Globaltrans participated strongly in the sector’s revival, outperforming the broader Russian market, winning market share and capturing a significant part of the market volume growth. On the back of strong operational performances across all our business segments, we were able to deliver an excellent set of financial results:
In broad terms, our operational performance was excellent as we continued to outperform the market at the recovery stage as well. The Group’s Freight Rail Turnover increased year-on-year by 20% to 97.4 billion tonnes-km, while Transportation Volume grew by 21% to 63.8 million tonnes. We made substantial inroads across the majority of our markets, winning additional market share. Thus, in metallurgical cargoes the Group’s market share jumped from 6.4%2 in 2009 to 9.1%2 in 2010.
At the operational level, management focused on improving the Empty Run Ratio. In this area, our efforts were supported by the expanding economy, which boosted transportation activity. As a result, the Empty Run Ratio for gondola cars throughout 2010 averaged a very creditable 42% compared to 46% in the previous year. Any further improvement will depend on factors, which essentially remain beyond our control, such as growth in construction activity and the performance of the SME sector.
I am further pleased to report that our investments in business expansion also produced strong returns. BTS, which we successfully integrated into our business portfolio during 2010 generated Adjusted EBITDA of USD 119.9* million.
In 2010 we took delivery of the remaining balance of 6,500 units contracted at the close of 2009. The bold acquisition decision at the close of 2009 substantially increased our Owned Fleet in 2010, and put us in a great position. Importantly, we chose our timing well, thus obtaining an average unit price substantially below current market levels. In addition, the prompt availability of the new rolling stock for operational use ensured Globaltrans had the capacity to meet strong demand for our services in the growing market. Taking advantage of the robust market, we also substantially expanded the fleet of leased-in rolling stock, which grew by 159% or 7,708 units.
Underpinning the success of our opportunistic, return-oriented growth strategy is our disciplined approach to investments. In 2010, our approach again proved to be very successful: we made investments at the end of 2009 at the right price, which helped Globaltrans to secure long-term competitive advantage and growth in shareholder value. In the second half of 2010 we continued to pursue our growth strategy, which has proved to be effective. To unlock the potential of robust industry fundamentals, we contracted and took delivery of an additional 800 units by the end of 2010 and a further 700 units by the end of February 2011. We plan to place additional orders in 2011 to meet our acquisition target of 5,000 new railcars by the end of the coming year. In 2010, our Total Fleet expanded organically by 36% to 50,714 units as of the year end, further cementing our position as the leading private freight rail transportation group in Russia. Our total investment in rolling stock in 2010 amounted to USD 286.2 million3.
Globaltrans has a well-earned reputation as the industry leader in setting standards of operational excellence and customer service. We invest much in developing long-term partnerships with our customers. Understanding our customers’ needs, we manage to develop the most cost-effective transportation solutions which, combined with our integration into our customers’ transportation chains, secure additional competitive advantages. Our advanced destination management systems offer added value to our customers, as we are able to quickly reroute our traffic flows thus enhancing the reliability and responsiveness of our service. Customer service will come to the forefront of our agenda in 2011 after the full deregulation of operators’ business.
In 2010, we took further action to reduce the currency exposure of our debt portfolio. We successfully launched a debut Rouble-denominated 5 year non-convertible bonds issue, which was very well received by investors and which, among other measures, enabled us to substitute the majority of our US Dollar denominated debt with Rouble debt. As a result, the share of Rouble denominated borrowings in our debt portfolio increased to 78% as of the end of 2010. This is a very positive outcome as it helped us to match the Group’s currency profile.
I would like to reiterate the Chairman’s comments about the quality and professionalism of our people. We invest substantially in the development of our personnel and this delivers great value. We managed to outperform the market during the downturn in 2009 and in the recovery phase of 2010. I believe we have built one of the best teams in the industry and I wish to join our Chairman and thank all those who work for Globaltrans for their commitment and hard work in the past year.
As we consider the prospects for 2011 and beyond, we know that we will face challenges but we are confident we have the right business model and strategy to deal with what lies ahead. In 2011, Russian GDP growth is projected to consolidate further and we therefore expect our industry fundamentals to continue to reassert themselves. Our trading performance so far in 2011 tends to support this view. We are well prepared for such an eventuality and have configured our business accordingly. Specifically, in 2011 we will fully benefit from the operational deployment of new rolling stock delivered in 2010. We will continue to invest, and we expect to meet the acquisition target of 5,000 new railcars by the end of the coming year with 1,500 units already delivered as of the end of February 2011. Looking further out, we also see opportunities to grow our business in the medium term. The recent publication by the Government of its strategic rail reform agenda for the next five years, through to 2015, raises the prospect of a partial liberalisation of locomotive traction services. This is an important sector, one where Globaltrans has a strong presence through our subsidiary BTS, so we are actively exploring our options with a view to growing our locomotive presence.
The combination of growing markets and continued deregulation provides in our view a powerful investment case for expanding our business. Last year, we successfully pursued opportunistic growth and we are well positioned to make further progress in the coming year.
Source: extracted from Globaltrans Annual Report and Accounts for 2010. For the full version of Annual Report, please click here.
*derived from the management accounts.
1. According to Rosstat.
2. Metallurgical cargoes include ferrous metals, scrap metal and ores. The Group’s share of overall volumes of metallurgical cargoes transported by rail in Russia increased from 6.4% in 2009 to 9.1% in 2010; Company estimations based on Rosstat data.
3. Additions of rolling stock in 2010 as well capitalised repairs (including rolling stock leased under finance leases).
