Globaltrans publishes its Annual Report for 2018

Globaltrans Investment PLC (together with its consolidated subsidiaries the “Company”, “Globaltrans” or the “Group”, LSE ticker: GLTR) has today published its Annual Report for 2018. This follows the publication on 1 April 2019 of the consolidated management report and consolidated financial statements for the year ended 31 December 2018 ("Full-Year 2018 Results") that are included in the 2018 Annual Report.

The 2018 Annual Report is available for downloading here.

The 2018 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 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 2018 Annual Report and should be read in conjunction with the Full-Year 2018 Results published on 1 April 2019. 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 2018 Annual Report and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2018 Annual Report.

The following description of principal risks and uncertainties is extracted from pages 53 to 59 of the 2018 Annual Report.

Risk management

Globaltrans faces a wide range of potential and current risks to its business. To identify, evaluate and mitigate these risks, the Group has established a system for monitoring and controlling uncertainties and threats that it faces. This system is overseen by a dedicated Risk Management function. The Board of Directors has overall responsibility for the Group’s risk management.

The Board, as part of its role in providing strategic oversight and stewardship of the Company, is responsible for maintaining a sound risk management and internal control system. As part of that system, the Board determines principal risks and sets respective risk tolerance levels. Globaltrans has adopted a Risk Management Policy that provides a consistent framework for the identification, assessment and management and, where possible, mitigation of risks.

The oversight of risk management is delegated to the Audit Committee. In addition, the Board has delegated to the CEO the responsibility for the effective and efficient implementation and maintenance of the risk management system. The Directors, through the Audit Committee, review the systems that have been established for this purpose and regularly review their effectiveness. Appropriate actions are then taken to manage the risk to an acceptable level as defined by the Board.

Globaltrans has grouped the risks that it considers to be significant into key categories – strategic, operational, compliance and financial – and they are presented below. The list is not exhaustive, and the order of the information does not reflect the probability of occurrence or the magnitude of any potential effect. Additional risks not currently known or ones currently considered immaterial could also have an impact on the Group’s business, financial condition, operational results and prospects, as well as on the trading price of its Global Depositary Receipts (“GDRs”). Our principal risks are monitored and assessed on an ongoing basis.

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

General economic situation and operating environment

The Group and its subsidiaries operate mainly in Russia, other emerging markets and the Baltics. 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 uncertainties. Moreover, the Group’s business depends on demand in the Russian freight rail transportation market, which in turn depends on certain key commodity 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 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, made it harder to raise funding from international sources and had a negative impact on the freight rail transportation market and 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, as well as the continuation or escalation of turmoil in the region or in the broader political landscape, could affect the Group’s ability to conduct its business, increase the negative impact on the Russian economy, have a negative impact on the demand for key commodities in Russia and possibly increase the cost of borrowing for the Group. The threat of sanctions against the Group’s existing customers 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 in 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 while the finance and business teams monitor economic developments and do the same. The counterparties, banks and transactions of the Group are constantly reviewed by the Group’s compliance and legal teams to ensure full compliance with all applicable legislation. Risk managers have direct access to the Group’s key management.

The Group maintains a balanced fleet as one of the cornerstones of its business model. A balanced fleet (between universal gondola cars, adaptable to the demand for the transportation of various bulk cargoes, and rail tank cars, which are used for the transportation of oil products and oil) enables the Group to adapt to market conditions and reduces its dependence on any one cargo flow.

In addition, the Group has entered into long-term service contracts with several large clients. Management assesses the possible impairment of the Group’s tangible and intangible assets by considering the current economic environment and outlook. 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

The Group is subject to regulatory risks relating to the operation of the Russian railway transportation market and railway industry reform. Any changes to the regulatory environment of the Russian railway transportation market or in other markets where the Group operates, including, but not limited to, railway tariff regulations and technical requirements for fleet maintenance, could negatively impact the Group’s business, its profitability and prospects for further business growth. Government authorities have significant influence over the functioning of the Russian railway transportation market. Any 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 and the manner in which it conducts its operations or less effective access to services dependent upon government authorities.

In addition, the Group relies on its relationship with and the services (including maintenance and repairs), infrastructure and information provided by RZD, an entity controlled by the state. While 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 to certain territories.

Controls and mitigating factors
The management of the Group regularly monitors 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. for rolling stock repair services), which allows it to use private repair depots (including three in-house repair facilities) to ensure less dependence on RZD-owned depots, obtain higher-quality service and minimise the costs of that service.

RZD remains 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 going in the same direction) on some routes.

The Group also continues to monitor market liberalisation reforms to ensure that it can take advantage of any opportunities when they arise. The Group monitors Federal Antimonopoly Service (“FAS”) initiatives regarding railway tariff regulation and also 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

Business growth can be constrained by an increase in prices for new rolling stock and spare parts, a limited supply of long-term funding, an increase in the cost of borrowing and/or adverse market conditions that can have a negative impact on the return on any investments. Although the Group takes a conservative approach to investments, any deterioration in the market environment may negatively impact the profitability and payback period of investments in rolling stock, thus limiting the Group’s return on its investments and ability to expand its business. Alongside pursuing organic growth strategies, the Group has expanded its operations through acquisitions in the past, 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 the Group’s growth opportunities.

Controls and mitigating factors
Any acquisition of rolling stock is matched against projected demand for railway transportation and the economically viable expected payback period for such investments. The Group cooperates with numerous rolling stock producers in Russia and other CIS countries without placing too much reliance on any particular supplier.

The Group also works on diversification of its business developing transportation of petrochemicals and other niche projects.

Any valuation of an acquisition target is subject to review by external advisers, and fairness opinions are normally provided by reputable appraisal companies to the Group’s Board of Directors when a transaction is considered.

Competition and customer concentration

The Russian freight rail transportation market is highly competitive with unregulated operators’ services tariffs. The ongoing market consolidation is leading to greater price competition. The risk of an irrational supply of railcars on the market by railcar producers and/or irrational behaviour of competitors/new market entrants may place additional pressure on the profitability of railway transportation and thus negatively impact the Group. Competition between railway transportation and other means of transportation, including, but not limited to, oil product and oil transportation by pipeline, river and road, may negatively impact the Group’s business volumes and profitability. The Group’s customer base is characterised by significant concentration: the business is heavily dependent on a few large industrial groups and their suppliers, with its top 10 customers and their suppliers accounting for around 74% of the Group’s Net Revenue from Operation of Rolling Stock in 2018. While the Group has long-term contracts with several key customers, failure to extend and/or maintain the current service contracts or for such customers to no longer have the volume requirements they have had in the past may have a negative impact on the Group’s operational results and financial performance.

Controls and mitigating factors
Globaltrans has significant competitive advantages that mitigate some of the risks of competition. These advantages include its strong reputation for high-quality service and reliability; its independent status; its long-term partnership with customers; its sophisticated operating capabilities; and its 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. Around 60% of the Group’s Net Revenue from Operation of Rolling Stock in 2018 was covered by long-term service contracts with several large clients. Such contracts provide additional stability and greater certainty regarding transport volumes for the Group. Globaltrans continues its focus on expanding business with small and medium companies to further diversify its customer base. In 2018, the share of small and medium companies amounted to 26% of Net Revenue from Operation of Rolling Stock (2017: 26%). In addition, the Group’s marketing function regularly monitors competitors’ business strategies, their use of technology, their price strategies and industry trends.

Locomotive traction

The Group is dependent on 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, their utilisation could be lower. 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 clients, as 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 licences and the 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


The physical infrastructure owned and operated by RZD on which the Group is dependent to operate its rolling stock largely dates back to Soviet times, particularly the rail network, but also the railway networks and other physical infrastructure in Kazakhstan and Ukraine. In some cases it has not been adequately maintained, which could negatively affect the condition of the Group’s rolling stock, performance and business. In addition, the maintenance and modernisation of rail infrastructure undertaken from time to time by RZD and other factors could impact the average speed of transportation and therefore affect the operational performance of railcars. RZD tariffs for the use of the railway network and the provision of locomotive services are regulated by the FAS and are in principle “pass-through” items for the Group and other private freight rail operators. Meanwhile, RZD tariffs for the 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 of 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 optimise logistics and minimise the risks of disruption. The Group monitors FAS initiatives with the aim of detecting possible changes in tariff-setting methodology and tries to reflect relevant changes in contracts with customers.

Operational performance

Rising inflation in Russia, and an increase in prices for spare parts and railcar repair works, may increase the Group’s costs, while the Group may have limited opportunities to increase tariffs to customers.

Controls and mitigating factors
Among the Group’s key objectives are to increase operational efficiency and to focus on controlling and reducing costs. The Group continuously monitors its costs to maintain efficiency and selects suppliers accordingly.


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 and logistics and railway experts. 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 employees and key managers and the remuneration of key managers is linked to the Group’s financial results. The Human Resources function regularly monitors salary levels and other benefits offered by competitors to ensure that the Group’s remuneration packages are appropriate.

Customer satisfaction

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 the timely collection and delivery of cargo and availability of rolling stock, which is not always within the direct control of the Group because it is dependent upon RZD for locomotive traction and maintenance of infrastructure. Accordingly, timely delivery of cargo is highly dependent on a third party whose performance could be unsatisfactory for 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 key customers stay with it for many years. In addition, the Group serves several key clients on the basis of long-term contracts and has recently added new contracts and extended others.

IT availability/continuity

The Group uses specialised rail transport and logistics software to ensure the efficiency and effectiveness of its 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/data security and cyber-attacks.

Controls and mitigating factors
Local IT specialists have 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

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, or lead to 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 such events may reduce the Group’s business volumes, cause idle time for its rolling stock or disruptions to its operations in part or in whole, subject the Group to liability or impact its brand and reputation and 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 consistently 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 the operational, financial and reputational impact

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

Pending and potential legal actions

The Group is involved in material legal actions from time to time. Such actions may have an adverse effect on the Group. The ambiguity of the law in Russia and CIS countries creates regulatory uncertainty and could result in claims from government authorities not expected by the Group.

Controls and mitigating factors
The Group runs its operations in compliance with tax, currency, labour, customs, antimonopoly 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 rigorous review by all of the Group functions concerned and to a formal approval process prior to execution.

Compliance with sanctions

The Group functions in a number of jurisdictions, including Cyprus, Russia, Estonia, Finland and Ukraine. In addition, the Group has GDRs listed on the London Stock Exchange. Thus, the Group is obliged to comply with sanction legislation applicable in each jurisdiction as well as US, UK and EU regulations, which may change from time to time.

Controls and mitigating factors
The legal and compliance teams of the Group together with the external lawyers monitor the applicable requirements in each of jurisdictions, including US personal and sectoral sanctions (SDN OFAC, SSI OFAC and CAATSA), and the appropriate controls are established to ensure that all subsidiaries of the Group comply with applicable regulations.

Fiscal risk

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 action needed to minimise the risk of a challenge to such treatments by the authorities. For complex matters, the Group engages and cooperates with external consultants and law firms.

Financial: risks that influence the group’s financial performance

Currency risks

Currently, the Group has a negligible share of borrowings and lease liabilities denominated in US Dollars and does not have formal arrangements for hedging this foreign exchange risk. The Group therefore has limited exposure 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 presentational currency of the Group’s financial results and the functional currency of the Company as well as of its Cypriot and Russian subsidiaries) 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 liabilities denominated in US Dollars with long-term debt denominated in Russian Roubles. Since 2008, the Group has taken action to mitigate currency risks and adjusted the profile of the borrowings in its credit portfolio. As of 31 December 2018, nearly all the Group’s debt was 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. An 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 purchases of rolling stock and acquisitions 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 practicable by ensuring that the Group has financial liabilities with both floating and fixed interest rates as appropriate. As of 31 December 2018, nearly all of the Group’s debt was at fixed interest rates. Management also considers alternative means of financing.

Credit risk

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 their affiliates and suppliers. Its top 10 clients accounted for 59% of the Group’s trade and other receivables as of 31 December 2018 and around 74% of the Group’s Net Revenue from Operation of Rolling Stock in 2018.

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. Substantially all of the bank balances are held with reliable banks.

Liquidity risk

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 have limited the Group’s access to international sources of funding. Any lack of available funding and potential 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 12 to 67 of the 2018 Annual Report) includes a fair review of the development and performance of the business and the position of Globaltrans Investment PLC and its subsidiary undertakings, included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Each of the Directors confirms to the best of his or her knowledge that the consolidated management report and consolidated financial statements (presented on pages 84 to 173 of the 2018 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 2018 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.

By order of the Board

Sergey Tolmachev

Globaltrans Investor Relations
Mikhail Perestyuk / Daria Plotnikova
+357 25 328 860

For international media|
Lightship Consulting
Laura Gilbert
+44 7799 413351

Globaltrans is a leading 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 prominent Russian industrial groups in the metals and mining and the oil products and oil sectors.

The Group had a Total Fleet of about 69 thousand units at the end of 2018. Universal gondola cars and rail tank cars constitute the backbone of the Group’s fleet. About 95% of the Total Fleet is owned by the Group with an average age of 11 years.

In 2018, the Group’s Freight Rail Turnover (including Engaged Fleet) was 158.9 billion tonnes-km with the total revenue amounting to RUB 86.8 billion.

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.