Globaltrans Annual Report and Accounts for 2008

Globaltrans Investment PLC (“Globaltrans” or together with its consolidated subsidiaries the “Group”; LSE ticker: GLTR), today publishes its Annual Report and Accounts for 2008 (the “2008 Annual Report”).

Following the release on 14 April 2009 of the Group’s Directors Report and Consolidated Financial Statement for the year ended 31 December 2008 (“Full Year 2008 Financial Results”), the Group announces that it has published its 2008 Annual Report. The Group’s Full Year 2008 Financial Results are included as Appendix 1 of the 2008 Annual Report.

For the 2008 Annual Report, please click here.
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It is also available at the Globaltrans corporate website ( and registered office of Globaltrans.

In compliance with DTR 6.3.5, the following information is extracted from the 2008 Annual Report and should be read in conjunction with the Globaltrans Full Year 2008 Financial Results Announcement issued on 14 April 2009. Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in full unedited text through a Regulatory Information Service. This material is not a substitute for reading the full 2008 Annual Report and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2008 Annual Report.

Principal Risks and Uncertainties

The following description of principal risks and uncertainties is extracted from pages 37 to 38 of the 2008 Annual Report:

The Group’s business involves a certain number of risks, the most notable of which are set out below. One of the priorities of the Group’s development strategy is risk control and the prevention of potential adverse effects of changes in its environment or situation. The Board of Directors of Globaltrans has adopted a formal process to identify, evaluate and manage significant risks faced by the Group.

For the purpose of the following discussion, the risks are categorised as follows: (i) business and industry; (ii) Group’s financial condition; and (iii) country risks.

(i) Risks relating to the Group’s business and industry

Ageing railway infrastructure operated by OAO Russian Railways (“Russian Railways”)

The physical infrastructure and other assets owned and operated by Russian Railways, particularly its rail network, largely date back to Soviet times and have in many cases not been adequately maintained. There can be no assurance that the age and insufficient funding and maintenance of a substantial part of the Russian railway network and other infrastructure operated by Russian Railways will not in the future lead to disruptions of the Group’s business or increase the Group’s costs of doing business.

Regulated tariff environment

OAO Russian Railways, as the sole operator of the Russian railway network, charges the Group and other private rail operators tariffs for the use of the railway network and for the provision of locomotive services, which are regulated by the Federal Tariff Service, a Russian federal government agency, and are passed through to the Group’s and other private rail operators’ customers as part of the price for the transportation services provided. If the infrastructure and locomotive services tariffs charged by Russian Railways are increased significantly in the future, they may make freight transport by rail less competitive compared to other forms of transport, which may reduce demand for the Group’s services and affect the Group’s revenue and profit.

Customer concentration

The Group’s customer base is heavily dependent on a few large industrial groups and their suppliers, and any changes in the customers’ positions in the market might directly affect the Group’s business. The Group is constantly expanding its customer base with a particular focus on small and medium sized companies and increasing sector diversification across the range of the freight it transports and markets at which it operates.

Relations with Russian Railways and government authorities

The Group is dependent to certain extent on the services and information provided by, and its relationship with, Russian Railways, an entity controlled by the state. Also, governmental authorities, both local and federal, are critical to the success of the Group’s current and future plans.

(ii) Risks relating to the Group’s financial condition

Foreign exchange risk

Currently most of the Group’s borrowings and lease liabilities are denominated in US Dollars, whereas most of the Group’s expenses and revenues are denominated and settled in Russian Rubles. The Group does not have formal arrangements for hedging the foreign exchange risk. Risks related to liabilities denominated in foreign currency are partly compensated by assets and income denominated in foreign currency. The Group also intends to re-finance some of its US Dollar denominated liabilities by obtaining debt denominated in Russian Rubles. However, as the US Dollar interest rates continue to be relatively attractive compared to the Russian Ruble interest rate, a substantial portion of the Group’s long term borrowings continue to be in US Dollars.

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 lease liabilities and borrowings. In addition the Group is exposed to fair value interest rate risk through market value fluctuations of lease liabilities and lease receivables with fixed interest rate. Lease and 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, 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 the interest rate on profit or loss and selects the financing model that maximises the estimated future profit. 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 by ensuring the Group has financial liabilities with both floating and fixed interest rates.

Credit risk

Financial assets, which potentially subject the Group to credit risk, consist principally of trade receivables and finance lease receivables and cash and cash equivalents. The Group has policies in place to ensure that sales of goods and services are made to customers with an appropriate credit history. These policies enable the Group to reduce its credit risk significantly. However, the Group’s business is heavily dependent on a few large key customers (and their suppliers), which accounted for approximately 73.9% of the Group’s trade and other receivables as at 31 December 2008 (2007: 68.5%). In addition, current and non-current finance lease receivables arise from business with only one customer (two in 2007).

Liquidity risk

The Group has a net working capital surplus of USD 12.1 million as at 31 December 2008. Management controls current liquidity based on expected cash flows and expected revenue receipts. From a 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.

(iii) Country related risks

Fluctuations in the global economy

The current global recession is having a negative impact on the Russian economy as a whole, including the transport industry. The Group’s mid-term strategy is targeted at maintaining its business’ strengths and competitive advantages to be well prepared to benefit from the global economy revival.

General emerging markets risk

Emerging markets, such as the Russian Federation, are subject to greater risks than more developed markets, including significant economic, political, social and legislative risks.


Russian tax and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant authorities. The Russian tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed.

Common Control Transaction

The following description of a common control transaction is extracted from page 39 of the 2008 Annual Report.

In December 2008, Globaltrans acquired from its parent entity 61% shareholding in AS Spacecom, Estonia for a total consideration of USD 64.0 million and 65% shareholding in AS Intopex Trans, Estonia for a total consideration of USD 15.0 million. Both companies are engaged in operating lease of rolling stock and AS Spacecom is also engaged in railway freight forwarding. Combined price of these transactions amounted to USD 79.0 million, which was below the lowest point of the combined valuation range of 61% of Spacecom’s equity and 65% of Intopex’s equity included in the fairness opinion provided by ING Bank N.V., London Branch.

In accordance with the accounting policies of the Group, the liability (deferred payment) for the consideration payable for the acquisition of AS Spacecom was recognised at the fair value of USD 61.7 million and AS Intopex Trans at the fair value of USD14.4 million by discounting future payments to be made using the weighted average cost of capital.

The acquisition of 65% of AS Intopex Trans and 61% of AS Spacecom has been accounted for as a common control transaction using the predecessor basis. The carrying value of their net assets, as of 1 October 2004 and 14 November 2006 respectively, were used to account for the common control transaction reserve, since these are the dates common control has been established.
Rationale for these transactions included strengthening Globaltrans’ business portfolio by (i) increasing exposure to the oil and oil products transportation markets in Russia and Kazakhstan; (ii) geographic diversification increasing penetration to CIS countries with a focus on Kazakhstan; (iii) acquiring profitable, financially sound rail tank car leasing services businesses (with revenue stream denominated mostly in US dollars) with modern fleet of 4,152 rail tank cars.

For further details please refer to Note 30 of the consolidated financial statements on page 59 of Appendix 1 of the 2008 Annual Report.

Related Party Transactions

The following description of related party transactions is extracted from page 39 of the 2008 Annual Report.

The Group considers parties 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:
Below is the summary of transactions which were carried out with related parties:

USD mln
USD mln
Sales of services91.8156.0
Purchase of goods and services33.557.4
Acquisitions of property, plant and equipment10.411.3
Disposals of property, plant and equipment0.10.04
Interest income0.11.6
Interest expense5.28.4
Directors’ salaries/fees0.3-
Key management salaries and other short term employee benefits4.78.0

Year-end balances with related parties

USD mln
USD mln
Trade receivables8.77.9
Other receivables2.17.8
Finance lease receivable-18.8
Loans to related parties-3.4
Loans from related parties18.478.9
Trade payables1.79.9
Other payables
The parent (consideration payable for the acquisition of AS Spacecom and AS Intopex Trans)


Advances received5.511.2
Dividends payable-11.5

Group’s borrowings and finance leases guaranteed by related parties as follows:

USD mln
USD mln
Borrowings guaranteed by related parties86.856.2
Finance lease and sale and leaseback contracts guaranteed by related parties49.5137.0

For further details on transaction with related parties, please refer to Note 29 of Consolidated financial statements on page 53 of Appendix 1 of the 2008 Annual Report.

Directors Responsibility Statements

Each of the Director's confirms to the best of his or her knowledge that:
(a) the consolidated financial statements (presented on pages 12 to 61 of Appendix 1 of the 2008 Annual Report) have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as whole; and

(b) the Management Report (presented on pages 12 to 47 of the 2008 Annual Report) includes a fair review of the development and performance of Globaltrans Investment Plc and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board
Sergey Maltsev, Chief Executive Officer
Mikhail Loganov, Director

Globaltrans Investor Relations
Priit Pedaja
Mikhail Perestyuk
+357 25 503 153
Citigate Dewe Rogerson
David Westover
Agnes Riousse
+44 20 7638 9571

Globaltrans is Russia’s largest privately owned freight rail operator by size of owned rolling stock fleet. As of the end of 2008 the Group’s rolling stock fleet owned and leased under finance and operating leases amounted to 26,967 railcars.

The Group provides freight rail transport, rolling stock leasing and logistics services, as well as certain ancillary services to large industrial customers and medium-size clients in Russia and carries customers’ cargos to destinations in Russia and Ukraine. In 2008, the Group expanded its geographical footprint with the establishment of an operating subsidiary in Ukraine and through acquiring two companies which render railcar leasing services to the markets of Russia and Kazakhstan.

The Group’s business model is based on its extensive and flexible modern rolling stock fleet, strong customer focus and sophisticated logistics know-how, which enable it to provide complex rail transportation and logistics solutions tailored to the needs of its customers.

For more information on Globaltrans, visit

The information contained in the 2008 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 you that forward-looking statements are not guarantees of future performance and that the Group's actual results of operations, financial condition, liquidity, prospects, growth, 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 these materials. In addition, even if the Group's results of operations, financial condition, liquidity, prospects, growth, 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, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, market change in the Russian freight rail market, as well as many other risks specifically related to the Group and its operations.

The Management’s Report in the 2008 Annual Report has been prepared to assist shareholders to assess the Group’s strategies and the potential for those strategies to succeed 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 the 2008 Annual Report is shown or into whose access it may come and any such responsibility or liability is expressly disclaimed.