Globaltrans publishes its Annual Report for 2014

Globaltrans Investment PLC (together with its consolidated subsidiaries the “Company”, “Globaltrans” or the “Group”, LSE ticker: GLTR) has today published its Annual Report for 2014. This follows the release on 30 March 2015 of the Directors' report and consolidated financial statements for the year ended 31 December 2014 ("Full-Year 2014 Results") which are included in the 2014 Annual Report.

The 2014 Annual Report is available for viewing at the Globaltrans' corporate website (please click here to download).

The 2014 Annual Report 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 on 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 2014 Annual Report and should be read in conjunction with the Full-Year 2014 Results. 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 2014 Annual Report and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2014 Annual Report.

The following description of principal risks and uncertainties is extracted from pages 44 to 48 of the 2014 Annual Report.

Principal Risks and Uncertainties

The Board has adopted a formal process to identify, evaluate and manage key risks and uncertainties. Using it, the Group systematically monitors and assesses risks that are critical to its performance and strategic delivery.

The risks 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 not currently known to the Group, or that it believes are immaterial, which could also have an 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

General economic situation and operating environment

Risk Description

The Group and its subsidiaries operate mainly in the Russian Federation, 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 freight rail transportation market, which in turn depends on certain key commodities sectors and, accordingly, on economic conditions 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, political crisis or other event in Russia or another relevant country, negatively impacts the Group’s business and its growth prospects.

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, resulted in a significant weakening of the Russian Rouble, increased the cost of borrowing, made it harder to raise funding from international sources and had a negative impact on the freight rail transportation market and on the Group’s business. The ongoing threat of further sanctions by the United States, the European Union and other countries and by Russia on other countries and the continuation or escalation of turmoil in the region, could affect our ability to conduct our business, increase the negative impact on the Russian economy and have a negative impact on the demand for key commodities in Russia. The threat of sanctions against the existing customers of the Group or any difficulties in their financial condition 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 ability of the Group’s customers to carry the business in Ukraine.

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. The Group has built an effective risk management system that includes risk controls and mitigation on all levels. Risk managers have direct access to the Key Management of the Group.

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 cargos, and rail tank cars, which are used for the rail transportation of oil products and oil, a sector in which the demand historically has been relatively stable. In addition, the Group has entered into long-term service contracts with several of its large clients.

Management assessed possible impairment of the Group’s tangible and intangible assets by considering the current economic environment and outlook. The future economic and regulatory situation may differ from management’s current expectations. Management believes it is taking all necessary measures to support the sustainability and development of the Group’s business in the current business and economic environment.

Regulatory risk and relations with government authorities and state-owned enterprises

Risk Description

The Group is subject to regulatory risks relating to the operation of the Russian railway transportation market and the reform of the railway industry. Any unexpected changes to the regulatory environment of the Russian railway transportation market or on other markets where the Group operates, could negatively impact the Group and its business.

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 the 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), infrastructure and information provided by, and its relationship with, Russian Railways JSC (“RZD”), an entity controlled by the state.

Although 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.

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 (including two in-house repair facilities) to ensure less dependence on RZD-owned 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 (cargo or client specific Group-operated block trains all bound for the same direction) on some stable routes. The Group also continues to monitor market 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

Risk Description

Business growth can be constrained by a limited supply of long-term funding and/or increase in the cost of borrowing as well as adverse market conditions. Moreover, the Group takes a conservative approach to investments and any deterioration in market environment may negatively impact the profitability and payback period of investments into rolling stock, thus limiting the Group’s ability to expand its business. In addition to pursuing organic growth strategies, the Group has recently expanded its operations through acquisitions, and may pursue more in the future. The pursuit of an acquisition strategy entails certain risks, including problems with integrating and managing such new acquisitions.

The expiration of long-term service contracts with its key customers may also limit Group’s growth opportunities.

Controls and Mitigating Factors

Any valuation of an acquisition target is subject to review by external advisers and fairness opinions are normally provided by recognised investment banks to the Board of Directors of the Group when a transaction is considered. Any acquisition of rolling stock is matched against the demand for railway transportations and economically viable payback period for such investments. The Group continues acquisition of rolling stock and it deals with a number of rolling stock producers in Russia and Ukraine without placing too much reliance on any particular supplier.

Competition and customer concentration

Risk Description

The Russian rail transportation market is becoming increasingly competitive as a result of further deregulation, privatisation and railcar oversupply, while demand has been stagnating. The majority of the commercial fleet in Russia is no longer subject to tariff regulation, which leads to greater price competition for the Group. The risk of irrational supply of railcars on the market by the railcar producers and/or irrational behavior of Group’s competitors may put additional pressure on the profitability of railway transportations and thus negatively impact 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 approximately 83% of the Group’s Net Revenue from Operation of Rolling Stock in 2014.

While the Group has long-term contracts with several key customers, failure to extend and/or maintain the current service contracts may have a negative impact on the Group’s performance and results of operations.

Controls and Mitigating Factors

Globaltrans has significant competitive advantages that have enabled the Group to secure strong market positions and expand its market share.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. 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. More than 60% of the Group’s Net Revenue from Operation of Rolling Stock in 2014 is covered by long-term service contracts with several large clients. Such service contracts provide additional stability and greater certainty as to 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.

Locomotive traction

Risk Description

The Group is dependent upon RZD to issue permits for 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, there is a risk they will have lower utilisation. Furthermore, 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 licenses 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.

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


Risk Description

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 some cases it has not been adequately maintained, which could negatively affect the condition of the Group’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 costs 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.

Operational performance

Risk Description

Increase of inflation in Russia may increase Group’s costs, at the same time the Group may have limited possibility to inflate its tariffs to its customers.

Controls and Mitigating Factors

One of the Group’s key objectives is to increase the efficiency of its operations and to focus on control and reduction of costs. The Group permanently monitors its costs in order to maintain its efficiency.


Risk Description

The Group’s future success will depend, in part, on its ability to continue to attract, retain and motivate key employees and 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 and Key Management and 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

Risk Description

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 own 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 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 with majority of the Group’s key customers are being serviced by the Group for many years. In addition, the Group services several its key clients on the basis on long-term contracts and has recently extended some of these contracts.

IT availability/continuity

Risk Description

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 Group’s adherence to relevant laws and regulations

Pending and potential legal actions

Risk Description

The Group is being involved in material legal actions from time to time. Some of them may have adverse effect on the Group. Ambiguity of Russian and the CIS countries law creates regulatory uncertainty and potentially can result in claims from different government authorities.

Controls and Mitigating Factors

The Group runs its operations in compliance with tax, currency, labour, customs and other applicable legislation and constantly monitors changes in 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 a rigorous review by all the Group functions concerned and a formal approval process prior to execution.

Fiscal risk

Risk Description

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.

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 Group’s financial performance

Currency risks

Risk Description

Currently, the Group has a small share of 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 some extent to the effects of currency fluctuations between the US Dollar and the Russian Rouble, which could have an effect on the Group’s results of operations and its financial position. The Group is also exposed to the effects of currency fluctuations between the Russian Rouble (the presentational currency of the Group) 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).

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 2014, the Group had about 98% of its total debt denominated in Russian Roubles.

Interest rate risks

Risk Description

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 increase in market interest rates in Russia may negatively influence the Group’s profits. The Group concludes long-term borrowing and finance lease contracts to finance the purchase of rolling stock and acquisition of subsidiaries. The Group borrows at current market interest rates and does not use any hedging instruments to manage interest rate risk.

Controls and Mitigating Factors

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 2014, the portion of total debt with a fixed interest rate amounted to 90%*. Management also considers alternative means of financing.

Credit risks

Risk Description

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 its affiliates and suppliers. Top ten clients accounted for 70%* of the Group’s trade and other receivables on 31 December 2014.

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 banks with a minimum rating of “B”.

Liquidity risk

Risk Description

The business of the Group 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 limited the Group’s access to international sources of funding. The lack of available funding from international and Russian sources and 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

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.

Directors Responsibility Statements

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

(a) the consolidated and parent company financial statements and report of the Board of Directors (included into the 2014 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 financial position, financial performance and cash flows the Company and the undertakings included in the consolidation taken as a whole; and

(b) the Strategic Report (included into the 2014 Annual Report) 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 Tolmachev

Konstantin Shirokov


Globaltrans Investor Relations
Mikhail Perestyuk
+357 25 328 860

For international media
Lightship Consulting
Laura Gilbert
+44 7799 413351

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 500 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.

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.