Globaltrans publishes its Annual Report for 2015

Globaltrans Investment PLC (together with its consolidated subsidiaries the “Company”, “Globaltrans” or the “Group”, LSE ticker: GLTR) has today published its Annual Report for 2015. This follows the publication on 31 March 2016 of the Directors' report and consolidated financial statements for the year ended 31 December 2015 ("Full-Year 2015 Results") which are included in the 2015 Annual Report.

The 2015 Annual Report is available for viewing here.

The 2015 Annual Report is also available for viewing at the office of the Company at 4 Profiti Ilia Street, 2nd floor, 4046 Germasogeias, Limassol, Cyprus, and will shortly be available also 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 2015 Annual Report and should be read in conjunction with the Full-Year 2015 Results published on 31 March 2016. 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 2015 Annual Report and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2015 Annual Report.

The following description of principal risks and uncertainties is extracted from pages 35 to 40 of the 2015 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 the delivery of its strategy.

The risks that 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 its business, financial condition, results of operations or future prospects and the trading price of the Global Depositary Receipts.

Strategic: 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 Russia, other emerging markets and Estonia. Emerging markets, such as Russia, 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, Europe and elsewhere. A decrease in production and 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 a technological shift, 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 the Group’s ability to conduct its 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 as a result of worsening market conditions or otherwise 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 the ability of the Group’s customers to carry on 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 transportation of oil products and oil. In addition, the Group has entered into long-term service contracts with several of its large clients.

Management assessed the 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 that 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 in 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 federal level could result in greater government scrutiny of the Group’s business or less effective access to services dependent upon government authorities. In addition, the Group is dependent on the services (including maintenance and repairs), infrastructure and information provided by, and its relationship with, OAO Russian Railways (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.

Railway transportation regulations in countries bordering Russia may change, limiting the access of the Group’s rolling stock on certain territories.

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 in which 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 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 on 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 an 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 expanded its operations through acquisitions in 2008, 2009, 2012 and 2013, and may pursue more in the future if appropriate opportunities arise. 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 transportation and the economically viable expected payback period for such investments.

The Group deals with a number of rolling stock producers in Russia and the CIS countries without placing too much reliance on any particular supplier.

Competition and customer concentration

Risk description

The Russian rail transportation market is highly competitive as a result of further deregulation 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 railcar producers and/or irrational behaviour 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 the Operation of Rolling Stock in 2015. 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. About 63% of the Group’s Net Revenue from the Operation of Rolling Stock in 2015 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 allowing 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 about 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 reliability 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 the required regulation through various dedicated industrial organisations and partnerships.

Operational: Risks that influence the Group’s operational efficiency


Risk description

The physical infrastructure owned and operated by RZD, particularly its rail network, but also 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 Antimonopoly Service (FAS) 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 to 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 the 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 against damage. Moreover, as a freight carrier on the railway network, RZD 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 FAS 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

Rising inflation in Russia may increase the Group’s costs, while the Group may have limited opportunities to increase 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 to maintain efficiency.


Risk description

The Group’s future success will partly depend on its ability to continue to attract, retain and motivate key employees and qualified personnel, in particular an experienced management team. 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 Group’s financial results. The Group’s Human Resources 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

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 and the majority of the Group’s key customers stay with the Group for many years. In addition, the Group serves several of its key clients on the basis of 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 to ensure the efficiency and effectiveness of the Group’s logistics, dispatching and rolling stock tracking services. These systems are either licenced 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, cyber attacks and security of data.

Controls and mitigating factors

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

Risks of terrorist attacks, natural disasters or other catastrophic events beyond the Group’s control

Risk description

The Group’s business operations could be adversely affected or disrupted by terrorist attacks, natural disasters (such as earthquakes, floods, tsunamis, hurricanes, fires or typhoons) or other catastrophic or otherwise disruptive events, including changes to predominant natural weather, sea and climatic patterns, piracy, sabotage, insurrection, military conflict or war, riots or civil disturbance, radioactive or other material environmental contamination, an outbreak of a contagious disease, or changes to sea levels, which may adversely affect global or regional trade volumes or customer demand for cargo transported to or from affected areas, and denial of the use of any railway, port, airport, shipping service or other means of transport and disrupt customers logistics chains. In addition, the Group may be exposed to extreme weather conditions such as severe cold periods and icy conditions that disrupt activities in ports that are destination points for customer cargoes. Furthermore, many of these events may not be covered by the Group’s insurance or any applicable insurance may not adequately cover any resulting losses.

The Group’s rolling stock could be adversely affected by unlawful acts in Russia or neighbouring countries.

The occurrence of any of these events may reduce the Group’s business volumes, cause idle time for the Group’s rolling stock or disruptions to its operations in part or in whole, subject the Group to liability or impact its brand and reputation and may otherwise hinder normal operations. This could have a material adverse effect on the Group’s business, results of operations or financial condition.

Controls and mitigating factors

The Group’s rolling stock is insured against damage, and the responsibility for third-party losses caused by accidents on the network lies with RZD. The Group permanently monitors any disruptive events and applies a Business Continuity Policy to:

  • ensure the safety of employees and human life;
  • maintain continuity of time-critical services;
  • minimise disruptions to clients and partners;
  • minimise operational and financial impact and impact on reputation.

Compliance: 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 action from time to time. Some of it may have an adverse effect on the Group. The ambiguity of the law in Russia and CIS countries creates regulatory uncertainty and might 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 any changes in the 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 of 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: Risks that influence the Group’s financial performance

Currency risks

Risk description

Currently, the Group has a negligent share of borrowings and lease liabilities denominated in US dollars and does not have formal arrangements for hedging this foreign-exchange risk. The Group is therefore exposed to a limited extent to the effects of currency fluctuations between the US dollar and the Russian rouble. The Group is also exposed to the effects of currency fluctuations between the Russian rouble (the functional 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. At present, the risks related to liabilities denominated in foreign currency are not material and are partly compensated for by assets and income denominated in foreign currency. The Group has refinanced nearly all of its US dollar-denominated liabilities with long-term debt denominated in Russian roubles. Since 2008, the Group has taken action to mitigate currency risks and adjusted the profile of borrowings in the Group’s credit portfolio. As of 31 December 2015, the Group had about 100% 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.

Controls and mitigating factors

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. 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 2015, the proportion of total debt with a fixed interest rate amounted to 99%*. Management also considers alternative means of financing.

Credit risk

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. Its top 10 clients accounted for 63%* of the Group’s trade and other receivables on 31 December 2015.

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

Directors’ Responsibility

Each of the Directors confirms that to the best of his or her knowledge the Strategic Report (presented on pages 8 to 41 of the 2015 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 they face.

The Company’s Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113, and for such internal control as the Board of Directors determines it necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Each of the Directors confirms to the best of his or her knowledge that the consolidated financial statements (presented on pages 60 to 107 of the 2015 Annual Report) give a true and fair view of the financial position of Globaltrans Investment PLC (“the Company”) and its subsidiaries (together with the Company, the “Group”) as at 31 December 2015 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113.

Further, each of the Directors confirms to the best of his or her knowledge that:

(i) proper books of account have been kept by the Company;

(ii) the Company’s consolidated financial statements are in agreement with the books of account;

(iii) the consolidated financial statements give the information required by the Cyprus Companies Law, Cap.113 in the manner so required; and

(iv) the information given in the report of the Board of Directors is consistent with the consolidated financial statements.

By order of the Board
Sergey Tolmachev


Globaltrans Investor Relations
Mikhail Perestyuk / Daria Plotnikova
+357 25 503 153

For international media
Teneo Strategy
Laura Gilbert / Sabine Pirone
+44 20 7240 2486

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