Globaltrans publishes its Annual Report for 2011

Globaltrans Investment PLC (the “Company” and together with its consolidated subsidiaries “Globaltrans” or the “Group”), (LSE ticker: GLTR) today publishes its Annual Report for 2011.

Following the release on 12 April 2012 of the Group’s Directors’ report and consolidated financial statements for the year ended 31 December 2011 (“Full Year 2011 Financial Results”), Globaltrans announces that it has published its Annual Report for 2011. The Group’s Full Year 2011 Financial Results are included as Appendix 1 of the Annual Report for 2011.

For the Annual Report for 2011, please click here

The Annual Report for 2011 is also available for viewing at the registered office of the Company at Omirou 20, Agios Nikolaos, CY-3095 Limassol, Cyprus, and will shortly be available at the National Storage Mechanism of the UK Listing Authority, located at

In compliance with DTR 6.3.5, the following information is extracted from the Annual Report for 2011 and should be read in conjunction with the Globaltrans’ Full Year 2011 Financial Results Announcement issued on 12 April 2012. 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 Annual Report for 2011 and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report for 2011.

Principal Risks and Uncertainties

The following description of principal risks and uncertainties is extracted from pages 46-51 of the Annual Report for 2011.

Globaltrans has comprehensive risk control and management systems in place to prevent any adverse effects from changes in its environment or situation.

The Board of Directors has adopted a formal process to identify, evaluate and manage significant risks and systematically monitors and undertakes an assessment of risks critical to the Group’s performance and strategic delivery. The risks which the Board of Directors considers to be significant risks are presented below. The order in which these risks are presented is not an indication of the probability of their occurrence or the magnitude of their potential effects. There may be additional risks that are not currently known to the Group, or that it believes are immaterial, which could also have a material adverse effect on the Group’s business, financial condition, results of operations or future prospects and the trading price of the global depositary receipts.

For detailed information on the risk management process within Globaltrans, please refer to “Risk management”, included in the ”Governance” section of the Annual Report for 2011 on page 65.

Strategic risks

Operational risks

Compliance risks

Financial risks

Operating environment


Pending and potential legal actions

Currency risks

Relations with the Government and state-owned enterprises


Fiscal risks

Interest rates

Growth strategies

Customer satisfaction


Credit risks

Competition and customer concentration




Locomotive traction





The risks that influence the Group’s ability to achieve its strategy.

Description of risks

Controls and mitigating factors

Operating environment

The Group and its subsidiaries operate mainly in the Russian Federation, certain other emerging markets and Estonia.

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

The Group is dependent on demand in the Russian freight rail transportation market, which in turn depends on certain key economic sectors and, accordingly, on economic growth.



Mitigation methodology involves understanding the political and economic uncertainties of the operating environment and the risks faced by all 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.

Globaltrans successfully navigated through the economic downturn of 2009, largely because its robust business model seeks to balance growth and resilience to market downturns.

A well-balanced fleet is the one of the cornerstones of the Group’s business model. The Group intends to continue to maintain a balance between universal gondola cars, used for transporting various bulk cargoes, and rail tank cars, which enable Globaltrans to operate in one of the most stable sectors for the rail transportation of oil products and oil.

Relations with government authorities and state-owned enterprises

Government authorities have a significant influence over the functioning of the Russian freight rail market. A 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.

In addition, the Group is dependent on the services (including maintenance and repairs) and information provided by, and its relationship with, RZD, an entity controlled by the state. Although the Group has enjoyed a good relationship with RZD, there is no assurance that it will always continue to do so in the future.


The management of the Group constantly monitors any changes to the regulatory regime of the railway transportation market in the countries where it operates.

The Group has a diversified portfolio of service providers (e.g. rolling stock repair services), which allows it to use private repair depots to ensure less dependence on RZD owned providers of depots providing railcar repair services, higher quality, and to minimise costs.

RZD continues to be the only provider of infrastructure and locomotive traction services, although the Group does operate its own locomotives in the form of block trains on some stable routes. The Group also continues to monitor liberalisation reforms, to ensure that it will be able to take advantage of any opportunities when they arise.

The Group is forecasting and assessing the influence of adverse changes in RZD’s regulated tariffs for usage of infrastructure and locomotive traction by providing that these changes are adequately passed through to the Group’s customers.

Growth strategies

Expansion of the Group’s business may place a strain on its resources. Moreover, insufficient supply of, or increases in the price of, rolling stock may limit the Group’s growth opportunities.

In addition to pursuing organic growth strategies, the Group has in the past expanded its operations through acquisitions, and may do so in the future. The pursuit of an acquisition strategy entails certain risks, including problems with integrating and managing such new acquisitions.


The Group employs a disciplined approach to investments.

The Group deals with a number of rolling stock producers in Russia and Ukraine and tries not to place too much reliance on any particular supplier.

Any M&A opportunity being seriously considered with a prospective target is subject to a comprehensive due diligence process in respect of its financial and tax, operational and legal affairs with reputable external professional consultants. Globaltrans rigorously negotiates sufficient protective mechanisms against the identified risks in the M&A documentation.

Any valuation of the target is also subject to review by external advisers and fairness opinions are normally provided by investment banks to the Board of Directors of the Company when the transaction is considered.

Competition and customer concentration

The Russian rail transportation market is becoming increasingly competitive resulting from further deregulation. In 2011, RZD privatised just under 75% of OJSC Freight One, resulting in the private ownership of over 70% of the fleet in Russia. In addition, RZD completed the transfer of its commercial fleet into its wholly-owned subsidiary OJSC Freight Two; as a result, the majority of the commercial fleet in Russia is no longer subject to tariff regulation, which could lead to greater price competition for the Group.

The Group’s customer base is characterised by significant concentration, with its top ten customers and their suppliers accounting for 67% of the Group’s Net Revenue from Operation of Rolling Stock in 2011.

While Freight One and Freight Two will continue to be direct competitors of the Group, Globaltrans has unique competitive advantages, aimed at enabling it to grow market share over the long term. These advantages include its (i) strong reputation for high-quality service and reliability; (ii) independent status; (iii) long-term partnership with customers; and (iv) superior operating capabilities.

In addition, the Group’s marketing function constantly monitors competitors’ strategies, their use of technology their price strategies and industry trends.

The Group is expanding the geographic spread of its operations, launching new freight services in the CIS countries (Kazakhstan, Ukraine, Belarus, Azerbaijan, etc). This allows the Group to diversify its cargo mix and develop relationships with new customers.

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.

Locomotive traction

The Group is dependent upon RZD to provide it with locomotive crews and for locomotive services on routes where its locomotives do not operate.

The Group is also dependent upon RZD to issue permits for it to operate locomotives and to approve its use of locomotives for particular routes.

There is uncertainty as to the prospects for, and the timing of, further deregulation of locomotive traction.


The Group has a competitive advantage in providing freight rail transportation services to some of its clients because 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 decreases the cost, of transportation for its clients.

The Group has established controls to ensure the timely renewal of locomotive operation licences and respective permits from RZD.

The Group regularly monitors the progress of the reform relating to continuing deregulation in locomotive traction. In addition, the Group’s management actively participates in the development of required regulation through various dedicated industrial organisations and partnerships.

In 2011, the Russian Government took a further important step towards expanding competition in the locomotive traction segment by establishing the infrastructure tariff for private carriers operating their own locomotives. The next steps include developing the access regulations, along with a technical and operational framework.



The risks that influence the Group’s operational efficiency.

Description of risks

Controls and mitigating factors


The physical infrastructure owned and operated by RZD, particularly its rail network, as well as the railway network and other physical infrastructure in Kazakhstan and Ukraine, largely dates back to Soviet times. In many cases it has not been adequately maintained, which could negatively affect the condition of the Company’s rolling stock, performance and business.

RZD charges the Group and other private freight 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. Whereas loaded tariffs are passed through to the Group’s customers as part of the price for the transportation services provided, tariff for traction of empty railcars is in most cases a direct cost of the Group. Significant upward changes in the regulated tariffs whether as a result of annual indexation or changes in tariff setting methodology could have an adverse effect on the Group’s business.

Practically all the Group’s rolling stock is adequately insured. Moreover, RZD, as a freight carrier on the railway network, 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 minimise the risks of disruption.

The Group monitors the Federal Tariff Service initiatives with the aim of detecting possible changes in tariff setting methodology and tries to reflect respective changes in the Group's contracts with its customers.



The Group’s future success will depend, in part, on its ability to continue to attract, retain and motivate qualified personnel, in particular experienced management personnel. 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 our employees; remuneration is linked to the financial results of the Group. The Group’s HR function constantly monitors salary levels and other benefits offered by our competitors to ensure that remuneration packages in the Group are adequate.

Customer satisfaction

The Group’s 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 timely pick-up and delivery of cargo and availability of rolling stock.

The ability to meet customer expectations is often outside the direct control of the Group. Since the Group relies on RZD for locomotive traction and infrastructure usage, timely delivery of cargo is highly dependent on a third party whose differing incentives may result in its performing in a manner that would be unsatisfactory to the Group’s customers.

The Group has a high reputation for delivering high 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 who is responsible for the day-to-day relationship with that customer.

Customer feedback is analysed and appropriate follow-up actions are taken.



The risks that influence the Company’s adherence to relevant laws and regulations.

Description of risks

Controls and mitigating factors

Pending and potential legal actions

Although there are currently no pending material legal actions involving the Group, adverse determination of any future potential legal actions involving the Company or its subsidiaries could have an adverse effect on the Group.

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 a rigorous review by all the concerned Group functions and a formal approval process prior to execution.


Local tax, currency and customs legislation, especially in Russia and other emerging markets, 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 has controls in place, including highly qualified and experienced personnel to monitor changes in legislation and determine the appropriate treatment in order to minimise the risk of a challenge to such treatments by the authorities. For complex matters, the Group retains external consultants.



The risks that influence the Company’s financial performance.

Description of risks

Controls and mitigating factors

Currency risks

Currently, the Group has a proportion of long-term borrowings and lease liabilities denominated in US dollars. The Group does not have formal arrangements for hedging this foreign exchange risk.

The Group is therefore exposed to the effects of currency fluctuations between the US dollar and the Russian rouble, which could have a material effect on results of operations and on its financial condition.

The Group is also exposed to the effects of currency fluctuations between the US dollar (the presentational currency of the Group) and the euro, which is the functional currency of the Group’s Estonian subsidiaries, and the US dollar and the Ukrainian hryvnia, which is the functional currency of the Group’s Ukrainian subsidiary.

A large proportion of the Group’s revenues and expenses are denominated and settled in Russian roubles. Risks related to liabilities denominated in foreign currency are partly compensated for by assets and income denominated in foreign currency. The Group has refinanced some of its US dollar-denominated liabilities with long-term debt denominated in Russian roubles and intends to continue to do so. However, as the US dollar interest rate continues to be relatively attractive compared to the Russian rouble interest rate, a portion of the Group’s long-term borrowings continue to be denominated in US dollars.

Since 2008, the Group has taken action to mitigate currency risks and adjust the profile of borrowings in the Group’s credit portfolio. As of 31 December 2011, the Group had about 79% of its total debt denominated in Russian roubles.

Interest rate risks

The Group’s income and operating cash flows are exposed to changes in market interest rates. These arise mainly from floating rate lease liabilities and borrowings.


The Group concludes lease and long-term borrowing contracts to finance the purchase of rolling stock.

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 is practicable by ensuring that the Group has financial liabilities with both floating and fixed interest rates.

As of 31 December 2011, the portion of total debt with a fixed interest rate amounted to about 68%.

Management also considers alternative means of financing.

Credit risks

Financial assets that potentially subject the Group to credit risk consist principally of trade receivables and finance lease receivables, and cash and cash equivalents.

Furthermore, the Group’s business is heavily dependent on a few large key customers, including its affiliates and suppliers. These accounted for over 70% of the Group’s trade and other receivables on 31 December 2011.

The Group has policies in place to ensure that sales of goods and services are made to customers with an appropriate credit history.

The majority of bank balances are held with independently rated parties with a minimum rating of ‘B’.

Related Party Transactions

The following description of related party transactions is extracted from pages 44-45 of the Annual Report for 2011.

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.

The Group is controlled by Transportation Investments Holding Limited incorporated in Cyprus, which owns 50.1% of the Company’s shares. Envesta Investments Limited owns 14.5%[1] (including the holding of GDRs of the Company) of the Company’s shares. Further, the Directors of the Company control 0.1% of the Company’s shares through their holdings of GDRs. The remaining 35.3% of the shares represent the free market-float and are held by external investors through the Global Depositary Receipts.

For detailed information on the related party transactions, please refer to Note 30 of the consolidated financial statements (Appendix 1 “Directors’ report and consolidated financial statements” of the Annual Report for 2011).

Other transactions with related parties

Year ended 31 December 2011

  • In December 2011 the Company acquired an additional stake of 4.25% of shares in AS Spacecom, subsidiary of the Company, from its parent entity for a total consideration of USD 7.2 million, bringing its shareholding in AS Spacecom to 65.25%.
  • In September 2011, the Company received EUR 4.5 million (USD 6.3 million) from its parent entity as compensation of 61% of losses of AS Spacecom suffered as a result of the legal claim which were not previously recognised in the Group’s consolidated financial statements.

Year ended 31 December 2010

  • In accordance with the Share purchase agreements regarding the purchase of shares in AS Spacecom and AS Spacecom Trans (formerly AS Intopex Trans) and amendments thereto, in April 2010, the Company has settled in full its liability to the parent including accrued interest.

Directors Responsibility Statements

Each of the Directors confirms to the best of his or her knowledge that:

(a) the consolidated financial statements (presented on pages 9 to 53) and report of the Board of Directors (pages 2 to 5) 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 financial position, financial performance and cash flows the Company and the undertakings included in the consolidation taken as a whole; and

(b) the Management Report (section “Management review”) includes a fair review of the development and performance of the business and the position 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, Director and Chief Executive Officer
Mikhail Loganov, Director

Globaltrans Investor Relations

Mikhail Perestyuk
+357 25 503 153

For international media
Holloway & Associates
Laura Gilbert / Zoe Watt
+44 20 7240 2486

Globaltrans is a leading private freight rail transportation group in Russia and the first such group to have an international listing.

Globaltrans Investment PLC is incorporated in Cyprus with major operating subsidiaries located in Russia, Ukraine and Estonia. The Group provides freight rail transportation, railcar leasing, and certain ancillary services to clients in Russia, the CIS countries and the Baltics.

The Group’s fleet of rolling stock owned and leased under finance and operating leases amounted to 47,580 units at 31 December 2011, including 26,607 gondola cars, 20,427 rail tank cars, 56 locomotives and 490 other railcars.

The Group’s Freight Rail Turnover in 2011 was 110.6 billion tonnes-km with 69.6 million tonnes of freight transported. In 2011 the Group’s adjusted revenue was USD 1,177.0 million with adjusted EBITDA reaching USD 505.1 million.

Globaltrans' global depositary receipts (ticker symbol: GLTR) have been listed on the Main Market of the London Stock Exchange since May 2008.

To learn more about Globaltrans, please visit

Some of the information in this announcement may contain projections or other forward-looking statements regarding future events or the future financial performance of Globaltrans. You can identify forward-looking statements by terms such as 'expect', 'believe', 'anticipate', 'estimate', 'intend', 'will', 'could', 'may' or 'might', the negative of such terms or other similar expressions. Globaltrans wishes to caution you that these statements are only predictions and that actual events or results may differ materially. Globaltrans 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 projections or forward-looking statements of Globaltrans, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, rapid technological and market change in the industries Globaltrans operates in, as well as many other risks specifically related to Globaltrans and its operations.