Annual 2012 Report

annual 2012 report

Annual Report 2012

Dear Readers,

Despite the difficult situation on the railway transport services market in 2012, AB Lietuvos Geležinkeliai managed to operate at a profit, to expand the range of services and to invest in railway industry.

The European Union transport policy focused on green and sustainable transport development promotes effective interaction amongst different modes of transport. This policy framework is conducive to the development of Lithuanian railways. Strategic aims of the company in 2012 were being realised by implementing the projects for railway infrastructure development and modernisation, establishment of public logistics centres, acquisition of rolling stock, deployment of information systems etc.

In order to successfully execute Lithuanian railway development plans, the Board of the Company in 2012 discussed and made decisions regarding any major project.

Below are highlighted some important moments in the development of Lithuanian railways in 2012:

• The company having absorbed the EU co-financing funds implemented an investment programme, e.g. the quality of Lithuanian railway infrastructure was improved and the rolling stock fleet was upgraded; • The projects were developed and reconstruction works started on separate Rail Baltica sections; • Successful cooperation with Klaipėda Seaport and stevedoring companies resulted in the development of railway infrastructure at the port; • The company implemented major infrastructure projects related to the construction of second track on some sections, modernisation of connecting railway lines, deployment of infrastructure diagnostic systems, electrification of International Railway Transport Corridor IX, establishment of the Traffic Management Centre etc.; • The company was further implementing the projects related to Vilnius and Kaunas public logistics centres; the design of Vilnius Logistics Centre was completed in 2012; • Close cooperation was conducted with Belarusian railway undertaking in implementing the high-speed train Vilnius–Minsk project, as well as making preparations for electrifying the section Vilnius–Molodecno; • The company was more active on international transport markets by developing new logistics schemes to explore opportunities for the development of shuttle trains Viking, Saulė, Mercury etc.

It is important that the company staff are competent and able to confront challenges, successfully implement strategic targets set for themselves and to effectively develop the Lithuanian railway transport industry.

Yours sincerely, Saulius Girdauskas Vice-Minister of Transport and Communications Chairman of the Board AB Lietuvos Geležinkeliai 7

Dear Readers,

In 2012, the operating conditions on the railway transport market were quite complicated. The freight volumes transported by AB Lietuvos Geležinkeliai were lower than in 2011. This was caused mostly by the decreased Bela- rusian and Russian freight flows through the ports of Klaipėda and Kaliningrad as well as by the production easing in some major companies in Lithuania. Nevertheless, the company operated on an even keel and at a profit; the company’s revenues had increased due to higher passenger volumes and provided additional services.

In 2012, the company invested a total of LTL 763 million; the company’s own funds amounted to almost 51% of the total funds invested. The year 2012 saw further implementation of the EU-funded investment projects that had been included in the Public Investment Programme. The most significant of these projects were related to the development of Klaipėda railway junction, modernisation of infrastructure of the connecting line Klaipėda–Pagėgiai, installation of railway infrastructure diagnostic systems etc.

Special attention was devoted to the implementation of Rail Baltica, a state priority project of particular importance, i.e. technical projects for the reconstruction of separate Rail Baltica sections from the state border with Poland to Kaunas were designed, projects for the construction of second track and those for the reconstruction of separate sections from Kaunas to the border with Latvia were being developed, the construction works were started on some sections. However, it is regrettable that the procurement procedures for contract work on the three sections of Rail Baltica had to be cancelled owing to the proposed overcharging. The tenders will be re-announced in the year 2013 though. The company concluded cooperation agreements with Marijampolė and Kazlų Rūda municipal- ities. These agreements will contribute to the solution of different issues arising from Rail Baltica project.

In 2012, the programme for modernisation of the rolling stock fleet was being further conducted. As a result, a total of 15 shunting locomotives, 200 flat wagons, 50 intermodal containers, 2 modern double-deck electric passenger trains etc. were acquired.

We are happy and proud of the fact that the company’s performance has been noted and appreciated. In Feb- ruary 2012 during the international conference, Social Market Economy: A Response to the Global Financial and Economic Crisis, held at the Seimas of the Republic of Lithuania (Lithuanian Parliament), AB Lietuvos Geležinkeliai received the award Gausos Žuvis for promoting employee welfare, creating the favourable working environment and investing in employee development. Another very important award was the Lithuanian Product of the Year Gold Medal in ecology and environmental industry group of awards for the modernised Vilnius petroleum products storage granted to our company by the Lithuanian Confederation of Industrialists.

Yours sincerely, Stasys Dailydka General Manager AB Lietuvos Geležinkeliai 8 9

CONTENTS

Review of commercial and Financial Performance | 8

Freight Services | 16

Passenger Services | 18

Rolling Stock | 20

Infrastructure | 22

Environmental Protection | 24

Traffic Safety | 26

International Relations | 27

Information Technology | 30

Human Resources | 31

Major Events in 2012 | 34

AB Lietuvos geležinkeliai management structure | 36 independent auditor’s report | 37

Balance sheets | 38 incoMe stateMent | 40 10

Review of commercial and Financial Performance

basic indicators

Assets and Liabilities (LTL millions) 2012 2011

Assets 5,379.3 4,855.4

Equity 2,718.9 2,711.4

Total Revenues (LTL millions) 1,765.7 1,661.0

Revenues from core activities (sales) 1,727.1 1,621.7

Revenues from financial and investing activities 8.1 11.0

Other revenues 30.5 28.3

Total Costs (LTL millions) 1,611.7 1,483.4

Costs of core activities 1,587.9 1,457.0

Costs of financial and investing activities 20.6 24.0

Other costs 3.2 2.4

Result (LTL millions)

Profit before tax 154.0 177.6

Net profit 130.2 147.3

Financial Indicators

Liquidity (current assets/current liabilities) 0.8 1.0

Gross profit margin (gross profit/sales), % 17.4 20.2

Net profit margin (net profit/sales), % 7.5 9.1

EBITDA (earnings before interest, taxes, depreciation and amortisation) (LTL 526.7 525.4 millions)

Return on Assets (ROA) (net profit/assets), % 2.4 3.0

Return on Equity (ROE) (net profit/equity), % 4.8 5.4

Investment (LTL millions)

Investment 763.0 606.9

Company funds invested 387.8 358.2

Staff

Number of staff 10,601 10,505

Average monthly salary (LTL) 2,973 2,847

Sales income per employee (LTL thous./person) 162.9 154.4 11

Changes in the balance sheet

In 2012, the assets of the company went up by 10.8% amounting to LTL 5,379.3 million. The non-current assets accounted for 93.4% in the total asset structure, an increase of 12.0% up to LTL 5,024.2 million, compared to 2011. This was mostly determined by a rise of 12.3% in the tangible assets of the company due to considerable investment in the modernisation of public railway infrastructure and rolling stock. For the same reason, the number of vehicles increased by 10.5%, while construction in progress and prepayments by 56.2%.

The company’s current assets fell by 3.4% amounting to LTL 355.1 million and accounted for 6.6% in the total asset structure.

During the year 2012, the shareholders’ equity grew by 0.3% to LTL 2,718.9 million.

Due to the increased volumes of investment and EU support in 2012, the amount of grants and subsidies went up by 1.3 times, while accounts payable and short-time liabilities rose by 18.9%.

By 31 December 2012, the loan portfolio of the company had reached LTL 528.7 million due to new liabilities to credit institutions. In order to finance the investment projects for the modernisation and development of infrastructure and acquisition of rolling stock, the company had taken out totally 11 long-term loans from the EBRD, EIB, Nordic Investment Bank and other credit institutions.

In 2012, the company paid out to the government a total of LTL 122.7 million as dividend from the 2011 distribut- able earnings. 12

Revenues

In 2012, the company earned LTL 1,765.7 million as revenues, an increase of 6.3% over the previous year. Despite the reduced freight transportation volumes, the total fall in revenues was avoided due to successful additional activities, namely company-owned freight wagon lease, scrap disposal, freight forwarding etc.

Revenue structure in 2012, %

freight 81.4% passenger

5.1% other supplementary services

other activities 11.4% financial and investment activities

1.7% 0.4% 13

Freight revenues accounted for 81.4% in the total revenue structure. The revenues earned from freight services in 2012 rose by 2.4% over the previous year due to a considerable increase in freight forwarding volumes (about threefold rise in NATO cargo traffic) as well as due to the freight transportation rates having been indexed at the beginning of 2012.

Passenger revenues accounted for 5.1% in the total revenue structure in 2012, a rise of 5.9% over the previous year. This was due to the increased passenger flows on international lines, especially on the route Vilnius–Minsk– Vilnius where passenger flows grew twofold.

In 2012, a total of LTL 9.1 million subsidies were allocated from the State budget for financing passenger traffic to reimburse privileged passengers. Subsidisation volumes remained at the same level as in 2011 since the number of students and other privileged passengers transported during the accounting period also remained the same as in the previous year.

Other revenues. The company also operates outside the country (freight transportations on the territory of other countries, operation of locomotives and engine-crews abroad, the use of wagons abroad), provides transportation of baggage and post, and renders the services related to the repair and maintenance of rolling stock, asset lease, freight handling and storage, sales of scrap iron. In 2012, the revenues from rendering the aforementioned services grew by 1.5 times over the previous year and accounted for 11.4% in the total revenue structure. The growth was determined by a considerable increase in the scope of company-owned freight wagon lease and sales of scrap iron.

Total revenues, LTL millions 1,765.7 1,630.4 1,661.0

1,393.5 1,206.0

2008 2009 2010 2011 2012

Costs

The costs incurred by the company in 2012 amounted to LTL 1,611.7 million, an increase of 8.6% over 2011. Higher freight forwarding volumes on the territory of other countries resulted in the boost of costs related to international settlements with railway undertakings in other countries; however, the revenues from this activity also increased respectively. The growth in the costs related to subcontracting and acquisition of materials was determined by the increased need in rolling stock and track repairs. Investing activities (large investment projects for the modernisation and development of infrastructure, acquisition of new rolling stock) resulted in the growth of depreciation costs while restoring salaries to pre-recession levels caused an increase in personnel costs.

In 2012, remuneration costs represented major part in the total cost structure and accounted for 31.2%; the non-current asset depreciation costs and the costs of fuels made up 22.1% and 14.7% respectively.

The State subsidies provided for covering loss-making passenger services amounted to LTL 0.325 million in 2012 (cf. LTL 0.225 million in 2011). The total costs incurred in 2012 were reduced by said amount. 14

Cost structure in 2012, %

remuneration

16.9% fuels

31.2% depreciation (amortisation) 1.3% 5.0% energy resources

Materials 6.6%

2.2% repairs financial and investment costs 14.7% 22.1% other costs

Profit

The company operated at a profit in 2012. The net profit made up LTL 130.2 million, a decline of 11.6% from the previous year (cf. LTL 147.3 million in 2011). profit before tax, ltl millions 177.6

154.0

123.4

78.3

12.3

2008 2009 2010 2011 2012

INVESTMENT

AB Lietuvos Geležinkeliai technical development and investment policy are oriented towards increasing railway transport competitive capacities on international and domestic markets, improving the quality of the services provided to individuals and entities, developing the scope of services, optimising railway network performance, as well as increasing traffic safety and ecological sustainability. In order to achieve these goals and to ensure successful integration of Lithuanian railway transport into international transport systems, the railway infrastructure is being modernised, public logistics centres are being established, the rolling stock fleet is being renewed, and advanced transportation-related IT and intelligent transport systems are being implemented.

In 2012, the company invested in Lithuanian railways LTL 763.0 million (up 25.7% over 2011). The largest part of investment, namely 50.8%, consisted of the company’s own funds and amounted to LTL 387.8 million, a rise of LTL 29.5 million over the previous year. A total of LTL 302.3 million accounted for the EU funds (an increase of LTL 87.4 million over 2011), LTL 12.0 million was allocated from the State budget funds, and LTL 60.9 million came as loans. 15

Structure of investment in 2012, %

1.6% Own funds 50.8% 39.6% Funds from State budget

EU funds

Borrowed funds

8.0%

AB Lietuvos Geležinkeliai investment funds according to directorates, LTL millions

Information Technology Centre, Rail Baltica Project Directorate and etc. Passenger Directorate

Freight Directorate Railway Infrastructure Directorate

763.0

606.9 438.7 638.7 386.4 370.4

475.5

232.3

179.5 185.3

138.4 136,9

83.9 75.1 72.8 63.9 49.0 32.0 34.6 4.9

2009 2010 2011 2012 16

Modernisation and development of railway infrastructure

In 2012, major investments were made in the modernisation and development of railway infrastructure. The company invested a total of LTL 438.7 million, of which almost half accounted for the EU funds. The company was implementing long-term infrastructure modernisation and development programmes.

In order to improve freight traffic conditions and to increase railway corridor capacity from the State border with Belarus to Klaipėda, the East–West transport corridor was being developed in 2012. The development of the East– West transport corridor was acknowledged by the Lithuanian government as an important economic project in 2009 covering the development of Klaipėda railway junction, construction of Vilnius railway bypass, construction of second track on Corridor IXB, electrification of the line Naujoji Vilnia–Kena–State Border with Belarus, as well as modernising the infrastructure of the connecting railway line Klaipėda–Pagėgiai.

While implementing the Rail Baltica project, which in 2011 had been acknowledged by the Seimas of the Republic of Lithuania (Lithuanian Parliament) as a State priority project of particular importance, feasibility studies were being prepared and design works for the reconstruction of all the sections on Rail Baltica line from Kaunas to the State border with Latvia were being conducted in 2012.

In order to increase train traffic safety and the efficiency of traffic management on the Lithuanian railway network, infrastructure diagnostic systems were being deployed, the new Traffic Management Centre was being arranged, signalling and power supply installations were being modernised at Kaunas Station, on the bypass Palemonas– Rokai–Jiesia and on the line Kaunas–Kybartai, as well as other projects having been carried out.

In order to increase railway transport competitive capacities, the range of logistics services were being further developed and the projects for establishing public logistics centres in Vilnius and Kaunas were being further implemented.

Modernisation and development of freight services

In 2012, a total of LTL 185.3 million was invested in freight services. The company was implementing the trunk locomotive fleet renewal programme in 2004–2010 (44 Siemens manufactured locomotives were acquired, 29 locomotives 2M62 modernised, 25 locomotives 2M62 and 16 locomotives M62 re-engined). At present the company’s locomotive fleet is one of the most advanced fleets in Eastern and Central Europe. Having started the modernisation programme for shunting locomotive fleet in 2007, the company had operated 28 new locomotives TEM TMH and 22 modernised locomotives ČME3M by the end of 2012. The locomotive fleet was being modernised only by acquiring contemporary, frugal and environmentally friendly rolling stock. Freight wagons were also being modernised, as well as depot technological equipment, fuel depots and freight yards.

Modernisation and development of passenger services

A total of LTL 63.9 million was invested in passenger services in 2012. The passenger train fleet renewal programme started in 2007 was being further implemented. A total of 6 modern double-deck electric trains, 12 new railcars and 4 new diesel trains had been in operation by the end of 2012. Technological equipment was acquired for the maintenance of new rolling stock, design and reconstruction works of the repair facilities for passenger rolling stock were performed.

Development of information technology

A total of LTL 16.9 million was invested in the development of information technology in 2012. The information technology infrastructure was being further developed; the email system was updated, data protection and back- up copying systems were improved, computer networks extended, hardware and office equipment acquired. The cargo information system STOKIS was deployed at all marshalling yards. 17

operating results of subsidiary companies

In 2012, AB Lietuvos Geležinkeliai group consisted of AB Lietuvos Geležinkeliai and its subsidiary companies:

• UAB Vilniaus Lokomotyvų Remonto Depas; • UAB Gelsauga; • UAB Geležinkelio Tiesimo Centras; • UAB Geležinkelių projektavimas; • Associated company UAB VAE Legetecha.

Profit (loss) during the Company Core activity reporting year (LTL thous.)

Rolling stock repairs and UAB Vilniaus Lokomotyvų Remonto Depas 3,754.0 manufacturing

Security and cleaning UAB Gelsauga 204.8 services

Track repairs and UAB Geležinkelio Tiesimo Centras 6,402.8 construction

Railway design and UAB Geležinkelių Projektavimas -479.1 research work

UAB VAE Legetecha 4,122.2 Turnout manufacturing 18

Freight Services

In 2012, AB Lietuvos Geležinkeliai carried 49.4 million tonnes of freight, a decrease of 5.6% from 2011.

Rail freight volumes in 2008–2012, million tonnes

55.0 52.3 49.4 48.1 42.7

2008 2009 2010 2011 2012

Import freight declined the most in 2012 and amounted to 17.0 million tonnes, 10.0% down the previous year. Transit freight made up 12.2 million tonnes, 7.8% down 2011, while domestic freight accounted for 14.9 million tonnes or 1.0% down 2011. Export freight saw an increase of 2.4% up to 5.3 million tonnes.

Rail freight volumes in 2011–2012, million tonnes

2011 18.9 17.0 2012 15.1 14.9 13.3 12.2

5.2 5.3

Transit Import Export Domestic

In 2012, domestic freight accounted for 14.9 million or 1.0% down 2011. The bulk commodities transported were crude oil and petroleum products, chemical and mineral fertilisers, mineral products (crushed stone, other building materials), and plant products (grain). In this market segment, the key customers of AB Lietuvos Geležinkeliai in 2012 were major Lithuanian factories, crushed stone producers and grain processing companies. 19

In 2012, rail transit freight made up 12.2 million tonnes or 7.8% down 2011.

The majority of transit freight was composed of Russian cargo transported to Kaliningrad, and Belarusian cargo carried via Lithuania (Joniškis) to Latvian ports. The decline was recorded in almost all types of transit freight except for plant products carried mostly from the Kaliningrad Region, and machinery. The most noticeable decrease in transit freight flows was observed in solid mineral fuels (down 37.1%), mineral products (down 33.4%), crude oil and petroleum products (down 5.7%).

In 2012, the transportations of transit freight were uneven (except for Klaipėda direction): in February and April, the growth in transit freight flows was determined by the transportations of Belarusian petroleum products to Latvian ports, while in December slightly more cargo was traditionally transported to Kaliningrad.

Crude oil and petroleum products accounted for 48% of the total transit freight, solid mineral fuels for 14%, ferrous metals for 10%, while other commodities occupied a much smaller share of the market.

In 2012, export freight constituted 5.3 million tonnes, a rise of 2.4% over 2011. Export freight flows were mostly determined by crude oil exports to Ukraine, Latvia and Estonia.

Import freight amounted to 17.0 million tonnes in 2012, a decline of 10.0% from 2011. Even 46% of the total import freight accounted for chemical and mineral fertilisers, while 22% for crude oil and petroleum products.

In 2012, our key partners in the transportations of freight to Klaipėda Port were Belarus and Russia.

Rail freight structure in 2012, %

Domestic 30% 25% Transit

Export

Import

34% 11%

The company successfully implemented the projects for establishing public logistics centres. The technical projects for intermodal terminals at Vilnius and Kaunas public logistics centres had been developed and the procedures for selecting contractors had been started. The aforementioned terminals are scheduled to be built in 2014. In order to attract private investment in Vilnius public logistics centre, a joint venture legal entity of AB Lietuvos Geležinkeliai and Vilnius City Municipality, Vilnius Logistics Park, had started its operations. The project for establishing Klaipėda public logistics centre was also launched in 2012 with an aim to build an intermodal terminal, which will contribute to expeditious intermodal freight traffic from Klaipėda Port as well as increasing its competitive abilities. 20

Passenger Services

In 2012, AB Lietuvos Geležinkeliai passenger trains operated on 52 domestic lines and on 18 international lines: 183 trains on domestic lines and 4 trains (made up by the company) on international lines. A total of 22 trains of the railway undertakings from other countries came to Lithuania or passed the territory of this country in transit.

In 2012, a total of 4.8 million passengers were using the services of the company including:

• 3.8 million passengers on domestic trains; and • 1.0 million passengers on international trains.

The number of passengers carried in 2012 had increased by 3.2%, compared to 2011.

Passenger transportations in 2011–2012, millions of people 4.8 4.7 2011 3.8 3.8 2012

0.9 1.0

Domestic International Total 21

Compared to 2011, passenger revenues had risen by 5.9% in 2012.

89.3 Passenger revenues in 2011–2012, LTL millions 2011 84.4

2012

54.4 50.4

32.8 33.3

1.2 1.6

International Domestic Other Total transportations transportations

Within the framework of the passenger loyalty programme different discounts on tickets were offered and campaigns conducted in 2012: a 20% discount was applied during holidays (Christmas, Easter, St. John’s Day etc.), and a 30% discount on tickets was applied during a campaign targeted at the young people aged 10–26 to travel by train at reduced prices (‘Ei, Jaunime, Nežiopsok – Traukiniais Pigiau Važiuok!’).

Various campaigns were also launched in cooperation with the organisers of different events and discounts on domestic train tickets to the participants of said events were applied during the festivals, Karklė 2012, ‘Kilkim Žaibu 2012’ (Let’s Rocket with the Lightning), ‘Galapagai / Roko Naktys 2011’ (Rock Nights 2011), ‘Sūpynės 2012’ (Swing 2012), ‘Tamsta Muzika 2012’ (Music 2012).

Passenger Transportation

2008 2009 2010 2011 2012

Total number of passengers transported, million people 5.1 4.4 4.4 4.7 4.8

domestic 4.1 3.5 3.5 3.8 3.8

international 1.0 0.9 0.9 0.9 1.0

Passenger turnover, millions of passenger-km 397.5 357.0 373.1 389.1 403.2

domestic 235.3 213.4 225.6 248.5 254.5

international 162.2 143.6 147.5 140.6 148.7

Average passenger journey, km 78.5 81.6 85.5 83.6 84.0

Average number of passenger journeys 2 1 1 1 2 22

Rolling Stock

In 2012, the traction fleet of AB Lietuvos Geležinkeliai consisted of the following:

• 44 freight locomotives Siemens ER20CF; • 17 freight locomotives 2M62, 25 locomotives 2M62K with the internal combustion engine D49, and 29 locomotives 2M62M with the internal combustion engine Caterpillar; • 23 freight locomotives M62 and 16 locomotives M62K with the internal combustion engine D49, of which 2 standard gauge locomotives; • 28 shunting locomotives TEM TMH; • 19 shunting locomotives ČME3, 5 locomotives ČME3M with the internal combustion engine Caterpillar (1450 kW), and 17 locomotives ČME3ME with the internal combustion engine Caterpillar (940 kW); • 15 shunting locomotives TEM2, and one locomotive TGK2.

The locomotives have been allocated to Vilnius or Radviliškis Locomotive Depots with their workshops at Vaidotai, Kaunas, Klaipėda, and Bugeniai. The traction rolling stock has been registered with the Register of Rolling Stock and Containers.

In 2012, a total of 15 new shunting locomotives TEM TMH were purchased from the subsidiary company, UAB Vilniaus Lokomotyvų Remonto Depas; they were manufactured using the main frame and undercarriage of the Russian shunting locomotive TEM18, as well as the power unit and control modules analogous to ČME3M pro- duced by CZ LOKO.

On average 67.5 freight locomotives were operated daily in 2012 (cf. 71.7 locomotives in 2011). The average daily efficiency of freight locomotives was 1,104.0 thousand gross tkm (cf. 1,093.1 thousand gross tkm in 2011). 23

Average daily freight locomotive run (km)

2008 2009 2010 2011 2012

520.3 539.8 559.5 550.8 551.4

Average gross weight of a freight train (t)

2008 2009 2010 2011 2012

2,678 2,712 2,756 2,794 2,833

Performance of freight trains (millions of gross tkm)

2008 2009 2010 2011 2012

27,901 23,211 25,953 28,600 27,265

In 2012, the operating speed fell to 47.2 km/h (cf. 47.5 km/h in 2011). The diesel fuel consumption per 10 thousand gross km made up 21.7 litres (cf. 23.4 litres in 2011). The total diesel fuel consumption amounted to 59.4 million litres in 2012 (cf. 68.3 million litres in 2011).

The freight wagon fleet consisted of 9,112 wagons in 2012, of which:

• 1,663 covered wagons, of which 10 standard gauge wagons; • 226 universal flat wagons; • 1,817 low-sided wagons; • 1,793 tank wagons; • 3,613 other wagons.

Scheduled repairs to wagons are conducted at Radviliškis Freight Wagon Depot which belongs to AB Lietuvos Geležinkeliai.

AB Lietuvos Geležinkeliai focuses its attention on the modernisation of freight wagons. The experience of railway administrations from other countries and knowledge of specialised scientific institutions have been used for this purpose.

The modernisation of freight wagons is being conducted in two ways: (1) purchase of new wagons, and (2) extension of the life cycle to existing wagons. In 2012, a total of 200 flat wagons for carrying containers were acquired, and the life cycle was extended to 1,802 freight wagons.

In 2012, the passenger rolling stock fleet consisted of the following:

• 10 freight locomotives; • 93 passenger cars; • 95 diesel train cars; • 57 electric train cars.

In 2012, the company purchased and put into operation in passenger services two double-deck electric trains EJ 575 manufactured at Škoda Vagonka Plant, the Czech Republic. 24

Infrastructure

The convenient geographical location, well-developed Lithuanian railway network, ice-free Klaipėda Seaport, skilled technical capacities – these are the factors that make a considerable impact on the transport system in this country. The two International Transport Corridors having an especial importance for the whole European transport system cross the territory of Lithuania:

• Corridor I (Helsinki–Tallinn–Riga–Kaunas–Warsaw); • Corridor IXB (Kiev–Minsk–Vilnius–Šiauliai–Klaipėda), and IXD (Kaišiadorys–Kaunas–Kaliningrad).

The total length of Lithuanian railway lines makes up 1,767.6 km, of which 122 km of electrified lines and 391.0 km of double tracks; there are 107 railway stations, 538 level crossings and 417 overpasses and bridges.

AB Lietuvos Geležinkeliai has invested approximately LTL 2.5 billion in the rail infrastructure over the past 15 years.

The main objectives of infrastructure development cover increasing the track capacity, namely, replacing super- structure, strengthening subgrade, improving design parameters, raising speed limits, axle load limits and max- imum weight of freight trains, reducing side slopes, as well as increasing the radii of curvatures on the routes.

The key development projects are as follows:

• Modernisation of the Section Vilnius–Kaunas for Raising the Speed of Passenger Trains up to 160 km/h. Phase I scheduled for 2012–2014 covers the modernisation of section Kaišiadorys–Palemonas, i.e. a section of about 23 km will be reconstructed, namely, the permanent way will be arranged (the drainage system will be installed, side slopes cleaned up, strengthened and increased, the permanent way widened, the route changed), the track works will be conducted (the reconstruction of a double track section will cover the construction of a protective layer for permanent way and the renewal of turnouts at stations), the bridges and overpasses will be refurbished.

• Reconstruction of the Section Kaunas–Kybartai. The works for arranging track areas at Rokai and Jiesia Sta- tions, reconstructing Pilviškiai Bridge and modernising signalling equipment were being further conducted. Also, Phase I of the infrastructure reconstruction and modernisation project on the section Radviliškis–Pagė- giai–State Border on Corridor IA was being further carried out.

• Arrangement of the Traffic Management Centre. The installations of electrical interlocking and automatic track blocking systems at the stations on separate sections will be integrated into one system managed and controlled from one centre. This will allow avoiding the necessity of having train dispatchers at every station, as well as reducing traffic management expenses.

• Electrification of Corridor IX. The project covers the electrification of the section Naujoji Vilnia–Kena–State Border with Belarus. The stations of Naujoji Vilnia, Kyviškės, Kena as well as the lines Naujoji Vilnia–Kyviškės, Kyviškės–Kena, and Kena–State Border with Belarus are planned to be electrified with the traction substation at Naujojoji Vilnia to be reconstructed. The relevant technical project has already been completed.

• Construction of Second Track. A second track on Vilnius bypass Kyviškės–Valčiūnai–Vaidotai was being built. The contracts for construction of second tracks on the sections Kūlupėnai–Kretinga, Pavenčiai–Raudėnai and Dūseikiai–Telšiai on Corridor IXB were signed at the end of 2012. The double track from Vilnius to Klaipėda is scheduled to be constructed and electrified under the EU financial framework for the years 2014–2020.

• Development of Klaipėda Railway Junction. Klaipėda railway junction is an integral part of Corridor IXB, therefore, AB Lietuvos Geležinkeliai carries out an integrated development of the corridor from the border station to Klaipėda railway junction. The main function of the stations at Klaipėda railway junction is to service Klaipė- da Seaport. Klaipėda railway junction contains Klaipėda, Rimkai and Draugystė railway stations, trackside connecting them, and connecting tracks. 25

The objectives of the development of Klaipėda railway junction are to integrate the Lithuanian railway network into the single EU transport network, to increase station capacities at Klaipėda railway junction up to 85 million tonnes, to ensure safe and uninterrupted train traffic, to reduce the number of traffic accidents that contribute to dangerous atmospheric pollution, as well as abating the level of railway noise.

The company had invested LTL 239.6 million in the development of Klaipėda railway junction from 2007 to 2012, and is planning to invest another LTL 400 million.

• Rail Baltica Project. AB Lietuvos Geležinkeliai is the project manager of this EU TEN-T priority project. The main idea behind Rail Baltica is to have a well-developed south–north rail transport axis with modern transport connections linking the Baltic States with Poland and further through Poland with the rest of the EU rail transport network. Rail Baltica will create the possibility for passengers to reach safely and comfortably the Baltic States and Western European countries by the shortest way. Rail Baltica for freight is the first transport development project on the eastern coast of the Baltic Sea; it will support rail freight transportations on the north–south network and will help to attract freight volumes on railways from road transport by developing intermodal freight flows. The design for the reconstruction is to be financed by Lithuanian and TEN-T budgets, whereas construction works are to be financed by Lithuanian and TEN-T budgets as well as the Cohesion Funds. The total value of the project is expected to be LTL 1.9 billion. Rail Baltica has been acknowledged by the Lithuanian government as an important economic project and by the Seimas of the Republic of Lithuania (Lithuanian Parliament) as a state priority project of particular importance. 26

Environmental Protection

The effective use of energy and natural resources as well as the implementation of environmental requirements are among the company’s priorities.

In 2012, the company’s environmental staff were examining the compliance with environmental legislation at its subdivisions; they also investigated the events that had led to ecological consequences, and submitted proposals regarding the technological processes that reduce environmental impact.

Control measurements of the environmental emission were carried out at the stationary air pollution sources and wastewater samples were tested in a laboratory at due intervals; 6 new environmental monitoring programmes were developed. Groundwater monitoring was further conducted at the subdivisions of the company; water quality requirements and monitoring plans were prepared for 13 watering places. The company operated 74 wastewater treatment plants.

Following the environmental protection legislation, the company specialist staff reviewed the available IPPC (Inte- grated Pollution Prevention and Control) permits; some of them were cancelled and some renewed, this resulting in the company’s environmental tax deductions. The amount of taxes paid by the company in 2012 for the pollution from stationary sources had decreased by 25% and that from mobile pollution sources by 13%, compared to 2011.

The company acquired new machinery for performing environmental works, namely a dump truck for transport- ing oil-contaminated soil to the waste management sites, as well as a hard-side truck for carrying hazardous and non-hazardous waste etc. 27

The company operates a laboratory that ensures expeditious performance of the tests on environmental compo- nents such as surface water and groundwater, wastewater, soil, sludge, and ambient air.

In the summer of 2012, the Vilnius petroleum depot was launched; previously it had been one of the oldest company’s fuel depots having raised major concerns for depreciation and ecological situation.

The modernisation of Vilnius fuel base amounted to nearly LTL 9 million of the company funds. During the construction works all aboveground diesel fuel tanks were dismantled, as well as were most buildings, underground tanks for engine oil and lubricant storage, all technological equipment, underground communications, and track. The oil-contaminated soil was also transported to be disposed of.

The upgrade of the company’s traction rolling stock fleet had resulted in a significantly decreased need for fuels, engine oil and lubricants; therefore, the capacities of Vilnius petroleum depot were reduced respectively after its reconstruction. Underground engine oil and lubricant storage facilities with high electricity consumption had been replaced by the supply from smaller storage containers etc. The energy consumption in the new petroleum depot fell by nearly 80%. Currently, the petroleum depot is equipped with 6 underground tanks with double walls, automatic leakage control system and fuel metering and measuring devices. Also, new electricity, automation, petroleum product supply, production, surface drainage and building internal networks were laid in said depot. 28

Traffic Safety

Compared to the previous year, the traffic safety on Lithuanian railways had improved significantly in 2012. The number of railway traffic events owing to the fault of AB Lietuvos Geležinkeliai staff decreased by 15% from 2011. The number of railway traffic events related to the bystanders went down by 20% amounting to 37 in which 29 people perished and 8 were injured (cf. 47 events in 2011 with 29 people perished and 23 injured). AB Lietuvos Geležinkeliai staff did not suffer any injuries or fatalities in 2012.

A total of 9 railway traffic events were recorded at the level crossings in 2012, during which 3 people perished and 2 were injured (cf. 11 traffic events in 2011 involving 2 fatalities and 4 injuries). The aforementioned traffic accidents all occurred owing to the fault of motorists as they ignored the most important rule for safe traffic at the level crossings, i.e. the priority of railway transport against any other transport modes.

The decline in traffic accidents was determined by the availability of additional safety measures, i.e. fencing of more dangerous railway station areas, improved visibility of traction rolling stock (the locomotive shall ride with the three white signals turned on), additional training or simple instruction of train drivers on the issues of traffic safety.

In order to improve railway traffic safety at level crossings, the Action Plan for Ensuring Traffic Safety at Level Crossings and Railway Pedestrian Crossings for 2013–2016 was developed having covered the guidelines for in- stalling and managing level crossings and railway pedestrian crossings, amendments to the railway traffic safety regulations, other measures.

As many as 563 emergency situations were reported in 2012, of which 209 occurred owing to the fault of company staff (cf. 511 emergencies in 2011, of which 170 occurred owing to the fault of company staff). A total of 4 accidents and 2 incidents occurred owing to the fault of staff from other companies, 3 accidents owing to the fault of staff from railway undertakings in other countries, one accident owing to the fault of bystanders, and one owing to other reasons. The main reasons for these emergency situations were inobservance of rules, operational technology requirements as well as job description requirements. Therefore, it is necessary to pay special attention to staff selection and training. 29

International Relations

Lithuanian railway sector falls under the legal and economic framework for cooperation between the European Union and Commonwealth of Independent States; consequently, close relations with both the EU and CIS countries are of extreme importance for the company. The development of relationship on the international transport market contributes to the image of our company as a credible and promising business partner.

A considerable attention in 2012 was devoted to the cooperation with railway undertakings from neighbouring countries; meetings with the general managers and experts of Belarusian, Polish, Russian, Latvian and Ukrainian railway companies were arranged.

Belarusian Railways is the key partner to our company in freight services. Frequent meetings of working parties were taking place in 2012 where the issues related to the opportunities for increasing freight flows to Kaliningrad and Klaipėda, organisation of high-speed passenger train Vilnius–Minsk, and the electrification of the line Molo- decno–Kena–Naujoji Vilnia etc. were discussed.

Close cooperation is maintained with Kaliningrad railway professionals. On 21 June, AB Lietuvos Geležinkeliai participated in the round table discussions on the increase in transit freight volumes held in Kaliningrad (the Russian Federation).

On 29–30 August, the issue of freight transportation by the container train Viking was addressed in a meeting in Kiev (Ukraina). The meeting was attended by Belarusian, Lithuanian and Ukrainian railway administrations and train operators. Representatives from Containerships Ltd Oy, Finland, were also invited to participate in said meeting.

On 6 September, AB Lietuvos Geležinkeliai top management had a meeting with the representatives from the Polish Embassy in Vilnius. The Polish side were interested in the Baltic States market. The increasing trend in the exports of Polish goods to Lithuania and other Baltic States has been recently observed.

On 23–24 October, the negotiations between AB Lietuvos Geležinkeliai and Latvian railway undertaking on organising rail transport were held in Vilnius. During the negotiations the agreements were approved regarding general provisions for railway communication between Lithuania and Latvia, transfer of rolling stock, wagons/containers and the goods transported thereof, as well as the exchange of data etc.

In 2012, AB Lietuvos Geležinkeliai focused special attention on promoting the services provided by the company. Meetings with logistics and forwarding companies from other countries were held, international conferences were organised on the initiative of the company; the company also participated in the international transport and logistics fairs.

In order to strengthen business relationships, AB Lietuvos Geležinkeliai staff had a meeting with the representatives from Russian, Turkish, Chinese, Polish, Finnish businesses and industrial associations. The visits for foreign business partners were organised to UAB VAE Legetecha, UAB Vilniaus Lokomotyvų Remonto Depas (Vilnius Loco- motive Repair Depot), Radviliškis Locomotive Depot, Radviliškis Wagon Depot, Vaidotai and Kena railway stations, other facilities.

On 28 March, during the international conference, The Train Viking: Intermodal Solutions, Development and Pros- pects, held in Istanbul, Turkey, AB Lietuvos Geležinkeliai signed 4 agreements which allowed the extension of the Viking route to Turkey, thus attracting additional freight volumes.

On 12 April, the international conference, Lithuanian and Russian Logistics, Freight Forwarding and Transport Busi- ness Experience and the Possibilities for Cooperation, organised by AB Lietuvos Geležinkeliai was held in Moscow (the Russian Federation). The Lithuanian Ministry of Transport and Communications, the Lithuanian Ministry of the Interior and the Lithuanian Embassy in Moscow contributed to the organisation of the aforementioned conference.

On 8 November, AB Lietuvos Geležinkeliai organised the conference, Lithuanian and Polish Railways: Today’s Re- alities and Future Challenges, which was held in Warsaw (Poland). The main objective of the conference was to ensure the long-term effective and mutually beneficial cooperation between Lithuanian and Polish railway undertakings as well as maintaining the effective railway transport development. 30

On 30 November, the forum, Strengthening the Cooperation between Lithuania and Belarus in the Field of Trans- port and Logistics, organised by the Lithuanian Embassy in Belarus and AB Lietuvos Geležinkeliai was held in Minsk (Belarus).

In June and December, AB Lietuvos Geležinkeliai staff contributed to the organisation of the EWTC (East–West Transport Corridor) Association meetings.

On 24–27 April, AB Lietuvos Geležinkeliai participated in the international transport fair, TransRussia 2012, held in Moscow (the Russian Federation). The fair annually brings together more and more participants from the CIS, Western Europe, Asia, and Baltic countries. On 5–7 June, the company attended the international exhibition for transport, logistics and telematics, Transport Logistic China 2012, while on 18–21 September the company delega- tion visited the international transport fair, InnoTrans 2012, in Berlin (Germany). During the visit, a bilateral meeting with Kazakhstan Railways was organised, during which the Memorandum of Cooperation was signed. On 19–21 September, AB Lietuvos Geležinkeliai also participated in the international exhibition for transport and logistics, TransitKazakhstan 2012. On 28–29 November in Brussels (Belgium), the Rail Baltica Project Directorate managers participated in presenting the project to the members of the European Parliament and European Commission during the international exhibition held on the initiative of the EU Trans-European Transport Network (TEN-T).

AB Lietuvos Geležinkeliai have been actively participating in the activities of the following international organizations: CER (The Community of European Railway and Infrastructure Companies), UIC (International Union of Railways), CIT (International Rail Transport Committee), OTIF (Intergovernmental Organisation for International Carriage by Rail), OSJD (Organisation for Cooperation of Railways), CCTT (International Coordinating Council on Trans-Siberian Transportation), and RTC (Council for Rail Transport of CIS States). Important issues having a strategic impact on the activities of AB Lietuvos Geležinkeliai are being solved in these international organisations.

In 2012, the company maintained further active cooperation with the OSJD. On 16–20 April, the OSJD Conference of General Managers was held in Tallinn (Estonia), while the XL OSJD Ministers Conference Session took place on 5–8 June in Baku (Azerbaijan). In these meetings, the current issues of OSJD activities and their results were discussed as well as guidelines for the coming year defined. The key issues were related to the OSJD reform and improvement of the most important documents. The draft memorandum of mutual understanding and cooperation between the European Commission and OSJD was also approved. In the same year, AB Lietuvos Geležinkeliai also organised several meetings of OSJD working parties. The expert meetings were held on 27–30 March to address the issues related to the improvement of the uniform nomenclature of goods; the meetings of permanent expert group on Coding and Informatics were organised on 19–21 June with the aim to discuss the issue of freight transportations without accom- panying documents; the expert working group meetings of the Committee on Transport Policy and Development Strategy were held on 4–6 September to discuss the issues of railway transport statistics.

In 2012, the company representatives attended the UIC General Assembly meetings held on 8 July in Philadelphia (USA) and on 12 December in Paris (France). The issued related to the UIC organisational activities were being solved at the assemblies. In addition, the company participated in the seven UIC projects related to passenger transportation, electronic passenger ticket, railway signalling, communication and traffic management equipment (ERTMS, GSM-R).

In the meetings of CER, the company’s expert staff were coordinating the Fourth Railway Package of the EU direc- tives. The company’s position on the status of ERA (European Railway Agency) and its impact on the implementation of the uniform EU traffic safety policy was submitted to the CER; the opinion was also expressed on splitting the activities of railway undertakings and changes to the management structure, as well as on the liberalisation of international passenger transport market.

The issues related to the common CIM/SMGS consignment note were further dealt with at the CIT meetings in 2012. The company experts were participating in the adjustment of CIV in view of the smooth implementation of the requirements specified in the European Parliament Regulation on Passenger Rights and Obligations; the ways for harmonising CIV/SMPS were also addressed.

The CCTT unites railway undertakings of Europe and Asia, leading shipping companies, as well as logistics and forwarding companies. Its main objective is to attract transit and foreign trade cargo to the Trans-Siberian route. 31

On 27–28 September 2012 at the CCTT plenary meeting, the company representatives presented the projects of the shuttle trains Viking, Mercury, Saulė, Šeštokai Express, development of logistics terminals in Lithuania, the vi- sion of organising intermodal transportations, as well as establishing new contacts for attracting the freight flows from Kazakhstan and China.

In 2012, the company representatives participated in the 56th RTC meeting held in Moscow (the Russian Fed- eration) and in the 57th meeting held in Ashgabat (Turkmenistan). Representatives from CIS, Bulgarian, Latvian, Estonian and Finnish railway undertakings also attended the above meetings. The concept of the establishment of a single freight wagon fleet, the issues related to the settlement between railway undertakings for international freight and passenger transportations, etc. were addressed at said meetings. In addition, our experts participated in the meetings of RTC committees and working parties. In the same year, the company itself organised and hosted several meetings of RTC working parties on the issues of methodology for operational and statistical accounting in railway transport, on contentious cases regarding the damages for unsafe transportation of cargo, as well as on the 2012/2013 international train scheduling.

In 2012, the company joined the BSR TransGovernance project, a joint project of the Baltic Sea Region countries, namely Sweden, Denmark, Finland, Germany, Poland, Latvia and Lithuania. This project is linked with the mul- ti-level governance models of transport system, incorporation of innovations and information technology in the BSR, cooperation between East and West transport, development of transport and logistics markets. The project was successfully launched and is expected to create added value for the development of transport communications and logistics services between the Baltic States and Eastern markets.

AB Lietuvos Geležinkeliai has established representative offices in Moscow (the Russian Federation) and Beijing (China); the documents for setting up a representative office in Minsk (Belarus) are being approved. It is scheduled to be opened in the spring of 2013. The activities of all representative offices are in line with the long-term strategic objectives of the company covering the representation of the interests of the company, development of commercial relations, promotion of Lithuanian infrastructure technical progress, timely solution of the issues related to freight and passenger transport and railway infrastructure. 32

Information Technology

In 2012, the implementation of the IT projects launched in previous years was further conducted by the company. Major IT projects covered the establishment of data communication network, the design and installation of cargo accounting systems, as well as ensuring information security.

The year 2012 saw further development and modernisation of the company’s data communication trunk network. At that stage, different facilities were networked at stations/cities and local data communication networks were installed in different facilities. As many as 31 facilities were equipped with local data communication networks and computer power supply networks, while the existing such networks were extended in 4 facilities; 16 facilities were connected to the company’s data communication network, the connectivity and speed were increased in 31 facilities, and the outsourcing of communication services was cancelled in 2 facilities.

In 2012, the company further acquired new hardware and software; the information systems designed for computer-aided accounting of the cargo transportation process were developed.

KROVINYS (Cargo; the information system for paperwork and accounting controls of the freight transported on Lithuanian railways): the number of displayed documents on the listed boxes of an external application was extended, the wagon data presentation was rearranged while forming the documents on the system and forwarding them to the customs authorities, the archiving mechanism was changed, and the import of consignment note data from other systems was improved.

OPKIS (operative computer-based information system for haulage): programming of the conventional train length and weight calculations using the data from wagon index and wagon numbering scheme was made, additional features were designed to improve the programming service of information input and correction in order to be able to control the wagons for local loading or those unacceptable for use etc.

STOKIS (a computer-based information system for stations): the terms of reference of this information system was supplemented by the container module, the research of Kirtimai, Dūkštas, Ignalina, Švenčionėliai, Valkininkai, Matuizos, Rūdiškės, Varėna, Turmantas railway stations was conducted, the description of those railway stations, tracks and track areas was made, and regulatory information entered. Technological workplaces were arranged at railway stations. mySAP (finance accounting and business management system): the system was improved in line with the amendments to legislation relating to the financial and tax accounting, the revenue and cost accounting system was configured in accordance with cost accounting schemes etc. presented by company divisions, preparatory work regarding the management of company investment and investment projects in this system was performed.

PVDUAIS (personnel management and payroll accounting information system) was started to be developed in 2012: the detailed schedule for rendering services, project management regulation and description of the technical infrastructure were approved, the functional technical specifications were described (personnel management, occupational safety, training management modules). The template for personnel management modules was deployed in a reference environment and all the technical equipment necessary for this system (servers, data storage, licences) was acquired and installed.

The information system ARIS was implemented in the company for managing business processes. This system will allow graphical representation of the company’s performance, as well as its description and analysis.

Website: the CRM (customer relationship management) project was implemented and the programming of customer database, query management, document management and planning modules was completed. The project is further being developed following the order of the General Manager, i.e. changes are being made and new modules developed. The terminal interface was designed. The terminal project covers the development of software necessary for the information management in remote terminals.

The information system for business management and analytics was also being improved (the system itself was updated, additional licences were obtained, new software acquired etc.). 33

Human Resources

In 2012, the number of employees at AB Lietuvos Geležinkeliai amounted to 10,601 people.

The number of employees in 2008–2012

10,717 10,601 10,506 10,505 10,318

2008 2009 2010 2011 2012

The average monthly salary increased to LTL 2,973 in 2012, a rise of LTL 126 or 4.4% over 2011. The average monthly salary in the company exceeded the average monthly salary in the country by almost 40%.

The labour productivity expressed by revenues from core activities per employee was LTL 162.9 thousand in 2012, up 5.5% over 2011 (cf. LTL 154.4 thousand per employee in 2011). 34

Labour productivity, thousands LTL/employee

162.9 154.4 148.7

132.3

112.6

2008 2009 2010 2011 2012

Considerable attention was paid to staff training and retraining. In 2012, a total of 6,059 employees attended the training courses; namely LTL 1.141 million of company funds was spent on staff training. In cooperation with the Lithuanian Confederation of Industrialists and railway trade unions, the project funded from EU structural funds, Strengthening the Social Dialogue within the Transportation Industry, was started to be implemented by the company. It is expected that about 1,300 employees will participate in the training courses under said project in the field of labour law, social responsibility, social dialogue, innovations etc. In 2012, the study programmes related to railway occupations (train conductor, train tuner, train maker) were revised and updated.

During the 2011/2012 academic year, a total of 485 employees were studying at universities and colleges/universities of applied sciences. Contracts for financing the studies were signed with 14 employees who were studying specialties related to railway transport or to their direct jobs. In the 2012/2013 academic year, as many as 465 employees are studying at universities and colleges/universities of applied sciences. In 2012, the employees with university degree accounted for 19.7% (cf. 18.9% in 2011).

The company maintains close links with the educational institutions training railway professionals; students are being accepted for practical placements, and teacher internships are being organised.

In 2012, a total of 707 students from universities and colleges/universities of applied sciences completed their practical placements at the company. In addition, through the mediation of our company, the students of Vilnius Gediminas Technical University (VGTU) studying railway specialties completed their practical placements in Sochi (the Russian Federation) where the Russian railway undertaking was implementing the training project. In this region preparing for the 2014 Winter Olympic Games, the students were able to gain practical knowledge of railroad and highway construction. Future railway professionals from other Baltic countries, Latvia and Estonia, as well as from neighbouring countries were also participating in this project.

The company was participating as a partner in the EU-funded project which aimed to develop the programme for improving teachers’ technological competences (e.g. traction rolling stock operation and control, freight and passenger transport, other technological competency development programmes). Later vocational teachers and lecturers will be trained under these programmes. 35

Special attention was given to employees’ health care: cooperation agreements were signed with medical institutions; the company partly financed the diagnostic examinations of the staff. Relaxation rooms were equipped at Vilnius, Kaunas, Radviliškis and Klaipėda locomotive depots where train drivers and their assistants were given psychological support after stressful situations (e.g. in the event of an accident). A total of LTL 12.3 million was spent on occupational safety and health care.

Moreover, at the Lithuanian seaside in Giruliai, the staff training, rehabilitation and recreation centre is located where the employees could have leisure time with their family members. A summer camp for the employees’ children operates in Ignalina.

According to the survey conducted by CV Market, AB Lietuvos Geležinkeliai ranked 9th in the research, The Most Attractive Employer in Lithuania 2012. At the beginning of 2012, the company received the award Gausos Žuvis for promoting employee welfare, creating the favourable working environment and investing in employee development. Members of the Lithuanian Railway Youth Organisation are active in organising sporting events and social actions. The members of said organisation also represented the company in the World Lithuanian Youth Summit held in July 2012 where they presented the company and its activities. 36

Major Events in 2012

26 January: the shuttle train Saulė (the Sun) with 45 containers departed from Klaipėda railway station for Almaty in Kazakhstan. The first Saulė train moved from Chongqing city of China on 28 October 2011. Having crossed the territories of Kazakhstan, Russia, Belarus, Lithuania, Poland and Germany the train covered totally 11 thousand kilo- metres before reaching Antwerp, the second major city in Belgium, within 18 days. The realisation of this project is the result of effective mutual several-year cooperation among Lithuanian President’s Office, Lithuanian Ministry of Transport and Communications, Klaipėda Seaport, VPA Logistics, administrations of railway undertakings in Lithuania and other countries.

7 February: during the international conference, Social Market Economy: A Response to the Global Financial and Economic Crisis, held at the Seimas of the Republic of Lithuania (Lithuanian Parliament), AB Lietuvos Geležinkeliai received the award Gausos Žuvis for promoting employee welfare, creating the favourable working environment and investing in employee development.

21 March: AB Lietuvos Geležinkeliai and Intermodal Express, a subsidiary of international logistics company, Hupac Intermodal SA, signed an agreement on freight transportations by the new container train Šeštokai Express from Western Europe to Smolensk (the Russian Federation) and further to other Middle Eastern countries.

23 March: the first container train Mercury departed from Klaipėda railway station for Moscow (the Russian Feder- ation) with consumer goods onboard. Mercury will be able to carry up to 114 conventional containers TEU during one journey. The train is scheduled to leave Klaipėda (in future Kaliningrad as well) for Moscow once per week covering the distance between the two cities within 2 days. 37

28 March: AB Lietuvos Geležinkeliai received the certificate as the Most Attractive Lithuanian Employer 2012. It was the only transport company among top 10 most attractive employers in Lithuania. The certificate was awarded by CV Market, a major Lithuanian job search website. According to CV Market, the survey on employer attractiveness was the largest such survey conducted in Lithuania. It was carried out in January–March 2013; a total of 2,700 companies were mentioned in said survey.

7 June: the International Level Crossing Awareness Day was marked in more than 42 countries in the world. On 4–7 June, AB Lietuvos Geležinkeliai staff in cooperation with Lithuanian traffic police officers were conducting a preventive campaign at dangerous level crossings in Vilnius, Kaunas, Klaipėda, and Šiauliai, during which the motorists and pedestrians were encouraged to follow the traffic rules at level crossing and warned against the possible dangers.

27 June: the new Vilnius petroleum depot was launched; it was one of the company’s oldest petroleum depots out of six (Vaidotai, Radviliškis, Kaunas, Klaipėda, and Bugeniai). Vilnius petroleum depot was selected first to be modernised as it had raised major concerns for depreciation and ecological situation.

7 November: AB Lietuvos Geležinkeliai signed a contract with AB Eurovia Lietuva, Eurovia CS, a.s., and UAB Fima, the tender winners united on the basis of joint activity, on the electrification of the railway line Naujoji Vilnia–Kena.

21 December: Lithuanian Prime Minister Algirdas Butkevičius and Chairman of the Lithuanian Confederation of Industrialists Robertas Dargis congratulated and awarded gold and silver medals to the winners of the nomination Lithuanian Product of the Year. The gold medal in ecology and environmental industry group was awarded to AB Lietuvos Geležinkeliai for the modernised Vilnius petroleum depot. 38

AB Lietuvos geležinkeliai management structure

Ministry of Transport and Communications of the Republic of Lithuania

The Supervisory Council

The Board

HEAD OFFICE

Freight Directorate Rail Baltica Project Directorate

Railway Infrastructure Information Directorate Technology Centre

Passenger Directorate Environmental Centre

REPRESENTATIVE OFFICES Subsidiary Companies IN FOREIGN COUNTRIES 39

independent auditor’s report 40

Balance sheets (LTL)

Group Company As of 31 As of 31 As of 31 As of 31 ASSETS December 2012 December 2011 December 2012 December 2011 A. Non-current assets 4 974 498 490 4 434 799 752 5 024 163 301 4 487 611 582 I. INTANGIBLE ASSETS 16 190 192 15 124 223 15 901 804 14 936 143 II. PROPERTY, PLANT AND EQUIPMENT 4 941 892 327 4 402 498 482 4 883 231 935 4 347 034 729 II.1. Land and buildings 797 425 531 770 776 383 769 466 423 743 217 446 II.2. Structures and machinery 1 784 685 197 1 762 001 550 1 751 559 823 1 734 984 261 II.3. Vehicles 1 320 722 930 1 196 289 188 1 321 661 001 1 196 287 592 II.4. Other equipment and tools 38 370 223 33 514 260 35 960 799 31 961 971 II.5. Other property, plant and equipment 54 854 372 27 378 336 52 110 452 29 921 326 Construction in progress II.6. 945 464 737 611 536 844 952 104 100 609 660 212 and prepayments II.7. Investment property 369 337 1 001 921 369 337 1 001 921 II.7.1. Buildings 369 337 1 001 921 369 337 1 001 921 III. FINANCIAL ASSETS 6 076 846 6 301 781 115 346 522 115 251 560 Investments into subsidiaries III.1. 5 895 406 6 215 303 115 165 082 115 165 082 and associated companies Loans to associated companies, III.2. 110 000 - 110 000 - subsidiaries and other companies III.3. Non-current receivables 71 440 86 478 71 440 86 478 IV. OTHER NON-CURRENT ASSETS 10 339 125 10 875 266 9 683 040 10 389 150 IV.1. Deferred income tax asset 10 339 125 10 875 266 9 683 040 10 389 150 B. Current assets 444 647 770 449 955 144 355 137 691 367 787 298 I. INVENTORIES AND PREPAYMENTS 204 063 669 177 989 236 164 538 412 153 432 905 I.1. Inventories 183 301 185 147 810 174 142 960 312 120 636 602 I.2. Non-current assets held for sale 1 653 087 1 985 955 1 653 087 1 985 955 I.3. Prepayments 19 109 397 28 193 107 19 925 013 30 810 348 II. CURRENT RECEIVABLES 169 658 903 146 568 914 123 073 730 122 473 666 II.1. Trade receivables 126 779 218 101 702 512 80 556 492 79 680 423 Receivables from subsidiaries II.2. 34 799 29 471 452 295 498 834 and associated companies II.3. Other receivables 42 844 886 44 836 931 42 064 943 42 294 409 III. OTHER CURRENT ASSETS 83 749 760 132 6 364 8 178 III.1. Other current assets 83 749 760 132 6 364 8 178 IV. CASH AND CASH EQUIVALENTS 70 841 449 124 636 862 67 519 185 91 872 549 TOTAL ASSETS 5 419 146 260 4 884 754 896 5 379 300 992 4 855 398 880

Balance sheets (CONT’D)

Group Company As of 31 As of 31 As of 31 As of 31 December 2012 December 2011 December 2012 December 2011 C. SHAREHOLDERS EQUITY 2 725 454 928 2 719 020 437 2 718 918 447 2 711 401 333 I. EQUITY 2 515 334 494 2 515 338 830 2 515 334 494 2 515 338 830 I.1. Share capital (subscribed) 2 515 333 000 2 515 336 000 2 515 333 000 2 515 336 000 I.2. Share premium 1 494 2 830 1 494 2 830 II. REVALUATION RESERVE (RESULTS) - - - - III. RESERVES 73 394 620 48 801 453 73 394 620 48 801 453 III.1. Legal reserve 62 113 110 40 520 900 62 113 110 40 520 900 III.2. Other reserves 11 281 510 8 280 553 11 281 510 8 280 553 IV. RETAINED EARNINGS (DEFICIT) 136 725 814 154 880 154 130 189 333 147 261 050 IV.1. Current year’s profit (loss) 129 106 710 150 064 993 130 189 333 147 261 050 IV.2. Previous year’s profit (loss) 7 619 104 4 815 161 - - D. GRANTS AND SUBSIDIES 1 700 604 413 1 319 646 830 1 699 072 780 1 318 325 543 E. LIABILITIES 993 086 919 846 087 629 961 309 765 825 672 004 I. NON-CURRENT LIABILITIES 515 497 781 443 797 443 505 731 430 442 517 088 I.1. Financial borrowings 473 421 288 399 515 017 464 721 288 399 515 017 I.2. Trade payables 20 224 717 26 929 073 20 595 780 26 929 073 I.3. Provisions 21 837 169 17 338 746 20 399 755 16 058 391 Other accounts payable and I.4. 14 607 14 607 14 607 14 607 non-current liabilities II. CURRENT LIABILITIES 477 589 138 402 290 186 455 578 335 383 154 916 Current portion of non-current II.1. 63 942 211 57 370 013 63 942 211 57 370 013 borrowings II.2. Financial borrowings 5 000 000 - - - II.3. Trade payables 238 915 506 167 204 887 190 652 042 127 736 639 Accounts payable to subsidiaries and II.4. 1 311 519 1 535 001 44 876 533 31 055 480 associated company II.5. Prepayments received 15 628 640 15 892 691 15 712 810 15 914 891 II.6. Taxes payable 10 695 161 26 358 611 8 482 405 25 114 988 II.6.1. Income tax liabilities 5 794 633 22 851 550 4 571 051 22 436 497 II.6.2. Other taxes 4 900 528 3 507 061 3 911 354 2 678 491 II.7. Labour-related liabilities 81 300 497 73 631 276 71 838 688 66 053 731 II.8. Provisions 8 401 966 8 377 581 8 328 436 8 328 436 Other accounts payable II.9. 52 393 638 51 920 126 51 745 210 51 580 738 and current liabilities TOTAL EQUITY AND LIABILITIES 5 419 146 260 4 884 754 896 5 379 300 992 4 855 398 880 42

incoMe stateMent (LTL)

Group Company 2012 2011 2012 2011 I. Sales 1 737 018 625 1 591 833 038 1 727 038 130 1 621 699 001 II. Cost of sales (1 420 735 985) (1 249 974 624) (1 425 787 909) (1 293 977 691) III. Gross profit 316 282 640 341 858 414 301 250 221 327 721 310 IV. Operating expenses (176 997 757) (173 607 359) (162 041 838) (162 964 773) V. Profit from operations 139 284 883 168 251 055 139 208 383 164 756 537 VI. Other activities VI.1. Income 30 701 150 28 541 797 30 531 826 28 293 088 VI.2. Expenses (2 751 457) (2 552 846) (3 229 630) (2 429 190) 27 949 693 25 988 951 27 302 196 25 863 898 VII. Financial and investment activities VII.1. Income 7 751 951 11 073 285 8 102 228 11 002 842 VII.2. Expenses (20 814 741) (24 157 324) (20 615 956) (24 022 272) (13 062 790) (13 084 039) (12 513 728) (13 019 430) VIII. Profit from ordinary activities 154 171 786 181 155 967 153 996 851 177 601 005 IX. Extraordinary gain - - - - X. Extraordinary loss - - - - XI. Profit before tax 154 171 786 181 155 967 153 996 851 177 601 005 XII. Income tax (25 065 076) (31 090 974) (23 807 518) (30 339 955) XIII. Net profit 129 106 710 150 064 993 130 189 333 147 261 050 43 AB Lietuvos geležinkeliai Mindaugo str. 12, Vilnius 03603, Lithuania Fax. (8 5) 2692128 [email protected] www.litrail.lt www.litrail.lt