Globaltrans publishes its Annual Report for 2012

Globaltrans Investment PLC (together with its consolidated subsidiaries the “Company”, “Globaltrans” or the “Group”, LSE ticker: GLTR) today publishes its Annual Report for 2012.

Following the release on 25 March 2013 of the Group’s Directors’ report and consolidated financial statements for the year ended 31 December 2012 (“Full Year 2012 Financial Results”), Globaltrans announces that it has published its Annual Report for 2012. The Group’s Full Year 2012 Financial Results are included as Appendix 1 to the Annual Report for 2012.

The Annual Report for 2012 is available for viewing here.

The Annual Report for 2012 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 2012 and should be read in conjunction with the Globaltrans’ Full Year 2012 Financial Results Announcement issued on 25 March 2013. 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 2012 and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report for 2012.

Principal Risks and Uncertainties

The following description of principal risks and uncertainties is extracted from pages 49 to 53 of the Annual Report for 2012.

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

The Board of Directors has adopted a formal process to identify, evaluate and manage principal risks and uncertainties 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 are presented on the following pages. 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.

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

Operating environment

Description of risks

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.

Moreover, the Group’s business depends on the demand in the Russian rail transportation market, which in turn depends on certain key commodities sectors and, accordingly, on economic growth in Russia, European countries and elsewhere. A decrease in 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 an economic downturn or otherwise in Russia or such countries, could negatively impact the Group’s business and its growth prospects.

Controls and mitigating factors

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’ business model seeks to balance growth and resilience to market downturns. A well-balanced fleet is one of the cornerstones of the Group’s business model. The Group intends to continue to maintain a balance between universal gondola cars, adaptable to the demand for the transportation of particular bulk cargoes, and rail tank cars, which are used for the rail transportation of oil products and oil, a sector in which the demand has been stable. In addition, the Group has entered into long-term service contracts with two large Russian industrial groups.

Relations with Government authorities and state-owned enterprises

Description of risks

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.

The Group is subject to regulatory risks relating to the operation of the Russian rail transportation market and the reform of the railway industry. Any unexpected changes to the regulatory environment of the Russian rail transportation market could negatively impact the Group.

In addition, the Group is dependent on the services (including maintenance and repairs), infrastructure 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 or that RZD will not increase its charges for such service provision and infrastructure use.

Controls and mitigating factors

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 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 through to the Group’s customers where possible.

Growth strategies

Description of risks

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 recently 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.

Controls and mitigating factors

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

Competition and customer concentration

Description of risks

The Russian rail transportation market is becoming increasingly competitive as a result of further deregulation and privatisation. Recently RZD privatised 100% of JSC Freight One, resulting in the private ownership of approximately 75% of the fleet in Russia. In addition, RZD completed the transfer of its commercial fleet into its wholly-owned subsidiary JSC Federal Freight; 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 and is heavily dependent on a few large industrial groups and their suppliers, with its top ten customers and their suppliers accounting for 72% of the Group’s Net Revenue from Operation of Rolling Stock in 2012.

Controls and mitigating factors

While JSC Freight One and JSC Federal Freight will continue to be direct competitors of the Group, Globaltrans has significant 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; (iv) sophisticated operating capabilities; and (v) modern fleet.

Recently, as part of the acquisition of Metalloinvesttrans (renamed to Ferrotrans) and MMK-Trans (renamed to Steeltrans), the Group has concluded two long-term service contracts with its key customers, Metalloinvest and MMK to service their freight rail transportation requirements. Such contracts provide additional stability and greater certainty as to transport volumes for the Group. About 85%[1]of the Group’s Owned Fleet is now either covered by long-term service contracts, or exposed to resilient oil products and oil transportation (rail tank cars).

In addition, the Group’s marketing function regularly 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 (including Kazakhstan, Ukraine, Belarus and Azerbaijan). 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

Description of risks

The Group is dependent upon RZD to provide it with locomotive crews and for locomotive services on routes where its own 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.

Controls and mitigating factors

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 obtain 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 further important steps 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.

Operational: The risks that influence the Group’s operational efficiency


Description of risks

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 loaded tariffs for the use of the railway network and for the provision of locomotive services are regulated by the Federal Tariff Service and are in principal “pass through” for the Group and other private freight rail operators. Meanwhile, RZD tariffs for traction of empty railcars are in most cases a direct cost of 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 tariff setting methodology, could have an adverse effect on the Group’s business.

Controls and mitigating factors

Practically all the Group’s rolling stock is insured for damage to the rolling stock. 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.


Description of risks

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.

Controls and mitigating factors

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 regularly monitors salary levels and other benefits offered by our competitors to ensure that remuneration packages in the Group are adequate.

Customer satisfaction

Description of risks

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.

Controls and mitigating factors

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 who is responsible for the day-to-day relationship with that customer.

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

IT availability/continuity

Description of risks

The Group uses specialised rail transport and logistics software in order to ensure the efficiency and effectiveness of the Group’s logistics, dispatching and rolling stock tracking services. These systems are either licensed to the Group and then customised to the Group’s needs or delivered to the Group and maintained for its needs by third parties under service agreements. The Group may potentially meet risks related to access privileges, audit trails, authentication, authorisation, backup procedures, business continuation, change management (software and hardware), data integrity, disaster recovery, infrastructure, information security and security of data.

Controls and mitigating factors

Local IT specialists introduced certain IT solutions to maintain IT services availability and insure their recovery in case of disruption. IT function and Internal Audit function monitor all IT-related activities performance for compliance with IT policies and procedures.

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

Pending and potential legal actions

Description of risks

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.

Controls and mitigating factors

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.

Fiscal risk

Description of risks

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.

Controls and mitigating factors

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.

Financial: The risks that influence the Company’s financial performance

Currency risks

Description of 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.

Controls and mitigating factors

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.

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 2012, the Group had about 91%* of its total debt denominated in Russian roubles.

Interest rate risks

Description of 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.

Controls and mitigating factors

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 2012, the portion of total debt with a fixed interest rate amounted to 75%*. Management also considers alternative means of financing.

Credit risks

Description of risks

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

Furthermore, the Group’s business is substantially dependent on a few large key customers, including its affiliates and suppliers. These accounted for over 54%* of the Group’s trade and other receivables on 31 December 2012.

Controls and mitigating factors

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’.

Liquidity risk

Description of risks

The business of Group is capital intensive. The Group may potentially meet the insufficiency of cash and inability to obtain financing for settlement of liabilities when they fall due.

Controls and mitigating factors

The Group has budgeting policy in place which allows the Group’s management to control current liquidity based on expected cash flows which include, among others, operating cash flows, capital expenditure needs, funds borrowed from financial institutions and funds raised from listed debt instruments.

Related Party Transactions

The following description of related party transactions is extracted from pages 47-48 of the Annual Report for 2012.

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.

Transportation Investments Holding Limited (“TIHL”)[2] and Envesta Investments Limited (“EIL”)[3] together with their affiliated entities as at 31 December 2012 owned 34.5% and 10.8%[4] of the Company’s shares respectively. 54.5% of the shares represent the free float and are held by external investors through Global Depositary Receipts. The remaining 0.2% of the shares of the Company are controlled by Directors and management of the Group.

For the purposes of this Annual Report and financial statements TIHL is considered as the Parent of the Group until 17 July 2012 and an entity exercising significant influence over the Group thereafter.

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 this Annual Report).


The following table sets forth the summary of transactions which were carried out with related parties for the years ended 31 December 2012 and 2011.




Sales of goods and services



Purchase of goods and services



Additions of property, plant and equipment



Key management salaries and other short-term employee benefits[5]




The following table sets forth the year-end balances with related parties arising from sales/purchases of goods/services.




Trade and other receivables






Trade payables



Advances received



The following table sets forth the Group’s operating lease commitments under non-cancellable operating leases with related parties.



|USD m

Group as a lessor



Group as a lessee



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 52) 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 with operations in Russia, the CIS and the Baltic countries. The Group’s main business is the provision of freight rail transportation services. Globaltrans provides services to more than 650 customers and its key customers include a number of large Russian industrial groups in the metals and mining and the oil products and oil sectors.

The Group has a total fleet of about 65 thousand units of rolling stock with an average age of about seven years. Universal gondola cars and rail tank cars constitute the backbone of the Group’s fleet. More than 90% of the total fleet is owned by the Group. In 2012 the Group’s freight rail turnover (including engaged fleet) was 137.8 billion tonnes-km.

Globaltrans' global depositary receipts (ticker symbol: GLTR) have been listed on the Main Market of the London Stock Exchange since May 2008. Globaltrans was the first freight rail transportation group with operations in Russia to have an international listing.

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.


[1] Owned Fleet of Globaltrans as of the end of 2012 including the fleet of Steeltrans (renamed from MMK-Trans); compared to the estimated number of railcars required to service contracts at current input/output volumes presented for transportation by rail by Metalloinvest (100%) and MMK (70%) and the number of rail tank cars in ownership.

[2] From 22 March 2013, Konstantin Nikolaev, Nikita Mishin and Andrey Filatov each hold 11.5% through their respective SPVs.

[3] Envesta Investments Limited is beneficially owned by Sergey Maltsev, Chief Executive Officer and Executive Director of Globaltrans, and Alexander Eliseev, Non-Executive Director of Globaltrans.

[4] Including the holding of the Global Depositary Receipts of the Company.

[5] Key management salaries and other short term employee benefits’ include directors’ remuneration paid to the directors of the Company both by the Company and by subsidiaries of the Group in respect of services provided to such subsidiaries amounting to USD 7.9 million (2011: USD 2.4 million).