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Annual Report 2019 RUSSIAN RAILWAYS CONTENT ANNUAL REPORT 2019
2 36 106 146 About Performance Sustainable Appendices the Company overview development
Company profile 4 Market overview 38 Sustainable development management 108 Disclaimer Key performance indicators for 2019 6 Analysis of operating results 40 Stakeholder engagement 110 Contact information Business model 8 Transportation and logistics 40 Social policy 112 Key performance indicators 10 Passenger transportation 52 HR management 115 Events of the year 12 Railway transportation Health and safety 120 and infrastructure 64 Moscow Central Diameters 12 Environmental protection 122
th Foreign projects and international Sapsan’s 10 anniversary 16 cooperation 68 Energy efficiency and conservation 126 BAM turns 45 20 Traffic safety 74 Charity 127 Investment activities 76 Innovation driven development 85 Analysis of financial results 88 Securities 100 24 128 Strategic Corporate report governance
Letter from the Chairman Corporate governance system 130 of the Board of Directors 26 General Meeting of Shareholders 131 Letter from the CEO and Chairman of the Management Board 28 Board of Directors 132 Strategy 30 Corporate Secretary 136 Russian Railways Long-Term Management Board 136 Development Programme until 2025: Audit and control 140 first performance results 32 Audit Commission 140 Development prospects in 2020 34 Internal control and audit 140 Anti-corruption 141 Version of the annual report before Risk management 143 approval by the General meeting of shareholders of Russian Railways
Russian Railways Annual Report 2019 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Russian Railways is No. 1 globally by energy efficiency of freight services1. ABOUT Russian Railways is an environmentally friendly, “green” company set to further enhance its eco credentials as they become increasingly important for the Company’s business. THE COMPANY Our successful experience is studied by international experts and emulated by railway companies and authorities worldwide. Russian Railways is Russia’s major railway company and one of the leading players globally.
No. 2 No. 5 No. 1 in freight in passenger in safety turnover globally turnover globally globally2
1. According to the International Energy Agency. 2. According to the UIC Global Safety Index, Russian Railways’ safety record exceeds the world’s average by 22%. 2 Russian Railways Annual report 2019 3 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Company profile
Russian Railways is Russia’s The Russian Federation is the founder largest railway company engaged and sole shareholder of Russian in owning and building public railway Railways. infrastructure. The Company ensures transportation of vital goods The Long-Term Development to Russia’s most remote regions Programme of Russian Railways until and is the most affordable transport 2025 aims to meet the strategic provider for millions of travellers. national goals by expanding railway infrastructure and enhancing The operational length of Russian economic links among Russian Railways’ lines is the third largest regions. in the world. Russian Railways is ranked among the world’s Top 3 railway companies due to
Large volumes High credit Qualified professionals Extensive design Significant experience of freight ratings in all areas of railway and construction in international and passenger transport capacities cooperation transportation
Russian Railways provides a full range of services, including
Freight Container Long-haul Logistics Rolling Engineering Railway R&D operations, solutions and suburban stock locomotive passenger repairs traction transportation and infrastructure
Russian Railways accounts for
85,500 km 44,100 km 45.9% 23.4% the operational length the length of Russian Railways’ of the country’s total of total passenger of Russian Railways’ lines electrified lines freight turnover turnover 4 Russian Railways Annual report 2019 5 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Key performance indicators for 2019
Loaded railway freight Passenger transportation – Passenger turnover – Investment Lower Labour productivity turnover – all-time high at 11-year high at 6-year high at programme workplace injury growth in transportation rate operations 2,601.9 1,197.8 133.4 RUB 674.1 bn tkm m people bn pkm bn –10% +3.3% +0.2% y-o-y +3.5% y-o-y +3.1% y-o-y +1.3 times y-o-y y-o-y y-o-y
Change 2019/2018 Indicator Measurement unit 2018 2019 +/– % Average monthly salary 1,278.1 growth Freight handling mt 1,289.6 –11,5 –0,9 3,305.0 Total freight turnover within the infrastructure of Russian Railways and Yakutia Railways, including1 bn tkm 3,304.8 +0,1 – 2,601.9 +6.5% net of empty runs of third-party railcars2 bn tkm 2,596.9 +5,0 +0,2 y-o-y 703.0 empty third-party railcars3 bn tkm 708.0 –4,9 –0,7 133.4 Passenger turnover bn pkm 129.4 +4,0 +3,1 99.1 Environmental costs long-haul bn pkm 96.3 +2,8 +3,0 34.3 suburban bn pkm 33.1 +1,2 +3,5 RUB 8.1 1,197.8 bn Passengers transported m people 1,157.2 +40,6 +3,5 116.5 long-haul m people 110.3 +6,2 +5,6 1,081.3 suburban m people 1,046.9 +34,5 +3,3 41.2 Average schedule speed of freight train4 km/h 40.9 +0,3 +0,7 1,610 The average daily performance of freight locomotive thousand tkm gross 1,589 +21 +1,3 4,090 Average gross weight of freight train t 4,076 +14 +0,3 372 Average freight car delivery speed km/day 370 +2 +0,6
1. 3,379.9 Hereinafter referred to as “total freight turnover”. Transportation of container freight, net of empty containers thousand TEU 2,998.1 +391,8 +13,1 2. Hereinafter referred to as “loaded freight turnover”. 3. 23.8 Hereinafter referred to as “empty freight turnover”. Transit, net of empty railcars mt 23.9 +0,2 +0,7 4. Based on the DO-10VTs reporting form. 6 Russian Railways Annual report 2019 7 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Business model
Regulation of joint Tariff Antimonopoly Drafting of the Transport Industry Approval of the Russian Railways Group’s Long-Term GOVERNMENT stock companies regulation regulation Development Strategy Development Programme until 2025
DISTRIBUTION BUSINESS LINES PRICES OF KEY FINANCIAL FLOWS4 VALUE CREATION
INVESTMENT ACTIVITIES Regulated tariffs Financing of capex The Group is implementing large-scale railway 1,278 3,305 173 (through Government-allocated resources, the Company’s development projects of national significance mt bn tkm thousand • Freight own funds and borrowings), including RUB 99 bn to purchase of freight handled of freight turnover freight cars transportation locomotives For more details see the Investment Activities section • III and IV class RUB bn FREIGHT Subsidiaries and controlled companies long-haul passenger 720 Russian Railways participates in the Digital • Federal Freight Company transportation Economy of the Russian Federation programme • TransContainer1 REVENUE Intangible asset and R&D expenses TRANSPORTATION For more details see the Innovation Driven Development GENERATION section RUB 11 bn
1,198 2,523 18 5 m thousand thousand OPERATING ACTIVITIES The Company is Russia’s largest employer transported scheduled runs made by passenger Payroll expenses passengers passenger trains cars RUB 2,508 (including salaries, pension plan payments, payments under For more details see the HR Management section bn the Collective Bargaining Agreement, leave expenses, bonuses, Subsidiaries voluntary health insurance, personal income tax, and extra-
PASSENGER PASSENGER • Federal Passenger Company (long-haul routes) budgetary fund expenses) • Suburban passenger companies TRANSPORTATION RUB 862 bn Tax expenses The Group is one of Russia’s major taxpayers (including property tax, corporate income tax, VAT, For more details see the Analysis of Financial Results Subsidiaries and controlled companies and other taxes) section
• GEFCO (Europe’s Top 5 logistics operator) Russian Railways develops and maintains • RZD Logistics (the largest multimodal logistics operator Freight RUB 92 bn transportation, Russian railway infrastructure in the CIS and the Baltics)
SERVICES infrastructure LOGISTICS LOGISTICS Maintenance, repair For more details see the Railway Transportation Market-based and operating supply and Infrastructure section pricing RUB 1,598 bn RUB bn The Company provides comprehensive • Use of tariff 300 freight transportation services leveraging corridor in freight the advanced 2PL, 3PL and 4PL technologies Subsidiaries transportation Forwarding and logistics services • RRC-1 (railcar repair company) For more details see the Transportation and Logistics • Income of railcar section • RRC-2 (railcar repair company) operators RUB 268 bn 1 • RRC-3 (railcar repair company) • Unregulated Russian Railways maintains leadership in energy OTHER OTHER • Company TransTeleCom (telecommunications) passenger efficiency among global railway companies • RZDstroy (infrastructure construction) Power supply BUSINESSES transportation For more details see the Energy Efficiency Passenger and Conservation section segment transportation RUB 180 bn The Group is implementing an Energy Efficiency Programme seeking to reduce RUB 267 bn Fuel the consumption of energy Government Logistics For more details see the Energy Efficiency services RUB 124 bn and Conservation section Charter capital contributions2 Subsidies3 Other operating expenses The Company ensures uninterrupted RUB 386 bn (security, travel, business and other operating expenses) and efficient operation of its facilities offering high-quality services across its bn RUB bn Other revenue RUB 79 56 RUB 196 bn consumer base Headcount RUB bn 257 FINANCIAL ACTIVITIES The Company is a responsible capital The revenue data are reported markets borrower as per the IFRS statements for 2019. Debt service For more details see the Securities section 853 thousand people3 (interest paid) The Group’s dividend policy seeks to protect Innovations RUB 91 bn the shareholder rights as prescribed Dividend payouts by the applicable laws of the Russian Federation 1. (with the Russian Federation as the beneficiary) For more details see the Securities section Sold in Q4 2019. 2. Including the funds provided by the Russian National Wealth Fund (preferred shares) and contributions in the form of real estate owned by the Federal RUB bn Government. 13 3. The Group is one of Russia’s major taxpayers Data for the Russian Railways Group. TAXES AND FEES OWED TO THE EXTRA- 4. The financing items of Russian Railways Group are stated on an amalgamated basis. For more details see the IFRS statements for 2019 BUDGETARY FUNDS OF THE RUSSIAN For more details see the Analysis of Financial Results at https://eng.rzd.ru/en/9637. section 5. FEDERATION FOR ALL TYPES OF ACTIVITIES Excluding depreciation and impairment of financialand non-current assets. RUB 359 bn 8 Russian Railways Annual report 2019 9 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Key performance indicators
The Regulation on Key Performance Indicators of Russian Railways was adopted KPI ACHIEVEMENT The Virtual Performance of Russian Railways’ an updated list of Group-wide KPIs to be in 20141. The Company’s KPIs include two types of indicators: core, such as EBITDA IN 2019 Infrastructure was 0.6% below the target applied starting 1 January 2020. In line margin and the Russian Railways Group’s ROIC for Unregulated Types of Activities, due to reduced freight transportation (grain, with these requirements, the updated list The Dividend Amount and the Russian crude oil and petroleum products, ferrous of Group-wide KPIs includes both core and recommended ones, such as the Russian Railways Group’ EBITDA, Reduction Railways Group’s EBITDA under IFRS metals, timber, coal, ferrous scrap metals and recommended items such as Russian of Operating Costs (Expenses), Traffic Safety and Virtual Performance of Russian in 2019 were in line with the targets. and industrial commodities). Railways’ EBITDA Margin, the Russian Railways’ Infrastructure. The KPIs form a part of the incentive system for the Company’s Railways Group’s ROIC for Unregulated Management Board2. The Reduction of Operating Costs Group-wide KPI targets Types of Activities, the Russian Railways (Expenses) at 2.8% exceeded for 2020 Group’s EBITDA, Reduction of Operating the target of at least 2% as a result The Regulation on Key Performance Costs (Expenses), Traffic Safety Across KPI targets are set in line with the Russian Railways financial plan and can be revised of the Company’s ongoing efficiency Indicators of Russian Railways the Russian Railways Group and Virtual in accordance with any decisions beyond the management’s control or adjustments improvement efforts. The Traffic Safety (the “Regulation”) was approved Performance of Russian Railways’ 6 to the financial plan, budgets and/or investment programmes approved by boards across the Russian Railways Group was by the Company’s Board of Directors Infrastructure. also improved, with the actual number as prescribed by the Russian Government’s of directors of the Russian Railways Group and/or Russian Railways throughout the year. of accidents per million train kilometres Directive No. 9054p-P13 of 2 October 2019 The Group-wide KPI targets for 2020 at 0.86 vs the target of 1.094. and Guidelines for KPI Application7. were approved by the Company’s Board of Directors on 18 December 2019 The Russian Railways Group’s ROIC The Regulation provides (Minutes No. 11). for Unregulated Types of Activities stood the basis for setting Russian Railways’ at 17.3%, exceeding the target of 10%. key performance indicators and includes Russian Railways’ key performance indicators – progress in 2019
8 Actual Target Actual % Group-wide KPI targets for 2020 Indicator Measurement unit for 2018 for 2019 for 2019 of the target Change y-o-y, % Indicator Measurement unit Target for 2020 Dividend amount RUB bn 8.755 13.364 13.364 100.0 152.6 Russian Railways' EBITDA margin9 % 24.5 Russian Railways Group’s EBITDA3 RUB bn 527.4 5754 576.9 100.3 109.4 Russian Railways Group’s EBITDA10 RUB bn 582 Reduction of operating costs (expenses) % 3.1 ≥2 2.8 – – Reduction of operating costs (expenses) % ≥2 Russian Railways Group’s ROIC for unregulated types of activities3 % 19.0 ≥10 17.3 +7.3 pp –1.7 pp Russian Railways Group’s ROIC for unregulated types of activities10 % 8 Traffic safety across the Russian accidents per million Railways Group train kilometres 0.98 1.094 0.86 – – Traffic safety across the Russian Railways Group accidents per million train kilometres 0.86 Virtual performance of Russian Virtual performance of Russian Railways' infrastructure bn virtual tkm 3,596.2 Railways’ infrastructure bn virtual tkm 3,438.2 3,462.85 3,442.2 99.4 100.1
1. Drafted in accordance with the Russian Government’s Directive No. 2579p-P13 of 25 April 2014 and Guidelines for KPI Application (approved by Order of the Russian Government 6. No. ISh-P13-2043 of 27 March 2014). Approved by the Company’s Board of Directors on 30 June 2014 (Minutes No. 15). Approved by Decree No. 1388-r of the Government of the Russian Federation dated 27 June 2019. 2. 7. Approved by the Company’s Board of Directors on 30 June 2014 (Minutes No. 15). The Russian Railways Group’s EBITDA target was approved by the Company’s Board of Directors on 18 December 2019 (Minutes No. 11). 3. 8. Under IFRS. In the current context of the economic crisis and the global pandemic associated with the spread of coronavirus infection, the KPI targets for 2020 may be revised. 4. 9. The Russian Railways Group’s EBITDA target was approved by the Company’s Board of Directors on 18 December 2019 (Minutes No. 11). Under RAS. 5. 10. Target for the virtual performance of Russian Railways’ infrastructure as per the Russian Railways financial plan for 2019 approved by the Company’s Board of Directors The target value can be adjusted based on the results of approval of budgets of subsidiaries of the Russian Railways holding for 2020, decisions on which are made by the Board on 25 October 2019 (Minutes No. 5). of Directors of JSC Russian Railways.
10 Russian Railways Annual report 2019 11 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
EVENT OF THE YEAR: MOSCOW CENTRAL DIAMETERS
Moscow Central Diameters (MCDs) is the key project of the Programme for the Development of Railway Infrastructure of the Central Transport Hub Together with Prospective Diameter Routes planned for 2019–2024 in accordance with the Russian President’s Decree No. 204 of 7 May 2018. The project is being implemented jointly by Russian Railways, the Ministry of Transport of the Russian Federation, and the governments of Moscow and the Moscow Region. It involves the development of commuter rail lines connecting Moscow districts and adjacent suburbs with the city centre.
Москва
MCDs highlights:
186 375 km 300 m stations1 of track1 passengers per year1
1. Total for all five MCDs.
12 Russian Railways Annual report 2019 13 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
To Kimry Moscow Central To Yaroslavl To Tver Diameters Lobnya D3 D1 D5 Pushkino Zelenograd For us, Moscow Central Diameters and Moscow Central Circle Skhodnya are flagship projects making our cities and towns more comfortable. “ Khimki Looking at Moscow’s example, we see that railways can be a central Mytishchi part of transportation systems serving large metropolitan areas – the one offering comfort and speed to passengers.” To Rzhev To Vladimir Oleg Belozerov and Nizhny Novgorod D2 Rizhsky CEO, Chairman of the Management Board Krasnogorsk Savelovsky Zheleznodorozhny Nakhabino Yaroslavsky/ Belorussky Leningradsky/Kazansky D4 Integrated Free transfers New Kursky Operating hours: ticket offering between MCC infrastructure: Odintsovo Reutov from 5:30 AM for city and the Moscow continuous Kievsky Paveletsky Lyubertsy to 1:00 AM and suburban Metro during welded rails D1 without breaks routes a 90-minute ride for a smooth ride
To Smolensk Zhukovsky D3 Travel intervals Troika New New railway platforms: Ramenskoye Solnechnaya 5–6 minutes card comfortable • barrier-free environment transport interchange hub during payments Ivolga 2.0 • lifts and escalators To Ryazan 1 peak hours trains • vending machines • free Wi-Fi Aprelevka D4 • charging ports for mobile devices • information boards Metro • panic buttons Circle Line • heated pedestrian crossings Podolsk and ticket office areas To Kiev D2 Big Circle Line 2 Improved transport availability for D5 Moscow Central Circle Domodedovo Moscow To Serpukhov Ring Road 9.6 70 17 To Kashira Railway stations m people districts towns of Moscow in the Moscow Region Launched D1 Belorussko- D2 Kursko- Yaroslavsko- in 2019: Savelovsky Rizhsky D5 Paveletsky3 For more details see the Passenger Transportation section 3. In 2020, the Company is planning To be launched Leningradsko- Kievsko- to develop basic design solutions 1. D3 D4 for MCD 5 and subsequently review For mixed operations. by 2025: Kazansky Gorkovsky the expediency of enabling commuter 2. trains to run the radial routes After the launch of all five MCDs. to Moscow’s key railway stations. 14 Russian Railways Annual report 2019 15 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
EVENT OF THE YEAR: SAPSAN’S 10TH ANNIVERSARY
Sapsan ultra high-speed trains have been operating on Moscow– St Petersburg–Moscow and Nizhny Novgorod–St Petersburg–Moscow routes since 2009. To mark the anniversary, Russian Railways presented an upgraded Sapsan. The Company’s Long-Term Development Programme until 2025 envisages the signing of life cycle contracts with manufacturers to renew the rolling stock, providing for a higher level of comfort and service for passengers and making trains suitable for use by people with disabilities.
years on high speeds
Sapsan’s highlights: +4.0% y-o-y
16 250 km/h 5.7 m trains maximum passengers speed transported in 2019
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th Sapsan’s 10 anniversary The first upgraded Sapsan runs between St Petersburg, Moscow and Nizhny Novgorod.
Russian Railways constantly seeks to develop customer services and improve product offering with a special focus on ways to ensure 11.6 thousand passengers “ comfortable and safe travel. The Sapsan upgrade is centred transported over the first two months after on the enhancement of customer experience. We have refreshed the launch of the upgraded Sapsan the train design, added sockets to the railcars and improved seat ergonomics.” +22.4% vs the same period in 2018–2019 Anton Petrov Head of High-Speed Transportation Directorate at Russian Railways On 17 December 2019 the first upgraded train travelled from Moscow to St Petersburg 2021 the deadline for renovating interiors in all the 16 trains
SAFETY COMFORT INFORMATION SUPPORT • Impact-resistant components • Refreshed interior design • Fire-resistant materials • Air conditioning and climate • Two large information boards • Shatterproof windows control all year round in each car • Online monitoring of all parts • All seats are equipped • Digital route display near train and components by a service with sockets and USB ports exterior side doors centre • Acoustic insulation • Ergonomic interior • Window blinds with no sharp edges • Lighting brightness adjustment depending on the time of day • Wardrobe and storage space • Water coolers • Smoking prohibited in all cars
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EVENT OF THE YEAR: BAM turns 45 The Baikal–Amur Mainline (BAM) is the fastest transcontinental railway on the East–West axis. As a route, the BAM is a full-fledged backup for the Trans-Siberian Railway and the key development driver for adjacent areas totalling 1.5 m sq km. July 2019 marked 45 years since the Central Committee of the Communist Party and the Council of Ministers of the Soviet Union issued a resolution on the construction of BAM. The new railway was built in severe and challenging weather conditions.
BAM’s highlights:
4,324 km >200 23C8-497 of tracks stations and passing loops 2,230 10 bridges tunnels
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BAM turns 45 Tynda Komsomolsk-on-Amur
Novy Urgal Sovetskaya Gavan Severobaikalsk The BAM is one of the key elements of transport infrastructure Khabarovsk ensuring fast-paced economic growth in Russian regions. Neryungri “ The BAM project is a powerful driver for the economy and social Novaya Chara infrastructure development still relevant nowadays. Its practical and strategic significance is unquestionable because of great Taksimo opportunities it offers for exploration and mining, as well Vladivostok as for freight transportation between Asia and Europe.” Lena Andrey Makarov Ust-Kut Deputy CEO Tayshet Railway bridges Railway stations Railway tunnels
1977 1984 The BAM–Tynda section So-called golden spike was hammered 2003 2018 was commissioned. The construction at the Kuanda station to link The Severomuysky Tunnel The last section of the Baikalsky Tunnel of the Severomuysky Tunnel started the two sections of the mainline was commissioned was completed
1974 1979 1989 2013 2019 A train carrying the first Komsomol The Tynda–Berkakit A 3,000 km section Russian Railways’ comprehensive members to become BAM construction section of the mainline development programme Five railway bridges workers departed from the Yaroslavsky was commissioned was commissioned for the Eastern Operating Domain were commissioned. station in Moscow was launched The Vladivostoksky Tunnel renovation and the Baikalsky Tunnel construction were completed
Revamping stations for the BAM’s anniversary To mark the 45th anniversary of the BAM, Russian Railways completed the overhaul of eight railway stations: Tynda, Neryungri, Novy Urgal, Komsomolsk-on-Amur, Novaya Chara, Taksimo, Lena and Severobaykalsk. The Company refreshed the stations’ interiors and exteriors, improved the adjacent territories, upgraded the utility systems, and renovated ticket office areas. The biggest project worth nearly RUB 185 m was implemented at the Tynda station. It included: • refurbishment of the station’s exterior and lighting system, replacement of doors and windows; • repairs of the roofing and the island passenger platform; • adjacent area improvement; • installation of three variable-message signs and a queue management system; • security system upgrade; • installation of new security screening equipment.
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STRATEGIC REPORT Today, the Company faces large-scale tasks envisaged by the Long-Term Development Programme of Russian Railways until 2025. They include development of high-speed and ultra high-speed railway services, advanced development of railway infrastructure, improvement and expansion of the services range for customers, and continuous improvement of transportation safety. The final result is the Company’s contribution to the achievement of national development goals.
RUB 417.2 bn RUB 53.5 bn RAS EBITDA in 2019 RAS net profit in 2019 +0.4% vs the Long-Term Development +98.9% vs the Long-Term Programme guidance1 Development Programme guidance1
1. Target indicators under the base case scenario of Russian Railways’ Long-Term Development Programme until 2025. 24 Russian Railways Annual report 2019 25 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Letter from the Chairman of the Board of Directors
Dear Partners, Clients and Investors,
In 2019, Russian Railways saw More than Our continued focus I would like seen both in Russia I am confident that most of its key performance RUB 670 bn was allocated on operational to thank the previous Board and worldwide, pose new Russian Railways indicators improve, with freight to finance the Company’s efficiency improvements of Directors for their hard challenges before the Board and our entire team will work and passenger turnover hitting 2019 investment programme, and cost control helped work and contribution towards of Directors, the Company’s hard to meet the expectations all-time records and labour which is 30.8% higher than us keep the cost of production the Company’s sustainable management and the entire of our clients, our communities productivity showing continued last year. A key contributor growth below the inflation development. Russian Railways’ team. and the government. growth. to the long-term development rate. In 2019, we adopted Efficient and reliable Against this backdrop, our goal The highest growth rates of the Company and the railway the Russian Railways Long- were seen in transit container industry, the Company’s term Development Programme railway service becomes is to ensure uninterrupted Andrey Belousov transportation, which investment programme is also and Digital Transformation even more important and safe use of railway Chairman increased by 11.8% y-o-y in line essential for the national Strategy until 2025 – our key in 2020. Shifts network while also staying of the Board of Directors with strategic development economy as a whole, strategic documents setting in the global markets caused committed to serving goals set for the Russian helping drive its growth the Company’s direction by the coronavirus pandemic, our customers, passengers, transport industry. and development. for the medium term. and their economic effects partners and employees.
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Letter from the CEO and Chairman of the Management Board
for the BAM development, We completed We launched all processes and our key focus the key projects to upgrade to ensure a breakthrough is on ensuring decent working our rail infrastructure in quantum communications conditions for all employees on the island of Sakhalin based in line with the targets set involved. on a 1,520 mm gauge track, by the President of the Russian and also launched a bypass Federation. The Company is proud for the Krasnodar Transport Today, we focus to have provided top quality Hub, a key infrastructure on implementing transportation services development project the Russian Railways’ Long- to guests and participants in southern Russia boosting Term Development Programme of the XXIX Winter Universiade the carrying capacity on routes and the Comprehensive Plan in Krasnoyarsk. leading to the ports of the Azov for Upgrading and Expanding and Black Seas. We delivered strong Core Infrastructure while performance in the passenger In the freight segment, also supporting the delivery transportation segment we maintained our focus of national projects. with 1,198 m passengers on flexibility and agility needed The coronavirus outbreak transported – a record high to adjust to market trends. has brought new challenges, in the last 11 years. A large- The strongest growth was so we need to maintain scale upgrade programme seen in container shipments, maximum flexibility for all types of passenger with a 12.6% increase y-o-y to respond to changes while rolling stock was implemented. and a record of over 5 m making sure that we retain We launched new suburban containers shipped. 96.3 m our top-notch team through Dear Partners and Colleagues, trains in 18 regions, tonnes of coal – an all-time this time. I am certain that and extended long-haul high – was shipped to Russia’s the hard work and dedication routes to improve availability 2019 was the year In 2019, we achieved all our social obligations Far East. of our employees will help of transportation services Russian Railways deliver of important milestones unparalleled results in certain and signed a new collective in 27 regions across Russia. In 2019, Russian Railways and new achievements areas of our business. bargaining agreement further strengthened on its goals to ensure stability for Russian Railways. for 2020–2022. All our In 2019, the Company and prosperity in Russia. Russian Railways topped its reputation social commitments firmly established itself The Government of the Russian the UIC Global Safety Index as an environmentally are supported by outstanding on the urban transportation Federation approved (GSI), exceeding the global responsible business. In May, Oleg Belozerov productivity improvements market, launching its Central the Company’s Long-Term average by 22%. we became the first Russian achieved in recent years. Transport Hub projects, CEO, Chairman of the Management Development Programme until company to enter the green The International Energy In the reporting year, including the Moscow Central Board 2025. This is a fundamentally bond market, achieving Agency (IEA) ranked Russian the Company raised average Circle and Moscow Central new system document the lowest ever borrowing rate Railways No. 1 globally monthly salary across all Diameters 1 and 2. On top providing for the digitalisation for a Russian issuer. by energy efficiency of freight operations by 6.5%, or 1.9% of that, 12 cities were covered of programme initiatives, We continued our digital services. in real terms. by the Urban Commuter Train including the projects envisaged project. transformation journey, by the Comprehensive Plan The Company reconfirmed 2019 marked taking it further to cover for Upgrading and Expanding its commitment to being the 45th anniversary 2019 marked more business processes, Core Infrastructure until a responsible employer, of launching the construction the 10th anniversary technologies and interactions 2024. The targets set ranking among the Top 3 of the Baikal–Amur Mainline. of our high-speed Sapsan trains, with passengers, freight by the Comprehensive Plan most attractive companies The Eastern Operating Domain which have since transported owners, suppliers, for 2019 were met in full. in Russia. In 2019, we fulfilled projects provide a new impetus over 39 m passengers. operators and authorities.
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Strategy
Mission Passenger transportation
The strategic priorities for development of traditional on-train and other related services. Another key objective is to expand The mission of the Russian Railways Group is to develop an efficient transportation in this focus area are to streamline the operating domain of high-speed and ultra high-speed transportation between business that will be competitive on the Russian and international markets and focus the route network and train schedules, the country’s largest metropolitan areas leveraging efficient state-of-the-art solutions. on effectively meeting the Group’s objectives as a national freight and passenger carrier increase speeds, use cutting-edge rolling stock, improve the product offering, Strategic goals until 2030: and owner of the public railway infrastructure. digitalise customer services and business • maintain the existing share in Russia’s overall passenger turnover; processes, and enhance the quality • develop high-speed and ultra high-speed transportation.
Development Strategy until 2030 Railway transportation and infrastructure In addition to the railway infrastructure, profitable main tracks to meet the growing transportation needs. The need to maintain this focus area covers traffic management, service availability to the general public, comply with government regulations on natural The Russian Railways Group’s 2030 Development Strategy1 (“Russian Railways’ Strategy”) operating and traction maintenance monopolies and provide equal opportunities to consumers distinguishes this focus area sets out the Group’s goals and objectives, defines its key priorities and long-term units. The Company’s strategic priorities from the others. development projects. The Strategy was approved by the Russian Railways’ Board in developing infrastructure are defined by its natural monopoly status and include Strategic goals until 2030: of Directors in December 2013. cost cutting, unlocking of the potential • maintain global leadership in efficiency, safety and the quality of infrastructure operation; to create new transportation and logistics • ensure consistent asset upgrade through cutting-edge technologies and solutions Accomplishment of the Group’s mission STRATEGY IN ACTION products, upgrade of the existing relying on the efficient life cycle cost management and availability/reliability of fixed will rely on the achievement of the 2030 network, and construction of additional assets. strategic goals in five focus areas: In 2019, the Strategy was implemented • transportation and logistics services; in line with Russian Railways’ Long-Term • passenger transportation; Development Programme until 2025. International operations • railway transportation and infrastructure; The strategic priorities in this focus for the construction of infrastructure facilities. Growth in this area is expected to rely • international operations; area are to consolidate and enhance on unique competencies in the design and construction of railway facilities, development • social policy. the Group’s presence in the international of sophisticated infrastructure and transportation management systems, train service railway engineering and infrastructure management, and railway economics and finances. construction market, and set the stage for expansion of the Group’s Strategic goals until 2030: STRATEGIC PRIORITIES AND GOALS ACROSS FOCUS AREAS other businesses in the markets • become one of the leading global infrastructure construction companies; where it operates as a contractor • build a long-term order portfolio and ensure implementation excellence. Transportation and logistics services
The strategic priorities for development Strategic goals until 2030: Social policy in this focus area are to build • maintain leadership in Europe’s rail freight transportation and enhance the appeal a diversified product portfolio shifting of rail transport to customers; Russian Railways’ employees and efficient management of resources to provide market services. This focus area also the focus from transportation services • become one of Europe’s Top 5 companies in terms of logistics volumes; are the Company’s key asset instrumental covers social and public policies of the Group stretching beyond the workforce matters. to comprehensive door-to-door solutions, • improve customer satisfaction by enhancing the quality of services while also in achieving its long-term growth objectives consistent expansion of the offering maintaining competitive transportation prices; and securing a strong competitive edge. Strategic goals until 2030: to include 2PL, 3PL and 4PL services, • provide high-quality services for the global supply chains of major Russian and international Development in this focus area builds • make it to the Top 5 of Russia’s most attractive employers; and creation of global logistics chains. customers and expand the transportation and logistics business in Eurasia. on the unbiased assessment of added value • engage the top talent by offering competitive salaries, better working conditions created through employee support initiatives and best-in-class social benefits.
1. Approved by the Company’s Board of Directors (Minutes No. 19 dated 23 December 2013). 30 Russian Railways Annual report 2019 31 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Russian Railways Long-Term Development Programme until 2025: first performance results
The Long-Term Development Programme The Programme also aims In order to achieve the goals set Achievement of selected KPIs as part of the Long-Term Development Programme (LTDP) in 2019 of Russian Railways until 20251 to contribute to achieving the goals set forth by the Russian President, the Programme 3 was approved by the Russian Government’s in the Comprehensive Plan for Upgrading provides for: KPI (unit of measurement) LTDP target 2019 performance Target achievement, % Order No. 466-r dated 19 March and Expanding Core Infrastructure until • an increase in the carrying capacity Freight handling, mt 1,309.2 1,278.1 –2.4 2019. It was developed in furtherance 2024, the action plan to expedite capital of the Baikal–Amur and Trans-Siberian Total freight turnover, bn tkm 3,373.4 3,305.0 –2 of the goals set forth in the Address investment growth and increase its share main lines to 180 mt by 2024; Loaded freight turnover, bn tkm 2,656.8 2,601.9 –2.1 of the President of the Russian Federation to 25% of the GDP, the Transport Strategy • an increase in the carrying capacity Passenger turnover, bn pkm 127.4 133.4 +4.7 to the Federal Assembly dated 1 March of the Russian Federation until 2030, Russia’s of the approaches to the ports 2018 and in line with the Russian Railway Transport Development Strategy of the Azov and Black Seas; Passengers transported, m people 1,135.4 1,197.8 +5.5 President’s Decree No. 204 On National until 2030, Russia’s Innovative Development • a throughput increase to ensure Investment programme, RUB bn 681.9 674.1 –1.1 Goals and Strategic Objectives Strategy until 2020 and the Russian Railways a fourfold growth of transit container Length of public railway lines with limited throughput, of the Russian Federation through to 2024 Group’s 2030 Development Strategy. transportation; thousand km 8.3 10.64 +27.7 dated 7 May 2018 (in terms of Russia’s The Company’s Development Strategy • a reduction of container travel Length of railway tracks with exceeded limits of throughput goal to enter the Top 5 of the world’s and Long-Term Development Programme times (in particular, to seven days in tonnes and useful life, thousand km 24.5 23.9 –2.4 largest economies). are aligned through a list of Group-wide key for containers transported from Russia’s Container transit volumes, thousand TEU 615 6185 +0.4 performance indicators (KPIs). Far East to its western border). Average daily performance of a freight train locomotive, thousand tkm gross 2,165 2,139 –1.2 Average loaded freight car delivery speed, km/day 392 395 +0.7 Adherence to freight train schedules, % 74.67 69.58 –5.1 pp Programme implementation in 2019 Adherence to passenger train schedules, % 98.35 98.01 –0.3 pp Integrated KPI for innovation efficiency 1 1.26 +26 In 2019, the Company drafted In 2H 2019, the Company faced continued product portfolio and enhanced customer Procurement from small and medium-sized businesses, % 18 62.8 +44.8 pp the Standard for Assessing negative macroeconomic headwinds experience in rail travel. Russian Railways’ revenue, RUB bn 1,874.2 1,848.1 –1.4 the Implementation of the Long-term due to trade wars, stagnation in some Russian Railways’ EBITDA (under RAS), RUB bn 415.5 417.2 +0.4 Development Programme and KPI European economies, and a slowdown As a result of lower handling volumes Russian Railways’ net profit, RUB bn 26.9 53.5 +98.9 Achievement and the Terms of Reference in China, leading to muted manufacturing and freight turnover, Russian Railways’ for Assessing the Implementation activity and unfavourable global commodity 2019 revenue was below the target. EBITDA margin (under RAS), % 22.2 22.6 +0.4 pp of the Long-term Development Programme prices for Russian exports, which resulted However, thanks to operational efficiency Labour productivity growth in transportation operations, % 5 3.3 –1.7 pp until 2025 and KPI Achievement in lower demand for transportation improvements, the Company’s net in 2019. Both documents2 were services from shippers affecting profit was nearly twice as high verified at the meeting of the Audit the handling volumes and freight turnover. as the Programme’s target. and Risk Committee on 28 January 2020 and recommended for further approval Passenger turnover in 2019 exceeded by Russian Railways’ Board of Directors. the target, with the growth mainly driven by increased mobility of people, expanded
3. Under the base case scenario of Russian Railways’ Long-Term Development Programme until 2025. 1. 4. Approved by the Company’s Board of Directors (Minutes No. 14 dated 8 April 2019). Estimate. 2. 5. Approved at the meeting of the audit and risk Committee of the Board of Directors of Russian Railways (Minutes No. 7 dated 28 January 2020). Including the return of empty containers from Europe to China as per new logistics schemes.
32 Russian Railways Annual report 2019 33 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Development prospects in 2020
The Company’s development prospects were assessed taking into account the following key objectives for 2020:
• achieve targets under Russian Railways’ Action Plan1 to Deliver against the Russian President’s Address • reach a break-even point in the operations of suburban passenger companies, including through to the Federal Assembly dated 1 March 2018 and the Russian President’s Decree No. 204 On National maintaining a dialogue with Russian regions on the reimbursement of the subsidiary carriers’ income Goals and Strategic Objectives of the Russian Federation through to 2024 dated 7 May 2018; lost as a result of the tariffs for suburban passenger transportation being regulated by the government, in line with completed public transportation service orders; • achieve targets under the Comprehensive Plan for Upgrading and Expanding Core Infrastructure until 20242; • develop digital competencies and harness digital technology to improve efficiency of internal processes, enhance the service offering and increase adaptability of customer relations models; • strictly follow strategic priorities outlined in the Company’s Long-Term Development Programme until 2025; implement unified and balanced principles of financial, operating, technical, technological, • enhance environmental and traffic safety, improve the traffic safety management system, develop investment, social and HR policies ensuring social stability and development of the Russian Railways the traffic safety culture, and prevent occupational injuries across the Russian Railways Group; Group under the Long-Term Development Programme until 2025; • expand Russian Railways’ international footprint and increase its portfolio of overseas projects; • leverage competitive advantages of rail transport, including by developing freight transportation quality standards based on availability, timeliness and reliability of transportation services and cargo safety, • set the groundwork for the development of high-speed and ultra high-speed railway services and increase train speed for transit, interline and local freight transportation; between major cities, including the design of the Moscow–St Petersburg line and preparations for the construction of the Moscow – Nizhny Novgorod High-Speed Railway; • strengthen the Company’s market position in passenger transportation by developing route network, improving service quality, expanding the product offering, renewing the rolling stock, and upgrading • harness Russian Railways’ vast organisational and technology potential for the Group to become and refurbishing infrastructure; implement a set of technical and technological measures, including a national leader in quantum communications; infrastructure preparations, to ensure uninterrupted transport service during the celebration of the 75th anniversary of the victory in the Great Patriotic War, and summits of the Shanghai • enhance cooperation with Russian technology initiative centres, branches of the Russian Academy Cooperation Organisation (SCO) and BRICS3; of Sciences, and other R&D centres, in the field of R&D and innovation development.
1. Russian Railways’ Action Plan to Deliver against the Russian President’s Address to the Federal Assembly in 2018–2020 and the Russian President’s Decree No. 204 On National Goals and Strategic Objectives of the Russian Federation through to 2024 dated 7 May 2018 approved by Order No. 635/r of the Company’s CEO and Chairman Changes in the macroeconomic of the Management Board Oleg Belozerov on 20 March 2020. environment driven by the COVID-19 2. Approved by the Russian Government’s Order No. 2101-r dated 30 September 2018. outbreak may require the adjustment 3. BRICS is an association of five countries: Brazil, Russia, India, China and South Africa. of key 2020 goals and targets.
34 Russian Railways Annual report 2019 35 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
PERFORMANCE OVERVIEW Despite a drop in rail freight handling driven by the slowdown of the global economy and weakening macroeconomic environment in Russia in 2019, Russian Railways’ freight turnover remained flat y-o-y. The passenger turnover across the Company increased both on suburban and long-haul routes.
133.4 bn pkm 3,305 bn tkm passenger turnover total freight turnover in 2019 in 2019 +3.1% y-o-y flat y-o-y
36 Russian Railways Annual report 2019 37 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Market overview
Russian economy in 2019 Russia’s freight turnover by transport mode
Share in total freight 2019 turnover, % In 2019, Russia saw its macroeconomic • lower annual average prices of crude oil The positives included strong performance fundamentals deteriorate. The country’s and some other major Russian exports; of Russia’s agriculture, low inflation Transport mode Bn tkm Y-o-y change, % 2018 2019 GDP growth dropped from 2.5% in 2018 • a drop in export volumes; contributing to a stable macroeconomic All transport modes 5,670.9 0.6 100.0 100.0 to 1.3% in 2019 (hereinafter as per • continued sanctions pressure; environment in the country, low Railway1 2,602.5 0.2 46.1 45.9 the data of the Russian Federal State • a drop in the domestic consumer unemployment rate and monetary easing, Including the infrastructure of Russian Railways and Yakutia Railways 2,601.9 0.2 46.1 45.9 Statistics Service, unless indicated and investment demand; which should help boost economic activity, otherwise). This was driven by: • VAT increase; though in a somewhat deferred manner. Road 275.4 6.3 4.6 4.9 • a slowdown of global economic • weaker than planned progress Sea2 36.5 –1.0 0.7 0.6 activity; in implementing national projects. Inland waterways2 62.8 –4.9 1.2 1.1 Air (transport aviation) 7.4 –5.4 0.1 0.1 Pipeline 2,686.2 0.7 47.3 47.4 Transport industry in Russia For reference: Share of railway trasport excluding pipelines 87.5 87.2 Share of Russian Railways excluding pipelines 87.5 87.2 Industrial production growth, which for a major share of export rail freight across the transport modes, except is of critical importance to the rail freight transportation also dropped in volume for the sea (–1%) and air (–5.4%) transport transportation sector, dropped from 3.5% terms. and inland waterways (–4.9%). Loaded in 2018 to 2.3% in 2019 in no small part freight turnover in the railway segment PASSENGER • 133.6 bn pkm in railway transport; Despite a 3.1% y-o-y growth, railway due to: added 0.2%. TRANSPORTATION MARKET • 113.3 bn pkm in road transport; transport saw its share in total passenger • a drop in the mining industry (from 3.8% FREIGHT • 323.0 bn pkm in air transport. turnover go down by 1 pp to 23.4%. in 2018 to 2.5% in 2019); TRANSPORTATION Railway transport accounted for 45.9% Passenger turnover Passenger turnover in the road transport • a drop in the manufacturing sector MARKET of the country’s total freight turnover In 2019, Russia’s passenger turnover Passenger turnover growth in the public (bus service) segment decreased by 1.7% (from 3.6% in 2018 to 2.6% in 2019). (down 0.2 pp vs 2018), or 87.2% (down increased by 7.2% y-o-y to 570.5 bn pkm, transport segment was mainly driven to 19.9%. 0.3 pp vs 2018) with the pipeline transport including: by a 12.6% increase in air transportation. External demand was another headwind Freight turnover excluded. for Russia’s transport industry. In 2019, According to the Russian Federal State Russian exports declined by 5.5% in value Statistics Service, in 2019, freight Passenger turnover by transport mode terms after a 25.5% growth in 2018. turnover in Russia increased by 0.6% y-o-y Exports of certain cargoes accounting to 5,670.9 bn tkm. Growth was reported Share in total passenger 2019 turnover, %
Transport mode Bn pkm Y-o-y change, % 2018 2019 Public transport total 570.5 +7.2 100.0 100.0 Railway3 133.6 +3.1 24.4 23.4 Including Russian Railways’ infrastructure4 133.4 +3.1 24.3 23.4 Road (bus service) 113.3 –1.3 21.6 19.9 Inland waterways 0.54 –5.4 0.09 0.1 Air 323.0 +12.6 53.9 56.6
1. Loaded freight turnover. 2. For reference: freight transportation by sea and internal waterways includes shipments made under freight transportation contracts by the company’s own and/or leased (chartered) vessels (including vessels leased to foreign companies (charterers) under time charter arrangements) flying the flag of the Russian Federation with the relevant shipping documents in place. 3. Excluding intra-urban transport. 4. Russian Railways’ data.
38 Russian Railways Annual report 2019 39 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Amid high volatility in the key sales markets, we focus strongly Analysis of operating results on driving demand for the Russian Railways services and drawing “ freight to rail. We also keep streamlining communications with our clients across all aspects of our operations, including tariff Transportation and logistics policies, regulatory issues and logistic arrangements.” Alexey Shilo Russian Railways operates railway infrastructure, owns rolling stock (through subsidiaries and affiliates) and provides both basic transportation and 3PL/4PL services. The Company Deputy CEO, Head of the Centre for Corporate Transport Services is applying advanced logistics technologies, implementing an automated customer relationship management system and a uniform freight transportation service catalogue, and expanding its geography, while also continuing to develop and introduce new services Key achievements in 2019
for shippers. • Loaded freight turnover reached 2,601.9 bn tkm (up 0.2% vs 2018). • Handling volumes went up for iron ore (up 3.5 mt, or 3.0%), chemical and mineral fertilisers (up 1.3 mt, or 2.2%), cement (up 1.2 mt, or 4.7%) and containerised cargoes (up 4.1 mt, or 13.1%). • The first container train was dispatched from the Bely Rast terminal and logistics centre. KEY GROWTH AREAS • Strengthening logistics capabilities in certain sufficiently competitive • As part of the initiative to support non-commodity exports, a new Agroexpress service was launched UNDER THE LONG-TERM to satisfy the customer demand transportation market segments for fast container train shipments of Russian agricultural and food products to China. DEVELOPMENT for comprehensive services, including (including container (RoLa) shipping, • In Q2 2019, Russian Railways jointly with FESCO launched Trans-Siberian LandBridge, a new multimodal use of global transportation chains transportation of light petroleum transit service for fast transportation of various cargoes, including auto parts and household PROGRAMME and outsourcing logistics for industrial products, fish, fish products, etc.) appliances, from Japan’s ports and South Korea via the Commercial Port of Vladivostok and the Trans- facilities • Enhancing coordination within the Group Siberian railway, with subsequent delivery to the consignee’s warehouse in Europe by road. The service • Building long-term relations • Enhancing accuracy of freight shipment in order to improve the performance helps to halve the overall lead time to 21 days as compared to the traditional deep-sea route and also provides the opportunity to send containers back from Europe to Japan or South Korea. Total Trans- with customers, including schedules by improving the system of transportation and logistics Siberian LandBridge shipments since its launch in May and through the end of 2019 amounted by linking guaranteed freight volumes of shipments with fixed departure subsidiaries and business units to 27 thousand TEU. to infrastructure, organisational and arrival times and reducing delivery • Launching electronic workflow as a tool • A certificate of compliance was received for a universal container and piggyback flatcar of 13-5205 and technical initiatives designed to fully time to facilitate communication between type, which can also be used for carrying wheeled transport (100 flatcars are expected to come online meet the customers’ transportation • Fine-tuning transportation products all participants of the transportation in Q1 2020). needs and services to meet the shippers’ needs process (including the federal executive • To maintain top-notch quality of service, Russian Railways launched regular Client Days. • Improving customer feedback and developing new products and services authorities and international multimodal • We kept using new logistic technologies to expand our portfolio of integrated end-to-end services and ensuring high client loyalty, including • Developing freight transportation quality freight transportation players) (door-to-door, just-in-time, last-mile delivery and others) based on consolidated efforts of all divisions by putting in place an automated standards based on availability, timeliness and business units involved in the Company’s transportation and logistics operations. customer relationship management and reliability of transportation services, • New capabilities were launched as part of the Freight Transportation electronic trading platform system in the freight transportation cargo safety, choice of logistics, terminal (FT ETP), including trading in bids to supply rolling stock, transportation planning services for domestic routes, transportation orders for indirect international routes (via Russian sea ports), and cloud segment in Russian Railways and across and warehousing services, and delivery services for service providers. its subsidiaries and affiliates speed • The Group further developed free IT services, taking a completely new approach to providing • Creating an automated tool to maintain • Developing the RZD Express service information services in 2019. For instance, Russian Railways decided to provide basic information a uniform freight transportation for small and medium-sized cargo batches on freight transportation and the technical condition of rolling stock free of charge as part of basic service catalogue giving customers • Introducing RoLa services transportation services starting January 2019. access to the entire range of freight • Conducting a dedicated analysis • The Autoagent project was launched to enable automatic execution of the clients’ transportation transportation services, offerings and, if economically feasible, initiating documents for empty cars. In 2019, it was also expanded to cover document execution for loaded cars and specifications gradual abolition of tariff regulation and automatic release of bills of lading.
40 Russian Railways Annual report 2019 41 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Handling by transportation type
2018 2019
Item mt share, % mt share, % Change vs 2018, % Handling 1,289.6 100.0 1,278.1 100 –0.9 Domestic 797.6 61.8 788.2 61.7 –1.2 Export 482.3 37.4 478.3 37.4 –0.8 Including: via ports 306.3 23.8 316.9 24.8 3.5 via border crossings 176.0 13.6 161.4 12.6 –8.3 Import and transit 9.8 0.8 11.6 0.9 19.1
Handling volumes evolution, mt FREIGHT by 1.2% (to 788.2 mt) and 0.8% Class I freights only fell by 0.4% and 0.5% TRANSPORTATION USING (to 478.3 mt) respectively. respectively. 2019 1,278.1 −0.9 2.2 RUSSIAN RAILWAYS’ 2018 1,289.6 The shares of domestic and export In Class I, timber was the worst performer 2017 1,261.3 3.2 INFRASTRUCTURE transportation in the handling breakdown with a 8.1% decline. In Class II, grain 2016 1,222.3 remained almost unchanged vs 2018 showed a considerable decrease of 20.1%. 0.6 Handling and accounted for 61.7% and 37.4% Finally, Class III saw ferrous metal handling 2015 1,214.5 −1.0 In 2019, 1,278.1 mt of freight, or an average respectively. Shipments of hard coal, bulk volumes go down by 5.6%. of 3,501.7 kt per day, was handled by Russian oil, construction materials and ores made Handling volume Handling volume growth, % y-o-y Railways (down 0.9% vs 2018). The decrease up the largest part of handling volumes, Low-margin cargoes dominated the freight was due to reduced transportation of grain, with their aggregate share amounting shipment structure, gaining 0.2 pp since oil and petroleum products, ferrous to 66.4%. 2018. The shares of mid- and high-margin Domestic handling by cargo type Export handling by cargo type metals, timber, coal, ferrous scrap metals cargoes grew by 0.2 pp and decreased in 2019, % in 2019, % and industrial commodities. In 2019, handling volumes declined by 0.4 pp respectively. across tariff classes. The most expensive The reporting year saw lower handling cargoes (Class III) were the most sensitive 23.0 20.8 13.0 volumes across the board. Domestic to changing market conditions with a drop 4.7 and export handling volumes decreased of 4.4%, while Class II and the cheapest 43.5 4.7 2.4 788.2 6.1 478.3 Highlights of freight transportation using Russian Railways’ infrastructure 3.1 m tons m tons 17.0 5.7 7.5 Measurement Change vs Item unit 2015 2016 2017 2018 2019 2018, % 12.4 15.5 20.5 Handling volumes mt 1,214.5 1,222.3 1,261.3 1,289.6 1,278.1 –0.9 daily average thousand t 3,327.3 3,339.5 3,455.7 3,533.2 3,501.7 –0.9 Hard coal Hard coal Total freight turnover bn tkm 2,954.9 2,997.8 3,176.7 3,304.8 3,305.0 0.0 Oil and petroleum products Oil and petroleum products Including: Construction cargoes Iron and manganese ore loaded turnover bn tkm 2,304.8 2,342.6 2,491.9 2,596.9 2,601.9 0.2 Iron and manganese ore Ferrous metals Ferrous metals Chemical and mineral fertilisers empty turnover bn tkm 650.1 655.2 684.8 707.9 703.0 –0.7 Chemical and mineral fertilisers Timber Share of shipments delivered within required (contractual) period % 92.9 96.1 96.7 97.1 98.4 1.3 pp Timber Other Average loaded car delivery speed km/day 372 381 386 390 395 1.3 Other Average loaded and empty car delivery speed km/day 341 361 362 370 372 0.6
42 Russian Railways Annual report 2019 43 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Freight turnover Domestically, loaded freight turnover In terms of cargo types, in 2019, coal’s Loaded freight turnover breakdown, % Despite the 0.9% decrease in handling contracted by 0.9% to 1,017.0 bn tkm in 2019, and ore’s shares grew by 0.3 pp each, volumes in 2019, the total freight turnover which was offset by export shipments via and that of mineral and construction In direction By cargo type was in line with the 2018 figure, amounting railway stations near ports (up by 5.3%). cargoes – by 0.2 pp. The share 39.1 54.1 4.2 2.5 16.9 to 3,305.0 bn tkm. Loaded freight The export, import and transit turnover of oil and petroleum products decreased 2019 turnover accounted for 2,601.9 bn tkm increased by 0.2% (to 1,408.5 bn tkm), 8.7% by 0.4 pp and the share of ferrous metals – 39.5 54.1 3.9 2.5 of that, up 0.2% y-o-y. The 0.9% increase (to 110.3 bn tkm) and 2.5% (to 66.1 bn tkm) by 0.1 pp, compared to 2018. 2018 3.8 in the average haul (from 1,835 km respectively. The strong growth in exports 40.1 53.6 4.0 2.3 5.8 44.2 to 1,851 km) was the main factor is further reducing the share of domestic 2017 2,601.9 bn tkm contributing to the turnover increase. shipments in overall loaded freight turnover. 41.7 52.8 3.6 2.0 6.4 2016 8.0 43.4 50.8 3.7 2.1 Loaded freight turnover evolution 2015 14.9 Domestic Export Import Transit Coal 2019 2,601.9 0.2 Oil and petroleum products 2018 2,596.9 4.2 Mineral and construction cargoes 2017 2,491.9 6.4 Ores 2016 2,342.6 1.6 Ferrous metals 2015 2,304.8 0.3 Chemical and mineral fertilisers Loaded freight turnover, bn tkm Growth, % y-o-y Other
44 Russian Railways Annual report 2019 45 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
TRANSPORTATION Service of the Russian Federation, In 2019, container transportation • 162.6 thousand TEU on routes to Central for fast transportation of various In 2019, the company’s revenue was AND LOGISTICS SERVICES SPIMEX, and Russian Railways through Russian Railways’ network Asia; cargoes from Japan and South Korea RUB 36,253 m, while net profit totalled to organise exchange trading via reached 5,001.9 thousand TEU, up 12.6% • 52.6 thousand TEU along the China– via the Commercial Port of Vladivostok RUB 449.3 m, down 11% and 65% y-o-y Operating in a highly competitive a company from the Russian Railways y-o-y, including 3,012.5 thousand TEU Belarus–China axis. and the Trans-Siberian Railway, respectively. The decrease in the company’s and volatile market, Russian Railways Group acting as the commodity pool carried by container trains, up 20% with subsequent delivery performance is attributable to the general seeks to provide comprehensive operator; (506 thousand TEU) vs 2018. As a result, Performance highlights of major to the consignee’s warehouse in Europe macroeconomic conditions and the expiry services across all transportation types • the Methodology of Using Distributed the share of containers transported transportation and logistics by road. The service helps to reduce of the contracts for transportation and expand its customer offering. Ledger (Blockchain) Based Smart by container trains in 2019 exceeded 60%, subsidiaries and affiliates the overall lead time as compared of socially important cargoes in April 2019. Advanced 3PL/4PL logistics technologies Contracts in Russian Railways’ while the share of full train shipments to the traditional deep-sea route lie at the centre of our business, ensuring Transportation and Logistics adopted; and container shipments increased by 4% RZD Logistics and provides the opportunity to send GEFCO our ability to serve the maximum number • eleven new core transportation vs 2018. RZD Logistics is the largest multimodal logistics containers back from Europe to Japan GEFCO (a French-based subsidiary of consumers. and logistics products implemented. operator in the CIS and the Baltics established and South Korea. of Russian Railways Group) is a global Below are the key achievements made Transit transportation in 2019 as part of the development of the logistics provider of 3PL/4PL logistics solutions as part of fine-tuning transportation Container solutions remain one of the most In 2019, transit transportation business of the Russian Railways Group. Major projects for industrial companies and services. With 350 operational sites products and services to meet promising areas in the transportation (including empty railcars) stood The company arranges freight transportation in 2019 include the expanded partnership all over the world and a footprint spanning the shippers’ needs and developing new and logistics business. Container at 28.54 mt, up 0.4% y-o-y. Container to more than 50 regular delivery destinations with Severstal to provide services over 150 countries, the company is among products and services: trains cover more than 450 routes, transit, including the return of empty in Russia, Europe and China and provides to Severstal’s steel mill in the Vologda Europe’s Top 10 logistics operators. Russian • purchases using RZD Market software both domestically and internationally, containers from Europe to China logistics services for foreign trade in Eurasia Region, resulting in a 20% increase Railways holds a 75% stake in GEFCO. piloted, with a rail freight transportation travelling on average around 800 km/day. under the new logistic arrangements, (the CIS, the Baltics, China, Japan, Vietnam, in transportation services to the mill, service introduced on the Freight The average speed of container trains totalled 618 thousand TEU, up 11.8% y-o-y, India, and the European Union). and the arrangement of round runs The company’s revenue in 2019 grew Transportation e-commerce platform; carrying perishable freight and transit including along the following key routes: to transport LPG, sulphur and empty 2% y-o-y to EUR 4.739 bn. Net profit • a memorandum of cooperation signed freight is 1,000 km/day and 1,150 km/day • 347.7 thousand TEU via the East–West In 2019, Russian Railways launched railcars for Tengizchevroil. for the same period totalled EUR 118.2 m between the Federal Antimonopoly respectively. transport corridor; Trans-Siberian LandBridge, (up 22.2%). a new multimodal transit service
46 Russian Railways Annual report 2019 47 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
In partnership with Russian Railways, is a joint venture of Russian Railways, Federal Freight Company (FFC) • carried out pilot RoLa shipments using GEFCO launched a number of projects Belarusian Railway and Kazakhstan Temir is a network-wide operator of freight universal 13-5205 type flatcar; in Russia to improve efficiency Zholy, with each founder having an equal rolling stock. The company is a subsidiary • started supplying rolling stock as part of the Group’s supply chains and use its shareholding of 33.33%. of Russian Railways and one of the largest of the new Rolling Stock Lots service assets in joint activities. One of the key Read more railway freight operators in Russia. FFC launched at the Freight Transportation projects is multimodal transportation In 2019, its revenue was RUB 27.1 bn about RZD Logistics runs 15 branches and transport service electronic trading platform (FT ETP); of oversized coal mining machinery and net profit stood at RUB 2.6 bn. at rzdlog.com agencies and has representative offices • tested the loading and unloading of grain and equipment from Europe to Russia. Container transit services provided in Moscow and Kazakhstan. products and mineral and construction by UTLC ERA totalled 333.02 thousand TEU. cargoes to/from special bulk and unit A number of promising projects were The company accounts for over 95% of all load containers; implemented in automobile logistics, China remains the main driver of transit empty rolling stock offered via the Freight • started developing innovative rolling the company’s core customer service shipping. The total value of goods Read more Transportation electronic trading platform stock for expedited container transit segment that relies on a fleet of its own auto shipped by UTLC ERA in 2019 exceeded about GEFCO (FT ETP). along the China–Europe route; carriers. In 2019, over 1.6 thousand railcars USD 25 bn. The company’s container at gefco.net • continued to be a leader of the freight arrived from Kaliningrad at the operator’s transportation footprint in 2019 spanned In 2019, FFC’s revenue was RUB 108.3 bn rolling stock market in terms of: site in Domodedovo. In the reporting year, across 83 routes from China to Europe (up 9.6% y-o-y, under RAS), sales revenue – the share in Freight turnover, total GEFCO organised transit transportation and 59 routes from Europe to China. reached RUB 27.8 bn (up 16.3%) and net (12,3%); of over 1 thousand finished cars along profit grew to RUB 23.5 bn (up 9.8%). – the average annual size of fleet the Silk Road from Europe to China. In the reporting year, UTLC ERA was able under management (134,600 units); to significantly increase the speed Read more As at the end of 2019, FFC: – the share in the Russian railcar fleet GEFCO was the first to arrange export of transit container trains, with the transit about UTLC ERA at • remained one of the best performing (11.2%). shipments by rail from Bystrinsky Mining time along the China–Europe–China axis www.utlc.com/en railway operators, according and Processing Plant owned by Norilsk Nickel. reduced to less than five days2. to the INFOLine Rail Russia TOP ranking; • recognised as the best subsidiary UTLC ERA1 of the Russian Railways Group in terms 1. UTLC Eurasian Rail Alliance (UTLC ERA) Here and further: UTLC ERA is a joint venture of economic and financial performance; of Russia, Belarus and Kazakhstan. develops transit railway container services 2. • started providing 4PL logistics services On the base route of UTLC ERA Dostyk/ in Russia, Kazakhstan and Belarus. UTLC ERA Altynkol-Brest/Bruzgi/Svisloch. to industrial companies;
48 Russian Railways Annual report 2019 49
Read more about FFC at ru. railfgk.ru About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
IMPROVING THE QUALITY shipped, including 4 mt of freight By now, the first phase of the project has solutions, Russian Railways joined forces Express. In 2019, 43,410 trains (up 33.5% and local sales offices. In 2019, sales OF TRANSPORTATION exported. The number of users registered been completed to establish the Kaliningrad with Logbox to implement the Smart y-o-y) were dispatched as part of the fixed offices attracted around 1,000 new SERVICES on the platform exceeded 4,600. transportation and logistics centre and its Logistics Project. The idea of the project schedule freight transportation service railway customers. satellite facility at the Chernyakhovsk station. is to create a powerful transportation delivering 79.17 mt of cargo (up 9% y-o-y). In 2019, the Russian Railways Group This is where transit containers going and logistics centre in the Moscow Russian Railways employs a multi-channel FT ETP progress expanded its offer of digital services, on the Chongqing–Duisburg–Chongqing route Metropolitan Area (MMA) to split The option of consolidating small- monitoring system to collect customer The Freight Transportation electronic trading introducing such options as trading are transhipped between the 1,520 mm the current container rail freight flow sized cargo batches offered as part feedback. The Company engages Russian platform (FT ETP) integrates transportation, in bids to supply rolling stock, empty and 1,435 mm gauge flatcars. The Kaliningrad in two: shipments for Moscow consumers of the Freight Express service helps more Public Opinion Research Centre (VCIOM) rolling stock supply, terminal, warehousing railcar management, cargo protection transportation and logistics centre has and for those outside the Moscow Ring than halve the delivery time and make and RZD-Partner to conduct comprehensive and logistics services of Russian Railways’ and logistics support. On top of that, therefore opened a new transportation Road. transportation by rail as expedient service quality assessment surveys. subsidiaries into a single marketplace. international freight transportation corridor between the EU and China through as transportation by road. In 2019, 1,990 to Latvia and Finland is now also available. Russia’s Kaliningrad Region. Improving the quality trains (up 23%) were dispatched, delivering According to VCIOM, as at August 2019, The platform currently connects of transportation services 2.3 mt of cargo (up 28% y-o-y). 53% of the respondents were satisfied over 70 service providers, including 55 rolling Creating freight The first phase of the Bely Rast project Russian Railways’ key priority in the freight or quite satisfied with the service quality stock operators, three terminal and warehouse transportation and logistics has been piloted. Since 27 December 2019, transportation segment is to attract To attract potential customers (up 1 pp y-o-y). operators, three carriers and six stevedores. centres the transportation and logistics centre has additional cargo volumes and expand and provide easier access to its services The Comprehensive Plan for Upgrading been accommodating container trains. the range of logistics products available and infrastructure, Russian Railways Over 250,000 railcars were dispatched and Expanding Core Infrastructure until 2024 to the customers. To this end, the Group opened sales offices across all its across Russian Railways’ network via provides for the implementation of Transport In 2019, as part of its efforts to introduce launched the following high-speed services: network in Russia. Russian Railways FT ETP, with over 16 mt of freight and Logistics Centres federal project. new integrated terminal and warehousing Scheduled Freight Traffic and Freight is currently operating 45 regional
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Passenger transportation
The primary objective of Russian Railways is to provide all Russian regions with affordable passenger transportation. Along with suburban transportation comprising multimodal We consistently focus on improving transport availability routes, the Company is developing long-haul passenger services, including high-speed and increasing mobility of people. In passenger transportation, and ultra high-speed transportation between metropolitan areas. “ our priorities are convenient railway stations, trains, ticket offices and online capabilities coupled with the top-notch quality of service.”
Russian Railways carries out long-haul Key initiatives for the long-haul passenger passenger transportation vs other and suburban transportation in 77 transportation development: transport modes; Dmitry Pegov and 66 regions of Russia, respectively. • building an efficient route network • launching multimodal transportation and train schedule; (with the possibility of building Deputy CEO of Russian Railways In the long-haul segment, the Company • developing high-speed rail transportation an integrated route network seeks to provide all Russian regions through operation of Lastochka for several transport modes) along with affordable passenger transportation. and Strizh trains as well as trains with the comprehensive development It lays a strong emphasis on developing with double-decker railcars; of bus transportation services within Key achievements in 2019 high-speed and ultra high-speed • providing customers with high quality the Group; • In 2019, the Company transported 1,197.8 m people (up 3.5% y-o-y). transportation to encourage travel product offerings; • defining economic incentives • In November 2019, Moscow Central Diameters covering the routes from Odintsovo to Lobnya (MCD 1) between major metropolitan areas. • digitalising customer services for upgrading rolling stock and from Podolsk to Nakhabino (MCD 2) were launched as part of the Moscow Transport Hub. and business processes; and infrastructure facilities; • The Urban Commuter Train project covered 12 cities. In the suburban segment, Russian Railways • offering innovative products in trains; • introducing suburban transportation • During the XXIX Winter Universiade in Krasnoyarsk, the Company used 23 pairs of long-haul trains focuses on developing an affordable • improving the customer experience; standards for accessibility, quality and 58 daily intracity trains to transport sports delegations and fans. high-speed alternative to personal cars • introducing the world’s best practices and safety of passenger transportation; • 40 suburban trains were used during the WorldSkills international skills competition in Kazan. and public buses in large metropolitan for the development of multimodal • enhancing the Central Transport Hub; • In 2019, for the fourth year running, the Company sponsored a 50% ticket discount for children aged areas. transport. • reducing the interval between passenger 10 to 17 travelling in open sleeping and sitting cars on long-haul routes between 1 June and 31 August. trains on certain routes, including Over the four years, the discount was provided to 10 m children. • In August 2019, Russian Railways launched the first train with special seats for passengers Key initiatives for the suburban passenger the Moscow Central Circle. with children, travelling between Moscow and Anapa. KEY FOCUS AREAS transportation development: • Additional 156 pairs of suburban trains were used to transport the guests of the 2019 MAKS OF THE LONG-TERM • integrating suburban transport into Key initiatives for the railway station International Aviation and Space Salon. DEVELOPMENT the urban transport environment development: • The Innovation Centre station was added to the Smolensk route to provide transport accessibility of metropolitan areas; • creation of multifunctional intermodal for residents of Skolkovo Technopark. PROGRAMME • ensuring long-term mutual obligations and transport interchange hubs • The Company celebrated the 75th anniversary of the victory in the Great Patriotic War of all participants of suburban transit integrated with the modern urban of 1941–1945 by introducing free tickets for life for the war veterans and disabled servicemen In line with the Long-Term Development systems under the regional tariff environment and infrastructure; and their accompanying persons. Programme, the Company intends to fully and budgetary policies of the Russian • efficient use of railway station areas • Russian Railways started selling non-refundable tickets. maintain the volume of socially significant Federation; (including synergies and cooperation • Online ticket sales were launched for all suburban commuter companies of Russian Railways. • transportation, including through • adopting regulatory decisions aimed with bus stations). On 7 June 2019, Russian Railways signed an agreement with Siemens Mobility GmbH and Ural Locomotives for the purchase of Sapsan electric trains, as part of the St Petersburg International implementing initiatives in Russia’s Far at securing equal opportunities Economic Forum. The trains will be delivered and commissioned between September 2022 and July 2023. East. for the development of suburban
52 Russian Railways Annual report 2019 53 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
PASSENGER Suburban passenger turnover rose by 3.5% We also acquired 199 new Lastochka The suburban rolling stock renewal Railway passenger turnover, bn pkm TRANSPORTATION IN 2019 y-o-y to 34.3 bn pkm, with 1,081.3 m cars (up 10.5% y-o-y), 33 of which helped to satisfy the demand for this kind passengers transported (up 3.3% y-o-y). are powered by electricity. of transportation in the Russian regions. 34.3 99.1 2019 133.4 In 2019, the Company’s passenger transportation volumes reached an eleven- The growth in the number The latter are fitted for people On the sidelines of the St Petersburg 33.1 96.3 2018 129.4 year high of almost 1.2 bn people (up 3.5% of passengers transported was partly with reduced mobility, passengers International Economic Forum y-o-y). The growth both in suburban driven by the launch of Moscow with children, bicycles and strollers. in June 2019, Russian Railways 31.9 91.0 2017 122.9 and long-haul transportation was driven Central Diameters and increased use signed an agreement with Siemens 31,0 93.5 by the launch of new services, rolling stock of the Moscow Central Circle. In 2019, the Company also purchased Mobility GmbH and Ural Locomotives 2016 124.5 upgrades and improvements in service 50 novel open cars (model of 2019) for the purchase of additional Sapsan 30,9 89.5 speed, quality and accessibility. Rolling stock renewal with improved facilities. All seats on these electric trains. Thirteen newly 2015 120.4 In 2019, the Company purchased trains are equipped with curtain holders manufactured ten-car single-voltage In 2019, Russian Railways’ long-haul 572 new passenger cars, including to give passengers more privacy. Sapsan trains will be travelling between Suburban transportation Long-haul transportation passenger turnover rose by 3% y-o-y 257 innovative passenger cars Moscow and St Petersburg. Their to 99.1 bn pkm, with over 116.5 m (up 3.9x y-o-y), 154 out of which We also purchased 158 cars arranged delivery and commissioning will start passengers transported (up 5.6% y-o-y). were double-deckers (up 2.4x y-o-y). in 19 trains for suburban transportation. in September 2022. Passengers transported by rail, m people
Russian Railways’ passenger transportation highlights 1,081.3 116.5 2019 1,197.8 Indicator 2015 2016 2017 2018 2019 Change y-o-y, % 1,046.9 110.3 2018 1,157.2 Passenger turnover, bn pkm 120.4 124.5 122.9 129.4 133.4 3.1 Suburban transportation 30.9 31.0 31.9 33.1 34.3 3.5 1,015.7 102.2 2017 1,117.9 Long-haul transportation 89.5 93.5 91.0 96.3 99.1 3.0 133.4 935.6 101.4 including high-speed and ultra high- bn pkm 2016 1,037.0 speed trains 3.7 4.6 6.1 7.3 7.9 8.0 passenger turnover in 2019 922.5 97.9 Passengers transported, m people 1,020.4 1,037.0 1,117.9 1,157.2 1,197.8 3.5 2015 1,020.4 Suburban transportation 922.5 935.6 1,015.7 1,046.9 1,081.3 3.3 +3.1% y-o-y Suburban transportation Long-haul transportation Long-haul transportation 97.9 101.4 102.2 110.3 116.5 5.6 including high-speed and ultra high- speed trains 7.7 9.2 12.4 15.6 17.1 9.9
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SUBURBAN PASSENGER factor of 0.01, makes it possible to set transport system, convenient transfers, In March 2019, the Urban Commuter Train systems is the creation of transport TRANSPORTATION the price of tickets at a socially affordable unified ticketing system and navigation in Krasnoyarsk made a significant contribution interchange hubs, where the passengers level. In 2019, most regions opted across the Moscow Transport Hub speak to the transport accessibility of sports can switch between railway and other Suburban transportation services are provided not to increase rail fares. for the development of similar projects facilities during the Universiade. The trains types of urban and suburban transport. Over the year, suburban by 25 suburban passenger companies (SPCs), in other parts of the country. served more than 20,000 residents and guests. The new hubs are accessible to people trains transported with Russian Railways, regional executive Development of suburban with reduced mobility and meet all modern authorities, private investors and Aeroexpress transportation The Urban Commuter Train, a rapidly growing On 1 June 2019, the Urban Commuter requirements. among the co-founders. Russian Railways The Moscow Central Circle and Moscow regional project, received positive response Train was launched in Vladivostok. holds more than 50%. Central Diameters are a perfect example from passengers. The project encompassed In 2019, seven suburban passenger 1,081.3 of how effectively suburban railways can 12 metropolitan areas: Moscow, Progress on multimodal companies launched 14 new The government support of suburban be integrated into the urban environment. Krasnoyarsk, Ufa, Rostov-on-Don, Tambov, routes and hubs in 2019 multimodal routes. There are currently m passengers transportation, by way of reimbursed The resulting increase in carrying Voronezh, Volgograd, Kaliningrad, Kazan, The most successful approach 120 multimodal suburban routes provided +3.3% y-o-y infrastructure costs and a discount capacity, load lifted off the existing public Tyumen, Vladivostok and Nizhny Novgorod. to the integration of urban passenger by 14 companies.
Moscow Central Circle performance in 2019 In 2019, MCC transported 147.5 m passengers, up 13.8% y-o-y. The daily average exceeded 405,000 people, with a record high of over 580,000 passengers achieved on 25 December. In 2019, the growing popularity of MCC required an increase in the throughput and carrying capacities. The intervals were reduced to four minutes at peak hours and eight minutes at other times (initially, the trains arrived every six minutes during peak hours and every twelve minutes during off-peak hours on weekdays, and on the weekends these intervals stood at eight and 15 minutes, respectively). This is expected to increase the estimated daily capacity of trains by 36% on weekdays and by 40% on weekends and holidays.
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LONG-HAUL PASSENGER TC, Tverskoy Express, TransClassService, Russian Railways’ share in the total Federal Passenger Company’s International transportation High-speed passenger TRANSPORTATION Sakhalin Passenger Company, and High- passenger turnover also grew to 4.6% performance In 2019, besides the CIS and the Baltics, transportation Speed Transportation Directorate (branch (up 0.6 pp). Federal Passenger Company is Russian Federal Passenger Company served direct High-speed transportation services Long-haul passenger turnover stood of Russian Railways). Railways’ subsidiary, which provides and transit routes to eleven countries are provided by Federal Passenger at 99.1 bn pkm, up 3% y-o-y. Passenger long-haul passenger and freight luggage of Europe and Asia – Germany, France, Company and High-Speed Transportation traffic increased by 5.6% to 116.5 m. In 2019, the share of Russian Railways’ transportation services. Poland, Austria, the Czech Republic, Directorate (a branch of Russian Railways). subsidiaries and affiliates in the long- Monaco, Italy, Finland, China, Mongolia, The latter serves Moscow–St Petersburg, Long-haul transportation services haul passenger traffic decreased to 93.8% In 2019, Federal Passenger Company’s and North Korea. Nizhny Novgorod–Moscow–St Petersburg, are provided by six carriers: Federal (down 0.8 pp). Private carriers increased passenger turnover totalled 93.6 bn pkm St Petersburg–Bologoye, Moscow–Ivanovo, Passenger Company, Grand Service Express their market share to 1.6% (up 0.2 pp). (up 2.2% y-o-y). The Company transported In 2019, 6.55 m passengers were and other routes. some 105.8 m people. For the trains transported in the international segment, made up by Federal Passenger Company, down 3.2% y-o-y. In 2019, high-speed and ultra high-speed passenger turnover along the route was passenger turnover totalled 7.9 bn pkm 90 bn pkm (up 2.5% y-o-y). Non-CIS segment showed (up 8% y-o-y). The number of passengers a rising number of passengers travelling transported stood at 17.1 m (up 9.9%), In 2019, Federal Passenger Company’s to and from Finland. In 2019, Allegro trains including 5.69 m passengers transported income from core operations amounted transported 557,200 passengers between by Sapsan (up 4%). to RUB 236.9 bn (up 4.8% vs 2018), St Petersburg and Helsinki (both ways), including RUB 213.4 bn of income up 15.7% y-o-y. Higher passenger volumes from passenger transportation (up 5.5%). were also recorded on routes to Mongolia, The net profit totalled RUB 6.6 bn (+9%). Germany, and Italy.
Number of long-haul passengers transported, m people
2019 116.5 Read more 2018 110.3 about Federal 2017 102.2 Passenger 2016 101.4 Company at 2015 97.9 eng.rzd.ru
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DEVELOPMENT commuter trains on the Moscow– In 2019, Russian Railways modified OF RAILWAY STATION Odintsovo route. At the Leningradsky the Krasnoyarsk station to suit INFRASTRUCTURE station in Moscow and the Moskovsky people with reduced mobility ahead station in St Petersburg, passengers can of the XXIX World Winter Universiade. In 2018, the Company adopted the Long- enjoy new refurbished business lounges. The station was fitted with accessible term Development Programme for its ticket offices, new retiring rooms, lifts, railway stations until 2025. In 2019, In 2019, 71 stations were equipped and wheelchair ramps. the Company upgraded six stations with additional security screening (Krasnoyarsk, Abakan, Mogocha, and other equipment to improve safety. The Company is also expanding its Nizhny Novgorod, Volgograd, Ulan- Mobility Assistance Centre, covering Ude) and nine platforms (main platform Accessibility for people over 900 stations and transport stops in Tambov, main platform in Krasnoyarsk, with reduced mobility (up 67% y-o-y). Help desks are available No. 1 in Krasnoyarsk, No. 2 in Krasnoyarsk, Russian Railways focuses at 400 large stations and transport stops No. 1 in Saratov, No. 1 in Ivanovo, on helping people with reduced (up 3x vs 2018). In 2019, they provided No. 1 in Petrozavodsk, No. 5 at the Finland mobility and making a growing number assistance to over 225,500 passengers Station, and No. 1 in Abakan). of stations fully accessible. As at the end with reduced mobility (up 5.9% vs y-o-y). of 2019, 48 stations were adapted. At Belorussky railway station, a passenger By 2025, the Company plans to increase terminal was built to decrease intervals their number to 137. Steam-powered retro train in the cyclic timetable between suburban In June 2019, the Company launched the Ruskeala Express, a steam train travelling between Sortavala and Ruskeala Mountain Park. The train consists of two corridor coaches and a dining car, styled after the Nikolaevsky Express. Its schedule is coordinated with Lastochka trains on the St Petersburg– Sortavala–St Petersburg route and Meteor MVs going to Valaam.
60 Russian Railways Annual report 2019 61 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
CUSTOMER SERVICE Russian Railways Unified Information The quality of passenger services provided Service Centre provides information by the Russian Railways Group is measured Russian Railways aims to offer its on the Company’s passenger services. by the customer satisfaction index (CSI). customers a new level of service quality in a timely manner. Passenger feedback In 2019, the Centre handled 10.6 m In 2019, the Company conducted four internal contributes to its continuous improvement. queries (up 2.1% vs 2018). surveys – in January, April, July and November.
Key service innovations implemented in 2019
Long-haul transportation
• Non-refundable tickets. Since April 2019, customers can opt for a non-refundable fare instead of a regular one to save 5–20% of the ticket price. • Increase in the advance booking horizon for certain domestic long-haul routes to 120 days. • Wider use of dynamic tariff management and demand stimulation for international trains. • Sale of Electronic Business Pass for the Red Arrow trains (Moscow–St Petersburg–Moscow). • Reduced fares for the veterans and disabled servicemen of the Great Patriotic War and their accompanying persons (from 1 May to 31 December 2019). • Whole Family Travel: 20% discount for multi-child families on domestic routes (from 1 June to 31 July 2019). • Food delivery from city restaurants to the train car (available in Moscow; in 2020, the service is planned to be rolled out to St Petersburg, Yaroslavl, Rostov-on-Don, Chita, Novosibirsk and Samara). • Electronic tickets: buying and reissuing. In 2019, the share of e-tickets for Federal Passenger Company’s long-haul trains amounted to 57.4%. • Pilot sales of all-in-one tickets valid on various types of public transport (rail and road) within the Kursk Region. • Pilot e-ticket sales for corporate clients through the Russian Railways website using the unified billing account. • Purchase of new rolling stock. • New routes for double-decker railcars and high-speed Lastochka trains. • Availability of all sections of the Sapsan’s infotainment system in English and Chinese. • New children’s section of the Sapsan’s infotainment system. • Electronic feedback form for Sapsan passenger requests. Results of the passenger satisfaction index survey in 2019, points Suburban Transportation
• Upgrade and reconstruction of railway stations and passenger platforms. • Development of suburban multimodal transportation routes (train & bus). November 82.3 • New Wi-Fi hotspots and multimedia portals. 80.7 • Thematic children’s cars. • Free suburban train travels for veterans and their accompanying person in May 2019. • New excursions and tourist routes, including on steam-powered retro trains. July 81.7 78.8
April 81.8 81.2
January 82.4 79.1
Long-haul transportation Suburban transportation
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Railway transportation and infrastructure
The railway transportation and infrastructure segment covers core business units engaged in railway transportation management, maintenance and development of infrastructure and locomotive fleet. The Company’s operating and financial performance is directly linked to their efficiency, effectiveness and technical cooperation. 2019 saw a number of landmark events. In August, we completed the main phase of gauge conversion on Sakhalin. We have taken “ the first steps towards traffic control and further steps towards removing infrastructural restrictions as well as significantly KEY FOCUS AREAS • introducing automation equipment to improve design and increase efficiency improved the condition of the track structure, and are now working with moving blocks within sections, at locomotive plants when developing OF THE LONG-TERM to renew power supply equipment. All development projects have including a distributed computer- modern servicing stations and LNG DEVELOPMENT supporting programmes in place. Large-scale investment projects based interlocking system at stations refuelling mechanisms. are underway to ensure the necessary throughput capacities PROGRAMME with identification of main tracks, for prospective freight traffic. Our absolute priority is to increase differentiated departure sections Russian Railways’ goals for developing the carrying capacities at BAM and Trans-Siberian Railway Key initiatives in rail transportation and automatic cab signalling; railway infrastructure until 2025: bottlenecks.” and infrastructure development include: • establishing extended guarantee • achieve an increase in the throughput • developing operating domain-centred sections ensuring safe passage of freight capacity of the Baikal–Amur and Trans- transportation management principles trains; Siberian Railways to 180 mt by 2024; Anatoly Krasnoshchek across the Russian Railways network; • creating an operating domain-centred • boost the throughput capacity of the rail • creating dedicated infrastructure model for operation of work trains infrastructure serving ports of the Azov First Deputy CEO of Russian Railways for passenger and freight traffic; and diagnostic machinery; and Black Seas; • boosting efficiency of low intensity • removing energy-related restrictions; • reduce container travel times railway lines; • preparing infrastructure facilities from the Far East to Russia’s western • enhancing transportation efficiency for passage of heavy-duty and long border to seven days and achieve Key achievements in 2019 through quality improvements trains; a fourfold increase in the transit in utilisation of the rolling stock; • streamlining planning for repairs container traffic by 2024; • The Company ensured the export handling of coal to the ports of Russia at the request of key coal • developing marshalling yards; and maintenance of infrastructure • develop high-speed and ultra high-speed companies, including the enterprises of Kuzbass. More than 7 mt of coal was exported (up 7.5%), with an almost 12% growth in shipments to the ports of the North-West. • improving management of the freight facilities and associated scheduling railway services between and within • Handling of containerised cargo grew by 13.1% vs 2018. car fleet; processes; major cities and metropolitan areas; • The total freight turnover amounted to 3,305 m tkm, flat vs 2018. • bolstering utilisation efficiency • improving train composition planning • develop transportation services • The loaded car delivery speed increased to 395 km/day, up 1.3% vs 2018. of mainline and shuntering locomotives and train passage management systems; between regional administrative centres • The share of shipments delivered within required period increased by 1.7 pp vs 2018, reaching 98.4%. and locomotive crews; • using natural gas as a motor fuel, and other cities of major economic • The average weight of a freight train was 4,090 t, up 0.3% vs 2018. • upgrading railway tracks applying new gradually expanding the use of gas activity; • The average daily performance of a freight train locomotive reached 1,610 thousand gross tkm, up 1.3% technology and using elements and structures powered locomotives (gas turbine • create multimodal freight transportation vs 2018. of equally high quality to reduce costs locomotives, gas powered diesel and logistics hubs. • The railway infrastructure on the island of Sakhalin was converted, resulting in an expansion associated with the infrastructure locomotives used in shuntering of the 1,520 mm gauge network by more than 770 km. maintenance life cycle; operations), while also working • The interval between the MCC trains in the same direction was reduced to four minutes.
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IMPROVING • ensure passage of coupled trains at railway • 5,714 freight train locomotives (–0.3%); In 2019, 710 locomotives were purchased at creating an automated centre The average train weight THE EFFICIENCY sections with high traffic density; • 742 passenger train locomotives (–0.2%); under supply contracts with compulsory to support decision-making enabling real- across the network OF INFRASTRUCTURE • establish new guarantee sections • 976 service train locomotives (+2.0%); service during the life cycle. This scheme time process management, operation ensuring safe passage of loaded • 2,676 locomotives involved in special makes locomotive manufacturers more planning, and high-level modelling increased to and empty container platforms as part and other shunting operations (–4.1%). responsible for the technical condition and forecasting. The project is still Repairs and upgrade of container trains. of rolling stock, ultimately reducing in progress, but certain subsystems of infrastructure facilities In 2019, the Company purchased downtime. already operate on parts of the network, 4,090 t In 2019, expenses on all types of track New technological solutions allowed 738 locomotives as part of the investment including the October Railway repairs amounted to RUB 145 bn, which the Company to increase the speed programme. Additional 3,236 locomotives In 2019, Russian Railways retrofitted its and the Eastern Operating Domain. +0.3% vs 2018 is 10.8% higher than in 2018. Capital of transit freight transportation across will be acquired in 2020–2025. locomotives with safety devices as part renovation in 2019 covered 6,017.2 km the country. The average speed of the investment programme. Driver’s of tracks. of transit container trains in 2019 Improving locomotive digital route sheet is implemented across PERFORMANCE stood at 1,097 km/day, or 17.8% above utilisation the railway network. OF RAILCAR REPAIR Improving performance the target set in the Comprehensive Measures to improve locomotive fleet SUBSIDIARIES IN 2019 at operating domains Plan for Upgrading and Expanding Core utilisation in 2019: Developing heavy-duty traffic Transitioning from region-based Infrastructure (931 km/day). • optimisation of 103 units of operating Heavy-duty traffic and higher weight In 2019, RRC-1 and RRC-2, subsidiaries management of the transportation freight locomotive fleet by improving standards of freight trains are key of Russian Railways used to repair freight process to the operating domain– daily performance; to optimising the transportation process. rolling stock, showed improved financial based planning and organisation of train HIGHER TRACTION STOCK • optimisation of 91 units of operating and operational performance. The growth traffic is the key area of the Company’s EFFICIENCY shunter fleet involved in special shunting Russian Railways continues to develop was achieved by expanding the client operations development. It boosts operations; heavy-duty traffic. Over the year, portfolio, improving service quality efficiency and helps to clearly separate Traction stock in 2019 • optimisation of 19 units of operating 162,700 trains weighing over 6 kt were and optimising costs. unit functions and responsibilities. As at the end of 2019, the operating shunter fleet involved in other shunting dispatched, allowing for the transportation locomotive fleet of Russian Railways operations; of additional 30 mt of cargo on the basis RRC-1 Optimisation of the freight comprised 14,031 units (down 1.7% vs of the same infrastructure. Income for the reporting period amounted traffic schedule 2018), including: New technical requirements have been to RUB 28.5 bn (up 6% vs 2018), sales The main function of the train schedule • 7,592 freight train locomotives (–1.4%); developed for the new generation The average train weight across the network revenue stood at RUB 1.1 bn (flat vs is to maximise the infrastructure efficiency • 1,562 passenger train locomotives (–0.3%); freight locomotives, including electric increased to 4,090 t (up 0.3% vs 2018). 2018), and net profit totalled RUB 407 m for the required throughput and carrying • 1,726 service train locomotives (+0.1%); and autonomous locomotives, to account (down 14% vs 2018). capacity, ensure the target volume • 3,151 locomotives involved in special for improved transportation technologies. of freight traffic and increase the schedule and other shunting operations (–4.0%). Compared with the locomotives currently INNOVATIVE LOCOMOTIVE RRC-2 and mean speed. in use, the new generation mainline freight FLEET MANAGEMENT In 2019, RRC-2’s revenue and net profit As at the end of 2019, the active locomotives will provide for single traction, SYSTEMS increased by 22% and 13%, to RUB 18.6 bn Key measures to optimise schedule: locomotive fleet of Russian Railways multiple-unit, and distributed traction and RUB 559 m, respectively. • arrange traffic of heavy-duty trains comprised 10,108 units systems. They will have greater power The Intelligent Railway Transportation weighing 8–9 kt; (down 1.1% vs 2018), including: and traction and longer repair intervals. Management System (IRTMS) is aimed
Upgrade of rail infrastructure on the island of Sakhalin 2019 became a milestone year for Sakhalin as its railway tracks were converted to the 1,520 mm gauge. Previously, the island’s rail network operated on the 1,067 mm Cape Gauge widely used in Japan. The conversion process that required several temporary closures of tracks for passenger and freight traffic in 2019–2020 consisted of six stages, five of which were completed in 2019. The Kholmsk– Arsentievka and Korsakov–Nogliki sections saw freight and passenger transportation launched since 1 September 2019. The Kholmsk–Shakhty line will start operating on the 1,520 mm gauge in August 2020.
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Foreign projects and international cooperation
Russian Railways operates in Europe, Asia, Africa, and Latin America. Its key business lines abroad include logistics services to foreign partners, passenger and freight transportation Russian Railways enjoys a long-standing status of an international on international and transit routes, engineering and management of railways, machine “ company with a nearly global presence. We operate in more than building, and personnel training. The key companies of the Russian Railways Group engaged 40 countries. This image is complemented by decent financial results that are significant both for the Company and our country. in its operations abroad are RZD International, RasonConTrans, South Caucasus Railway, The Group’s projects are socially-oriented as all the products UTLC ERA, GEFCO and RZD Logistics. and services we sell abroad seek to improve the quality of living for local residents.”
KEY FOCUS AREAS • transit freight transportation to key The Company’s brand covers OF THE LONG-TERM international destinations; innovative competencies and state- Sergey Pavlov • personnel training and education; of-the-art engineering technologies, DEVELOPMENT First Deputy CEO of Russian Railways • development of IT services, cloud and complementary services such PROGRAMME applications, and digital strategies; as consulting (including feasibility studies • working out financial solutions and railway development programmes), Russian Railways plans to continue for foreign projects. supplies of equipment and rolling stock, developing its foreign business, among and employee training. Russian Railways other things, by expanding its footprint diversifies its income sources by promoting and promoting the Group’s export-oriented FOREIGN OPERATIONS domestic products and related services portfolio centred around: AND KEY INTERNATIONAL in the rail industry. The Company’s export • projects of railway design, PROJECTS portfolio includes all kinds of products construction (upgrade), electrification, and services to create an efficient railway and subsequent operation; The long-term priorities of Russian network. • consulting (development of concepts, Railways’ business abroad are outlined strategies, railway development in the Foreign Operations Strategy programmes, feasibility studies, approved by the Company’s and business plans); Management Board. The Strategy • railway facility management; was aligned with the Long-Term • supplies of railway machinery, equipment Development Programme. All targets set and materials; for the reporting period were achieved. Key achievements in 2019 • comprehensive transport and logistics Revenue from foreign 1 • The portfolio of overseas projects was expanded with two new contracts (in Serbia and Cuba). services (establishing joint operations, In 2019, revenue from foreign operations 1 acquiring stakes in national logistics totalled RUB 489.8 bn (up 3.8% vs 2018 operations in 2019 • The income from transit container shipments and international logistics grew by 3.6% vs 2018. companies); and up 3.1% vs the Long-Term Development • To further develop the transportation and logistics business, Russian Railways implemented initiatives to boost Russia’s transit potential and create efficient transportation routes between Europe and Asia. • expanding international passenger Programme target) or nearly 20% • As a member of international industry organisations, the Company continued its efforts to lay transportation routes and assessing of the Group’s profit, which is made up 489.8 the regulatory groundwork for attracting additional cargo traffic and boosting transit volumes through the possibility to establish joint of three major elements: transit shipments, RUB bn Russian Railways’ network. operations in the passenger segment international logistics and overseas • The Group solidified its standing as an integrator throughout the 1,520 mm gauge network, in large part (including for the purpose of entering infrastructure projects. EBITDA exceeded +3.8% vs 2018 thanks to the work of the Council for Rail Transport of the Commonwealth Member States. the European market); RUB 41.5 bn (up 12.8% vs the target). • The INTERTRAN project was launched within the framework of the UIC Asia-Pacific Regional Assembly action plan. • The Company continued supporting the development of the framework for regular meetings of heads of railway administrations previously established by the Shanghai Cooperation Organisation (SCO) member states. • The goals related to ensuring Russian representation on the BRICS Business Council were achieved. • The implementation of previously started infrastructure projects in Serbia and infrastructure management in Mongolia and Armenia continued. A feasibility study for the project in India was completed. Railway infrastructure upgrade projects in Egypt, Vietnam, Slovenia and other countries 1. Including the standalone results of RZD Logistics (container shipment and international transport corridor logistics), TransContainer (international transportation), UTLC ERA, GEFCO, are being reviewed. RasonConTrans, South Caucasus Railway, and RZD International, as well as income from transit shipments generated by Russian Railways’ Centre for Corporate Transport Services.
68 Russian Railways Annual report 2019 69 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Cooperation Over 3,100 container trains ran and passenger turnover increased Management Board has developed Russian Railways and Yingkou Port The Company also signed a cooperation with CIS and Baltic states on the main UTLC ERA routes. by over 8% (upwards of 790 m tkm) and approved a priority action plan Group Corporation continued to work agreement with Sinara Group and Siemens within the 1,520 mm gauge and by 14% (to 68 m pkm) respectively. to increase the throughput capacity under their cooperation agreement Mobility GmbH in the field of engineering network Together with Belarusian Railway, Following its investment programme, as part of the operator’s modernisation to develop the Bely Rast terminal consulting that envisions the creation The Council for Rail Transport Russian Railways developed an action Russian Railways is renewing its railcar and long-term development programme and logistics centre. of an engineering centre for innovative of the Commonwealth Member States plan to establish daytime (high-speed) fleet. until 2030. In addition, Russian Railways technical and technological solutions. (the “Council”) remains the key passenger transportation between Moscow takes an active part in implementing The Company is also coordinating international interagency body ensuring and Minsk, with the first trains slated Cooperation with countries the programme to establish the Russia– the implementation of the Khasan-Rajin On 28 August 2019, technological continuity and practical to run at the end of 2020. in the Asia-Pacific region Mongolia–China economic corridor. project and supports the operation at the PRO//Motion.Expo fair of railroad interaction across the 1,520 mm gauge In 2019, Russian Railways continued of the RasonConTrans JV. machinery and technologies designed network. The networks of the Council’s As part of developing the International its work to expand transit traffic along On the East–West side, the Company for the 1,520 track gauge, Russian member countries are used North–South Transport Corridor the China–Europe route, which included joined efforts with partners to unlock Cooperation with European Railways and the consortium German to transport 2 Bt of cargo and 18.6 m (INSTC), the Company signed developing railway border checkpoints. the significant potential in the Japan partners Initiative for High-Speed Transportation people each year. memorandums with Azerbaijan’s The Company is leveraging its strategic and South Korea markets. It launched In 2019, the Group strengthened its in Russia signed a memorandum and Turkey’s railway operators to promote partnership with Ulaanbaatar Railways and worked on developing a service positions on the Western European of cooperation on the design In 2019, the Council expanded its transit transportation services (Mongolia), a stake in which has to transport transit shipments from Japan market by signing a number of documents and implementation of the Moscow– geography. At its 71st meeting, and implementation of joint projects. been under the Company’s trust to Europe using the Trans-Siberian Railway. with the leading European railway St Petersburg high-speed railway. representatives of Mongolia and Turkey management since December 2009. In order to strengthen the Company’s companies. railway administrations sat in as special Russian Railways lent support to Abkhaz This has been a fruitful relationship presence in the region and coordinate Russian Railways kept up the joint efforts guests. The two agencies are considering experts repairing the railway bridge across that saw schedule speeds rise along the work with potential shippers, Russian To accommodate and capitalise to create a new Eurasian transport joining the Council. the Psou River, thus preserving the direct with throughput and carrying capacities, Railways decided to open a representative on the steadily rising demand corridor extending the broad gauge tracks railway connection to Abkhazia. and on top of that traffic has been office in Japan. for the Sapsan high-speed electric train to Bratislava and Vienna and establishing UTLC Eurasian Rail Alliance (UTLC ERA), steadily increasing since 2010. In 2019, service, as well as the overall growth a Vienna–Bratislava international logistics a project that is being successfully The Company continued to honour a new milestone was achieved when The Company is also fostering its of passenger traffic between Moscow centre. Currently, the third stage implemented jointly with the Company’s its commitments under a concession freight transportation reached 28.1 mt cooperation with South Korea. In 2019, and St Petersburg across all transport of the feasibility study has been completed. Belarus and Kazakhstan partners, agreement to manage the Armenian (up 9.2% y-o-y). the Russian Railways Group and FESCO types, Russian Railways, Siemens Mobility The state and municipal authorities aims to boost transit transportation Railways. The key operational and financial partnered with a South Korean company GmbH and Ural Locomotives entered of Austria and Slovakia are conducting between China and Europe. In 2019, indicators of South Caucasus Railway Higher volumes necessitate further Pantos to launch a multimodal transit into an agreement for the manufacture environmental certification. the total container volumes transported are growing consistently, many of them railway development, including its service for fast transportation of additional Sapsan trains, signing using the UTLC ERA services exceeded having reached record-high values infrastructure and fixed assets. of containerised cargo to Europe via the document on the sidelines of the St 333,000 TEU, up 18.7% y-o-y. for the company. In 2019, the freight To that end, Ulaanbaatar Railways’ the Commercial Port of Vladivostok. Petersburg International Economic Forum.
70 Russian Railways Annual report 2019 71 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Cooperation with international In June 2019, a decision was made In 2019, the Russian Railways In India, a feasibility study was completed for RZD International to provide technical There are opportunities to expand organisations to set up the OSJD Academy. To that Group continued active cooperation for a project to increase train speed consulting services for the construction cooperation with Vietnam, Brazil, Egypt In 2019, Russian Railways continued end, Russian Railways implemented with the International Union on the Nagpur–Secunderabad line. of the Tavantolgoi–Dzunbayan line and Saudi Arabia. its work with the Organisation two pilot projects utilising the OSJD’s of Railways (UIC), including as part As the next step, the preparation in Mongolia for EUR 2.34 m. for Cooperation between Railways (OSJD) regulatory framework. There are currently of its European and Asia-Pacific Regional of an intergovernmental agreement was In 2020, the Russian Railways Group to draft regulations on international cargo talks to create competency centres Assemblies. The highlight of that initiated to modernise this section. With projects in Mongolia and Armenia plans to add new projects to its overseas and passenger transportation. On 1 July in the OSJD member countries. As part cooperation was Russian Railways’ UIC under its belt, the Company secured infrastructure portfolio and continue 2019, amendments to the Agreement of the International Diplomatic Conference Day on 1 October 2019 in Moscow, when In October 2019, Havana hosted a global reputation for strong management focusing on the key areas of its on International Goods Transport by Rail and under the auspices of the OSJD, the heads of the Company’s departments the signing of a ten-year contract of infrastructure assets, laying international operations by leveraging (SMGS) went into effect. These changes the work on the adoption of the main text and the Group’s business units met to reconstruct and modernise railway the foundation to penetrate new markets. advanced competences and best practices. were related to the review of complaints of the Convention on Direct International with all directors of the UIC headquarters. infrastructure in the Republic of Cuba in respect of transportation using Railway Traffic was almost completed. The resulting roadmap of further for approximately EUR 1.9 bn. Work continued underway to create electronic documents. The electronic CIM/ Russian Railways spearheaded the efforts cooperation outlined the areas and format a new Eurasian transport corridor, which SMGS consignment note was introduced. to develop its provisions. of future interactions. In Mongolia, the Russian Railways includes broad gauge railway extension These amendments will help bring Group embarked on a project to Bratislava and Vienna and construction information technologies to transportation Another important highlight is that during to develop the Central Railway Corridor of associated logistics infrastructure. and embrace paperless processes. a UNECE Inland Transport Committee (ITC) OVERSEAS of the Russia–Mongolia–China corridor: The International Railway Congress session of February 2019 the text INFRASTRUCTURE first priority actions of a long-term in Vienna proved an effective venue As a result of the work done to agree of the Convention on the Facilitation PROJECTS modernisation and development to promote the project. As part of these on cargo transportation volumes along of Border Crossing Procedures programme until 2030 were approved efforts, the third phase of the feasibility the export/import and transit lines for Passengers, Luggage and Load-Luggage In early 2019, RZD International to complete major track repairs study is now completed. Environmental for all border crossings of Russia, China, carried in International Traffic by Rail (a controlled entity of Russian Railways) and upgrade locomotives of Ulaanbaatar impact assessments are underway Mongolia, Kazakhstan, Vietnam and North was adopted and opened for signing and Serbian Railways Infrastructure Railways until the end of 2020. at federal and municipal levels in Austria Korea in 2018–2019, new routes were to countries starting April 2019. signed a new contract for the design In December 2019, a contract was signed and Slovakia. launched and cargo transportation The document is the result of work started and construction of railway infrastructure volumes increased. at Russian Railways’ initiative. and a single dispatch centre for train traffic control in Serbia.
Benefits of the East–West corridor as compared to a sea route
Japan Moscow Korea Vladivostok INTERTRAN Hamburg A key project being implemented part of the UIC Asia–Pacific Regional Assembly, INTERTRAN helps to reduce the cargo handling time in intermodal shipping from ports of Japan, China, and South Korea through the port of Vladivostok by four days. The project was initiated by Russian Railways in 2017. The technology makes intermodal shipping support fully electronic and can be used by all operators and freight forwarders. 20 days To demonstrate the capabilities of the new electronic service for clearing shipping formalities, the Vladivostok Commercial Sea Port hosted a ceremony as part of the Eastern Economic Forum 2019 to have the first group of containers leave the port of Yokohama (Japan) and reach Moscow via the port of Vladivostok. 40 days China In 2019, the INTERTRAN technology helped to dispatch a total of 523 containers as part of container trains from ports of Japan, China and South Korea to the Silikatnaya station in Moscow. In 2020, the technology is expected to be rolled out to intermodal shipments of import freight departing for stations of Russian Railways and for transit transportation departing for railway stations in the Republic of Belarus.
72 Russian Railways Annual report 2019 73 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Traffic safety
Russian Railways’ Strategy for Guaranteed Transportation Safety and Reliability lays out To reduce freight transportation risks, • 13 railway stations were equipped • to minimise the risk of traffic accidents the general principles that are underpinned by safety management and culture. Russian Railways is introducing the latest with advanced automation systems associated with rolling stock colliding safety systems. As part of the 2019 for commercial inspection of trains with road vehicles at level crossings, programme, the following steps were taken: and cars featuring laser scanners that 2019 saw the start of work to design 2019 saw the number of traffic accidents Safety violations across Russian Railways infrastructure • Technovisor innovative systems are being provide information about the car/ 20 innovative systems to improve level and incidents involving the Company’s installed on the railcar fleet to measure freight profile and identify any deviations crossing safety. railway infrastructure fall 8% against a range of metrics while the train in the loading and rolling stock gauges 2018 (2,877 vs 3,120), including a 12% 2,877 is in motion. and any occurrences of load shifting; 2019 decrease in accidents caused by Russian 1,191 Railways (1,191 vs 1,348). The reduction 3,120 2018 was due to a risk-oriented approach 1,348 Traffic safety across the Russian Railways Group In 2019, disbursement to control measures based on a ranking 3,707 of expenses of transport market players by operational 2017 1,575 2019 0.861 under the project to boost risk, along with the company-wide 5,048 2018 0.98 safety performance totalled implementation of a roadmap of traffic 2016 1,770 safety at the Russian Railways Group. 2017 1.17 8,521 2016 1.33 2015 2,857 2015 1.171 RUB 3.649 Traffic accidents and incidents across Russian Railways infrastructure bn Including those caused by the Russian Railways Group
1. Excluding safety violations caused by RRC-2 and RRC-3.
74 Russian Railways Annual report 2019 75 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Investment activities
Investment programme approaches Investment highlights in 2019
The Company’s investment programme The projects’ commercial efficiency Budget efficiency for projects is assessed As adjusted by the Board of Directors PROJECTS INCLUDED the target was met with 115.8 mt of cargo is designed to: is assessed based on the net cash flow based on comparison of cash inflows (tax, of Russian Railways, the Company’s INTO THE COMPREHENSIVE transported from the main deposits • ensure uninterrupted transportation from investing and operating activities, customs and insurance payments) resulting 2019 investment programme totalled PLAN FOR UPGRADING of the Eastern Operating Domain. service; with the resulting estimates taking into from railway infrastructure development RUB 688.7 bn2. • embrace the most promising projects consideration the financial aftermaths vs government-financed investments. AND EXPANDING CORE Development and renovation in terms of both commercial and budget for the investment project owner assuming Expenses incurred in 2019 as part INFRASTRUCTURE UNTIL of the rail infrastructure serving efficiency; that such owner fully covers the project of the Russian Railways investment 20243 ports of the Azov and Black Seas • minimise federal government spending costs and reaps all of its benefits. programme came in at RUB 674.1 bn, In 2019, the investment expenses on investment projects. Russian Railways has uniform guidelines including: 2019 investment expenses: amounted to RUB 14.3 bn (including in place to assess the efficiency • RUB 590.5 bn using the Company’s own RUB 6.2 bn allocated by the federal All the investment projects have of investment projects1. With a payback cash; government). commercial and budget efficiency period of up to 20 years and an IRR • RUB 83.6 bn in government support.
estimates in place and are ranked using of at least 10%, an investment project 164.5 In 2019, the service was launched the cost/benefit analysis. is deemed to be sufficiently efficient. On top of that, RUB 2.1 bn was raised RUB bn in the Krasnodar Transport Hub, from third-party investors. a 128.8 km two-track electrified Kozyrki– Upgrade of the rail infrastructure Grechanaya line was commissioned, of the Baikal–Amur the Kirpili station was built and a fire pump and the Trans-Siberian main lines station was set up at the Kuteynikovo (Eastern Operating Domain) station. In 2019, the investment expenses amounted to RUB 35.0 bn (including RUB 16.9 bn The aggregate carrying capacity sourced from the National Wealth Fund). of the sections serving ports of the Azov and Black Seas in 2019 stood at 93 mt The project is aimed at developing (up 10.7% vs 2018). and upgrading the rail infrastructure to increase the carrying capacity Freight transportation by rail on this route on routes to sea ports and Far East was 83.5 mt (down 0.6% vs 2018) due border crossings by 55–66.8 mt in 2020 to a decline in export of grain and ferrous vs 2012. It will facilitate transportation metals. of 113.2–124.9 mt of hard coal and various ores from the main mineral deposits Development of the Central of the Eastern Operating Domain in 2020. Transport Hub In 2019, the investment expenses The key highlights of 2019 include amounted to RUB 87.6 bn (including the commissioning of five railway bridges RUB 12.6 bn allocated by the federal (including a river crossing over the River government and RUB 44.6 bn allocated Zeya) and the Vladivostok tunnel. In 2019, by the Moscow government).
2. Meeting of the Board of Directors of Russian Railways of 25 October 2019 (Minutes No. 5). 1. 3. In accordance with the Russian Government’s Order No. 2991-r dated 29 December 2017. The Russian Government’s Order No. 2101-r dated 30 September 2018.
76 Russian Railways Annual report 2019 77 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
The project aims to increase suburban Development and renovation In the medium term, it is planned to be passenger traffic of the Central Transport of the rail infrastructure serving extended to Kazan and Yekaterinburg Hub to 850 m passengers annually by 2024. ports of the North-Western basin and then to Beijing in the east and Berlin 2019 investment expenses: RUB 13.5 bn. in the west. Under the project, the following milestones were completed in 2019: The project is designed Infrastructure expansion • launch of the Karacharovo station to facilitate 146.6 mt of projected and upgrade on the Severnaya (transfer from the Gorkovsky route freight transportation volume in 2020, and Sverdlovskaya Railways to the Moscow Central Circle was with subsequent rise to 192 mt by 2025. allowing for additional cargo reduced by 500 m); Activities under the project: traffic as part of the Northern • launch of Innovation Centre, a new • construction of the second track Latitudinal Railway project transport stop on the Smolensk route and electrification of the Vyborg– In 2019, the investment expenses to provide transport accessibility Primorsk–Ermilovo section; amounted to RUB 1.5 bn. for residents of Skolkovo Technopark; • comprehensive upgrade of the Mga– • opening of a second exit Gatchina–Weimarn–Ivangorod section The project aims to put in place a latitudinal at the Streshnevo station and rail infrastructure serving ports railway connecting the Severnaya of the Moscow Central Circle providing on the southern shore of the Gulf and Sverdlovskaya Railways as an essential a weather-protected transfer of Finland; element in the Arctic Transport System to the Leningradskaya transport stop, • launch of high-speed passenger and associated infrastructure. which was previously moved; transportation at the St Petersburg– • completion of work Buslovskaya section; The project will help reduce the length to construct the fourth main track • improved throughput capacity of transportation routes linking mineral of the Karacharovo–Zheleznodorozhnaya of the Volkhovstroy–Murmansk deposits in the northern part of West Siberia section; and Dmitrov–Sonkovo–Mga routes. to the ports of the Baltic, White, Barents • opening of the Severyanin transport and Kara Seas and thereby contribute stop upgraded as part of a project By the end of 2019, the project helped to the development of the Russian Arctic. to integrate the Yaroslavl route, marking the Company reach its 2020 target the final stage of an effort to integrate and transport 152.5 mt of freight against Construction of a western radial routes and the Moscow Central the plan of 138 mt (up 10.5% against the plan). bypass at the Saratov Transport Circle; Hub of the Privolzhskaya • launch of first priority diameter routes: First stage of the Moscow–Kazan Railway with the expansion MCD 1 from Odintsovo to Lobnya High-Speed Railway of the Lipovsky–Kurdyum section and MCD 2 from Nakhabino to Podolsk; 2019 investment expenses: RUB 0.1 bn. 2019 investment expenses: RUB 0.8 bn. • transition to a four-minute interval service at the Moscow Central Circle The construction of the first stage The main aim of this investment project during peak hours; of the Moscow–Kazan High-Speed Railway is to expand the railway infrastructure • completion of bulk of the work (Zheleznodorozhnaya–Gorokhovets High- with a view to enhancing the carrying capacity to construct the fifth main track Speed Railway) with the commissioning on the approaches to the Saratov Transport from the Moscow-Passazhirskaya- of route from Moscow to Nizhny Hub and increasing freight volumes by at least Yaroslavskaya station to the Mytishchi Novgorod is the pilot project of high-speed 49.2 mt compared to 2015. The initiative station and launch of additional electric transportation in Russia. The railway is linked to the Development and Renovation trains. is expected to become the first section of the Rail Infrastructure Serving Ports of the new Eurasian transit corridor. of the Azov and Black Seas project.
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Electrification of the Rtishchevo– The project is designed and use EP-20 dual-system locomotives Enhancement of the throughput The project aims to accommodate future The project aimed to ensure Kochetovka section to accommodate rising freight volumes at the Moscow–Rostov-on-Don– and carrying capacities freight volumes at the Mezhdurechensk– the transportation of the expected volumes 2019 investment expenses: RUB 0.5 bn. from the Bereznikovsko-Solikamsky Novorossiysk–Adler section. to achieve an increase in transit Tayshet section to service increased freight of hydrocarbons from the Yamalo-Nenets industrial hub by providing the Solikamsk– container traffic transportation from the Kuzbass region and Khanty-Mansi autonomous areas The project aims to reduce operating Perm Sortirovochnaya route for freight Upgrade of the Baikal–Amur 2019 investment expenses: RUB 0.8 bn. to ports in the Far East. by gradually ramping up the throughput costs by cutting down on fuel and energy trains with a weight of 6 kt and a length and Trans-Siberian main lines and carrying capacity of the Tobolsk–Surgut expenses, decrease running times of 71 standard cars. (phase 2) The project aims to increase transit 2019 saw the commissioning of second railway section to 66 train pairs per day. of freight trains and deliver freight In 2019, the investment expenses container traffic fourfold by 2024 tracks on the sections of Irba–Krasny faster, improve carrying capacity Development of the Perm Railway amounted to RUB 4.6 bn. against 2018. In 2019, drafting of design Kordon, Zhuravlevo–Razyezd 557 km In 2019, 25.1 km of second tracks were put of the Rtishchevo–Kochetovka section Hub and the construction documents continued underway. (first phase), Dzheb–Shchetinkino, into operation at the Tanginsky–Ostrovnoy– taking into account plans to increase of a river crossing The Company continued its work and a passing loop at the Agul–Korostelevo Obsky, Tobolsk–Surgut, and Kosulino– the volume of freight trains, as well 2019 investment expenses: RUB 0.3 bn. on designing facilities. The freight volumes section. The main work under the project Bazhenovo sections and as part as deliver savings in operating costs in the Eastern Operating Domain were OTHER RAIL is expected to be completed in 2020. of the upgrade of the Surgut station. associated with locomotive maintenance The project aims to divert railway traffic updated and the points of origination INFRASTRUCTURE The construction of the second main track and repairs, operations of locomotive from the Perm II–Levshino section, and termination of freight flows were DEVELOPMENT PROJECTS Construction of the Prokhorovka– throughout the Tobolsk–Surgut section crews, and train downtime at stations ensure safe operation of hydraulic identified. As a result, the list of activities Zhuravka–Chertkovo–Bataysk line (293.89 km) was completed. As required when changing traction. In 2019, drafting structures, protect local residents was adjusted accordingly. 2019 investment expenses (new rail line on the Zhuravka– by the approved design documents, of design documents was underway. and territories from emergencies, Millerovo route) the throughput capacity of the section and accommodate rising freight volumes Throughput increase 2019 investment expenses: RUB 0.6 bn. is now 66 train pairs per day. Reconstruction of the Bereznikovsko-Solikamsky industrial at the Artyshta– of the Morozovskaya– hub. Mezhdurechensk–Tayshet section 7.0 As part of the project, work was underway Volgodonskaya railway section 2019 investment expenses: RUB 1.5 bn RUB bn in 2019 to equip the Zhuravka–Bochenkovo SAFETY ENHANCEMENT of the North Caucasus Railway Following the work completed in 2019, section with centralised traffic control INITIATIVES 2019 investment expenses: RUB 0.7 bn. the Company and the government The project aims to facilitate transportation systems in Voronezh and Rostov-on- of the Perm Territory chose the final route of additional coal volumes from deposits Creation of the St Petersburg– Don, complete the equipment of existing In 2019, the investment The Morozovskaya–Tsimlyanskaya section for the railway with the construction in the Kuzbass region and to transport Moscow High-Speed Railway1 computer-based interlocking systems expenses amounted to was upgraded in 2019. The section of a railway river crossing freight from the Kyzyl–Kuragino railway 2019 investment expenses: RUB 0.3 bn. for turnout management at the section’s is equipped with automatic block over the Kama River and connection after it is commissioned. In 2019, drafting stations with comprehensive information signalling and power supply systems, of the railway at the Blochnaya–Kabelnaya of design documents continued underway. The aim of the project is to develop design protection and cyber safety systems, with receiving and departure tracks and Balmoshnaya–Levshino sections. documents for subsequent construction construct control posts for the overhead 139 reconstructed at the Kumshalek, Key technical solutions of the St Petersburg–Moscow High-Speed lines (with connecting tracks) RUB bn Kuteynikovskaya and Cherkasskaya Feasibility study for the project and feasibility assessment Railway, which is part of a high-speed railway at the Zaytsevka and Kuteynikovo stations, stations. The work completed to electrify the Ozherelye– of the project for the construction connecting federal cities of St Petersburg construct heating modules for signalling, This set of investment projects is aimed in 2019 helped to increase the capacity Uzlovaya–Yelets section linked of the Selikhin–Nysh railway and Moscow with Nizhny Novgorod. centralisation and block signalling at upgrading fixed assets, including those of the Morozovskaya–Tsimlyanskaya to the project to electrify line with a passage across The project’s feasibility study developed staff at the Zaytsevka and Sergeevka whose useful life has ended, and bringing section to 25 train pairs per day, making the Rtishchevo–Kochetovka the Nevelsky Strait taking in 2009 was updated along with the financial, stations, install snow fencing and ensure the railway infrastructure in line it possible to divert part of transit section into account the construction organisational and legal models, with potential afforestation, and help develop receiving with regulatory requirements. These freight traffic from the key passenger 2019 investment expenses: RUB 0.5 bn. of a new port on Sakhalin options considered and reviewed. and departure tracks at the Sokhranovka, include projects to renovate the track route of Likhaya–Rostov to the Likhaya– 2019 investment expenses: RUB 2.1 bn. Kuteynikovo and Kolodezi stations. infrastructure, upgrade the overhead Morozovskaya–Kuberle–Tikhoretskaya The key objectives Comprehensive development lines and automation and telematics route. of the project are to divert passenger The project aims to ensure uninterrupted of the Krasnoyarsk Railway’s Development of the Tobolsk– equipment at railway sections and stations, trains from the Kazan and Paveletskoye transport access to Sakhalin and develop Mezhdurechensk–Tayshet section Surgut–Korotchaevo railway renew power supply equipment Development of the Perm– routes of the Moskovskaya Railway, railway transport on the island. 2019 investment expenses: RUB 4.6 bn, section and communication systems, locomotive Solikamsk connection increase capacity of the Uzlovaya– A stationary bridge crossing will help including RUB 3.3 bn from the federal In 2019, the investment expenses and railcar fleets, and fixed assets 2019 investment expenses: RUB 0.5 bn. Yelets section to 65 train pairs by 2030 develop the island’s port capacities. budget. amounted to RUB 1.5 bn. at the engineering and utility facilities.
1. In pursuance of Instruction of Russian President Vladimir Putin No. Pr-623 dated 10 April 2019. 80 Russian Railways Annual report 2019 81 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Other initiatives aim to improve Upgrading railway tracks Construction of second tracks, PROJECTS TO ENHANCE ROLLING STOCK RENEWAL OTHER PROJECTS transportation safety, increase efficiency In 2019, the investment expenses extension of station tracks, TRANSPORTATION In 2019, the investment In 2019, the investment of anti-terrorism measures at railway amounted to RUB 138.8 bn. and development of railway ACCESSIBILITY facilities, prevent injuries among the public hubs, border crossing stations, expenses amounted to expenses amounted to at railway infrastructure facilities, improve In 2019, Russian Railways upgraded and marshalling yards In 2019, the investment traffic safety, and develop the corporate 5,980 km of railway tracks. This allowed In 2019, the investment expenses expenses amounted to informatisation programme. the Company to: amounted to RUB 7.8 bn.
• reduce the length of railway tracks 141 45.1 with exceeded limits of throughput The reporting period saw completion RUB bn RUB bn INFRASTRUCTURE in tonnes by 900 km of tracks; of the project to upgrade the Ust-Pera 10.1 DEBOTTLENECKING • increase the speed of passenger trains station on the Trans-Baikal Railway. The Company’s initiatives to upgrade This category includes projects on 1,090 km of tracks; On the Privolzhskaya Railway, RUB bn the rolling stock seek to reduce its wear to introduce resource-saving technologies, In 2019, the investment • increase the speed of freight trains we finished the renovation of railway The projects are aimed at upgrading and tear, increase performance and boost support social initiatives, fund activities expenses amounted to on 1,110 km of tracks; tracks and signalling control system suburban and long-haul passenger safety. aimed at creating Russian Railways’ • reduce the length of permanent speed at the rail yard of LUKOIL-Trans along transportation operations. subsidiaries and affiliates, and pursue R&D limit sections on 1,300 km of tracks; with the renewal of public railway In 2019, Russian Railways purchased efforts. • increase the length of continuous welded infrastructure at the Tatyanka station. In the reporting year, we completed 738 locomotives: 167.3 rails by 1,600 km of tracks. the renovation of the Pridacha • 461 locomotives (357 electric Introduction of resource- RUB bn We also completed the construction and Sbega suburban train stations and 104 diesel locomotives) for freight saving technologies in railway Upgrade of rail infrastructure of two and extension of one railway track and created the suburban transportation transportation, including those used transport In this area, Russian Railways’ investment on the island of Sakhalin at the Vostochny rail yard of the Balezino infrastructure for the XXIX Winter for pulling heavy-duty trains, In 2019, the investment expenses programme includes projects to build In 2019, the investment expenses station on the Gorky Railway. Universiade in Krasnoyarsk. The Company • 223 shunting diesel locomotives used amounted to RUB 2.8 bn. second tracks, extend station tracks, amounted to RUB 7.6 bn. finished the construction of the passenger for shunting, road-switching and hump- develop railway hubs and border crossing infrastructure at the Kuteynikovo station. shunting operations; The project aims to reduce the Company’s stations, develop marshalling yards, The project seeks to increase the railway • 54 passenger locomotives (35 electric operating costs, increase efficiency, construct and upgrade engineering efficiency and improve the transport The year also saw the completion and 19 diesel locomotives). upgrade fixed assets, improve labour structures, upgrade the tracks and railway services on the island of Sakhalin to ensure of projects to upgrade the train stations safety, and ensure compliance infrastructure on the island of Sakhalin, transportation of the expected freight in Volgograd, Yekaterinburg, and Ulan-Ude, On top of that, in 2019 the Company with the regulatory requirements and develop the Tobolsk–Surgut– volumes. In 2019, over 114 km of tracks were construct a passenger terminal at the train purchased 357 cars for multiple unit trains: for energy efficiency. Korotchaevo railway section. converted from 1,067 mm to 1,520 mm gauge. station in Abakan, and renovate the Ulan- • 199 Lastochka cars; Ude train station. • 80 cars for electric trains; • 16 railbus cars; • 62 locomotive traction cars.
82 Russian Railways Annual report 2019 83 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
HIGH-SPEED LINES 1. The Moscow–Nizhny Novgorod – the aggregate length is 421 km; high-speed railway line: – the train travel time will be 2 hours Pursuant to Russian President’s – 301 km – construction of a new and 5 minutes (without stops). Instruction No. Pr-623 of 10 April 2019, track for the Zheleznodorozhnaya– Russian Railways will start engineering Gorokhovets high-speed line section; 2. St Petersburg–Moscow high-speed and surveying under the St Petersburg– – 20 km – construction of a new railway line: Moscow high-speed railway line project track (connecting the Gorokhovets – the length is 684 km; in 2020. station of the high speed railway – the train travel time will be 2 hours line and the Gorokhovets station and 15 minutes (without stops). The St Petersburg–Moscow–Nizhny of the Gorky railway line); Novgorod high-speed railway line project – 100 km – upgrade of the existing consists of two parts. infrastructure; Innovation
The project serves the interests of the government, general public and businesses, creating a new platform for long-term economic growth. Over 90% of equipment and materials will be sourced driven development from Russia, including new high-speed trains capable of reaching speeds of up to 400 km/h. The project will help connect metropolitan areas with a total population of over 30 m people. Over 370,000 jobs will be created, including new jobs for more than 48,000 people engaged in the construction of the high-speed railway line. The Russian Railways Group’s R&D activities and innovation driven development follow In addition to the above project, priority is also given to the following lines that may form part of the high-speed Eurasian freight and passenger rail corridor: the priorities set forth in the Company’s Long-Term Development Programme until 2025, • Kazan–Yekaterinburg; as well as the Group’s Research and Development Strategy until 2025 and further until • Yekaterinburg–Chelyabinsk; 2030 (the “White Book”), in line with the country’s strategic development goals and global • Moscow–Krasnoye. R&D trends.
Saint Petersburg–Moscow–Nizhny The Group’s Comprehensive Innovative It provides for the implementation Russian Railways’ 2019 Novgorod high-speed railway map Nizhny Development Programme (the “CIDP”) of 11 groups of key projects, contains Novgorod R&D capex amounted to Vladimir lays the groundwork for implementing proposals for the development the Long-Term Development Programme. of the organizational structure A new track of the high-speed railway line Cheboksary of innovation management, and lays Upgrade of the existing infrastructure In 2019, a new CIDP until 2025 down partnership mechanisms based 1,031 Sections of the high-speed railway line (“CIDP 2025”) was developed. on the principle of open innovation. RUB m planned for construction Kazan
Key areas of the Group’s innovation driven development: Valdai • developing a customer-focused transportation and logistics system in a unified transportation space; • establishing and implementing dynamic transportation management systems using artificial intelligence; • implementing innovative systems to automate and mechanise station processes (“intelligent station”); • developing and implementing advanced equipment and technologies for track maintenance infrastructure, railway automation and telematics, electrification and power supply, innovative Moscow information and telecommunication technologies; Tver • setting requirements for the construction and deployment of innovative rolling stock; Veliky Novgorod • developing the traffic safety management system and risk management methods associated with the transportation safety and reliability; • developing and implementing equipment and technologies for promoting high-speed and ultra high-speed railway transport; • promoting technologies for heavy-duty freight traffic management; • improving energy efficiency of operations; • implementing the best available technologies in environmental protection; • promoting the quality control system. Saint-Petersburg
84 Russian Railways Annual report 2019 85 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
KEY INNOVATION As part of a project to introduce smart quantum communications network. When DRIVEN DEVELOPMENT contracts on the October Railway, implemented, it will enable the Company PROJECTS IN 2019 the distributed ledger technology was put not only to satisfy its own business to use for container freight shipments needs, but become the main network starting July 2019. In 2019, the technology operator for other consumers, resulting Passenger transportation was used for over 70 shipments carried in more investment funds being raised In 2019, the Company started selling by container trains. for the project. tickets of 24 suburban passenger companies to all destinations across Russia On top of that, the blockchain-based through its RZD Passengers mobile app. platform was integrated with corporate RUSSIAN RAILWAYS’ automated systems, new functionality was CONTRIBUTION The app users can now contact support added to allow smart contract parties TO THE DIGITAL ECONOMY staff via online chat, buy tickets to see identical information, accurate in exchange for RZD Bonus points geolocation data for moving objects was OF THE RUSSIAN and order goods via FPC Market. obtained using geolocation sensors. FEDERATION GOVERNMENT For frequent travellers, there are itinerary PROGRAMME templates that make it easier to buy Railcar fleet management tickets to favourite destinations. Tickets Russian Railways uses a uniform corporate The Digital Economy of the Russian of most suburban passenger companies automated system for rolling stock control Federation programme was approved can be paid in-app using a bank card that has been developed for railcar fleet by the Russian Government’s Order or a one-tap payment system such as Apple management on a nationwide basis. No. 1632-r dated 28 July 2017. It defines Pay, Google Pay and Samsung Pay. goals, objectives, areas, and timelines Communications of the key efforts stipulated by the public Innovative Mobility, Russian Railways’ policy for promoting Russia’s digital controlled entity, is developing Quantum communications economy development. Russian Railways an IT-platform that will leverage modern In July 2019, Russian Railways works with entities responsible digital technologies to bring various and the Russian Government signed for the Digital Transportation and Logistics modes of transportation under one roof. an agreement to facilitate the development project. The platform has a multimodal trip builder of quantum communications that allows users to plan trips involving in Russia. In August 2019, Russian Russian Railways’ key IT development areas DIGITAL are geared towards improving business 55 digital projects across six business lines four modes of transport: rail transport Railways established a Quantum align with the Group’s main business lines TRANSFORMATION processes, updating regulations and creating are planned to be delivered by 2025. (long-haul trains, Aeroexpress), buses (a Communications Department to engage and include: STRATEGY a digital culture within the Company. network of more than 3,472 destinations, in dialogue with the scientific community • providing IT services for external Based on the market analysis, high- including foreign countries), planes (routes and tech companies on the use customers in freight and passenger In 2019, the Company approved its Digital The digital transformation in Russian potential end-to-end digital transformation within Sirena and Sabre travel networks) of quantum technologies for data transfer transportation; Transformation Strategy until 2025 Railways will be focused on the following technologies were identified, including and river transport (20 seasonal routes and protection. • developing new end-to-end digital and updated its IT Development Strategy eight digital platforms: technologies based on the Internet of Things, between seven Lower Volga destinations). solutions for transportation until 2025. • multimodal passenger transportation; big data, distributed ledgers (blockchain), Russian Railways developed a draft road management (“Digital Railway”) • multimodal freight transportation; artificial intelligence, virtual and augmented Freight transportation map entitled Quantum Communications. as part of Russian Railways’ Digital The Digital Transformation Strategy (the • transportation and logistics hubs; reality, advanced data transmission solutions In January 2020, the Ministry of Digital Transformation Strategy until 2025; “Strategy”) was elaborated in accordance • local infrastructure operator; (such as quantum communications). Distributed ledger technologies Development, Communications and Mass • improving the quality of internal IT with the relevant resolution of the Board • logistics operator in e-commerce; Developing corporate culture is no less In 2019, the Company joined a pilot project Media of the Russian Federation submitted services; of Directors made in September 2018. • transportation management; important. The Company has already to create a blockchain-based freight it to the Russian Government. • ensuring the business continuity The strategy is aligned with the Company’s • business support processes; introduced a new role of Change Agent who transportation platform. The project while meeting the highest IT security Long-Term Development Programme until • traction stock. will be responsible for educating others, is implemented as part of cooperation Together with ITMO University, Russian requirements. 2025 as regards the timeline, financial taking part in change management initiatives, between Russian Railways, shippers, Railways created a National Quantum terms, actions and targets. Apart Each platform will offer digital services exploring new workflow organisation consignees, railcar fleet owners, freight Internet Research Centre. Russian from the integration of digital technology, for both internal and external customers. opportunities, identifying and promoting best operators, ports, terminal operators, Railways provides funding for the project the digital transformation projects In accordance with the Strategy, practices in the Company. customs authorities and banks. by developing a Moscow–St Petersburg
86 Russian Railways Annual report 2019 87 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Analysis of financial results Russian Railways’ performance in 2019 (under RAS)
In the context of slowing economic growth in 2019, Russian Railways fulfilled Handling Income from transportation EBITDA and improved its key financial results in comparison with the Long-Term Development operations Programme guidance. The negative dynamics of freight traffic volumes has become an indicator of the deterioration of the General economic situation, which is compensated 1,278.1 417.2
by the growth of passenger traffic. mt 1,641.9 RUB bn RUB bn –0.9% y-o-y +9.7% y-o-y +3.6% y-o-y Looking back at the 2019 performance, I am happy to say that –11.5 mt y-o-y RUB +37 bn y-o-y the Company was able to deliver on key operational and financial RUB +56.8 bn y-o-y “ targets, even amid considerable external pressure. This was made possible through our systematic efforts to increase the internal efficiency, including cost management to offer discounts to shippers, pricing under long-term contracts with suppliers and effective Freight turnover total Cost Net profit (RAS) engagement with investors in capital markets. The Company’s RAS income rose by 2.8% y-o-y to RUB 1,848 bn. Our RAS EBITDA increased by 9.7% to RUB 417 bn.” 3,305.0 435.3 53.5 Vadim Mikhailov bn tkm kopecks / 10 virtual tkm RUB bn First Deputy CEO of Russian Railways flat y-o-y +1.9% y-o-y up 2.9x y-o-y RUB +35.1 bn y-o-y
RUSSIAN RAILWAYS’ Amid changes in the freight transportation and reduce debt servicing costs, including PERFORMANCE IN 2019 structure, the revenue rate growth a number of successful placements stood at 3.4%. Income from passenger and refinancing exercises, which Passenger turnover Growth in productivity Investments While Russia’s GDP grew by 1.3% (2018: transportation increased by 11.9% y-o-y. helped bring the interest rate to 5.89% for transportation 2.5%) and industrial production rose as at the end of 2019. operations by 2.3% (2018: 3.5%) in 2019, freight As a result of implemented performance handling declined by 0.9% in the reporting improvement initiatives, transportation As a result of the Company’s push 133.4 674.1 year. Yet, Freight Turnover total remained costs were up by only 1.9% y-o-y as consumer to improve operational efficiency bn pkm RUB bn unchanged from the previous year. prices grew by 4.5% and producer prices and financial policy, net profit increased +3.3% rose by an average of 2.9% per annum. to RUB 53.5 bn compared to RUB 18.4 bn +3.1% y-o-y up 1.3x y-o-y At the same time, passenger in 2018 (target – RUB 27 bn). y-o-y transportation continued a steady Income from other operations amounted +4 bn pkm y-o-y growth (up 3.1% vs 2018) across all to RUB 22.9 bn. As a result, sales In 2019, EBITDA went up by 9.7% y-o-y segments, despite the effect of a high base profit for the year increased by 18.1% to RUB 417.2 bn (2018: RUB 380.2 bn). on the back of the 2018 FIFA World Cup and amounted to RUB 166.3 bn. in Russia. Russian Railways continued implementing Revenue rate Weighted average Tax and insurance Dividends from subsidiaries and affiliates its large-scale investment programme. borrowing rate contributions paid In 2019, the Company focused stood at a record high of RUB 28.7 bn, In 2019, capex on expanding and upgrading on ensuring a balanced operating while sales of their shares amounted fixed assets exceeded RUB 674 bn, hitting
performance and cost management. to RUB 11.8 bn yielding RUB 0.8 bn1. new record highs. 454.9 Income from transportation operations kopecks / 10 tkm 5.89% 318.3 added 3.6% y-o-y. Freight transportation Outstanding loan debt at the end of 2019 RUB bn yielded 3.4% more income compared stood at RUB 1,477.5 bn. The Company +3.4% y-o-y –20 pp y-o-y to 2018. continued to optimise its debt portfolio –0.2% y-o-y +14.8 kopecks /
1. 10 tkm y-o-y –RUB 0.8 bn y-o-y Due to a complicated structure of the sale of TransContainer, the effect of the disposal of the controlling stake will be reflected in Russian Railways’s RAS financial statements in 2020 after the receipt of dividend from UTLC.
88 Russian Railways Annual report 2019 89 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
INCOME FROM (established by FAS order No. 1482/18 within the Moscow Central Circle TRANSPORTATION TRANSPORTATION of October 30, 2018). At the same time, amounted to RUB 6.2 bn, up by RUB 1.1 bn EXPENSES OPERATIONS in 2019, there were a number of negative (+20.6%) due to a transition changes in the structure of transportation to a four-minute interval service In 2019, transportation expenses In 2019, income from transportation that affected the decline in revenue, such from 21 November 2019 and an increase amounted to RUB 1,498.5 bn, up 2.0% y-o-y. operations increased by 3.6% y-o-y as an increase in the share of low-income in transportation operations. to RUB 1,641.9 bn. cargo (coal) transportation, and an increase in the share of export traffic to ports Income from infrastructure Transportation expenses, RUB bn Income from freight with a long range of transportation. services transportation In 2019, income from infrastructure 2019 Change y-o-y 2019 (actual) vs 2019 (plan) 2018 In 2019, income from freight Income from long-haul services for freight and passenger Indicator (actual) Plan Actual +/– % +/– % transportation reached RUB 1,503.4 bn, up passenger transportation transportation totalled RUB 110.6 bn, Transportation expenses 1,469.5 1,515.1 1,498.5 +29.0 +2.0 –16.6 –1.1 3.4% y-o-y (+RUB 48.8 bn). Russian Railways carries out long-haul up 4.7% (RUB 4.9 bn) y-o-y. passenger transportation in the high-speed Payroll expenses 439.9 454.6 453.5 +13.7 +3.1 –1.1 –0.2 In the context of the formation segment (Sapsan, Lastochka and Allegro). Social expenses 124.9 129.4 129.2 +4.3 +3.5 –0.2 –0.1 of the volume of traffic (cargo turnover) In 2019, income from transportation Material expenses 537.3 555.3 544.4 +7.2 +1.3 –10.9 –2.0 at the level of last year, the increase operations totalled RUB 21.7 bn, Materials 63.4 51.5 52.8 –10.6 –16.8 +1.3 +2.5 in revenue from cargo transportation was up by RUB 1.9 bn (+9.7%) y-o-y. The increase Fuel 110.7 117.5 113.1 +2.4 +2.2 –4.4 –3.7 formed due to the growth of the revenue is attributable to the rise in demand In 2019, income from freight including for train traction 97.2 101.5 99.2 +2.0 +2.1 –2.3 –2.2 rate per ton-kilometer. for Sapsan train trips and passenger transportation reached transportation by additionally introduced Electricity 166.7 178.9 175.6 +8.9 +5.3 –3.3 –1.9 In General, at the end of 2019, Lastochka trains. including for train traction 148.0 159.2 156.7 +8.6 +5.8 –2.6 –1.6 the revenue rate was RUB 4.55 per 10 tkm Other 196.5 207.4 203.0 +6.5 +3.3 –4.5 –2.1 with an increase of +3.4% compared 1,503.4 Income from suburban Depreciation 230.3 241.4 240.1 +9.8 +4.3 –1.3 –0.5 to the previous year, which almost passenger transportation RUB bn Other expenses 137.2 134.3 131.2 –6.0 –4.4 –3.2 –2.4 corresponds to the level of indexation In 2019, income from transportation of tariffs for cargo transportation +3.5% services provided by Russian Railways +3.4% y-o-y
90 Russian Railways Annual report 2019 91 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
COST OPTIMISATION In 2019, the Company implemented INCOME FROM OTHER RUB 30.5 bn worth of initiatives to improve OPERATIONS Russian Railways remains committed operational efficiency and optimise costs. to enhancing its internal efficiency. In 2019, the Company’s income from other operations decreased by 3.3% y-o-y to RUB 206.2 bn.
Key effects of Russian Railways’ efficiency improvement initiatives in 2019 Breakdown of income from other operations, RUB bn
Lease of locomotives and services for FPC 24.2% 49.8
Lease of railcar rolling stock and services for SPC 19.4% 40.1
1 2 3 Repair of rolling stock and equipment 8.5% 17,4 Assessment Higher efficiency Introduction of cutting- Lease of property 7.5% 15.4 and optimisation of the procurement edge technologies Sale of scrap metal 6.8% 14.1 of operating expenses and supply chain and innovations Additional customer services 6.4% 13.2 management system Power transmission using Russian Railways’ grids 5.9% 12.1 Other services 5.4% 11.2 3.8 RUB bn 1.3 RUB bn Social services 4.9% 10.0 RUB bn Sale of fuel and other products 4.7% 9.7 • Higher energy savings and energy 3.6 • Lean production and other projects Construction of infrastructure facilities 2.9% 5.9 efficiency • Lower prices resulting from tender Passenger services at railway stations 1.7% 3.5 • Optimisation of expenses related procedures for services procured to third-party work and services Accounting services 0.9% 1.9 206.2 • Lower expenses due to re-use Chemical analyses and metrology 0.9% 1.9 RUB bn of materials • Higher efficiency of track facilities maintenance
4 5 6 OTHER INCOME This was largely due to the positive appeal of Russian Railways’ subsidiaries AND EXPENSES revaluation of FX-denominated debt and affiliates evidenced by the 1.5 times y-o-y Higher asset management Improvements in labour Other initiatives with the use of FX revenue hedging tools growth of dividend payments. efficiency productivity In 2019, the financial result and the appreciation of the rouble against from other income and expenses amounted major currencies coupled with improvements These achievements helped partially RUB bn to –RUB 68.0 bn, with a positive effect up in the performance and investment offset the negative impact of bigger 4.7 by RUB 15.9 bn y-o-y. interest paid associated with the growth RUB bn RUB bn 7.7 9.4 • Tax benefits of the FX-denominated debt portfolio in 2019. • Optimisation of the traction rolling stock • Set of technical and organisational • Optimisation of travel and other through its better utilisation measures expenses • Modification of track repair schedules • Higher efficiency of property, plant and equipment maintenance and repair management
Total 30.5 RUB bn
92 Russian Railways Annual report 2019 93 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
PROFITABILITY ANALYSIS Sales profitability, This strong performance was secured Operating profitability GOVERNMENT SUPPORT TAXES AND INSURANCE operational efficiency, by a 18.1% y-o-y increase in sales revenue, (net profit margin) OF RUSSIAN RAILWAYS FEES ROE and EBITDA margin including through more efficient cost Our continued effort to improve IN 2019 In 2019, ROE (return on equity) totalled (under RAS) management (in 2019, transportation costs operational efficiency and positive effects The total amount of taxes and insurance 1.19%. In 2019, sales profitability stood at 9.0%, increased by 1.9% as consumer prices grew of the financial policy (debt portfolio cost In 2019, Russian Railways received fees accrued in accounting statements up 1.2 pp y-o-y, while EBITDA margin by 4.5% and producer prices rose by 2.9%), optimisation), as well as the appreciation RUB 121.8 bn from the government for 2019 stood at RUB 324 bn, or up 102% (under RAS) amounted to 22.6%, up 1.5 pp and a 3.4% growth of revenue rate amid of the rouble resulted in a 1.9 pp budget and the National Wealth Fund, y-o-y, including: y-o-y. changes in the freight turnover structure. increase in net profit margin (operating including RUB 96.6 bn from the federal • RUB 34.4 bn (or up 87.4% y-o-y) owed profitability). budget (of which RUB 40.2 bn was to the federal budget; allocated from the budget of Moscow • RUB 135.2 bn (or up 102.7% y-o-y) via inter-budget transfers), RUB 19.5 bn to the regional and local budgets; ROE (net income / equity), % Sales profitability, % Revenue rate, kopecks / 10 tkm Operating profitability from the National Wealth Fund, • RUB 154.4 bn (or up 105.3% y-o-y) owed (net profit margin), % and RUB 5.7 bn from regional budgets to the extra-budgetary funds. +3.4% and extra-budgetary funds.
2019 1.19 2019 9.0 2019 454.9 2019 2.9 In 2019, to pay current taxes and insurance premiums (including offsets 2018 0.42 2018 7.8 2018 440.1 2018 1.0 and refunds) RUB 318.3 bn was allocated, 2017 0.41 2017 8.2 2017 1.0 including: • to the Federal budget – RUB 39.9 bn; Transportation costs, kopecks / EBITDA margin (under RAS), % EBITDA (under RAS), RUB bn • to the budgets of the subjects 10 virtual tkm of the Russian Federation +1.9% +9.7% and municipalities – RUB 135.2 bn; • to non-budgetary funds – RUB 143.2 bn. 2019 435.3 2019 22.6 2019 417.2
2018 427.4 2018 21.1 2018 380.2
2017 20.8 2017 353.9
94 Russian Railways Annual report 2019 95 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
RUSSIAN RAILWAYS’ FINANCIAL RESULTS BASED ON ITS CONSOLIDATED IFRS FINANCIAL STATEMENTS FOR 2019
Our strong balance sheet was underpinned by the initiatives seeking to improve the efficiency of freight transportation and streamline “ rolling stock management despite somewhat weaker operating growth. As a result, the Group’s income in 2019 grew by 3.9% y-o-y to RUB 2,508 bn vs RUB 2,413 bn in 2018. Our EBITDA rose by 9.4% to RUB 577 bn, while EBITDA margin amounted to 25.8%1 on the back of strong operating results and cost controls.”
Vadim Mikhailov First Deputy CEO of Russian Railways
In 2019, the Group’s income grew by 3.9% In 2019, the Group’s operating In 2019, EBITDA went up by 9.4% y-o-y DEBT POLICY In addition, the Company drew down bonds totalling RUB 55 bn in April 2020, y-o-y to RUB 2,508 bn vs RUB 2,413 bn expenses increased to RUB 2,348 bn to RUB 576.9 bn vs RUB 527.4 bn in 2018. bilateral short-term (from several and includes long-term debt maturing in 2018. (up 1.3% y-o-y) vs RUB 2,318 bn in 2018 Debt portfolio performance days to 1 year) bank and intra-group in 2020. due to higher prices for consumed As at 31 December 2019, the Group’s net in 2019 loans throughout the reporting This growth was mainly attributable products and fuel and energy. debt / EBITDA stood at 2.49x, an evidence In 2019, the Company’s medium year for the day-to-day management As the maturity dates of the relevant to income from freight transportation Payroll and social expenses went up of our sound financial health. and long-term debt totalled RUB 321.3 bn. of liquidity and refinancing of liabilities. liabilities approach, the Company replaces and infrastructure services going up as a result of a phased salary indexation The borrowed funds were largely As at the end of 2019, short-term them with new long-term borrowings, by 4.4% y-o-y to RUB 1,598 bn. programme implemented during 2019. raised through public debt instruments liabilities stood at RUB 231.8 bn. determines their maturity taking into held by Russian investors as well account the existing repayment schedule Income from passenger transportation The Group’s net profit reached as CHF-denominated bank loans. In the reporting year, the Company’s total and maintaining the share of short-term grew by 6.3% to RUB 267 bn, while income RUB 155.7 bn. debt stood at RUB 1,459.9 bn (excluding liabilities for the entire scheduled horizon from logistics services provided by GEFCO Russian Railways repaid accrued interest). at a level not exceeding 20%. grew by 2.0% to EUR 4.739 bn. a total of RUB 133.8 bn in obligations in the reporting year. The Company’s As at the end of 2019, the long-term As at the end of 2019, the average debt portfolio was significantly impacted portion of the debt portfolio (maturing maturity across the Russian Railways’ debt by the rouble depreciation causing revaluation in more than 3 years) went down to 62% portfolio (excluding short-term liquidity Net profit EBITDA EBITDA margin of the FX-denominated debt and an increase as the share of medium-term instruments management tools) was approximately in its rouble equivalent at year-end. In relative increased. 7.5 years with payments evenly distributed terms, the share of the FX-denominated over the long-term horizon, thus mitigating debt went down to 31% (vs 35% at the start The short-term (less than a year) debt the refinancing risks. 155.7 576.9 25.8% of the year) after Russian Railways successfully increased from the beginning of the year RUB bn RUB bn redeemed part of its USD-denominated to 21.7% as the Company was preparing Eurobonds for ca. USD 461 m. to redeem the three series of local
1. Here and elsewhere, the EBITDA margin factors in a revenue adjustment of RUB 268 bn, which constitutes the cost of third parties’ integrated forwarding and logistics services.
96 Russian Railways Annual report 2019 97 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Russian Railways’ debt portfolio Russian Railways’ debt portfolio breakdown by maturity4, RUB bn
Items 2019 value indicator Targets Comments 25 2044 25 Share 30.6 No more FX-denominated debt in the Company’s debt portfolio adds to its exposure of FX-denominated than 40 to FX fluctuations. However, the interest rate on FX-denominated loans 25 debt, % is much lower than on rouble loans. It is, therefore, the debt policy's primary 2043 25 objective to find balance between the FX and rouble-denominated loans 60 Short-term debt, % 15.92 No more Short-term obligations in the debt portfolio offer greater flexibility 2040 60 than 20 in managing the portfolio 25 Average maturity1, 7.5 7 The Company works to increase and maintain the average maturity 2039 25 years of the debt portfolio that would be consistent with the long payback period of the investment projects financed by such loans 25 2038 25 17 2035 17
3 60 Russian Railways’ debt portfolio breakdown by currency , RUB bn 2033 60
69% 5% 9% 13% 4% 51 15 2031 66 2019 1,460 69% 9% 9% 9% 4% 31 2029 31 2018 1,245 65% 15% 9% 6% 5% 60 10 2028 70 2017 1,060 62% 19% 10% 4% 5% 15 35 2027 50 2016 905 45 54% 22% 12% 5% 7% 5 50 2026 100 2015 969 50 27 30 RUB USD EUR CHF GBP 2025 107 55 36 22 2024 113 Russian Railways’ debt portfolio breakdown by maturity3, RUB bn 15 89 40 2023 144 63% 15% 22% 20 67 25 2019 1,460 2022 112 62% 18% 20% 99 15 2018 1,245 2021 114 66% 22% 12% 31 55 2017 1,060 2020 86 77% 15% 8% 2016 905 Local bond redemption FX-denominated debt Rouble-denominated debt 74% 19% 7% 2015 969
Over 3 years 1–3 years Below 1 year
1. Excluding short-term liquidity management tools. 2. Short-term bank and intra-group loans. 3. Principal debt only (principal debt less accrued interest) as at 31 December of the respective year. Rounded to whole 4. numbers. Principal debt. Debt obligations as at 31 December 2019. FX payments calculated on the basis of the FX rates as at 31 December 2019.
98 Russian Railways Annual report 2019 99 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
Securities
Finance highlights Local capital market In March 2019, the Company successfully In July 2019, it completed another seven- In 2019, Russian Railways became the largest borrower among corporate issuers in the local capital In 2019, the Company successfully placed placed a 10-year 9.1% issue for RUB 20 bn, year bond offering, raising a record market, raising a total of RUB 106 bn through six local bond offerings. Moreover, the Company moved to the top of the list of the biggest Eurobond issuers in the CIS (ranking second to the Russian Federation, six primary rouble bond issues in the local closing the largest and longest running RUB 30 bn in the local market. The coupon according to Cbonds1). In 2019, Russian Railways completed five offerings in different currencies (euro, market along with secondary bond deal in the local market since the beginning rate was set at 7.9% with a minimum Swiss francs and roubles) for a total equivalent of USD 1,607 m. offerings. The proceeds from local bonds of the year. In the same month, it took premium to the government bond yield. were partly used to replace its short-term advantage of the additional demand generated It is also worth noting that the Company completed the offering of Green Eurobonds, first of its debt. by the previous offering, closing the order In November 2019, the Company kind in Russia and the CIS. The offering was priced at 2.2%, the lowest ever coupon rate for a Euro- book for another RUB 11 bn on similar terms. successfully placed a six-year 6.75% issue denominated bond of a Russian issuer. The deal won the Best Primary Eurobond Deal award from Cbonds, which is a testament to its success. In 2019, Russian Railways first for RUB 15 bn, securing the lowest coupon tapped the local bond market in late In April 2019, the Company successfully rate among all its local public offerings January, placing a five-year 8.7% issue placed an eight-year 8.8% issue since 2006. for RUB 15 bn. for RUB 15 bn. BONDS
Global capital markets to the Singapore’s sovereign wealth fund. In November 2019, Russian Railways In April 2019, Russian Railways placed The issue was the first for the Company successfully redeemed its USD- and GPB- 6.5-year rouble-denominated Eurobonds to be listed on the Vienna Stock Exchange. denominated Eurobonds for approximately Green Bonds for a total of RUB 20 bn. The issue USD 461 m, having refinanced them On 23 May 2019, Russian Railways successfully completed its international Green Eurobond offering, attracted more than 50% of international In September 2019, order books were with franc-denominated instruments marking the first issue for this type of bonds in Russia and the CIS. investors, thus enabling the Company closed for the two tranches of franc- at lower rates. to diversify its investor base. denominated 6- and 8.5-year CHF 500 The Company developed the Green Bond Framework to ensure the transaction implementation in line m Eurobonds. The tranches were In 2019, the Company borrowed a total with international best practice. The Framework was aligned with the Green Bond Principles (2018) of the International Capital Market Association (ICMA) and the Low Carbon Land Transport Standard Russian Railways was the first in Russia priced at the lowest coupon rates ever of CHF 1.26 bn from banks. of the Climate Bonds Initiative (CBI). and the CIS to place Green Eurobonds offered by Russian bond issuers (0.898% in May 2019. The 8-year 2.2% Green Bond and 1.195% for 6- and 8.5-year Eurobonds, Russian Railways optimised the cost The eight-year Green Bond helped Russian Railways raise EUR 500 m and was finally priced at 2.2%, helped the Company raise EUR 500 m. respectively). Moreover, the 8.5-year of its debt maintaining interest payments achieving the lowest ever coupon rate for a Euro-denominated bond of a Russian issuer. Green investment tranche became the longest-term offering at a comfortable level. In 2019, funds accounted for approximately 25% of the final order book. In August 2019, Russian Railways of franc-denominated bonds by Russian an equivalent of ca. RUB 209 bn was raised The capital raised was used to refinance the purchase of Lastochka electric passenger trains successfully completed its first borrowers. using global instruments. in 2016–2018. private placement of RUB 15 bn Eurobonds with a maturity of 7+ years Passengers transported by Lastochka electric trains2, m people
147.5 53.3 2019 200.9 129.6 41.3 2018 171.0 110.8 29.7 2017 140.6 27.2 21.8 2016 49.0
Moscow Central Circle Other routes
1. Cbonds is the leading news agency in Russia, specializing in information disclosure and analytics on the global financial markets, in particular in the area of debt instruments. The agency monitors news and market conditions, maintains a database on all issues of debt securities of issuers. 2. Inlcuding the Moscow Central Circle. 100 Russian Railways Annual report 2019 101 About the company Strategic report Performance overview Sustainable development Corporate governance Appendices
About the project to purchase Lastochka electric trains SHARE CAPITAL Dividend policy Distribution guidance The Lastochka is an electric high-speed passenger train based on the Siemens Desiro platform. AND DIVIDENDS In 2019, Russian Railways paid dividends for the 2019 net profit As at the date of this report, Russian Railways purchased about 200 Lastochka trains used for both on ordinary shares for 2018 pursuant In 2019, Russian Railways earned RUB 53.5 bn suburban and long-haul transportation. Share capital to Order No. 1393-r of the Government in net profit. Pursuant to Clause 42, Section 6 Russian Railways has been included of the Russian Federation dated 29 June of the Company’s Charter, RUB 2.673 m, or 5% The project is intended to handle the growing flow of passengers and offer them improved service quality in the list of strategically important 2019. of net profit for the reporting period, is to be on both new and existing routes, while also supporting the modal shift from road to rail. companies approved by Russian President’s allocated to reserve capital. The purchase qualifies as a Clean Transportation Project in line with the Green Bond Principles. Decree No. 1009 dated 4 August 2004. The following amounts were allocated The indicative environmental impact of Lastochka electric trains calculated by the Company showed to dividend payments for 2018: The ordinary shareholders The Russian Federation is the founder • RUB 7 m, or 0.01% of the nominal value will be paid dividends for 2019 in accordance a significant advantage of rail passenger transportation as compared to motor vehicles. In 2019, CO2 emissions from Lastochka trains were 5.8 times lower than those from motor vehicles used to transport and sole shareholder of Russian (RUB 70 bn) of preference shares, with the Russian Government’s directive. the same number of passengers. Railways. The Government of the Russian payable to preference shareholders; Federation exercises shareholder powers • RUB 13,357 m, or 72.74% In accordance with the Comprehensive on behalf of the Russian Federation. of the RAS net profit, payable Plan for Upgrading and Expanding Core The founder contributed properties to ordinary shareholders. Infrastructure until 2024, the Russian and assets of Russian federal railways Railways Long-Term Development Programme to the Company’s charter capital. Pursuant to Order No. 1393-r until 2025, and the Company’s investment For more details on Green Bonds see the Investor Relations section of the Company’s website of the Government of the Russian programme and financial plan for 2020– As at 31 December 2019, Federation dated 29 June 2019, RUB 918.1 2022, Russian Railways is entitled to use the charter capital amounted m was allocated to reserve capital in 2018. the full amount of net profit to finance its to RUB 2,379,420,680,000. No other allocations were made. large-scale investment programme.
Net profit distribution, RUB bn
Items 2014 2015 2016 2017 2018 1 Indicative CO2 emissions from Lastochka electric trains vs motor vehicles , kt CO2 Net profit –44.078 0.318 6.500 17.500 18.363 Reserve capital 0.000 0.016 0.325 0.875 0.918 100% Dividends accrued on 0.045 0.302 5.147 8.755 13.364 1,110.0 2019 in Russian Railways 190.7 ordinary shares 0.045 0.297 5.142 8.750 13.357 are owned by the Russian 879.3 preference shares – 0.005 0.005 0.005 0.007 2018 Federation 191.5
655.6 2017 91.4
419.5 2016 65.6
Motor vehicles Lastochka electric trains
1. Based on the same number of passengers transported.
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RATING AGENCIES In February 2019, following Russia’s borrowing sources, and a comfortable As a result, the Company’s ratings Among the highlights of the year were and the interests of investors AND INVESTORS sovereign rating upgrade and Russian leverage despite a massive investment from the three global rating agencies the participation of the Company’s and other stakeholders. Information Railways’ strong performance in 2018, programme. are all investment grade since Q1 2018, i.e. management in the St Petersburg is disclosed pursuant to the Regulation In 2019, global rating agencies Moody’s raised the Company’s for two years running. International Economic Forum on the Information Policy adopted took a number of positive actions credit rating from investment In August 2019, Fitch upgraded Russian in June 2019 and the signing by Russian Railways’ Board of Directors. on Russia’s sovereign ratings grade of Baa3 (positive outlook) Railways by one notch from BBB– (positive The credit ratings of Russian Railways of a number of cooperation agreements on the back of the government’s to Ваа2 (stable outlook), one notch outlook) to BBB (stable outlook) to reflect from national rating agencies were with international and Russian banks. Russian Railways discloses its financial sound and consistent financial policy, higher than the sovereign. Only its “good creditworthiness”. The upgrade confirmed at the highest level In November 2019, the Company and accounting statements in line improvements in macroeconomic three out of twelve companies was driven by Russia’s sovereign rating of the issuer’s credit rating – AAA(RU) took part in VTB Capital’s 11th Annual with Russian (RAS) and international conditions and the country’s stronger with ratings higher than the sovereign upgrade in early August and the Company’s with a stable outlook by ACRA and ruAAA Investment Forum “Russia Calling!”, which (IFRS) standards. As an issuer of securities resilience to external risks. Early are related to the infrastructure strong ties with the government, leading with a stable outlook by RAEX. Therefore, included meetings with major Russian traded on the Moscow Exchange, it also in 2019, Moody’s upgraded Russia’s sector and do not engage in exports to the alignment of the Company’s the Company additionally maintains and foreign investors who reaffirmed makes online disclosures in accordance sovereign rating to the investment grade of mineral resources. Russian Railways final rating with the sovereign rating. an independent assessment of its sound their interest in the Company’s corporate with the Russian securities market laws. Baa3 with a stable outlook from Ba1 is one of them. The agency noted At the same time, the standalone credit financial health and robust credit profile debt instruments, in particular green with a positive outlook, and in Q3 2019, the Company’s strong operating rating of Russian Railways (excluding as a borrower. bonds. In November, a series of meetings The Company’s annual report provides Fitch raised the country’s investment and financial performance in 2018, country risks) was affirmed at BBB+, one between Russian Railways’ management essential details about its operations grade rating to BBB from BBB– sufficient liquidity position, long-term notch above the basic rating. In their reports, the agencies affirmed and representatives of major Asian in line with regulatory requirements with a stable outlook. nature of its debt portfolio, diversified their positive assessment of Russian investment funds, banks and insurance and is submitted to the shareholder Railways’ efficient management companies was held in Tokyo as part in preparation for the general meeting. Russian Railways’ credit ratings in local currency of the debt portfolio structure and noted of the Company’s efforts to develop The corporate website offers a wealth its strong operating and financial relations with foreign investors. of more information about the Company, A–/A3/A– highlights, a moderate leverage, excellent A traditional annual Investor Day including access to its internal regulations. BBB+/Baa1/BBB+ liquidity position, and diversified with the participation of the Company’s Some essential information relevant BBB/Baa2/BBB borrowing sources. management was held in London for foreign stakeholders is disclosed Investment BBB–/Baa3/BBB– in December 2019. in English. grade Russian Railways is now two steps down BB+/Ba1/BB+ from the A rating tier of Moody’s and Fitch BB/Ba2/BB and three steps down from that of S&P. DISCLOSURE BB–/Ba3/BB– AND REPORTING POLICY B+/B1/B+ In 2019, Russian Railways continued Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep its dialogue with Russian and global Russian Railways is committed to ensuring 15 15 15 16 16 16 17 17 16 18 18 16 19 19 16 financial investors at bilateral meetings full transparency of its operations 1 1 1 S&P Moody’s Fitch and industry conferences. in line with applicable legal requirements
Russian Railways’ credit ratings in foreign currency Credit ratings of the Russian Federation and Russian Railways as of the end of 2019
A–/A3/A– Issuer Agency Rating Outlook BBB+/Baa1/BBB+ Russia Standard & Poor’s BBB– Stable BBB/Baa2/BBB Moody’s Baa3 Stable Investment BBB–/Baa3/BBB– grade Fitch BBB Stable BB+/Ba1/BB+ Russian Railways Standard & Poor’s BBB– Stable BB/Ba2/BB Moody’s Baa2 Stable BB–/Ba3/BB– Fitch BBB Stable B+/B1/B+ ACRA ААА(RU) Stable Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep 15 15 15 16 16 16 17 17 16 18 18 16 19 19 16 RAEX ruAAA Stable S&P1 Moody’s1 Fitch1
1. International rating scale.
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SUSTAINABLE DEVELOPMENT As one of the major and systemically important elements of the national economy, the crucial link of the country’s transportation system and employer to 743,000 people, Russian railways maintains a priority focus on compliance with the sustainable development principles and social responsibility towards employees, the society, and the state.
+3.3% +6.5% labour productivity growth average monthly in transportation operations in 2019 salary growth
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Sustainable development management
2019 was a year of human capital development at Russian Russian Railways is committed to the UN Global Compact, the largest international “ Railways. This is our key priority as people, their professional initiative in social responsibility, and is a member of the National Network skills, experience, power and desire to excel and grow personally of the Participants to the Global Compact for Implementing the Principles of Responsible and as a company, are our most valuable asset. The Company has always paid great attention to developing its talent pool Business in Corporate Practice Association. and ensuring decent working conditions and will continue to do so for many years to come.” Alongside the Global Compact, In pursuing its corporate social resources, implementation of environmentally the Company complies responsibility policy, the Company friendly and resource/energy saving with the principles of socially complies with international treaties, laws technologies, and support social and cultural Dmitry Shakhanov responsible business practices enshrined and regulations of the Russian Federation, stability, as well as integrity of biological Deputy CEO of Russian Railways in the Social Charter of the Russian local laws and regulations. and physical ecosystems. Business developed by the Russian Union of Industrialists and Entrepreneurs Russian Railways’ strategic priority The Company’s commitment (RSPP). The Company is a regular in terms of sustainability is to achieve to the 17 UN SDGs is reflected in its contributor to the RSPP’s Corporate the UN Sustainable Development Goals efforts to ensure economic stability, Practices Collection. (SDGs) that focus on efficient use of limited environmental safety and social security.
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Stakeholder engagement
Stakeholders Interaction formats and mechanisms Stakeholders Interaction formats and mechanisms Staff • Labour relations under the Collective Mass media and non-governmental • Press releases covering Russian Railways’ operations • Bargaining Agreement organisations • Replies to media enquiries • Social partnership • Accompanying journalists during photo and video tours at infrastructural facilities • Employee surveys and sociological monitoring • Management functions Passengers • Railway station services • Conflict resolution procedures • Passenger transportation services • Catering services on board Educational institutions • Targeted student admission arrangements • Developing feedback channels: • Benefits for children of Russian Railways’ employees – questionnaires at railway stations • Joint academic and cultural events – Unified Information Service Centre • Input to the work of educational institutions from Russian Railways’ employees – Enquiries via the mobile app – Russian Railways’ website Shareholders and investors • Arranging the issuance of technical specifications – surveys at www.opros.fpc.ru and on Sapsan trains • Arranging assessment of the project’s economic efficiency for Russian Railways and its • Passenger satisfaction surveys investor • Creating project teams Freight transportation clients • Basic freight transportation services • Drafting and signing of cooperation agreements on project implementation • Transportation and logistics services related to basic freight transportation services, • Regular working meetings at various levels including public railway infrastructure services • Signing of agreements to connect the investor’s non-public infrastructure assets to Russian • Russian Railways’ information services Railways’ infrastructure • Developing feedback channels: – Unified Freight Transportation Call Centre, part of Russian Railways Unified Information Government authorities and local • Implementation of master cooperation agreements associated with railway transportation Service Centre communities across the Company’s • Drafting, signing, and implementation of mid-term social and economic cooperation – personal account of the client of JSC “Russian Railways” footprint agreements with Russia’s regional authorities – Enquiries via the RZD Cargo mobile app • Organising train days attended by heads of regions and Russian Railways Group’s – Freight section of the Russian Railways website representatives – Sales offices • Regular working meetings with Russia’s regional leaders • Client satisfaction surveys • Joint participation in the events held to support the image of Russian regions and the Russian Railways Group • Meetings of interregional and regional transportation coordination councils, permanent working groups and committees involving representatives of Russian regions and local enterprises • Preparation for and cooperation during conference calls with the Ministry of Transport of the Russian Federation involving representatives of the Russian Railways Group, SPC and Russian regions • Maintaining dialogue with regional legislative bodies during the meetings of dedicated committees • Expert support to members of the State Duma and the Federation Council • Drafting and implementation of Russian Railways’ action plans in line with the legislative work schedule of the Federation Council and the State Duma, taking into account the legislative activities of the Government of the Russian Federation • Monitoring and organising events at the Federal Assembly’s platforms • Monitoring and analysis of the information disclosed in the State Duma’s automated system for supporting legislative activity • Meetings of Russian Railways with the Presidential Executive Office, Federal Assembly of the Russian Federation, Executive Office of the Government of the Russian Federation, ministries and other federal authorities, and regional and local government authorities • Handling of queries from members of the State Duma and the Federation Council • Focus on preventive management of the external environment Social partnership • Interaction with national and international non-governmental organisations as regards the UN Sustainable Development Goals, participation in joint events, review of initiatives, including those related to federal laws governing social and labour relations • Liaising with industry trade unions in ensuring social security of employees and retirees • Non-financial/sustainability reporting
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Social policy Russian Railways’ key ethical principles
The development of the social sphere of the Holding is carried out on the basis Make people our top Promote teamwork. Being part feasibility and commercial interests of an objective assessment added value created by social support of the team and the use priority. People are the Company’s of a team means being attentive and honest of Russian Railways. of assets, a set of socially significant objects for the provision of market services. main asset. We see real people – with colleagues, managers and subordinates, employees, passengers, and clients – putting the Company’s interests before Promote commercial The main function is to implement a policy of social responsibility to employees, society behind the statistics. Everything our own. Mutual trust and well-coordinated interests of Russian and the state. that we do is about people’s welfare teamwork are our main strengths. Railways. We develop the culture and comfort. of continuous improvement, multiply Rely on experience. We learn and save our earnings to the extent Do our best. We work hard from our predecessors and use that does not contradict law and ethics, to perform our duties to the letter, deliver their experience in a creative way to excel or affect quality and safety. on all promises, achieve the targets, in what we do and develop professional while having zero tolerance to any kind skills and competencies, and pass it on Be a leader. As Russian Railways of corruption, and measuring up to to young talent. is a leading Russian company, we expect the privilege of being part of Russian our employees to have leadership qualities Railways. Be result-oriented. In following to set the pace, embrace changes, this principle, we always keep in mind that and serve as role models for colleagues Be proud to work at Russian we work to deliver specific results such and people outside of Russian Railways. Railways. Every Russian Railways as higher profits for Russian Railways, employee feels honoured to be part completion of new projects, client Aspire to change and evolve. of a company that has a unique history, satisfaction and people’s trust. We constantly strive for excellence seeking rich traditions and ambitious plans ways to improve efficiency, introduce for the future. We respect traditions Make well-informed innovations, acquire new knowledge, and pay tribute to industry veterans. decisions. As our decisions can affect and develop personal and professional skills. We strive to maintain and augment many people and organisations, we always Innovations are key to Russian Railways’ Russian Railways’ reputation as a rapidly think them through focusing on safety growth and prosperity and personal growing national transportation company. and risk mitigation, as well as economic development of our employees.
Performance under the Collective Bargaining Agreement and social support of employees in 2019
Russian Railways’ Collective Bargaining In 2019, a new Collective Bargaining Agreement • RUB 44 bn for employees Agreement is an important motivation of Russian Railways for 2020–2022 was and their families; tool within its recruitment and retention signed. It provides for the same guarantees • RUB 3.8 bn for retirees. framework. Its key functions include: and obligations towards the Company’s • social protection of employees; employees, their families, veterans On top of that, the corporate support • maintaining social stability among and retirees as the previous agreement. programme helped 4,388 employees employees; to improve their housing conditions • boosting Russian Railways’ Costs associated with the benefits with the Company’s financial aid totalling attractiveness as an employer; package under Russian Railways’ Collective RUB 1.97 bn in 2019. • developing social partnership. Bargaining Agreement:
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SUPPORTING SPECIFIC and the Company’s guarantees in terms Russian Railways’ youth policy PERSONNEL GROUPS of health and safety improvement; As at the end of 2019, the proportion • launched an educational project aimed of employees under 35 years of age Russian Railways is deploying a flexible at developing corporate competencies accounted for 40% of the total headcount, social benefits systems covering needs of Russian Railways managers while employees under 30 made up 22.7%. of each and every personnel group. and office workers through self- This makes social support of young talent Each generation and each group has education via an online distance learning even more important. its own objectives, lifestyle, needs, system, which works well for women and expectations from their jobs on childcare leave; 2019 saw over 1,000 activities and employer. • conducted a new wave of study and projects carried out as part of Russian on the working conditions of Russian Railways’ Youth target programme Supporting women Railways female employees through (2016–2020) in order to develop The Company has a Coordination Council an online survey of women working young employees’ professional skills tasked with improving the conditions across the railway network and corporate competencies, engage them of work, leisure, and social support and at the Company’s executive office. in improvement of the Russian Railways’s of women. The council regularly holds Furthermore, an additional stress survey operations, increase customer focus onsite meetings with female employees was held; and enhance service level. Ca. 200,000 and organises video conferences • improved sanitary conditions young employees across the Company’s with railway coordination councils and amenities for women; footprint took part in the events. to collect feedback from female employees • developed comprehensive preventative Particular attention was given to young and discuss any concerns they might have. healthcare programmes for women; engineers, managers and office workers. To monitor women’s working conditions, • launched special programmes for women Russian Railways completed three rounds at the Company’s healthcare facilities The 12th Annual Youth Conference of surveys in two years assessing job and RZD-ZDOROVIE. of Russian Railways became the most satisfaction among its female workers. exciting event of 2019 in the youth calendar. Supporting retired and soon- In 2019, Russian Railways made to-be-retired employees the following efforts in line with the Action Russian Railways’ corporate pension Plan to improve the conditions of work, system is based on shared employee/ In 2019 leisure, and social support of women employer contributions to the employee’s in 2018–2020: future pension. In terms of its goals HR management • developed the Regulations on the and purpose, a private (corporate) pension Procedure and Principles of Self- is an additional measure of social support 11,771 Nomination at Russian Railways in order to workers regardless of the state pension employees The Company’s HR policy seeks primarily is the emergence of next generation for fast and convenient employee- to promote employment of women, system. Its strategic goal is to ensure of Russian Railways were to ensure a stable working environment employees with completely different job employer interactions, HR automation including to managerial positions, a replacement rate of at least 40% of an through balanced and effective personnel expectations. The other one is automation, using big data, among other things, through a transparent competition- employee’s lost earnings. granted corporate pensions management and social initiatives. which helps boost the volume of data and transition to an HR business partner based procedure; In accordance with Russian Railways’ Code processed, making all processes faster model); • conducted a comprehensive assessment Russian Railways’ corporate pension of Business Ethics, heads of the Company’s and simpler. At the same time, the market • enhancing the existing crucial HR of working conditions to expand the list programme is operated by the branches and business units ensure sees new types of jobs that increasingly practices (base package of benefits, of railway jobs available to women. Blagosostoyanie Private Pension Fund. equal rights and opportunities for all require employees to develop digital social guarantees and compensations, Starting from 2021, women will be able More than 607,000 Russian Railways persons when they apply for a job or work competencies. annual salary indexation, development to work as assistants to traction stock current and former employees have their way up the career ladder, regardless of continuous training programmes, operators. The relevant documentation pensions with the Blagosostoyanie Private 1.97 of their gender, age, race, nationality, As part of its Long-Term Development independent assessment of qualifications is being drafted and once it is approved, Pension Fund. 314,000 retired employees RUB bn language, origin, financial and employment Programme until 2025, Russian Railways reliant on professional standards). the Company will start recruiting women receive corporate pension1. spent under the corporate status, place of residence, religious will be building its HR management to train them for the job; support programme and political beliefs. processes around: • developed a Reference Book for Female In 2019, corporate pensions were granted • introducing advanced technologies Employees of Russian Railways to 11,771 Russian Railways employees. for the employees There are two external factors that will (cutting-edge recruitment and training containing information on their The average corporate pension granted to improve their housing shape the Company’s HR management methods, individually selected benefits, employment rights and obligations, in 2019 was RUB 9,329. conditions framework in the long run. The first one creation and development of solutions
1. Excluding pensioners transferred from the Fund of “Honor” in Blagosostoyanie.
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Headcount and staff composition Employee remuneration and incentivisation
As at 31 December 2019, Russian Railways The reporting year saw a rise in staff headcount by the beginning of the year. By offering a competitive salary, company-wide salaries grew by 1.9%. In February 2019, the employees received had 743,100 employees, down 1.2% y-o-y. education level, with the share The share of employees with secondary the Company promotes work The Company’s wages are 23% above a lump-sum remuneration for maintaining of employees with higher education vocational education amounted to 28% in the railway industry and prevents the country’s average and the pay high levels of labour productivity growth increasing by 0.7 pp to 32.8% of the total (up 0.2 pp y-o-y). the outflow of skilled professionals. level across nearly all Russian regions in 2018. In 2019, we adjusted salaries by 6% (except for Moscow, the Yamal-Nenets (including 2.9% in March, 2% in July Autonomous Area and the Sakhalin The Company keeps incentivising Workforce analysis and 1% in October) as per the Collective Region). its employees to enhance efficiency, Bargaining Agreement. with RUB 361.2 m spent on rewarding Staff composition Headcount, thousand employees Age structure, % The Company takes an ongoing, focused 18,000 people for the associated is well-balanced The average monthly salary across all effort to improve its financial incentive achievements in 2019. 4.0 −1.2% Russian Railways operations increased system. Optimal age 14.0 by 6.5% y-o-y to RUB 58,504, while real structure achieved 2019 743.1 2018 752.2 Salary and maintained 12.8 39.8 Indicator 2015 2016 2017 2018 2019 Share of employees Average monthly salary across all operations, RUB 44,500 46,852 50,404 54,934 58,504 with higher education Y-o-y growth, % 108.2 105.3 107.7 109.0 106.5 increasing 29.4
Under 35 Above 50 36–45 Retirement age Employee training and development 46–50
In 2019, Russian Railways continued managers at the strategic and tactical The Corporate University of Russian Education, % Personnel categories, % Gender composition, % cooperation with industry-based levels of the Russian Railways Group Railways was successfully certified educational institutions to train specialists and help them develop corporate with GlobalCCU CU Certification 7.7 with higher education and secondary competencies. The Corporate University Compliance level. This landmark event 30.7 vocational education. As at the year-end, serves as a centre of excellence confirmed that training and development 39.2 32.8 more than 31,000 students were taking in personnel assessment, methodology programmes of the Russian Railways courses at railway universities sponsored of new educational programmes, Group are in line with the internationally by Russian Railways. 88 new scholarships implementation of distance learning acknowledged principles and standards 29.2 were established in 2019 to be granted technologies and talent pool development of corporate education. to the most talented university students. programmes. 69.3
63.1 On top of that, over 170,000 Russian In 2019, the University implemented 28.0 Railways managers and office workers 153 upskilling and reskilling programmes upgraded their professional skills in general management and modern Higher education Managers Male at railway universities and other leadership, with over 80,000 graduates. Secondary vocational education Office workers Female educational institutions. Other (incomplete secondary, Technical workers In the same year, the University launched complete and first-level vocational education) a number of new projects, including a new CORPORATE UNIVERSITY series of programmes supporting digital transformation under which trainees get The Russian Railways Corporate University introduced to design thinking and learn Labour productivity was established in 2010 as part of the to create digital services for passengers, industry education system to train shippers and the Group employees.
Russian Railways makes systemic efforts advancements and improved process to increase labour productivity by reducing flows. In 2019, labour productivity labour inputs on the back of technology in transportation increased by 3.3% y-o-y.
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TRAINING EMPLOYEE HEALTHCARE PROMOTION OF SPORTS AND DEVELOPMENT AND HEALTHY LIFESTYLE OF TECHNICAL WORKERS Russian Railways’ structure includes 137 non-governmental and private The Company takes consistent steps The Company’s professional training healthcare facilities (including 83 hospitals to promote healthy lifestyle. In 2019, framework relies on 15 education centres with a total of 15,900 beds for 24/7 it started developing the Russian made up of 67 regional branches scattered care and 54 outpatient clinics) for its Railways Healthy Lifestyle Programme between Kaliningrad and Sakhalin. employees. for 2020–2025.
The centres’ educational programmes In 2019, more than 1.8 m mandatory As part of the Collective Bargaining and schedules comply with professional pre-employment and regular medical Agreement, the Company partners standards. In 2019, the Company examinations and over 29.4 m pre-trip with the Russian Trade Union developed ten new professional standards medical check-ups were conducted. of Railway Workers and Transport for railway industry occupations This helped maintain zero level of accidents Builders (Rosprofzhel) and Lokomotiv and updated 16 existing standards. caused by employees’ poor health. Russian Fitness and Sports Society The morbidity with temporary disability to stage and run events aimed 2019 results: rate for 2019 was 55.8 cases (699.5 days) at improving health and promoting • over 51,500 workers were trained; out of 100. sports and fitness among its employees • over 175,800 employees upgraded and their families. The reporting year saw their skills at training centres, technical The reporting year saw the development some 165,700 people take part in the schools and colleges. and launch of a unique programme Company’s sports events. for preventive medical examination of the Company’s employees that encompasses Every year, Russian Railways team different methods of highly informative participates in championships held medical screenings depending on sex and age by the International Railway Sports 2019 Universiade of an individual and various risk markers. Association (USIC) in various sports. The 29th International Winter Universiade, an international sporting event for students, took place in Krasnoyarsk on 2–12 March 2019. Over 2,000 people from 58 countries took part in the event. The athletes were competing for 76 medal sets in 11 sports: biathlon, alpine skiing, curling, cross-country skiing, snowboard, ski orienteering, figure skating, freestyle skiing, ice hockey, bandy, and short track speed skating. The Universiade flame was carried along the streets of Krasnoyarsk by local citizens known for their achievements in sports, arts, culture, education or science.
118 Russian Railways Annual report 2019 119 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Health and safety
The implementation of new instruments compensation) to proactive measures • fatal injury rate (number of fatal injuries) professional risks for the main types matrices for the main types of hazardous the Comprehensive Health and Safety and measures to prevent workplace by minimising employee exposure down by 5% (from 21 to 20 employees1); of hazardous occupations by conducting occupations. Improvement Programme for 2018–2020 injuries within Russian Railways’ health to production risks, and harmful • severe injury rate (number an integral assessment, defining based on the risk assessment results. and safety management system helps and hazardous factors. of severe injuries) down by 16% the acceptable risk levels and making lists The outcomes of the automated reducing the annual workplace injury (from 51 to 43 employees1). of unacceptable and undesirable risks. measurement of professional risks serve In 2019, the Company carried out frequency rates, regardless of severity. In order to integrate the Vision Zero as a basis for managerial decision-making a special assessment of working conditions concept into its health and safety The workplace injury frequency rate The measurement results were then and health and safety improvements. at 67,400 workplaces and improved In 2018, Russian Railways joined practices, Russian Railways has developed dropped as follows: evaluated and rated by the regional For example, measures to eliminate injury work environment at 40,600 workplaces Vision Zero, a global campaign seeking and approved the Vision Zero • overall workplace injury frequency rate business units and summarised in risk factors were developed and included into of 187,000 employees. to completely reshape corporate Implementation Programme for 2019– (number of injuries per 1,000 workers) approaches to health and safety 2021 that aims to create a uniform down by 9% (from 0.234 to 0.214); management. This strategy requires actors comprehensive approach to improving • fatal injury frequency rate (number Key health and safety indicators at all levels, from executives to employees, social and economic efficiency of health of fatal injuries per 1,000 workers) down to act with awareness in order to prevent and safety management, and develop by 3% (from 0.029 to 0.028). Indicator 2015 2016 2017 2018 2019 any work-related accidents. a corporate health and safety culture using Health and safety improvement expenses, RUB m 18,593.5 18,715.5 20,121.1 22,596.1 23,914.6 synergies from the implementation of new The Company has fully implemented its Workplace injury frequency rate The core document that sets out health and safety management tools. risk-oriented approach. Risk assessment (number of injuries per 1,000 employees) 0.29 0.30 0.25 0.23 0.21 the Company’s goals and objectives is conducted at all management levels of the Number of workplaces with hazardous working conditions, thousand 105 95 88 84 81 in this field is the Health, Environmental, The reporting year saw the following Company, at every branch with a breakdown Improved working conditions, thousand workplaces 23 32 37 41 41 Industrial and Fire Safety Policy of the reductions in workplace injuries across by regional departments and business units Russian Railways Group. The health the Company vs the previous year: and by type of hazardous occupations. and safety management system is based • overall injury rate (total number on a risk-oriented approach that provides of injuries1) down by 10% (from 168 In 2019, production departments for a shift from reactive (i.e. damage to 152 employees); of the Company’s branches measured
1. Among Russian Railways employees only.
120 Russian Railways Annual report 2019 121 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Environmental protection
Russian Railways is a major natural resource user operating in 77 regions of Russia. Reducing environmental impact Russian Railways has set its priorities in the rational use of natural resources and improving environmental safety until 2025 in line with the basic principles In reducing its environmental impact, In 2015, the Company made a commitment when hot idle. The deployment of modular 1 of state environmental development policy for the period through to 2030 . In line the Company follows the Environmental to address climate change issues. gas-fired boilers instead of those fuelled with the government’s environmental priorities, Russian Railways’ efforts are focused Strategy through 2020 and potentially by coal and fuel oil significantly reduces on improving environmental safety, ensuring rational use of resources and preserving through 2030 and the Energy Strategy Russian Railways responsibly pollutant emissions. The introduction natural systems. through 2020 and potentially through and consistently implements a programme of resource-saving technologies involves 2030, as well as the Climate Doctrine for reducing GHG emissions in its resource-saving solutions for railway
of the Russian Federation. operations. 2019 saw a reduction in CO2 stations as part of the Smart Railway emissions (including indirect emissions Station concept, transition to LED lighting, Russian Railways’ key environmental initiatives in 2019: GHG emissions management is an element from the use of heat and electricity) automated central heat stations, energy- of Russian Railways’ corporate strategy, to 38.5 mt, 43.9% below the level of 1990, efficient passenger and freight train • use green technologies at 127 facilities in the republics of Buryatia and Karelia, Krasnodar, Perm, allowing the Company to contribute at similar transportation volumes. schedules, and automatic train operation Primorye, and Khabarovsk territories, Kaluga, Kirov, Samara, Amur, and Nizhny Novgorod regions; to achieving the national goal2 of reducing systems. • construct or upgrade eight treatment facilities for industrial, utility and sanitary effluents in the GHG emissions to 75% of the level of 1990 In late 2019, to develop the GHG emissions republics of Buryatia and Yakutia, Krasnodar and Altai Territories, Irkutsk, Saratov, and Orenburg or lower. accounting and management system, Shifting to new types of rolling stock regions, using the best available technologies; Russian Railways adopted a programme is essential for reducing GHG emissions. • liquidate seven sites of accumulated environmental damage in the Krasnoyarsk and Khabarovsk Russian Railways submits annual of organisational and technical initiatives In particular, the indicative environmental territories, Irkutsk, Chelyabinsk, Kursk, and Kemerovo regions; data for GHG emission assessment for 2020–2025. According to the Long- impact of Lastochka electric trains • renovate an industrial landfill in the Orenburg Region. for the purpose of CDP reporting Term Development Programme, specific calculated by the Company showed and attends working group meetings GHG emissions will be 4.5% down vs 2018. a significant advantage of rail passenger of the Russian Union of Industrialists transport as compared to motor and Entrepreneurs (RSPP) and the Ministry The decline will be attributable to new vehicles. In 2019, Lastochkas emitted
of Economic Development. The Company solutions which reduce fuel consumption 190.7 kt of CO2 vs 1,110 kt of CO2 which takes part in discussions on federal in traction and stationary power motor vehicles would emit for transporting regulations, submitting proposals generation. In particular, locomotives the same number of passengers and comments based on specifics using an autonomous diesel heating system over the same route (5.8 times higher). of the railway transport. have a 10–16% lower fuel consumption
1. 2. Approved by the Russian President on 30 April 2012 and by the Russian President’s Decree No. 204 On National Goals and Strategic Objectives of the Russian Federation through Approved by the Russian President’s Decree No. 752 dated 30 September 2013. to 2024 dated 7 May 2018.
122 Russian Railways Annual report 2019 123 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Atmospheric air protection and noise exposure reduction
As part of the corporate Environmental areas, the Company draws noise maps Emissions from stationary Strategy, the Company cut its emissions for ranking risks and developing a priority sources, kt from stationary sources in 2019 by 8.8% action plan to mitigate them. Other factors y-o-y. Emissions from stationary sources contributing to noise reduction: 2019 53.7 were reduced due to the construction • resilient rail fastening and continuous 2018 58.9
of new and renovation of existing boilers, welded rails; 2017 62.3 transition of boilers to greener fuel, • replacing cast iron brake shoes 2016 66.8 improved efficiency of fuel combustion, with compound ones; 2015 73.2 introduction of electric heating, disposal • protective screens along tracks; of underutilised coal boilers, upgrade • afforestation; of existing and installation of new dust • rolling stock upgrade. and gas collectors.
For the purpose of noise control and reducing emissions in residential
Waste management
Up to 80% of waste generated by Russian In 2019, Russian Railways generated In 2019, 82.9% of waste Railways is reused or recycled. Most of it 1.486 mt of production and consumption was decontaminated or recycled (ferrous and non-ferrous scrap metals waste, of which 0.088 mt was disposed by Russian Railways (up 1.2% y-o-y). and used petroleum products) is handled of or decontaminated by the Company’s by waste processing professionals. units. 1.386 mt of waste was transferred Waste is also reused within the Company, to third parties, including: Waste decontamination, kt including waste hazard classes 5 and 2–4 • 0.876 mt for subsequent disposal; as per the waste management licence • 0.218 mt for decontamination; 2019 10.3 obtained by Russian Railways. • 0.274 mt for dumping. 2018 9.7
2017 8.5 In 2019, 2016 8.8 2015 24.5 Biodiversity conservation 1,545.4 t of paper, plastic, and glass were delivered for disposal The Company pays great attention In 2019, as part of its Environmental • participated in garbage cleaning as part to the conservation of biodiversity Strategy and for biodiversity conservation, of Green Spring, Green Friday, Victory in railway infrastructure areas Russian Railways: Forest, and Green Russia Environmental and next to railway stations. Parts • released over 2 t of fingerlings into Subbotnik. of tracks often crossed by animals rivers; • launched 51 eco-friendly suburban Green are equipped with reflective • planted over 560,000 trees and bushes; Trains; tape, and are monitored together • planted over 10,000 seeds • placed over 3,000 posters dedicated with forestry and hunting sector in greenhouses as part of the Baikal to specially protected natural areas representatives. Forest programme; at Russian Railways’ infrastructure facilities.
124 Russian Railways Annual report 2019 125 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Energy efficiency and conservation Charity
Russian Railways maintains leadership in energy efficiency and environmental friendliness Russian Railways puts social responsibility at the heart of its corporate strategy. among global freight and passenger railway companies. In terms of energy efficiency, The objectives and core principles of the charity activities are set forth in the Charity Russia ranks first globally in rail freight transportation and fourth in passenger and Sponsorship Policy2. Under this Policy, charity predominantly covers regions transportation after India, China, and Japan. of the Company’s footprint and prioritises institutions, foundations, and performance groups working with Russian Railways. Relations with local communities are governed Every year, the Company shapes In the reporting year, the Energy Efficiency This helped us replace 14 coal, one mazut, by the Russian Railways Group’s regional policy. and implements the Energy Savings Programme helped achieve fuel and energy and eight diesel boilers with eco-friendly and Energy Efficiency Programme as part savings of 3,446.3 TJ or RUB 2.352 bn. energy sources (in particular, 11 railway of the Company’s Energy Strategy facilities switched to renewable power). The charity spending in 2019 amounted • supporting municipal educational • rendering assistance to children through 2020 and potentially through The improvement of traffic management to ca. RUB 4.5 bn. In 2019, our charity institutions situated in the BAM and adults with disabilities, 2030. In 2020, Russian Railways plans processes reduced resource consumption In 2019, initiatives implemented initiatives focused on: area; and children without parental care; to develop the Energy Strategy through (by 174.5 m kWh of electricity by the Company’s divisions as part • delivering targeted aid to retired railway • promoting healthy lifestyle, • supporting charitable programmes 2025 and potentially through 2035 based and 11.4 kt of diesel fuel) and environmental of the Energy Efficiency Programme saved: employees, honoured railway employees, children’s and mass sports; of cultural and historical
on the analysis of the current strategy impact (by 123 kt of CO2). • 311.4 m kWh of electricity and veterans of World War II; • providing assistance in disaster importance; implementation. The Strategy will update for RUB 1,132 m; • supporting vocational education, primarily management and support to those • supporting annual cultural events the Group’s priorities in power generation The improved performance of traction • 17,6 kt of diesel fuel for RUB 757 m; industry-specific universities and colleges; affected by natural disasters; and festivals. and target energy efficiency indicators. power supply saved 4.6 m Kwh • 0.9 kt of petrol for RUB 39 m; The key tool for the Company’s efforts or RUB 16.3 m. • 7.0 kt of mazut for RUB 106 m; to save energy is its investment project • 22.7 kt of coal for RUB 49 m; titled “Introduction of Resource-Saving Increased energy efficiency of stationary • 10.0 mcm of natural gas for RUB 52 m; Technologies in Railway Transport”. power facilities saved more than RUB 1.2 bn. • 110.0 Gcal of heat energy for RUB 224 m. In 2019, the Company improved its energy In 2019, over 1,200 energy saving devices efficiency by 1.2%. were introduced at a cost of RUB 2.8 bn.
Energy efficiency of Russian Railways’ operations
Goal Target for 20191 Actual for 2019 Energy efficiency improvement, % 0.7 1.2
Energy intensity of Russian Railways’ production activity, kJ / virtual tcm net
2019 87.7
2018 88.7
2017 89.7
2016 93.4 2015 94.5 Reaching Our Goal charity run Every year, Russian railways celebrates the day of railway workers with a family sports event and a charity run called Reaching Our Goal. The participants compete at distances of 500, 1,520, 5,000, and 10,000 metres. In addition, the charity run programme includes a concert, while the event area offers family recreation spots, children’s playgrounds, and sports facilities. In 2019, the run was organised jointly with Russian Railways and 13 charities, including the Life Line, a charity foundation for saving seriously ill children. 17,900 people participated in the event in 20 cities where the Company operates, helping to raise RUB 12.1 m for charity foundations.
1. 2. As defined by the Long-term Development Programme of Russian Railways until 2025 approved by the Russian Government’s Order No. 466-r dated 19 March 2019. Approved by the Board of Directors of Russian Railways on November 8, 2016.
126 Russian Railways Annual report 2019 127 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
CORPORATE I XI XII II X XII GOVERNANCE XI III IX I VIII Russian Railways is gradually implementing an organisational reform to build X IV II the Group’s corporate governance system factoring in, among other things, III IX V VII recommendations of the Corporate Governance Code. VI VI IV VIII VII V
100% of shares in the Company are owned by the Russian Federation
128 Russian Railways Annual report 2019 129 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Corporate governance system Governance structure of Russian Railways General meeting Audit Commission Russian Railways’ corporate governance system is based on applicable standards of shareholders and the nature of its operations and governance as a 100% state-owned single economic The supreme governance body of Russian Railways. The Russian Federation, represented by the Russian Government, is the sole 1 entity , Instructions of the Russian Government, which places a special focus on improving shareholder of Russian Railways. the quality of corporate governance in state-owned companies, are of critical importance for shaping the corporate governance practice in the Company. The Board of Directors Committees of the Board of Directors Board of directors elected by Russian Railways’ shareholder. Pursues In implementing its corporate governance • for the first time assessed the performance Russian Railways actively promotes a policy that supports the Company’s dynamic growth, improves Corporate Secretary framework and tools, Russian Railways of Russian Railways’ Board of Directors, its the practice where the Board deals sustainability and increases profitability. also complies with documents issued committees and members. with matters associated with the risk by the Bank of Russia as the regulator management framework and the Audit and the Federal Agency for State Property Another important positive trend and Risk Committee of the Board Chief executive officer – Advisory bodies under the Chief Management as the corporate governance in Russian Railways’ corporate governance of Directors, i.e. with matters related Executive Officer – Chairman methodologist for state-owned companies. practice is the shift in the Board’s to the internal audit framework. chairman of the management of the Management Board focus to issues of strategic importance In addition, for the purpose of improving board Russian Railways’ Board of Directors for the Company. In 2019, the Board the shareholders’ monitoring function, Appointed by the Government of the Russian Federation. is the key component of the corporate of Directors approved: the Board of Directors puts a special governance framework, leading • Russian Railways’ Long-Term emphasis of the governance of the Russian the development of the Company’s best Development Programme until 2025; Railways Group as a whole. For example, Management board Advisory bodies practice of corporate governance. In 2019, • Russian Railways’ Digital Transformation in 2019–2020 the Board plans to introduce under the Management Board Russian Railways’ collective executive body. Members are appointed Russian Railways’ Board of Directors: Strategy; the practice of reviewing the Group’s by the Board of Directors, with the exception of Chairman • resolved to establish the Digital • Russian Railways Group’s Intellectual financial plan in accordance with the IFRS. of the Management Board – Chief Executive Officer. Transformation and Innovation Property Management Strategy. Committee of the Board; • approved the Risk Management In addition, the Board intends to approve Executive office Advisory bodies run by heads and Internal Control Policy; in 2020: of departments and other units Departments, divisions and other units of the executive office • approved the Regulation • Russian Railways Group’s Comprehensive responsible for operational management. on the Remuneration System Innovative Development Programme; for Members of the Management Board • Russian Railways’ IT Development of Russian Railways; Strategy. General Meeting of Shareholders
The supreme governance body are adopted in writing by the Russian • amendments to and modifications of Russian Railways is its General Meeting Government and take the form of the sole of the Company’s Charter or approval of Shareholders. As all of the Company’s shareholder’s orders and resolutions. of a new version of the Company’s voting shares belong to the Russian Charter; Government, its sole shareholder, in line The matters reserved to the General • reorganisation of the Company; with article 47 of the Federal Law On Joint Meeting of Shareholders of Russian • liquidation of the Company, appointment Stock Companies, article 5 of the Federal Railways are defined by the Federal Law of the liquidation committee Law On the Specifics of Administration on Joint Stock Companies (article 48) and approval of interim and final and Disposal of Railway Transport Property, and the Charter of Russian Railways liquidation balance-sheets; and clause 67 of the Company’s Charter, (clause 62). The matters reserved • determining the number and election all resolutions on matters reserved to the General Meeting of Shareholders of the Board members, as well to the General Meeting of Shareholders of Russian Railways include: as termination of their office;
1. As defined by Federal Law No. 29-FZ On the Specifics of Administration and Disposal of Railway Transport Property dated 27 February 2003.
130 Russian Railways Annual report 2019 131 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
• determining the number involving restricted property where • approval of the annual report, balance Composition of the Board of Directors of the Management Board members; so provided for by articles 79 and 83 sheet and income statement for 2018; • election of members of the Company’s of the Federal Law On Joint Stock • distribution of net profit and losses at Russian Railways Audit Commission and termination Companies, and reserved by the said based on financial performance in 2018; of their office; Federal Law to the General Meeting • payment of dividends • approval of the Company’s auditor; of Shareholders; to the holders of Russian Railways’ Representatives of the Russian Independent directors: Members of the Board of Directors hold • due increase or reduction • resolutions on joining financial ordinary and preference Federation: • Kern Christian; no stakes in the charter capital of Russian of the Company’s charter capital; and industrial groups, associations, shares based on performance • Maxim Akimov • Sergey Nedoroslev Railways. • approval of annual reports, annual or other unions of business entities; in 2018 and remuneration to members • Oleg Belozerov • Sergey Stepashin financial statements, including profit • approval of internal documents governing of the Board of Directors and Audit • Grigory Berezkin and loss statements (income statements) the Company’s bodies (regulations Commission; • Arkady Dvorkovich of the Company, and distribution on the General Meeting of Members, • determination of composition • Yevgeny Ditrikh of the Company’s profit (including Board of Directors, Management Board, of the Board of Directors • Kirill Dmitriev payment (declaration) of dividends and Audit Commission); and Audit Commission and appointment • Andrey Ivanov except for the profit distributed • dealing with any other matters provided of their members; • Dmitry Patrushev as dividends for the first quarter, first for by the Federal Law On Joint Stock • approval of the auditor for 2019. • Vladimir Puchkov half, or nine months of the financial Companies. • Mikhail Rasstrigin year) or losses as at the end The Extraordinary General Meetings • Alexander Ryazanov of a financial year; In 2019, one Annual General Meeting of Shareholders adopted resolutions • determining the proceedings of Shareholders and nine Extraordinary on such matters as increase of the charter of the General Meeting of Shareholders; General Meetings of Shareholders were capital, participation in associations, • resolutions approving material held. Russian Railways’ Annual General and amendment of Russian Railways’ Meetings of the Board of Directors in 2019 transactions and interested- Meeting of Shareholders1 adopted Charter, its appendices and Regulation party transactions, including those the following resolutions: on the Board of Directors. In 2019, the Board of Directors of Russian in the form of absentee voting. The Board business areas. The most important Railways held 24 meetings, including 5 of Directors considered 188 matters matters were discussed at meetings held meetings held in person and 19 conducted focusing on a variety of the Company’s in person. Board of Directors Changes in Russian Railways’ Board The Board acts pursuant to the laws In line with international corporate General Meeting of Shareholders, of the Russian Federation, the Charter governance practices, independent the number of the Board members was of Directors after the reporting date of Russian Railways 2 and the Regulation directors have been elected to the Board increased to 14, including the following on the Board of Directors of Russian of Directors of Russian Railways since 2008. newly elected members: Railways3. • Vladimir Puchkov – Advisor In March 2020, the Order COMPOSITION • Andrey Ivanov; The Board of Directors supervises to the President of United Aircraft of the Government of the Russian OF THE BOARD • Maxim Reshetnikov; 4 The key objective of the Board of Directors the Company’s corporate governance Corporation; Federation terminated the powers OF DIRECTORS SINCE • Alexander Ryazanov; is to pursue a policy that supports practices.Pursuant to the Company’s • Christian Kern (independent director). of the members of Russian Railways’ • Alexey Sazanov; the Company’s robust growth, improves Charter and the recommendations previous Board of Directors prior MARCH 2020 • Fayzullin Irek; the sustainability of its operations, of the Corporate Governance Code, On 24 July 2019, the Board of Directors to their expiration5. The number • Sergey Frank; and increases profitability. The Board the Board of Directors plays a key resolved to elect Maxim Akimov of directors was determined to be 14. Representatives of the Russian • Dmitry Chernyshenko. also determines the Company’s business role in decision-making with respect as the Chairman of the Company’s Board Federation: priorities, approves its long-term plans to the Company’s controlled entities. of Directors. • Oleg Belozerov; Independent directors: and core programmes, including the budget • Andrey Belousov; • Kern Christian; and the investment programme, and defines In 2019, Valery Nazarov left • Yevgeny Ditrikh; • Sergey Nedoroslev general principles of and approaches to risk the Board of Directors. In accordance • Kirill Dmitriev; • Sergey Stepashin management in the Company. with the resolution of Russian Railways’
Detailed information on the company’s website
1. 4. Order No. 1393-r of the Russian Government dated 29 June 2019. Order No. 552-r of the Russian Government dated 6 March 2020. 2. Approved by Resolution No. 585 of the Russian Government dated 18 September 2003. 5. Appointed by Order No. 1393-r of the Russian 3. Approved by Order No. 265-r of the Russian Government dated 25 February 2004. Government dated 29 June 2019.
132 Russian Railways Annual report 2019 133 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Report on the performance of the Board of Directors and material resolutions adopted in 2019 Remuneration of the Board of Directors
In 2019, as part of its key tasks Passenger Company, and to withdraw • approved the Regulation on Key In 2019, the Annual General • 3.5 – for the functions performed A Board member may and responsibilities, the Russian Railways from Vagonremmash, RASCOM, Russian Performance Indicators of Russian Meeting of Shareholders of Russian by the Chairman of the Board (excluding waive their remuneration Board of Directors: Troika, Novosibirsk Switch Plant, Railways, target value of the Russian Railways adopted a resolution to pay individuals who perform the functions in full or in part. The Regulation • approved the Risk Management TransContainer; Railways Group’s EBITDA for 2019 remuneration to the Company’s directors of the Chairman of the Board on Remuneration and Compensation Paid and Internal Control Policy; • approved the Russian Railways and target values of the Company’s KPIs for the 2018–2019 corporate year of Directors in their absence); to Members of the Russian Railways Board • approved the Procedure for Increasing investment programme and financial for 2020; in the amount recommended by the Board • 1.5 – for the functions performed of Directors does not apply to directors the Investment and Operating Efficiency plan for 2020 and the planning horizon • approved the Regulation of Directors and in the manner prescribed by the chairman of a Board committee; who are members of the executive and Cutting Costs; extending to 2021 and 2022; on the Remuneration System by the Regulation on Remuneration • 0.5 – for the functions of a member bodies of Russian Railways or who • approved the Regulation on Key • approved Russian Railways’ Long-Term for Members of the Management Board and Compensation Paid to Members of a Board committee. are restricted or prohibited by Russian Performance Indicators of Russian Development Programme until 2025; of Russian Railways; of the Russian Railways Board of Directors. laws from receiving any payments Railways; • pre-approved and prepared • resolved to terminate the powers Additional remuneration for participation from commercial organisations. • approved the corporate standard recommendations for the Company’s of Russian Railways’ Management Remuneration of a member in the work of the Board committees on the Mandatory Process and Price Annual General Meeting of Shareholders Board members and appoint deputies of the Company’s Board of Directors consists is paid subject to the director personally In the reporting year, the Annual Audit of the Investment Projects on the approval of the Russian Railways of the Russian Railways CEO; of the basic and additional components. attending (producing a written opinion General Meeting of Shareholders of Russian Railways and its Subsidiaries annual RAS financial (accounting) • authorised members of Russian The basic component is calculated depending for) at least 75% of the in-person of Russian Railways resolved to allocate and Affiliates; statements for 2018 (including Railways’ Management Board to hold on the participation of directors in Board committee meetings held over the course a total of RUB 45.37 m in remuneration • approved Russian Railways Group’s the income statement); positions in the governing bodies meetings. The maximum basic remuneration of the corporate year. to members of the Russian Railways Board Intellectual Property Management • pre-approved Russian Railways’ of other entities; for a member of the Board is RUB 4,000,000. of Directors. Strategy; Annual Report for 2018 and prepared • approved key initiatives to be supported If a member of the Board of Directors • approved the action plan for Russian recommendations for the Company’s using the charity and sponsorship fund For taking on additional responsibilities, performs the functions of a member Railways’ transition to the preferred use Annual General Meeting of Shareholders of Russian Railways and amounts to be Board members are paid additional and/ or the chairman of a Board committee of domestic software in 2018–2021; on the approval of the report; allocated in 2020. remuneration calculated as the basic on more than one committee, additional • approved the Digital Transformation • prepared recommendations portion of remuneration multiplied remuneration is paid for the functions Strategy; for the Company’s Annual The independent performance by the following ratios: performed on each committee. • approved the Consolidated Programme General Meeting of Shareholders assessment of the Board of Directors, to Improve Operational Efficiency on the maximum dividend amount, its members and committees conducted and Optimise Costs in 2019–2025; payment procedure for the 2018 by PwC Consulting LLC in 2019 • approved the new version of the Non- dividends, and distribution of net profit confirmed high efficiency of the Board Committees of the Board of Directors Core Assets Disposal Programme for 2018; in exercising its key functions. Following and Non-Core Assets Disposal Plan • prepared recommendations the assessment, an action plan was for 2019; for the Company’s Annual General developed to further improve the efficiency For the purposes of preliminary • Strategic Planning Committee; The committees are elected • adopted resolutions on additional issues Meeting of Shareholders on the approval of the Board of Directors1. consideration of the most important • Audit and Risk Committee; by Russian Railways’ Board of ordinary uncertificated registered of an auditor for Russian Railways’ matters and preparation of relevant • Personnel and Remuneration of Directors and act shares and an issue of preference financial (accounting) statements recommendations, the Russian Railways Committee; in accordance with the regulations uncertificated registered shares and consolidated financial statements Board of Directors has the following • Digital Transformation and Innovation on the committees approved of Russian Railways; for 2019 and approved the auditor fees; committees in place: Committee. by the Company’s Board of Directors. • resolved to join the NP Market Council • prepared recommendations Association, National Association for the Company’s Annual for Technology Transfer, National General Meeting of Shareholders Association for International Information on the remuneration payable Security, Digital Economy autonomous to members of the Board of Directors non-commercial organisation, Yakutian and the Audit Commission based Railway, RZDstroy, Federal Passenger on their performance in the 2018–2019 Company, Express Suburb, Sakhalin corporate year;
1. Approved by the Company’s Board of Directors (Minutes No. 1 dated 24 July 2019).
134 Russian Railways Annual report 2019 135 About the Company Strategic report Performance overview Sustainable development Corporate governanceSustainable developmentAppendices
• establishing the procedure for keeping of the Management Board City, a single multi-purpose centre Members of the Management Board Corporate Secretary an account of the Company’s affiliates; by the Chairman of the Management constructed as part of the Group’s • reviewing and coordinating Board, the Board of Directors initiatives to enhance commercial real the Company’s draft Collective or shareholders. estate development competencies; No Full name Position The Corporate Secretary of Russian of shareholder rights, and arranging on the Corporate Secretary of Russian Bargaining Agreements and regulations • reviewing performance 1 Oleg Belozerov CEO, Chairman of the Management Board Railways is a dedicated officer whose interaction between Russian Railways Railways and the Office of the Corporate on industry-wide private pension While performing the above-listed under the Collective Bargaining 2 Anatoly Krasnoshchek First Deputy CEO responsibilities include ensuring that and its shareholders and between Secretary. schemes, mandatory pension insurance, functions in 2019, the Management Board Agreement obligations and compliance the Company’s bodies and officials the Company’s governance bodies. professional pension insurance of Russian Railways held 84 meetings with the terms of employee 3 Vadim Mikhailov First Deputy CEO comply with the requirements of the laws Since September 2018, Andrey and an industry-wide railway tariff that reviewed and resolved on a number competitions; 4 Sergey Pavlov First Deputy CEO of the Russian Federation and Russian The Corporate Secretary is appointed Zhemchugov was appointed agreement, as well as submitting them of matters related to the development • setting, extending and changing tariffs, 5 Elena Kharibina Chief Accountant Railways’ Charter and internal documents and released from office based as the Corporate Secretary. to the Company’s CEO and Chairman of the Russian Railways Group.The key fees and rates for services rendered 6 Sergey Kobzev Deputy CEO, Chief Engineer that guarantee the respect of rights on a resolution of the Board of Directors of the Management Board; matters included: by Russian Railways. 7 Oleg Valinsky Deputy CEO, Head of the Directorate of Traction and legitimate interests of the Company’s passed by a majority vote. The Corporate • establishing the procedure for keeping • reviewing the Company’s financial 8 Gennadiy Verkhovykh Deputy CEO, Head of the Central Directorate of Infrastructure shareholders, organising measures Secretary’s duties and responsibilities shareholders up-to-date with Company and business performance On 11–12 December 2019, to settle conflicts involving violation are listed in the Regulation developments; and the delivery of the Company’s the Management Board of Russian 9 Olga Gnedkova Deputy CEO • establishing a compensation system investment programme and financial Railways held its final meeting to review 10 Viktor Zimin Deputy CEO, Head of the Railway Development Directorate of the Eastern polygon and incentives for the Company’s plan; the Company’s operating and financial 11 Pavel Ivanov Deputy CEO, Head of the Central Directorate of Traffic Management employees; • approving key documents for individual performance in 2019 and set targets 12 Andrey Makarov Deputy CEO • issuing binding instructions business lines, including the Conceptual for 2020. 13 Аnatoly Meshcheryakov State Secretary, Deputy CEO Management Board to subsidiaries on matters specified Framework for Promotion in the charters of these companies of Professional Guidance at Russian 14 Vyacheslav Pavlovsky Deputy CEO or in their existing agreements Railways until 2025, improvement 15 Dmitry Pegov Deputy CEO As a collective executive body, control and risk monitoring systems, • approving internal estimated tariffs, with the Company; of the Company’s private pension plans 16 Andrey Starkov Deputy CEO the Company’s Management Board and ensuring respect of shareholder rights fees and payments for work (services) • approving the Company’s internal in pursuance of Federal Law No. 350-FZ 17 Oleg Toni Deputy CEO, Head of Central and Saint-Petersburg Transport Hubs Development Centre handles the general management and their legitimate interests. performed (provided) by the Company documents on matters that are reserved dated 3 October 2018 “On Amendments of business operations (except for matters that are not related to natural to the Management Board; to Certain Legislative Acts of the Russian 18 Nikolay Fedoseyev Deputy CEO that are reserved to the General The Management Board carries monopolies; • resolving other matters related Federation regarding the Issues 19 Anatoly Chabunin Deputy CEO, Director for Internal Control and Audit Meeting of Shareholders, the Board out its activities in accordance • approving rules that arrange to the Company’s ongoing operations of Award and Payment of Pensions”, 20 Shevket Shaydullin Deputy CEO, Head of the Traffic Safety Department of Directors or the CEO and Chairman with the laws of the Russian Federation, for and ensure accuracy of accounts, that are submitted for consideration and a project to build Russian Railways 21 Dmitriy Shakhanov Deputy CEO of the Management Board as per the Company’s Charter, resolutions as well as submitting the Company’s 22 Alexey Shilo Deputy CEO, Head of the Centre for Corporate Transport Services the Federal Law On Joint Stock Companies of the General Meeting of Shareholders annual report and other financial 23 Vadim Bynkov Head of the Legal Department and the Company’s Charter, unless and the Board of Directors, the Regulation statements to the relevant otherwise stated by the Charter). on the Russian Railways Management government authorities in a timely Remuneration of the Management Board Board, and the Company’s internal manner and providing information In line with its key responsibilities, documents. about the Company’s operations the Management Board to shareholders, creditors and the media; The remuneration system for members for the successful performance and Russian Railways as a whole. In 2019, is tasked with developing proposals The Management Board is responsible for1: • submitting prospectuses of securities of Russian Railways’ Management Board, of Russian Railways as a single economic the Management Board remuneration on the Company’s business strategy, • preparing and submitting the Company’s and other documents related which was approved by the Company’s entity. on a comparable to 2018 basis (less implementing its financial and business priorities and long-term plans, including to the issuance of the Company’s Board of Directors, was developed the incentive for a three-year period, Detailed information on the company’s website policy, making decisions on the most annual budgets and the investment securities to the Board of Directors; to improve the effectiveness Executives are entitled to bonuses severance payments and overall increase important matters of its day-to-day programme, to the Board of Directors, • arranging for implementation of the individual and collective for annual results based on the fulfilment in the remuneration amount due to a bigger operations and coordinating activities preparing progress reports, as well of long-term and current plans work of the Management Board of key performance indicators number of the Management Board between its divisions, improving as developing and approving current of the Company, as well as its members in the short and long term, (KPI) and performance assessment members) amounted to RUB 1,549 m2. the effectiveness of the internal operation plans; investment, financial and other projects; as well as to provide incentives of the Management Board
1. 2. As per the Regulation on the Russian Railways Management Board approved by Order No. 265-r of the Government of the Russian Federation dated 25 February 2004. The total 2019 remuneration of the members of the Russian Railways Management Board was RUB 3,067 m.
136 Russian Railways Annual report 2019 137 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
1 3 5 7 9 11 12 14 16 18 20 22 Oleg Vadim Elena Oleg Olga Pavel Andrey Vyacheslav Andrey Nikolay Shevket Alexey MANAGEMENT BELOZEROV MIKHAILOV KHARIBINA VALINSKY GNEDKOVA IVANOV MAKAROV PAVLOVSKY STARKOV FEDOSEYEV SHAYDULLIN SHILO 2 4 6 8 10 13 15 17 19 21 23 Anatoly Sergey Sergey Gennadiy Viktor Аnatoly Dmitry Oleg Anatoly Dmitriy Vadim BOARD KRASNOSHCHEK PAVLOV KOBZEV VERKHOVYKH ZIMIN MESHCHERYAKOV PEGOV TONI CHABUNIN SHAKHANOV BYNKOV
1 2 3 5 6 7 8 12 13 16 18 4 9 10 11 14 15 17 19 20 21 22 23 138 Russian Railways Annual report 2019 139 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
EXTERNAL AUDIT of Goods, Works and Services for State on all relations and matters to be assessed Audit and control and Municipal Needs dated 5 April 2013. for compliance with independence criteria. The Company’s auditor for 2019 was In performing its duties, the auditor had selected following an open tender As per Order No. 1393-r of the Russian no conflict of interest. Audit Commission Internal control and audit to conduct a statutory audit of Russian Government dated 29 June 2019, Railways’ financial (accounting) statements Ernst & Young was approved as Russian Ernst & Young’s remuneration and the consolidated IFRS financial Railways’ auditor for 2019. for conducting the statutory audit The Audit Commission oversees and the government, payroll and social MEMBERS OF THE AUDIT Russian Railways has an internal control for putting internal controls in place of financial and business operations statements for 2019. The tender was of the Russian Railways’ financial the Company’s business operations insurance payments, as well as accrual COMMISSION system in place to provide reasonable and ensuring their smooth running of the Company, its subsidiaries and other held in accordance with the Federal The external auditor disclosed and submitted (accounting) statements and consolidated and acts on the basis of the laws and payment of dividends; assurance that it will achieve its goals. at the operational level; companies of the Group when required. Law No. 44-FZ On the Contract System to the Audit and Risk Committee IFRS financial statements is RUB 138 m, of the Russian Federation, the Charter • checking the legality of business The Audit Commission of Russian Railways • employees are responsible for the timely in the Federal and Municipal Procurement of the Board of Directors information including VAT of RUB 23 m. of Russian Railways and the Regulation operations under contracts signed consisted of seven people in 2019 1. Russian Railways’ internal control and efficient execution of existing Internal audit serves: on the Audit Commission of Russian on the Company’s behalf; Members of the Audit Commission in 2019: system leverages the most up-to-date internal control procedures; • to identify violations, gaps and risks Railways approved by Order No. 265-r • auditing assets and other Company 1. Alexander Tikhonov (Chairman) organisational and methodological • in addition to implementing internal in the operations of the Company’s of the Russian Government dated resources for efficient use, identifying 2. Igor Belikov framework and best international controls and ensuring their smooth business units, subsidiaries and other Anti-corruption 25 February 2004. causes of downtime and overhead costs; 3. Alexander Varvarin and national professional practices, running in relevant business units, companies of the Group; • auditing compliance with improvement 4. Svetlana Gorbatykh operating in full compliance certain departments and divisions • to identify financial and internal The Audit Commission is responsible for: orders to address the gaps identified 5. Olga Kabanova with the ethical standards applied are also responsible for exercising reserves and prepare recommendations CONFLICTS OF INTEREST on the Board of Directors of Russian transactions, in which they may be • auditing the Company’s business by the Audit Commission; 6. Sergey Ubugunov by the internal audit and control functions functional internal control within on their use to improve financial position Railways3. The members of the Company’s considered as interested parties, operations for any given year and at any • auditing business-related resolutions 7. Vasily Shipilov in the Russian and global business the given terms of reference in relation of Russian Railways and prevent financial Resolution of conflicts of interest Board of Directors, acting reasonably and about an intention to establish time as it thinks fit or as resolved adopted by the Chief Executive communities. to end-to-end processes; and tax risks and losses; is one of top priorities of the Company’s and in good faith, are expected to make or hold interest in any entities by the General Meeting of Shareholders, Officer – Chairman of the Management The remuneration of the Audit • special internal control structures • to ensure timely and complete anti-corruption policy. Russian Railways decisions considering all available competing with the Company. the Company’s Board of Directors Board, the Board of Directors Commission2 amounts to RUB 7.3 m. The main objectives of the internal control responsible for select functions elimination of identified violations has put in place procedures to identify, information, in the absence of a conflict or requested by the shareholder; and the Management Board system are: The Zheldorkontrol Internal Control and gaps. resolve and prevent conflicts of interest. of interest. The members of the Company’s In accordance with the Regulation • auditing and reviewing the Company’s of the Company for compliance • to ensure the efficiency and robustness Centre is in charge of follow-up Board of Directors may not use on the Settlement of the Conflict financial and solvency position, systems with Russian Railways Charter of business operations; internal control to identify violations Internal audit is conducted The conflict of interest procedures their official position and information of Interest of Russian Railways4, all for internal control and management and resolutions of the General Meeting • to safeguard assets and use resources and materialised risks. The Zheldoraudit by the Zheldoraudit Internal Audit for the members of the Company’s Board about the Company’s operations employees, including the members of financial and operational risks, asset of Shareholders; in a cost effective manner; Internal Audit Centre is responsible Centre, a structural unit of Russian of Directors are outlined in the Regulation for their personal advantage or allow using of the Management Board, are required liquidity and debt to equity ratio; • providing recommendations • to identify and manage risks; for assessing the organisation Railways, which is supervised by Deputy the same by third parties. Directors have to disclose conflicts of interest. • verifying the accuracy of the Company’s to the Board of Directors • to ensure the accuracy and functioning of the internal control Chief Executive Officer – Director Measures to resolve conflicts a duty to disclose to the Board of Directors annual report, annual financial and the Management Board and completeness of financial system. for Internal Control and Audit of Russian of interest in 2019, % any matter under consideration In 2019, 184 cases of conflict of interest statements and other disclosures of the Company on preparing (accounting) and other types Railways and functionally reporting 1 by the Board of Directors in which were revealed (up 75% vs 2018) due or financial documents; and adjusting the Company’s budgets; of statements; Russian Railways’ Board of Directors to the Audit and Risk Committee 14 they have a personal interest before to improved ways of identifying them. • auditing the accounting and reporting • other matters under its purview • to ensure compliance and its Audit and Risk Committee of the Board of Directors. the discussion of such matter begins Measures were taken to resolve each procedures used in the course of business as per the Federal Law on Joint Stock with the laws and regulations determine the overall concept and a duty to abstain from voting on any conflict of interest depending on the case operations; Companies, the Company’s Charter of the Russian Federation and by-laws of the internal control system, review The latter approves annual action such matter. (see the chart). 38 • auditing the timeliness and accuracy and the Regulation on the Audit of Russian Railways. its performance assessment results, plans and budgets of Zheldoraudit, 21 of payments to/from counterparties Commission. and analyse its actual state subject reviews internal audit reports, including There is a procedure in place In order to identify and eliminate The main structures to the nature, scale and conditions the assessment of the internal control obliging the members of the Board causes of and conditions conducive in charge of the internal control function of Russian Railways’ operations. and risk management systems, monitoring of Directors to inform the Audit to the emergence and their responsibilities are as follows: internal control systems of the Company’s 26 Commission and the Company’s of conflicts of interest, ensure • governance bodies such as the Board Deputy Chief Executive Officer – Director subsidiaries and other matters. auditor about any legal entities, an objective and timely consideration of Directors and its Audit and Risk for Internal Control and Audit of Russian Renouncing of personal interest in which they independently or jointly and resolution of conflicts of interest, Committee, the Chief Executive Officer – Railways supervises the internal In 2019, the internal audit focused by the employee with their affiliated person (persons) and protect the legitimate interests Chairman of the Management control and internal audit operations, on compliance with the requirements own 20 or more percent of Russian Railways and the rights Board of Russian Railways, relevant with the Zheldorkontrol Internal Control established for a risk management Suspension of voting shares (interests, stakes), of its employees, the Company has deputies of the Chief Executive Centre and the Zheldoraudit Internal Audit and internal control system (RMICS), Change of job duties as well as about their participation established a Conflict of Interest Officer, and the Director for Internal Centre reporting directly to the Director. and involved a selective assessment in the governance bodies of legal Commission5. Reassignment Control and Audit are responsible of the efficiency of specific risk entities, any known or proposed for putting internal controls in place The Zheldorkontrol Internal Control management initiatives and control Limiting of access to information at the corporate level; Centre is a structural unit of Russian procedures. • heads of branches, departments, Railways responsible for organising 3. divisions and units are responsible and conducting follow-up internal control Approved by Order No. 265-r of the Russian Government dated 25 February 2004 (as amended). 1. 4. Appointed in accordance with Order No. 1393-r of the Russian Government dated 29 June 2019. Approved by Russian Railways’ Order No. 321 dated 24 February 2016. 2. 5. As per Order No. 1393-r of the Russian Government dated 29 June 2019. As per Russian Railways’ Order No. 322r dated 25 February 2016.
140 Russian Railways Annual report 2019 141 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
RUSSIAN RAILWAYS’ ANTI-CORRUPTION POLICY Risk management Key focus areas of Russian Railways’ Anti-Corruption Action Plan for 2018–2020
Identify and resolve conflicts of interest; support the work Cooperate with public prosecution and law enforcement of relevant commissions agencies Highlights Monitor the compliance of Russian Railways’ employees with anti- Implement anti-corruption initiatives jointly with the Russian corruption requirements, restrictions, and prohibitions Ministry of Labour and Social Protection, non-governmental organisations, major business associations and business community in general Effective risk management is a consistent • stating requirements for the RMICS RMICS guidelines are adopted Make sure that employees read and acknowledge the Company’s by-laws Assess and update the register of corruption risks ongoing process that spans all and the risk management and internal by the Company in line with Russian laws organisational layers and is integrated control procedures and processes. and regulations2, as well as international Arrange legal training and promote anti-corruption initiatives among Take measures to minimise corruption risks employees with the business and decision-making and Russian best practices of corporate processes to make Company’s targets To this end, the Centre: governance, risk management and internal Train and educate employees Take measures to prevent corruption more achievable. • drafts corporate regulatory control, including those set forth and methodological documents in the following documents: Russian Railways’ anti-corruption In 2019, the Group implemented of Labour and Social Protection, Office The coordination, implementation regarding risk management; • concept of the Committee of Sponsoring policy is based on a set of interrelated the following key initiatives: of the Prosecutor General, Russian Union and improvement of the risk management • provides methodological support Organisations of the Treadway principles, procedures and initiatives • submission of income, expenses, assets of Industrialists and Entrepreneurs, and internal control system (the “RMICS”) to the Company’s units in connection Commission (COSO): Enterprise designed to prevent and combat and liabilities statements by employees Chamber of Commerce and Industry are led by the Risk Management with creating a risk register and offers Risk Management – Integrating corruption and mitigate corruption risks. holding corruption-prone positions; of the Russian Federation, educational and Internal Control Centre (the “Centre”). risk management advice; with Strategy and Performance It is intended to ensure that managers • ensuring that employees institutions and business community • provides RMICS training for employees; (COSO ERM, 2017); and employees, as well as Board members, comply with restrictions, to improve, unify, and enforce The Centre focuses on: • creates a consolidated risk register • concept of the Committee of Sponsoring the investment community and other requirements, and prohibitions legislation, assess anti-corruption • coordinating the RMICS creation of the Company and consolidated Organisations of the Treadway parties align around the idea of zero with respect to notifying the employer practices, shape and encourage process; periodic reporting; Commission (COSO): Internal Control – tolerance to corruption in all forms of the attempts to induce them responsible behaviour of employees; • monitoring the risk management • monitors the risk management process Integrated Framework (COSO IC, 2013); and manifestations and inevitability to commit corruption offences as well • notifying the Audit and Risk Committee and internal control processes in Russian Railways’ units; • GOST R ISO 31 000:2010 Risk of punishment for corruption-related as with the procedure for reporting gifts of Russian Railways’ Board of Directors to achieve Russian Railways’ objectives • notifies governance bodies Management – Principles offences. received in an official capacity or while of the results of monitoring of risk and mitigate risks to an acceptable of the effectiveness of risk management and Guidelines3. discharging their duties; management processes and internal level; processes. The measures taken by the Company • holding best practice workshops anti-corruption control, as well to prevent corruption were approved involving representatives of government as the effectiveness of anti-corruption by experts as meeting anti-corruption and law enforcement agencies, initiatives implemented by Russian laws and provisions of the Anti-Corruption public organisations and Russian Railways. Charter of the Russian Business. Railways’ employees responsible for the activities aimed at preventing An effective feedback channel is Russian The Company operates in accordance and combating corruption in Khabarovsk Railways’ Anti-Corruption Hotline. with the National Anti-Corruption Plan1 and Rostov-on-Don; In 2019, the number of messages received and Russian Railways’ Anti-Corruption • implementing anti-corruption initiatives by the Hotline more than doubled – 654 Action Plan for 2018–2020. jointly with the Russian Ministry vs 323 in 2018.
2. Also in accordance with clause 1 of the List of the Russian President’s Instructions No. PR-3013 dated 27 December 2014. 1. 3. Approved by the Russian President’s Decree No. 378 dated 29 June 2018. Approved by Rosstandart’s Order No. 883-st dated 21 December 2010.
142 Russian Railways Annual report 2019 143 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Risk management and internal control system Risk management process
GOALS AND OBJECTIVES the applied methodology, and building/ Development Programme for 2019– Part of the corporate governance and opportunities. Risk appetite and the Board of Directors, as well developing RMICS in controlled entities. 2024, Risk Management and Internal system, risk management is a continuous is determined by the Company’s Board as the Company’s key performance The main purpose of RMICS is to provide Control Policy, Liaison Protocol for Risk and interactive process implemented of Directors and represents the maximum indicators and risk portfolio. reasonable assurance that Russian RMICS must be subject to regular assessment Management and Reporting Processes, across all management levels acceptable level of risk that the Company Railways will achieve its goals. for higher effectiveness and timely Risk Management and Internal Control (organisational hierarchy). is ready to assume and stay within The procedure for setting, approving adjustment. The Company uses both internal Guidelines; the bounds of when pursuing its objectives and revising the risk appetite is guided The RMICS serves to: (including assessment by the internal audit • Risk Appetite Guidelines submitted (including those defined in the Long-Term by the Company’s by-laws. • integrate risk management and internal function) and external assessment. to Russian Railways’ Board of Directors; RISK APPETITE Development Programme) control processes and procedures into • information on risks regularly the strategic and operational dimensions The internal assessment is carried out submitted to the Company’s governance Russian Railways sets its risk appetite, Risk appetite is shaped by the Company’s of the Company; from time to time at least once a year. bodies (from the Management Board which then shapes the decision-making goals, targets, target benchmarks, • put in place the necessary infrastructure, The external assessment is carried out to the Board of Directors); on risk mitigants and controls and serves the requirements and resolutions and policies and guidelines; by an independent expert. Its frequency • information on risks reflected to maintain a balance between risks of the General Meeting of Shareholders • reduce the number of contingencies that is set by the Russian Railways’ Board in the system of monitoring and control could undermine the Company’s ability of Directors as recommended by its Audit over Russian Railways’ operations, to achieve its goals; and Risk Committee. including information on the number Risk management process • raise risk awareness of RMICS of such risks and their description, participants and other stakeholders risk breakdown by operations, risk IMPROVEMENT materialisation events, and risk mitigants. Risk identification Analysis and evaluation OF THE RISK RMICS ASSESSMENT MANAGEMENT SYSTEM For a more effective risk management and internal control process, since 2018 For a systematic and consistent approach IN 2019 Russian Railways has been conducting Information exchange and consulting to the integrated RMICS development, regular workshops and training sessions the Russian Railways Group has been In 2019, efforts were made to improve in RMICS for managers of different levels implementing its Risk Management and develop the integrated risk (from the Management Board members Monitoring and revision Mitigation (response) and Internal Control Development management model. The RMICS in general to specialists across the network). In 2019, Programme for 2019–2024, which was raised to a higher standard. a corporate training programme was involves shaping the risk management developed for Russian Railways’ Corporate infrastructure, continued monitoring 2019 key achievements: University to provide unified and scaled-up and notification of governance bodies, • the Group developed and adopted its training based on the specific nature conducting self-assessment, cascading Risk Management and Internal Control of the risk management process.
144 Russian Railways Annual report 2019 145 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Key risks
KEY RISKS ASSOCIATED • no government resolutions on long- of the adopted decisions. To mitigate Risk category Risk description Probability Mitigants WITH THE LONG-TERM term financing of the railway transport potential negative risk impacts, Market Significant changes in cargo types High • Building long-term relations with customers DEVELOPMENT development or a failure to implement the Company enhances its customer and transportation routes versus and improving consumer feedback strategies such resolutions; focus and the quality of services while the forecast • Enhancing market flexibility and expanding PROGRAMME UNTIL 2025 business in deregulated segments • significant changes in freight also running an efficiency improvement • Strengthening logistics capacities to satisfy and passenger transportation markets programme. customer demand for comprehensive services The key risks associated with the Long- with a contracting share of the Russian • Implementing the initiatives included in the Comprehensive Plan for Upgrading Term Development Programme until Railways Group across transportation and Expanding Core Infrastructure 2025 are identified based on their impact segments. Investment Insufficient investment in infrastructure Medium • Optimising technical solutions on the Company’s performance. development To prevent these risks and respond Failure to comply with the investment • Improving the investment project management The most significant of them are: to them in a timely manner, Russian programme implementation schedule framework • insufficient revenue rate growth Railways maintains an ongoing Tax Higher tax burden driven by tighter fiscal High • Staying in constant contact with the federal below the indexation of tariffs amid dialogue with government authorities policies in Russia amidst social and economic and regional tax authorities growing prices for products consumed and key customers keeping them uncertainties by Russian Railways; informed about potential adverse effects
Management Insufficient management competencies Low • Improving the management framework
HR Deficit of qualified staff due Medium • Keeping compensation on a level above the Russian Risk category Risk description Probability Mitigants to the insufficient competitiveness average for a competitive employee value Macroeconomic Weaker than forecasted macroeconomic High • Keeping in constant touch with the Government of Russian Railways as an employer proposition performance and lower freight volumes, and key customers to provide them with complete • Offering staff development opportunities in line Stronger competition in the labour market including as a result of more rigorous and objective information about potential adverse with best practices in training Implementing on the back of a decrease in Russia’s sanctions effects of the adopted decisions dedicated social programmes working population in the medium term • Efficiency improvement initiatives, long-term • Developing a compensation and benefits package Higher than expected growth of prices contracts with suppliers that meets employee need for consumed products, including petroleum • Resolutions to provide development institutions products and electricity R&D and technology Weaker competitiveness of the railway Low • Implementing the Comprehensive Innovative with additional liquidity transport due to a technology gap with other Development Programme of the Russian Railways State regulation No government resolutions on long- High • Searching for alternative sources and tools modes of transport Group term financing of the railway transport of financing development or a failure to implement such • Optimising technical solutions for capital resolutions investment projects • Breaking down projects into stages Underperformance in adoption Changes in the regulatory framework / with their subsequent implementation in the order and utilisation of innovative R&D solutions regulations providing support to other of priority transport modes • Keeping in constant touch with the Government Insufficient cooperation with global railway Liberalisation of the railway freight and key customers to provide them with complete engineering leaders transportation market and objective information about potential adverse effects of the adopted decisions for Russian Reduced public financing Railways A gap between the existing regulatory framework and ongoing railway transformations Technology Slower debottlenecking at associated Low • Keeping in constant touch with the operators transport facilities (port capacities, of associated transport modes to synchronise warehouse terminals) vs the forecasts the investment programmes contained in the Company’s investment programme
Failure to meet the freight transportation • Cooperating with rolling stock operators market needs due to the inefficient freight to improve railcar fleet management efficiency railcar fleet
146 Russian Railways Annual report 2019 147 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
RISKS RISKS REQUIRING Climate change risks Russian Railways approaches to financial currency exposure, the Company’s Each case of foreign currency BY BUSINESS LINE PARTICULAR ATTENTION The Company pays great attention risk management are based on best operations are broken down into exposure is analysed for applicability to climate change risks, analysing practices in financial risk management, and analysed by investment, operating of hedge accounting under the Russian Russian Railways’ risk profile reflects Russian Railways pays particular attention the climate change impact and taking principles of diversification through and financial activities. and international financial reporting its strong focus on key business to certain types of risks. it into account when planning its activities. the use of various risk management tools standards. As at 31 December 2019, lines and continuous improvement The key threat that can potentially affect and reliable counterparties. The Company minimises its foreign over 70% of the Company’s borrowings of risk management practices to ensure Corruption risks the Company’s business is the growing currency risks by reducing its foreign denominated in foreign currencies were the Company’s ability to work towards its The Anti-Corruption Centre number of meteorological hazards. The risk management policy excludes currency exposure, which includes subject to hedge accounting. ambitious goals amid constantly changing is the Company’s authorised unit Railway operations can be jeopardised due speculative risk management tools, the use of financial derivatives, and seeks external environment. In 2019, Russian for combating corruption and improving to higher precipitation (especially in liquid as well as operations with unreliable to keep it close to neutral with cash Railways managed to meet its overall anti-corruption policies in accordance and mixed forms) and increasing number counterparties. inflows and outflows in foreign currencies INSURANCE targets, despite materialised risks across with the laws of the Russian Federation. of dangerous natural phenomena such offsetting each other. the following business lines: as fog, heavy rains and others. To address Credit risks The Company insures its real estate, rolling • freight transportation; A single approach to anti-corruption these risks to infrastructure, the Company To manage its credit risks, Russian Railways The Company also develops stock, employees, liability of a railway • traffic management; management is implemented across implements various strengthening has put in place procedures to calculate credit and reviews the foreign currency exposure infrastructure owner, carrier liability, • capital construction, upgrade the Company, covering central, regional solutions (anti-washout slab covers, rock limits and regulatory documents governing of the Russian Railways Group in order and also liability of directors and officers and overhaul; and line management levels of corporate dumping, rock anchorage) and builds operations with bank guarantees and sureties, to assess its risk profile and coordinate working in the Company and its 73 • legal support and compliance; governance. structures for protection of the track bed including the unified corporate standard solutions across the Group. subsidiaries and affiliates. • rolling stock operation, maintenance from natural hazards (such as mudflows, of Russian Railways Group for dealing and repairs; Cybersecurity risks landslides, avalanches and rockfalls). with collateral instruments. The Company Taking into account the heightened 1,024 insurance claims were settled • international operations. If they materialise, information security assesses financial institutions and calculates risk of changes in the Russian rouble in the reporting year, with total insurance threats may disrupt or suspend IT services, relevant credit limits so as to manage bank exchange rate, starting from 15 July compensation exceeding RUB 896.5 m. Key measures to mitigate risks the process flow and operations FINANCIAL RISK transactions involving deposits and bank 2015, Russian Railways has been applying implemented in 2019 included: of the Company, and cause leakage MANAGEMENT guarantees based on the financial standing hedge accounting model to liabilities To ensure a common approach • review and improvement of internal of restricted information. of the financial institution. denominated in foreign currencies in line to subsidiary insurance, processes for identifying key gaps, The Company lays a strong emphasis with its approved foreign currency risk in 2010, the Company put in place developing and implementing In 2019, Russian Railways took on managing financial risks and insuring Liquidity risk management policy. a single corporate framework to insure systematic mitigants to reduce risk steps to implement and maintain its property and liability. Since 2010, The Company manages its liquidity based subsidiaries and affiliates of Russian impact and prevent future negative an automated information security Russian Railways has been implementing on the balance of payments, payment schedule The Company hedges revenue from transit Railways. It was updated in 2018 to unify developments (including enhancement management system, a centralised and improving an efficient financial and payment position as per the approved shipments through the Russian Federation approaches to the Russian Railways of the Company’s internal regulations), access node for information systems, risk management framework, using budgets. Depending on the current liquidity denominated in Swiss francs, as well Group’s insurance, taking into account based, among other things, on the best a solution for monitoring and controlling the Financial Risk Management Policy situation, the Company promptly raises as euro-denominated investments in GEFCO. best practices and current trends market practices; information transmission channels, as the key regulatory document. or deposits funds under the best market in the insurance segment. • automation and digitisation, including hardware and software for controlling conditions. The Company manages its liquidity The hedging tools include loans measures to improve the reliability access of privileged users, a system In 2019, key objectives in the realm based on Reuters and Bloomberg systems. and borrowings in Swiss francs and US To ensure the highest level of insurance and efficiency of data, reduce for evaluating the security of automated of financial risk management included The Company is also promoting the use dollars (after conversion into Swiss francs) protection, the Company regularly the human factor and manual labour, information and telecommunication framework adjustment to potential of cash pooling for intercompany liquidity and a portion of the euro-denominated reviews its insurance policies and increase the speed of management systems of Russian Railways, and a system adverse geopolitical and macroeconomic management purposes. loan corresponding to the net investment with a view to improving coverage decision-making; for detecting and preventing cyberattacks factors, and further efforts to ensure in GEFCO. and optimising costs. In 2019, • legislative initiatives aimed at increasing on information infrastructure. implementation of uniform financial risk Currency and interest risks a competitive process to procure the transparency of the Company’s management principles across the Group. To assess this category of risks, Hedge accounting allows the Company insurance services enabled the Company operations, including through The Company also assessed the security the Company builds models and evaluates to recognise the effect of the currency to achieve a 37.3% cost saving implementing the regulatory guillotine of its web portal, information infrastructure The key internal regulation governing budget parameters factoring in potential risk management policy and reduce on average for the next two years mechanism to eliminate outdated (with external users connected), Internet financial risk management at Russian volatility of the relevant market indicators. volatility of its financial results caused under the newly signed policies. regulations; access nodes and a single customer mobile Railways is the Company’s Financial by movements in the currency exchange • employee training and increasing application. Plans for 2020 include further Risk Management Policy. All related Assessment of Russian Railways’ currency rates. As a result, translation differences A great deal of attention the level of employee competencies. development of information security control decisions are made by the Financial Risk risks and selection of a currency risk on hedged loans are recognised in equity is paid to the reinsurance policies, and monitoring systems and enhancement Management Commission, a collective management tool are based on the analysis and later reclassified to profit or loss when which are provided by the leading global of the Company’s information security body headed by the First Deputy CEO of the Company’s foreign currency FX revenue is received and/or FX asset reinsurance companies, including Swiss Re, regulations and guidelines. of the Company. exposure. In order to estimate the foreign is disposed of. Munich Re, Hannover Re, AIG Europe, etc.
148 Russian Railways Annual report 2019 149 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
APPENDICES
Disclaimer Contact information
150 Russian Railways Annual report 2019 151 About the Company Strategic report Performance overview Sustainable development Corporate governance Appendices
Disclaimer Contact information
This annual report (“Annual Report”) has Property Management in corporate on circumstances that may or may not occur Legal address been prepared based on the information governance (with recommendations in the future. Such words as “anticipate”, 107174, Moscow, ul. Novaya Basmannaya, 2 available to the Open Joint Stock Company for the Russian Federation to form “believe”, “expect”, “predict”, “intend”, Russian Railways (“Russian Railways” an opinion on the approval of the annual “plan”, “project”, “consider”, “could” Postal address or the “Company”) and its subsidiaries report of an open joint-stock company and other similar or equivalent expressions, 107174, Moscow, ul. Novaya Basmannaya, 2 (the “Group” or “Russian Railways”) whose shares are held by the Russian including those used with negations, generally as at the issue date. Federation) dated 26 July 2005; indicate a forward-looking statement. These Contact telephone • Corporate Governance Code approved assumptions involve risks and uncertainties, +7 (499) 262-99-01 Russian Railways’ Annual Report by the Bank of Russia’s Board expected or unexpected by the Company. for 2019 disclosed information of Directors on 21 March 2014; Therefore, future performance may Fax to provide the Company’s shareholder • Bank of Russia Regulation No. 660-P, differ from current expectations, +7 (499) 262-90-95 represented by the Government dated 16 November 2018, On General and the recipients of the information of the Russian Federation, as well Meetings of Shareholders. contained herein may not rely solely E-mail as government authorities, potential on the information provided in the Annual [email protected] and actual investors, shippers, passengers The Annual Report contains an overview Report in their assumptions. and other stakeholders and users of activities and performance results with the most full and relevant data of Russian Railways for the year ended Apart from the official information CORPORATE FINANCE DEPARTMENT OF RUSSIAN RAILWAYS on the operations of Russian Railways 31 December 2019 and major trends on Russian Railways performance, in 2019 and the Company’s development that may affect the Company’s future the report contains information Trade Finance and Debt Portfolio Servicing Department trends. performance. obtained from the third parties and the sources which the Company Contact telephone The Annual Report meets the requirements For the purposes of this report, the word deems reliable. Nevertheless, the Company +7 (499) 260-33-51 of the following laws and regulations: “Company” and the pronoun “we” in all does not guarantee the accuracy • Resolution of the Government their forms refer to Russian Railways. of this information as it may be condensed Fax of the Russian Federation No. 1214 or incomplete. Russian Railways does +7 (499) 262-74-23 On Improvement of the Procedure In this report, the Russian Railways Group not provide any guarantees that the actual for Managing State-Owned Open refers to a nominal group of entities results, scale and performance indicators E-mail Joint-Stock Companies Whose that includes Russian Railways and its of the Company’s operations or those [email protected] Shares are under Federal Ownership subsidiaries, affiliates and controlled of the industry in which the Company and Federal State Unitary Enterprises companies in which the Company owns operates will be consistent with the results, dated 31 December 2010; an interest. scale and performance indicators expressly PRESS SERVICE OF RUSSIAN RAILWAYS • Resolution of the Government stated or implied in any forward-looking of the Russian Federation No. 1211 The Annual Report may contain statements contained herein or otherwise. Contact telephone On Amendments to the Approximate forward-looking statements that +7 (499) 262-66-70 (for media only) Structure of the Annual Report of Open reflect expectations of the Company’s Russian Railways shall bear no responsibility Joint-Stock Company Whose Shares management. for any losses that may be incurred E-mail are under Federal Ownership dated by anyone due to the fact that such a person [email protected] 10 November 2015; These forward-looking statements relied on the forward-looking statements. • Federal Law No. 39-FZ On Securities are not based on actual circumstances Market dated 22 April 1996; and include all statements with respect Except as expressly required by applicable • Regulation of the Bank of Russia to the Company’s intentions, opinions law, the Company assumes no obligation No. 454-P On Information Disclosure or current expectations pertaining with regard to the distribution by the Issuers of Issue-Grade Securities to its performance, financial standing, or publication of any updates or changes dated 30 December 2014; liquidity, growth prospects, strategy, in the forward-looking statements • Federal Law No. 208-FZ On Joint Stock and the industry in which the Company to reflect any changes in expectations Companies dated 26 December 1995; operates. or new information, as well as subsequent • Order No. 228 of the Federal Agency events, conditions or circumstances. for State Property Management By their nature, forward-looking On the regulation of activities statements involve risks and uncertainties of the Federal Agency for State because they relate to events and depend
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