2,137,137)
748,003
749,692
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 had tax losses carried forward amounting to RUB 275,303 thousand for which no deferred tax was recognised
as profits for future periods against which these losses can be utilised could not be estimated with sufficient reliability. These tax losses matured by
31 December 2019.
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(continued)
14. Net foreign exchange (losses)/gains
During the years ended 31 December 2019 and 31 December 2018, the Company declared and paid as detailed in the table below.
Finance costs - net (Note 12)
Other gains - net (Note 9)
Total foreign exchange (losses)/gains
15. Dividends
2019
RUB’000
(244,426)
4,805
(239,621)
2018
RUB’000
121,892
(899)
120,993
Dividends declared
Dividends paid
16. Property, plant and equipment
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 US$ 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 US$ 119,724 thousand), including interim dividend
in the amount of RUB 3,771,433 thousand (US Dollar equivalent of US$ 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 US$ 64,687 thousand) or RUB 24.80 per ordinary share/GDR.
In April 2019, the shareholders of the Company approved the payment of a dividend for the financial year ended 31 December 2018 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 (US Dollar equivalent of US$ 129,727 thousand).
In August 2019, the Board of Directors of the Company approved payment of total dividend in the amount of 46.55 Russian Roubles per ordinary
share/GDR, amounting to a total dividend of RUB 8,320,390 thousand (US Dollar equivalent of US$ 124,655 thousand), including interim dividend
in the amount of RUB 3,548,007 thousand (US Dollar equivalent of US$ 53,156 thousand) or RUB 19.85 per ordinary share/GDR and a special
interim dividend in the amount of RUB 4,772,382 thousand (US Dollar equivalent of US$ 71,499 thousand) or RUB 26.70 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 2019 in the amount of 46.55 Russian Roubles per ordinary share/GDR, amounting to a total
dividend of RUB 8,320,390 thousand, including final dividend for 2019 in the amount of RUB 1,903,591 thousand or RUB 10.65 per ordinary
share/GDR and a special final dividend in the amount of RUB 6,416,799 thousand or RUB 35.90 per ordinary share/GDR. Such dividends subject
to the approval of the shareholders at the Annual General Meeting on 30 April 2020 and shall be paid in US Dollars at the average of the official
exchange rates of the Russian Central Bank for eight business days in Russia from 20 April 2020 to 29 April 2020 inclusive. Holders of GDRs will
receive the dividend approximately three business days after the payment date, which will be not later than 30 business days after the approval of
the dividends by the Annual General Meeting.
At 1 January 2018
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2018
Depreciation charge (Note 10)
Closing net book amount
At 31 December 2018 / 1 January 2019
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2019
Additions
Depreciation charge (Note 10)
Closing net book amount
At 31 December 2019
Cost
Accumulated depreciation
Net book amount
2019
RUB’000
16,631,842
16,631,842
2018
RUB’000
16,220,738
16,220,738
Motor vehicles
RUB’000
Total
RUB’000
11,470
(7,002)
4,468
(1,896)
2,572
11,470
(8,898)
2,572
6,666
(2,586)
6,652
15,475
(8,823)
6,652
11,470
(7,002)
4,468
(1,896)
2,572
11,470
(8,898)
2,572
6,666
(2,586)
6,652
15,475
(8,823)
6,652
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273
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
17. Right-of-use assets
Year ended 31 December 2019
Opening net book amount
Adjustment for change in accounting policy (Note 3)
Restated opening net book amount
Depreciation charge (Note 10)
Closing net book amount at 31 December 2019
18. Investments in subsidiary undertakings
At beginning of year
Contribution into the capital of subsidiary
Disposal of subsidiary
At end of year
Offices
RUB’000
-
7,292
7,292
(2,228)
5,064
Total
RUB’000
-
7,292
7,292
(2,228)
5,064
2019
RUB’000
2018
RUB’000
45,151,248
45,252,722
-
-
300,090
(401,564)
45,151,248
45,151,248
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Details of the direct and indirect investments in the subsidiary undertakings are as follows:
Name
Country of
incorporation
Principal activities
Proportion of ordinary
shares held by the
Company (%)
Proportion of ordinary
shares held by the
Group (%)
Proportion of ordinary
shares held by non-
controlling interest (%)
New Forwarding
Company, АО
GTI Management,
OOO
Ural Wagonrepair
Company, AO
Ukrainian New
Forwarding Company
OOO
Russia
Russia
Russia
Railway transportation
Railway transportation
Repair and maintenance
of rolling stock
Ukraine
Railway transportation
2019
100
100
100
100
2018
100
100
100
100
BaltTransServis, OOO Russia
Railway transportation
60
60
RemTransServis,
OOO ¹
BTS-Locomotive
Solutions OOO ²
Russia
Russia
SyntezRail Ltd
Cyprus
SyntezRail LLC ³
Spacecom AS
Russia
Estonia
Ekolinja Oy ⁴
Finland
Spacecom Trans AS ⁴ Estonia
Repair and maintenance
of rolling stock
Support activities for
locomotive traction
Intermediary holding
company
Railway transportation
Operating lease of rolling
stock and provision
of forwarding services
Operating sub-lease
of rolling stock
Operating lease of rolling
stock
-
-
60
-
-
-
60
-
2019
100
100
100
100
60
59.4
-
60
60
2018
100
100
100
100
60
59.4
60
60
60
2019
2018
-
-
-
-
40
40.6
40
40
40
-
-
-
-
40
40.6
-
40
40
65.25
65.25
65.25
65.25
34.75
34.75
-
-
-
-
65.25
65.25
34.75
34.75
65.25
65.25
34.75
34.75
1 RemTransServis, OOO is a 99% subsidiary of BaltTransServis, OOO.
2 TS-Locomotive Solutions, OOO is a 100% subsidiary of BaltTransServis, OOO and was incorporated during 2019.
3 SyntezRail LLC is a 100% subsidiary of SyntezRail Ltd.
4 Ekolinja Oy and Spacecom Trans AS are 100% subsidiaries of Spacecom AS.
274
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275
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
Contribution to subsidiary during the year 2018
During the year 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 25) and was settled within the year 2019.
19. Loans and other receivables
Disposal of subsidiary during the year 2018
During the year 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 2,363,563 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 during the year 2018 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 Eur 8,450 thousand (equivalent to RUB 671,441 thousand) was received by the Company within the year
2018 and the remaining Eur 11,115 thousand (equivalent to RUB 883,203 thousand) remained outstanding as at 31 December 2018 (Note 19).
The receivable balance carries contractual interest of 3% per annum and is payable by the subsidiary in instalments.
During the year 2019, interest of Eur 233 thousand (equivalent to RUB 16,934 thousand) was accrued on the balance receivable (Note 12) and an
amount of Eur 7,350 thousand (equivalent to RUB 528,127 thousand) was received by the subsidiary. The balance receivable as at 31 December
2019 equals to Eur 3,998 thousand (equivalent to RUB 277,246 thousand) (Note 19).
The following amounts are included in the statement of cash flows in relation to acquisitions and disposals of subsidiaries:
Contribution to the share capital of SyntezRail Ltd
Proceeds from sale of Spacecom Trans AS
Total cash inflow
2019
RUB’000
(300,089)
528,127
228,038
2018
RUB’000
-
671,441
671,441
Loans to related parties
Less: Provision for impairment of loans to related parties
Loans to related parties – net (Note 26)
Other receivables - related party (Note 26)
Total loans and other receivables – net
Less non-current portion:
Loans to related parties (Note 26)
Other receivables – related party (Note 26)
Total non-current portion
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RUB’000
2,312,903
(1,385,320)
927,583
277,246
1,204,829
696,548
-
696,548
2018
RUB’000
3,274,508
(1,901,961)
1,372,547
883,203
2,255,750
338,636
537,840
876,476
Current portion
508,281
1,379,274
The weighted average contractual interest rate on loans receivable from related parties was 6.8% at 31 December 2019 (31 December 2018:
6.57%). The weighted average effective interest rate on loans receivables from related parties was 12.19% at the 31 December 2019 (31 December
2018: 11.21%).
The contractual interest rate and effective interest rate on other receivables from related parties was 3% at 31 December 2019 (31 December
2018: 3%).
The carrying value of loans and other receivables at the reporting date approximates their fair value. As at 31 December 2019, the fair values of US
Dollar denominated loans to related parties are based on cash flows discounted using a rate 8% (31 December 2018: 8%). The discount rate used
for Russian Rouble denominated loans to related parties as at 31 December 2019 was 9% and 17.7% (31 December 2018: 6.5% and 17.7%). The fair
value measurements of loans to related parties and other receivables from related parties as at 31 December 2019 and 31 December 2018 are
within level 3 of the fair value hierarchy.
The carrying amounts of the Company’s loans and other receivables are denominated in the following currencies:
US Dollars
Russian Roubles
Euro
2019
RUB’000
364,665
562,918
277,246
2018
RUB’000
398,566
973,981
883,203
Total loans and other receivables
1,204,829
2,255,750
276
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277
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
Assessment of credit losses on loans receivable from subsidiaries
At 31 December 2019 and 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 312,980 thousand as at 31 December 2019 (31 December 2018:
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 364,666 thousand as at 31 December 2019 (31 December 2018: RUB 398,566 thousand), 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 considered 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 were
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 years ended 31 December 2018 and 31 December 2019.
20. Other assets
Prepayments – third parties
VAT recoverable
Total other assets
Less non-current portion:
Prepayments – third parties
Total non-current portion
Current portion
2019
RUB’000
846
2
848
-
-
848
2018
RUB’000
6,935
1
6,936
4,640
4,640
2,296
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21. Cash and cash equivalents
Cash at bank
Total cash and cash equivalents
Cash and cash equivalents include the following for the purposes of the cash flow statement:
Cash and cash equivalents
Cash and cash equivalents are denominated in the following currencies:
US Dollars
Russian Roubles
Euro
Total cash and cash equivalents
The carrying value of cash and cash equivalents approximates their fair value.
2019
RUB’000
982,797
982,797
2019
RUB’000
982,797
982,797
2019
RUB’000
217,069
459,770
305,958
982,797
2018
RUB’000
1,268,049
1,268,049
2018
RUB’000
1,268,049
1,268,049
2018
RUB’000
466,732
27,595
773,722
1,268,049
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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Notes to the parent company
financial statements
(continued)
22. Share capital and share premium
At 1 January 2018 /31 December 2018 /
1 January 2019 / 31 December 2019
At 1 January 2018 /31 December 2018 /
1 January 2019 / 31 December 2019
Number of shares
178,740,916
Share capital
USD’000
17,875
Share premium
USD’000
949,471
Total
USD’000
967,346
Number of shares
178,740,916
Share capital
RUB’000
516,957
Share premium
RUB’000
27,929,478
Total
RUB’000
28,446,435
The total authorised number of ordinary shares at 31 December 2019 was 233,918,128 shares with a par value of US$0.10 per share (31 December
2018: 233,918,128 shares with a par value of US$0.10 per share). All issued shares are fully paid.
23. Borrowings
Current
Bank borrowings
Total current borrowings
Non-current
Bank borrowings
Total non-current borrowings
Total borrowings
Maturity of non-current borrowings
Between 1 and 2 years
Between 2 and 5 years
2019
RUB’000
2,175,477
2,175,477
2,086,465
2,086,465
4,261,942
2,086,465
-
2,086,465
2018
RUB’000
3,241,204
3,241,204
4,231,313
4,231,313
7,472,517
2,418,131
1,813,182
4,231,313
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:
6 months or less
6 to 12 months
1 to 5 years
2019
RUB’000
966,689
1,208,788
2,086,465
4,261,942
2018
RUB’000
1,032,416
2,208,788
4,231,313
7,472,517
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 2019 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 3,300,075, respectively (2018: RUB 4,133,290
thousand and RUB 4,344,689, respectively).
The weighted average effective interest rates at the balance sheet were as follows:
Bank borrowings
The carrying amount and fair value of current and non-current borrowings are as follows:
2019
%
7.31
2018
%
7.97
Bank borrowings
Carrying amount
Fair value
2019
RUB’000
4,261,942
4,261,942
2018
RUB’000
7,472,517
7,472,517
2019
RUB’000
4,267,653
4,267,653
2018
RUB’000
7,351,544
7,351,544
The fair value of borrowings and other liabilities were determined using valuation techniques.
As at 31 December 2019 and 31 December 2018, 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 Company or its subsidiaries on their bank borrowings close to 31 December 2019 and 31 December 2018. The discount rate used was a level 2
discount rate of 7.50% (9.50% as at 31 December 2018).
280
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281
MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
Notes to the parent company
financial statements
(continued)
The carrying amounts of the borrowings are denominated in the following currencies:
24. Lease liabilities (IFRS 16)
Russian Roubles
Total borrowings
Reconciliation of liabilities arising from financing activities:
Opening balance 1 January 2019
Adjustment for change in accounting policy (Note 3)
Restated opening balance
Cash flows:
Repayment of principal
Interest paid
Non-cash changes:
Interest expense
Foreign exchange gains
At end of year 2019
Opening balance 1 January 2018
Cash flows:
Proceeds from borrowings
Repayment of principal
Interest paid
Non-cash changes:
Interest expense
At end of year
2019
RUB’000
4,261,942
4,261,942
2018
RUB’000
7,472,517
7,472,517
Lease liabilities
(IFRS 16)
RUB’000
Total liabilities from
financing activities
RUB’000
-
7,292
7,292
(2,031)
(265)
265
(848)
4,413
Lease liabilities
(IFRS 16)
RUB’000
-
-
-
-
-
-
7,472,517
7,292
7,479,809
(3,201,607)
(473,561)
462,562
(848)
4,266,355
Total liabilities from
financing activities
RUB’000
5,025,756
8,000,000
(5,558,000)
(345,224)
349,985
7,472,517
Bank
borrowings
RUB’000
7,472,517
-
7,472,517
(3,199,576)
(473,296)
462,297
-
4,261,942
Bank
borrowings
RUB’000
5,025,756
8,000,000
(5,558,000)
(345,224)
349,985
7,472,517
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
Maturity of lease liabilities (IFRS 16)
Between 1 and 2 years
25. Payables and accrued expenses
Current
Accrued key management personnel compensation (Note 26)
Accrued expenses
Other payables to third parties
Other payables to related parties (Note 26)
Total current trade and other payables
2019
RUB’000
90,338
13,863
1,545
-
105,746
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:
Euro
Russian Roubles
US dollar
Other
Total payables and accrued expenses
2019
RUB’000
72,598
25,698
7,429
21
105,746
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RUB’000
2,054
2,359
4,413
2019
RUB’000
2,359
2,359
2018
RUB’000
74,645
9,531
1,777
300,090
386,043
2018
RUB’000
77,822
300,031
7,315
875
386,043
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MANAGEMENT REPORT AND PARENT COMPANY FINANCIAL STATEMENTS
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2019
RUB’000
277,246
277,246
-
277,246
277,246
2018
RUB’000
883,203
883,203
537,840
345,363
883,203
Notes to the parent company
financial statements
(continued)
26. Related party transactions
(b) Other receivables from related parties
Litten Investments Ltd, controlled by a Director of the Company, has a shareholding in the Company of 5.1% as at 31 December 2019 (31
December 2018: 5.8%).
Other receivables for the sale of shares
Goldriver Resources Ltd, which has a shareholding in the Company of 4.0% as a 31 December 2019 (2018: 4.7%), is controlled by a member of key
management personnel of the Group.
As at 31 December 2019, another 0.2% (2018: 0.2%) of the shares of the Company is 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.
The following transactions were carried out with related parties:
(a) Loans to related parties
Loans to subsidiaries:
At beginning of year
Loan advances
Interest charged (Note 8)
Loan repaid during the year
Interest repaid during the year
Reversal of impairment
Net foreign exchange
At end of year
Consists of:
Non-current portion
Current portion
At end of year
Loans to related parties – gross amount
Less: Provision for impairment of loans to related parties
Loans to related parties – net
2019
RUB’000
1,372,547
180,000
52,269
(779,817)
(175,821)
312,980
(34,575)
927,583
696,548
231,035
927,583
2,312,903
(1,385,320)
927,583
2018
RUB’000
611,714
900,000
47,913
(936,968)
(21,743)
728,378
43,253
1,372,547
338,636
1,033,911
1,372,547
3,274,508
(1,901,961)
1,372,547
Subsidiaries
At end of year
Consists of:
Non-current portion
Current portion
At end of year
The balance at the 31 December 2019 carry a contractual interest rate of 3% per annum. The weighted average effective interest rate
at the 31 December 2019 was 3%.
(c) Dividend income from related parties
Dividend income from related parties:
Subsidiaries (Note 8)
Total
(d)
Interest income
Interest income:
Interest on loans to subsidiaries (Note 8)
Interest on other receivables from subsidiary (Note 12)
Total interest income calculated using the effective interest rate method
2019
RUB’000
2018
RUB’000
20,417,895
20,417,895
15,112,974
15,112,974
2019
RUB’000
52,269
16,934
69,203
2018
RUB’000
47,913
-
47,913
The balances at the 31 December 2019 carry a weighted average contractual interest rate of 6.8% (2018: 6.57%) per annum. The weighted average
effective interest rate at the 31 December 2019 was 12.19% (2018: 11.21%).
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financial statements
(continued)
(e) 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:
(g) Key management personnel compensation
Subsidiaries ¹
Total guaranteed obligations
2019
RUB’000
8,687,822
8,687,822
2018
RUB’000
12,993,934
12,993,934
1 Represents the maximum amount of obligation under each contract, being the contractual undiscounted cash flows under the loan agreements as at 31 December 2019
and 2018.
During the years ended 31 December 2019 and 31 December 2018 the Company has acted as the guarantor for the obligation of its subsidiaries
for loan agreements entered into with financial institutions and quoted bonds issued by subsidiaries. The fair values of such guarantees are
amortised through the income statement. Management assessed that as at 31 December 2019 and 31 December 2018 no need for provision
arises in relation to any of the guarantees issued 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
as at 31 December 2019 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 loss given default as 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.
At 31 December 2019 and 31 December 2018, the Company assessed whether any ECL provision is needed for the guarantees in issue as of each
reporting date. Management 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.
(f)
Impairment losses
Reversal of impairment losses of loans to subsidiaries (Notes 7 and 19)
2019
RUB’000
312,980
2018
RUB’000
728,378
Key management salaries and other short term employee benefits ¹
2019
RUB’000
352,881
352,881
2018
RUB’000
222,479
222,479
1
‘key management salaries and other short term employee benefits’ include directors’ remuneration amounting to RUB 352,881 thousand (2018: RUB 186,911 thousand).
(h) Directors’ remuneration
Directors’ fees (Note 10)
Emoluments in their executive capacity
Total directors’ remuneration
(i) Year-end balances arising from payables to key management
Accrued key management remuneration (Note 25):
Accrued salaries and other short term employee benefits
(j) Year-end balances arising from subscription to share capital of subsidiaries
Payable for subscription to share capital of subsidiaries (Note 25)
2019
RUB’000
20,868
332,013
352,881
2019
RUB’000
90,338
90,338
2019
RUB’000
-
-
2018
RUB’000
22,200
164,711
186,911
2018
RUB’000
74,645
74,645
2018
RUB’000
300,090
300,090
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financial statements
(continued)
27. 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:
Not later than 1 year
Later than 1 year not later than 5 years
28. Contingencies
2019
RUB’000
-
-
-
2018
RUB’000
2,527
5,231
7,758
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 2019. 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.
Since 2016 the Ukrainian economy has demonstrated recovery amid overall macroeconomic stabilisation supported by structural reforms,
a rise in domestic investment, revival in household consumption, increase in industrial production, construction activity and improved
environment on external markets. In 2019 GDP continued to grow to 3.5 % (as compared to 3.3% growth in 2018). In addition, there was further
progress in monetary policy. The National Bank of Ukraine (“NBU”) conducts an interest rate policy that is consistent with inflation targets and
keeps the hryvnia floating. The inflation rate in Ukraine slowed to 4.1% in 2019.
Starting from 2016, the NBU has made certain steps to ease the currency control restrictions introduced in 2014–2015. In particular, the required
share of foreign currency proceeds subject to mandatory sale on the interbank market was gradually decreased starting from 1 March 2019
is 30%. Additionally, the settlement period for export-import transactions in foreign currency was steadily increased to 180 days starting from
26 May 2017. Also starting from 3 March 2018, the NBU increased the amount of dividends payments allowed by Ukrainian companies to non-
residents to USD 7 million per month. This restriction has been eased to EUR 7 million since 7 February 2019.
In 2019-2020, Ukraine faces major public debt repayments, which will require mobilizing substantial domestic and external financing in an
increasingly challenging financing environment for emerging markets. Further, in March-April 2010 Ukraine faced presidential elections and
then early parliamentary elections in July 2019. Amid double elections, the degree of uncertainty including in respect of the future direction
of the reforms in 2020 remains very high.
The Company’s exposure to Ukraine comprises loans receivable of RUB 364,666 thousand (2018: RUB 398,566 thousand) from Ukrainian New
Forwarding Company OOO (Note 19). Despite certain improvements, 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.
29. Events after the balance sheet date
The Group’s outlook for 2020 may be impacted by the Coronavirus (COVID-19), which has significantly lowered visibility on what to expect in 2020.
While this is still an evolving situation at the time of issuing these financial statements, it appears that the negative impact on global trade may
be more severe than originally expected. Certain currencies to which the Group is exposed have weakened, stock markets have declined, and
commodity prices are lower. Management considers this outbreak to be a non-adjusting post balance sheet event.
The Management is closely monitoring the situation with the outbreak of Coronavirus (COVID-19) and is ready to act depending on
the development of the situation.
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 2019 in the amount of 46.55 Russian Roubles per ordinary share/GDR, amounting to a total
dividend of RUB 8,320,390 thousand, including final dividend for 2019 in the amount of RUB 1,903,591 thousand or RUB 10.65 per ordinary
share/GDR and a special final dividend in the amount of RUB 6,416,799 thousand or RUB 35.90 per ordinary share/GDR. Such dividends subject
to the approval of the shareholders at the Annual General Meeting on 30 April 2020 and shall be paid in US Dollars at the average of the official
exchange rates of the Russian Central Bank for eight business days in Russia from 20 April 2020 to 29 April 2020 inclusive. Holders of GDRs will
receive the dividend approximately three business days after the payment date, which will be not later than 30 business days after the approval
of the dividends by the AGM.
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 233 to 238.
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CHAPTER 5
Additional
Information
Selected Operational Information
Definitions
Presentation of Financial and Other Information
GRI Content Index
Contacts
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ADDITIONAL INFORMATION
Selected Operational
Information
Fleet (including rolling stock and specialised containers)
Fleet (including rolling stock and specialised containers) continued
for the year ended 31 December 2019
for the year ended 31 December 2019
31 Dec 2019
31 Dec 2018
Change
Change, %
31 Dec 2019
31 Dec 2018
Change
Change, %
Owned Fleet
Gondola cars
Rail tank cars
Locomotives
Flat cars
Other railcars (including hopper cars, etc)
Specialised containers (including petrochemical and other)
Total
Owned Fleet as % of Total Fleet
Leased-in Fleet
Gondola cars
Rail tank cars
Locomotives
Flat cars
Other railcars (including hopper cars, etc)
Specialised containers (including petrochemical and other)
Total
Leased-in Fleet as % of Total Fleet
Total Fleet (Owned Fleet and Leased-in Fleet)
Gondola cars
Rail tank cars
Locomotives
Flat cars
Other railcars (including hopper cars, etc)
Specialised containers (including petrochemical and other)
45,516
17,767
75
1,407
90
2,814
67,669
96%
104
1,969
0
466
132
380
3,051
4%
45,620
19,736
75
1,873
222
3,194
44,878
17,938
69
770
90
1,660
65,405
95%
104
2,488
0
523
123
380
3,618
5%
44,982
20,426
69
1,293
213
2,040
Total
70,720
69,023
638
(171)
6
637
0
1,154
2,264
–
0
(519)
0
(57)
9
0
(567)
–
638
(690)
6
580
9
1,154
1,697
1%
-1%
9%
83%
0%
70%
3%
–
0%
-21%
n/a
-11%
7%
0%
-16%
–
1%
-3%
9%
45%
4%
57%
2%
Total Fleet by type, %
Gondola cars
Rail tank cars
Locomotives
Flat cars
Other railcars (including hopper cars, etc)
Specialised containers (including petrochemical and other)
65%
28%
0.1%
3%
0.3%
5%
65%
30%
0.1%
2%
0.3%
3%
Total
100%
100%
Average age of Owned Fleet
Gondola cars
Rail tank cars
Locomotives
Flat cars
Other railcars (including hopper cars, etc)
Specialised containers (including petrochemical and other)
Total
10.9
14.9
12.2
5.1
12.4
1.9
11.5
10.0
14.5
14.7
10.8
11.4
1.8
11.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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SELECTED OPERATIONAL INFORMATION
Operation of rolling stock (excluding Engaged Fleet) ¹
for the year ended 31 December 2019
Operation of rolling stock (excluding Engaged Fleet) ¹ continued
for the year ended 31 December 2019
2019
2018
Change
Change, %
2019
2018
Change
Change, %
Freight Rail Turnover, billion tonnes-km
Metallurgical cargoes
Ferrous metals
Scrap metal
Iron ore
Oil products and oil
Coal (including coke)
Construction materials
Crushed stone
Cement
Other construction materials
Other
Total
Freight Rail Turnover by cargo type, %
Metallurgical cargoes
(including ferrous metal, scrap metal and iron ore)
Oil products and oil
Coal (including coke)
Construction materials (including cement)
Other
Total
73.1
28.0
3.3
41.8
22.0
33.8
6.3
5.3
0.2
0.9
11.8
147.1
50%
15%
23%
4%
8%
79.0
35.5
3.7
39.8
21.2
29.5
5.8
4.7
0.3
0.8
10.7
146.2
54%
14%
20%
4%
7%
100%
100%
(5.9)
(7.5)
(0.3)
2.0
0.8
4.3
0.6
0.6
(0.1)
0.1
1.1
0.9
–
–
–
–
–
–
-7%
-21%
-9%
5%
4%
14%
10%
12%
-29%
9%
11%
1%
–
–
–
–
–
–
Transportation Volume, million tonnes
Metallurgical cargoes
Ferrous metals
Scrap metal
Iron ore
Oil products and oil
Coal (including coke)
Construction materials
Crushed stone
Cement
Other construction materials
Other
Total
Average Rolling Stock Operated, units
Gondola cars
Rail tank cars
Locomotives
Other railcars
Total
Average Number of Loaded Trips per Railcar
Gondola cars
Rail tank cars
Other railcars
Total
43.9
14.9
2.9
26.0
21.9
11.4
7.1
6.3
0.1
0.6
7.3
45.0
16.8
3.1
25.0
20.7
9.6
6.4
5.6
0.3
0.5
6.8
91.6
88.5
43,486
12,968
51
340
41,268
11,832
47
415
56,845
53,562
23.6
27.8
87.0
25.0
24.3
28.9
66.4
25.6
(1.2)
(1.9)
(0.2)
0.9
1.2
1.8
0.7
0.7
(0.1)
0.1
0.6
3.1
2,218
1,136
4
(76)
3,283
(0.7)
(1.1)
20.6
(0.7)
-3%
-11%
-6%
4%
6%
19%
11%
12%
-51%
27%
8%
4%
5%
10%
10%
-18%
6%
-3%
-4%
31%
-3%
1 Excluding operational and financial information of the specialised container business.
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SELECTED OPERATIONAL INFORMATION
Operation of rolling stock (excluding Engaged Fleet) ¹ continued
Operation of rolling stock (excluding Engaged Fleet) ¹ continued
for the year ended 31 December 2019
for the year ended 31 December 2019
2019
2018
Change
Change, %
2019
2018
Change
Change, %
Average Distance of Loaded Trip, km
Gondola cars
Rail tank cars
Other railcars
Total
1,834
993
502
1,591
1,885
1,010
766
1,644
(52)
(17)
(264)
(53)
Average Price per Trip, RUB
45,807
41,950
3,857
Net Revenue from Operation of Rolling Stock by cargo type,
RUB million
Metallurgical cargoes
Ferrous metals
Scrap metal
Iron ore
Oil products and oil
Coal (including coke)
Construction materials (including cement)
Other
Total
Net Revenue from Operation of Rolling Stock by cargo type, %
Metallurgical cargoes
(including ferrous metal, scrap metal and iron ore)
Oil products and oil
Coal (including coke)
Construction materials (including cement)
Other
Total
26,467*
11,141*
1,901*
13,425*
21,009
9,380*
3,105*
5,034*
23,346*
11,772
1,816*
9,758*
19,207*
8,115*
2,761*
4,170*
64,994*
57,600*
41%
32%
14%
5%
8%
41%
33%
14%
5%
7%
100%
100%
3,121
(631)
84
3,667
1,801
1,265
344
863
7,394
–
–
–
–
–
–
-3%
-2%
-34%
-3%
9%
13%
-5%
5%
38%
9%
16%
12%
21%
13%
–
–
–
–
–
–
Net Revenue from Operation of Rolling Stock by largest clients
(including their affiliates and suppliers), %
Rosneft
Metalloinvest
MMK
Gazprom Neft
TAIF
TMK
UGMK-Trans
Evraz
Severstal
ChelPipe
Empty Run Ratio, %
Gondola cars
Rail tank cars and other railcars
Total Empty Run Ratio, %
23%
21%
12%
5%
3%
3%
2%
2%
1%
1%
42%
90%
49%
23%
17%
16%
5%
3%
2%
2%
4%
1%
1%
38%
90%
46%
–
–
–
–
–
–
–
–
–
–
–
–
–
Empty Run Costs, RUB million
14,752*
12,956*
1,796
Share of Empty Run Kilometres Paid by Globaltrans, %
89%
89%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14%
–
1 Excluding operational and financial information of the specialised container business.
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SELECTED OPERATIONAL INFORMATION
Operation of rolling stock (including Engaged Fleet) ¹
for the year ended 31 December 2019
Freight Rail Turnover, billion tonnes-km
Metallurgical cargoes
Ferrous metals
Scrap metal
Iron ore
Oil products and oil
Coal (including coke)
Construction materials
Crushed stone
Cement
Other construction materials
Other
Total
Transportation Volume, million tonnes
Metallurgical cargoes
Ferrous metals
Scrap metal
Iron ore
Oil products and oil
Coal (including coke)
Construction materials
Crushed stone
Cement
Other construction materials
Other
Total
2019
2018
Change
Change, %
85.2
30.7
3.4
51.2
22.2
35.9
6.4
5.3
0.2
0.9
11.9
161.5
50.3
16.5
3.0
30.8
22.1
12.3
7.1
6.4
0.1
0.6
7.5
89.6
37.8
3.7
48.1
22.2
30.4
5.8
4.7
0.3
0.8
10.9
158.9
50.4
18.0
3.2
29.3
22.0
10.0
6.4
5.7
0.3
0.5
7.1
99.4
96.0
(4.4)
(7.1)
(0.3)
3.0
(0.0)
5.4
0.6
0.6
(0.1)
0.1
1.1
2.6
(0.1)
(1.5)
(0.2)
1.5
0.1
2.3
0.7
0.7
(0.1)
0.1
0.4
3.4
-5%
-19%
-8%
6%
0%
18%
10%
12%
-30%
9%
10%
2%
0%
-8%
-6%
5%
0%
23%
11%
12%
-51%
27%
6%
4%
Specialised container transportation
for the year ended 31 December 2019
Net Revenue from Specialised Container Transportation,
RUB million
Engaged Fleet
2019
1,623*
2018
1,122*
Change
Change, %
501
45%
Net Revenue from Engaged Fleet, RUB million
2019
202*
2018
432*
Change
(230)
Change, %
-53%
Operating leasing of rolling stock ¹
Leased-out Fleet
Gondola cars
Rail tank cars
Locomotives
Other railcars (including flat, hopper cars, etc)
Total
Leased-out Fleet as % of Total Fleet
Employees
Total
31 Dec 2019
31 Dec 2018
Change
Change, %
152
6,568
0
122
6,842
10%
462
7,098
0
67
7,627
11%
(310)
(530)
0
55
(785)
–
-67%
-7%
0%
82%
-10%
–
31 Dec 2019
31 Dec 2018
Change
Change, %
1,640
1,549
91
6%
1 Excluding operational and financial information of the specialised container business.
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ADDITIONAL INFORMATION
Definitions
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/(reversal of 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 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 specialised container
transportation).
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”, “Amortisation of intangible assets” and “Depreciation of right-of-use 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 specialised container transportation.
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 specialised container transportation).
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”, “Principal elements of
lease payments for leases with financial institutions”, “Principal elements of lease payments (IFRS 16)”, “Interest paid on
lease liabilities (IFRS 16)”, “Interest paid on bank borrowings and non-convertible unsecured bonds” and “Interest paid on
leases with financial institutions”.
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 (unless otherwise stated) and the performance of the specialised container transportation business.
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 specialised
container transportation business.
Leased-in Fleet is defined as fleet leased in under operating leases, including railcars, locomotives and specialised
containers.
Leased-out Fleet is defined as fleet leased out to third parties under operating leases (excluding flat cars and containers
used in specialised container transportation).
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.
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DEFINITIONS
Market Share is calculated using the Group’s own information as the numerator and information published by the Federal
State Statistics Service of Russia (Rosstat) as the denominator. It is defined as a percentage of the overall Russian freight
rail transportation volume and includes volumes transported by Engaged Fleet, unless otherwise stated.
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
tariffs 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”).
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 services which is adjusted for respective “pass
through” loaded railway tariffs charged by RZD (included in the EU IFRS line item “Infrastructure and locomotive tariffs:
loaded trips”).
Net Revenue from Specialised Container Transportation is a non-GAAP financial measure, derived from management
accounts, that represents the revenue generated from the specialised container operations (included in the EU IFRS
line item: “Revenue from specialised container transportation”) less the respective “pass through” loaded railway tariffs
charged by RZD (included in the EU IFRS line item “Infrastructure and locomotive tariffs: loaded trips”).
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” and “Current
tax liabilities”.
Other Operating Cash Costs (a non-GAAP financial measure) include the following cost items: “Advertising and
promotion”, “Auditors’ remuneration”, “Communication costs”, “Information services”, “Legal, consulting and other
professional fees”, “Rental of tank-containers”, “Operating lease rentals – office”, “Expense relating to short-term leases
(office)”, “Taxes (other than income tax and value added taxes)” and “Other expenses”.
Owned Fleet is defined as the fleet owned and leased in under finance lease as at the end of the reporting period.
It includes railcars, locomotives and specialised 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 specialised container
transportation) in the relevant period.
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 “Principal elements of lease payments for leases with financial institutions”
(as part of the capital expenditures was financed with a finance lease).
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”, “Depreciation
of right-of-use assets”, “Loss on derecognition arising on capital repairs”, “Net impairment losses on trade and other
receivables”, “Impairment/(reversal of impairment) of property, plant and equipment” and “Net (gain)/loss on sale of
property, plant and equipment”.
Total Operating Non-Cash Costs (a non-GAAP financial measure) include the following cost items: “Depreciation of
property, plant and equipment”, “Amortisation of intangible assets”, “Depreciation of right-of-use assets”, “Loss on
derecognition arising on capital repairs”, “Net impairment losses on trade and other receivables”, “Impairment/(reversal
of impairment) of property, plant and equipment ” and “Net (gain)/loss on sale of property, plant and equipment”.
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 specialised container transportation) 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 specialised containers, unless otherwise stated, and excludes Engaged Fleet.
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 (unless otherwise stated) and
the performance of the specialised container transportation business.
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ADDITIONAL INFORMATION
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 2019 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 2019 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 the Russian Federation (“Rosstat”),
JSC 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.
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. 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.
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ADDITIONAL INFORMATION
GRI Content Index
Indicator Definition
General disclosures
Report section/notes
Annual report page
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
Name of the organisation
Activities, brands, products, and services
Corporate Structure
Our Business
Operational Performance
Location of headquarters
Contacts
Location of operations
Number of countries where the organisation operates
Globaltrans at a Glance
Market Review
Ownership and legal form
Markets served
Scale of the organisation
Share Capital
Market Review
Operational Performance
Financial Review
Information on employees and other workers
Sustainability
Supply chain
Operational Performance
Significant changes to the organisation and its supply
chain
No significant changes in the supply chain.
102-11
Precautionary Principle or approach
102-12
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
102-13 Membership of associations.
A list of the main memberships of industry or other
associations, and national or international advocacy
organisations
The Group does not explicitly use the precautionary
principle.
The Group does not have membership in external
initiatives.
Sustainability
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)
102-14
Statement from senior decision-maker
102-15
Key impacts, risks, and opportunities
Chairman's Statement
CEO Review
Risk Management
Sustainability
102-16
Values, principles, standards, and norms of behaviour
Sustainability
102-18
Governance structure
102-35
Remuneration policies
102-40
List of stakeholder groups
Governance
Corporate Governance Report
Sustainability
p. 95
p. 6–7
p. 32–38
p. 310
p. 2
p. 26–31
p. 94
p. 26–31
p. 32–38
p. 40
p. 74–76
p. 36
p. 71
p. 18–21
p. 22–25
p. 60
p. 70
p. 72
p. 82–87
p. 91
p. 71
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Indicator Definition
General disclosures
102-41
Collective bargaining agreements
Report section/notes
Annual report page
As at 31 December 2019, 44% of total employees
in OOO BaltTransServis were covered by collective
bargaining agreements. In other Group subsidiaries,
there were no collective bargaining agreements.
Identifying and selecting stakeholders with whom
to engage
Sustainability
The organisation’s approach to stakeholder engagement Sustainability
Key topics and concerns that have been raised through
stakeholder engagement
Sustainability
p. 70–71
p. 70–71
p. 70–71
Entities included in the consolidated financial statements Notes to the Consolidated Financial Statements
p. 188
102-42
102-43
102-44
102-45
102-46
Defining report content and topic boundaries
102-47
List of the material topics
102-8
102-48
Information on employees and other workers
Restatements of information given in previous reports
Sustainability
Sustainability
Sustainability
This is the third time the Group has published
a Sustainability section in the Annual Report.
No restatements of information given in the
previous report were made.
p. 70
p. 70
p. 74–76
102-49
Significant changes from previous reporting periods in
the list of material topics and topic boundaries
No significant changes.
102-50
Reporting period
102-51
Date of most recent report
102-52
Reporting cycle
102-53
Contact point for questions regarding the report
Calendar year 2019
April 2019
Annual
Investor Relations
Phone: +357 25 328 860
Email: irteam@globaltrans.com
102-54
Claims of reporting in accordance with the GRI standards The Report was prepared in accordance with
102-55
GRI content index
102-56
External assurance
Management
the GRI Standards – Core option.
GRI Content Index
p. 306–309
External assurance for the Group’s Sustainability
section was not conducted in the reporting period.
103-1
103-2
103-3
Explanation of the material topic and its Boundary
Sustainability
The management approach and its components
Evaluation of the management approach
Sustainability
Sustainability
p. 70–79
p. 70–79
p. 70–79
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GRI CONTENT INDEX
Indicator Definition
Economic impact
Economic performance
201-1
Direct economic value generated and distributed
Sustainability
p. 40–59
Indirect economic impacts
203-2
Significant indirect economic impacts
Sustainability
Anti-corruption
205-3
Confirmed incidents of corruption and actions taken
Sustainability
Environmental impact
Materials
301-1
301-2
Energy
302-1
Materials used by weigh or volume
Recycled input materials used
Sustainability
Sustainability
Energy consumption within the organization
Sustainability
Water and effluents ¹
303-5
Water consumption
Emissions
Sustainability
305-2
Direct (Scope 1) GHG emissions ²
Sustainability
Environmental compliance
307-1
Non-compliance with environmental laws and regulations Sustainability
No incidents of non-compliance with
environmental laws and regulations occurred
in the reporting period
p. 79
p. 72
p. 77
p. 77
p. 77
p. 78
p. 78
p. 78
Report section/notes
Annual report page
Indicator Definition
Report section/notes
Annual report page
Social impact
Employment
401-1
401-2
New employee hires and employee turnover
Sustainability
Benefits provided to full-time employees that are not
provided to temporary or part-time employees
Sustainability
Notes to the Consolidated Financial Statements
Occupational health and safety
403-1
403-5
403-9
Occupational health and safety management system
Sustainability
Worker training on occupational health and safety
Sustainability
Work-related injuries
Sustainability
Training and education
404-1
Average hours of training per year per employee by
gender and employee category
Sustainability
p. 74
p. 74
p. 176
p. 76
p. 76
p. 76
p. 75
Diversity and equal opportunity
405-1
Diversity of governance bodies and employees
Sustainability
Corporate Governance Report
Consolidated Management Report
Management Report
p. 75
p. 88–94
p. 100–115
p. 218–231
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1 While the Company is making great strides in collecting, processing and presenting information on rational use of water, the process is on-going and there is still
insufficient data to fully demonstrate the trends occurring in all of its business units. Addressing this remains a key focus for the Group. Data only for BaltTransServis and
Ukrainian New Forwarding Company were collected.
2 Taking into account that this is the second year the Group has disclosed its indirect greenhouse gases emissions, only information for 2018 and 2019 is available.
308
Globaltrans Investment PLC
Annual Report & Accounts 2019
Annual Report & Accounts 2019
Globaltrans Investment PLC
309
ADDITIONAL INFORMATION
Contacts
General contacts
Depositary Bank
Globaltrans Investment PLC
Legal address
Omirou 20, Agios Nikolaos, CY-3095 Limassol, Cyprus
Bank of New York Mellon
Phone: +1 201 680 6825
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
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
Stock Exchange
London Stock Exchange plc 10 Paternoster Square,
London EC4M 7LS, UK
Phone: +44 20 7797 1000
Website: www.londonstockexchange.com
For investors and shareholders
Auditors
Investor Relations
Mikhail Perestyuk
Phone: +357 25 328 860
Mobile: +7 985 998 3009
E-mail: irteam@globaltrans.com
Daria Plotnikova
Phone: +357 25 328 860
E-mail: irteam@globaltrans.com
Company Secretary
Elia Nicolaou
Anastasio Building, 6th Floor,
5 Dimitriou Karatasou Street,
CY-2024 Strovolos, Nicosia, Cyprus
PricewaterhouseCoopers Limited City House,
6 Karaiskakis Street, CY-3032 Limassol, Cyprus
Phone: +357 25 555 000
Fax: +357 25 555 001
For media
Russian Media
Anna Vostrukhova
Head of Media Relations
Phone: +357 25 328 863
Email: media@globaltrans.com
International Media
Laura Gilbert
Lightship Consulting
Phone: +44 7799 413351
Email: laura.gilbert@lightshipconsulting.co.uk
310
Globaltrans Investment PLC
Annual Report & Accounts 2019
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