REG - Globaltrans Inv PLC - Globaltrans publishes its Annual Report for 2016 <Origin Href="QuoteRef">GLTRq.L</Origin> - Part 2
27/04/2017 16:35
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locomotive traction.
OPERATIONAL: RISKS THAT INFLUENCE THE GROUP'S OPERATIONAL EFFICIENCY
Risk Description Controls and mitigating factors
Infrastructure 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 its 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 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.
rail network, but also the railway network 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. 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 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.
Operational performance Rising inflation in Russia may increase the Group's costs, while the Group may have limited opportunities to increase tariffs to customers. Among the Group's key objectives are to increase operational efficiency and to focus on control and reduction of costs. The Group continuously monitors its costs to maintain efficiency.
Employees 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 Adequate remuneration packages, which are in line with or in excess of market levels, are offered to all employees and key managers and remuneration is linked to the Group's financial results. The Human Resource function regularly monitors salary levels and other benefits offered by competitors to ensure that the Group's remuneration packages are adequate.
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.
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 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 extended some of these.
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.
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 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.
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.
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 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; and• minimise operational, financial and reputational impact.
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.
COMPLIANCE: RISKS THAT INFLUENCE THE GROUP'S ADHERENCE TO RELEVANT LAWS AND
REGULATIONS
Risk Description Controls and mitigating factors
Pending and potential legal action The Group is 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. 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.
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. 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 retains external consultants.
FINANCIAL: RISKS THAT INFLUENCE THE GROUP'S FINANCIAL PERFORMANCE
Risk Description Controls and mitigating factors
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 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 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
Group's Ukrainian subsidiary). 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 borrowings in its credit portfolio. As of 31 December 2016, around 100% of 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. 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 of 31 December 2016, the proportion
of total debt with a fixed interest rate amounted to around 100%. 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 its affiliates and suppliers. Its top 10 clients accounted for 70% of the Group's trade and other receivables as of 31 December 2016 and around 80% of the Group's Net Revenue from Operation of Rolling Stock in 2016. 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 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 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. 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.
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DIRECTORS' RESPONSIBILITY
Each of the Directors confirms that to the best of his or her knowledge the
Strategic Report (presented on pages 10 to 53 of the 2016 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 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.
In preparing the consolidated financial statements, the Board of Directors is
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Board of Directors either intends
to liquidate the Group or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Group's
financial reporting process.
Each of the Directors confirms to the best of his or her knowledge that the
consolidated financial statements (presented on pages 74 to 148 the 2016
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 2016 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;
(iv) the Consolidated Management Report has been prepared in accordance with
the requirements of the Cyprus Companies Law, Cap.113, and the information
given therein is consistent with the consolidated financial statements;
(v) the information included in the corporate governance statement in
accordance with the requirements of subparagraphs (iv) and (v) of paragraph
2(a) of Article 151 of the Cyprus Companies Law, Cap. 113, and which is
included as a specific section of the Consolidated Management Report, have
been prepared in accordance with the requirements of the Cyprus Companies Law,
Cap, 113, and is consistent with the consolidated financial statements; and
(vi) the corporate governance statement includes all information referred to
in subparagraphs (i), (ii), (iii) and (vi) of paragraph 2(a) of Article 151 of
the Cyprus Companies Law, Cap. 113.
By order of the Board
Sergey Tolmachev
Director
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ENQUIRIES
Globaltrans Investor Relations
Mikhail Perestyuk / Daria Plotnikova
+357 25 328 860
irteam@globaltrans.com
For international media
Teneo Blue Rubicon
Laura Gilbert / Sabine Pirone
+44 20 7260 2700
globaltrans@teneobluerubicon.com
NOTES TO EDITORS
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
large Russian industrial groups in the metals and mining and the oil products
and oil sectors.
The Group has a Total Fleet of about 68.5 thousand units. Universal gondola
cars and rail tank cars constitute the backbone of the Group's fleet. About
89% of the Total Fleet is owned by the Group with an average age of 10.3
years. In 2016, the Group's Freight Rail Turnover (including Engaged Fleet)
was 182.0 billion tonnes-km. The Group's market share was 7.8% of overall
Russian freight rail turnover. The total revenue of Globaltrans amounted to
RUB 69.5 billion in 2016.
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 www.globaltrans.com
LEGAL DISCLAIMER
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.
This information is provided by RNS
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