ANNUAL REPORT 2017 Železničná Spoločnosť Cargo Slovakia, A
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ANNUAL REPORT 2017 Železničná spoločnosť Cargo Slovakia, a. s. CONTENTS 4 FOREWORD BY THE CHAIRMAN OF THE BOARD OF DIRECTORS 6 LIST OF USED ABBREVIATIONS 7 MILESTONES 8 FREIGHT TRANSPORT 9 STRUCTURE OF MPU 9 STRUCTURE OF FREIGHT WAGON FLEET 10 CAPITAL INVESTMENTS OF ZSSK CARGO (ACCOUNTING BALANCE AS AT 31 DECEMBER 2017) 11 INTEGRATED MANAGEMENT SYSTEM 12 HUMAN RESOURCES 14 RISKS 14 EXPECTED FUTURE DEVELOPMENT 14 PARTICULAR INFORMATION FOR THE YEAR 2017 15 SELECTED ECONOMIC INDICATORS (ACCORDING TO THE DATA OF THE CONSOLIDATED FINANCIAL STATEMENT) 17 INDEPENDENT AUDITOR’S REPORT AND SEPARATE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION FOR THE YEAR ENDED 31. DECEMBER 2017 57 INDEPENDENT AUDITOR’S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION OR THE YEAR ENDED 31. DECEMBER 2017 95 ORGANIZATION STRUCTURE 96 CONTACT ZSSK CARGO Annual Report for 2017 3 FOREWORD BY THE CHAIRMAN OF THE BOARD OF DIRECTORS To evaluate the year 2017 at ZSSK CARGO, a few im- portant facts should be stated. In 2017, the company transported 35.665 million tonnes of goods, which represents a one percent increase compared to the plan, and a transport volume which is comparable to that in 2016. The company did not reach the planned transport revenues despite having fulfilled the trans- port volume plan, and the actual amount was only EUR 252.8 million. This was caused by the continued price pressure, where the ambitious increase in unit prices in the plan was not achieved. On the contrary, there was a slight change in the carriage structure in favour of shipments with lower unit prices, and so the average transport distance decreased. A decline in the trans- port revenues was offset by freight wagon operations, higher income from repairs, leases, the operation of siding tracks, and the sale of unnecessary property. Lower volumes of carried goods resulted in a lower consumption of traction diesel and electric power at positively evolving unit prices and, along with lower railway infrastructure charges, largely offset the oth- er kinds of costs which were exceeded. As a result, the company slightly exceeded the planned profit for 2017 and managed to reduce the amount of the in- terest-bearing debt, i.e. bank loans, financial leases, and debts to ŽSR, by EUR 8.1 million on a year-over- year basis. Given a decline in the transport revenues and the situation on the market, this can be seen as a success, although, on the other hand, the investment debt and activities underinvested due to the non-fulfil- ment of the investment plan are growing. Concerning the transport structure itself, it should also be noted that the competitive struggle in the liberalised transport market brings significant year- over-year fluctuations in the ZSSK CARGO volumes of transport of some commodities where the carriage of goods in block trains is predominant. That was the case, for example, of last year’s transit of coal. There- fore, we are pleased that the company succeeded in making new shipments in the commodity of building materials, especially in the export segment. A redirec- tion of goods flows can also be seen in the commodity of timber. Last year container train shipments from 4 ZSSK CARGO Annual Report for 2017 China to Germany and Hungary through Slovakia were Finally, let us take a look at the company’s business launched successfully, which gives us the chance to and tariff policy for 2018. When assessing the cost revive transshipment operations at the Combined factors that affect the company’s business, we have Transport Terminal Dobrá on the eastern border of our found that many of them need to be reflected in the country. freight rates offered. Both Slovakia’s economy and However, let us return to the aforesaid investments, that of the entire Central European region have been which have not been reflecting the need for the re- recovering. Wages have been rising, unemployment newal and development of equipment, technologies, is at an extraordinarily low level, and the shortage of information systems and real estate for several con- qualified labour force in the labour market has been secutive years. In 2017, ZSSK CARGO spent EUR 16.5 growing. This problem worries not only ZSSK CARGO, million on the implementation of investment projects. but in fact all major carriers and involves all operating The largest volume of funds went towards major re- professions, such as engine drivers, coach foremen pairs of motive power units (MPUs), the reconstruction and repairers, etc. As carriers need to renew and re- of electrical equipment and two-unit control of MPUs juvenate their headcounts, they must fight for them of 363-series, MPUs radiofixation, the reconstruction with other firms, which pushes up the wages at the of heating at the Zvolen locomotive depot. In the field same time. Another problematic area on a transna- of energy efficiency, the company implemented a pro- tional scale is the lack of key series of wagons that ject for monitoring, measuring and controlling the con- must be solved by either huge investments or increas- sumption of traction energies, which is its second high- ingly more costly maintenance and repairs of the est cost item. At the transshipment yard in Čierna nad existing obsolete fleet. The wagon fleet needs more Tisou ZSSK CARGO’s subsidiary BTS, in March 2017, frequent repairs and maintenance, but a certain role put into operation the second transshipment complex is also played by irregularities in the goods flows, the with a circular tipper, enabling us to transship iron ore extended wagon circulation time in the performance and other bulk substrates faster, more economically of contracts for the use of trains on their way back and cheaper. All these projects bring real cost savings or damage caused to wagons by loading or unloading and a commercially attractive return on investment. mechanisms. These factors also had to be taken into In 2018, ZSSK CARGO intends to continue with in- account in the pricing process and price adjustments, vestments by which it will respond to new models of and it should be noted that state-owned carriers in the realisation of shipments or the planned changes in the surrounding countries also resort to similar solutions. ŽSR infrastructure. At the same time, the company’s We believe that given the growing economy, a favour- management realises the importance for the basic able financial period is coming for the development means of production, i.e. locomotives and wagons, to of investments that have so far been awaited in the be prepared for gradually penetrating the foreign mar- railway sector. Higher demands, the pressure for en- kets or increasing their productivity. This is how the suring shipments, and the customers’ willingness to company can enhance its competitiveness and make accept the price spell a more vigorous recovery in rail it possible for itself to participate in a wider transport freight. market than the Slovak one. These efforts are also supported by the intention to announce a tender in 2018 for the lease of 10 multi-system locomotives. In addition to investments aimed at enhancing or maintaining its competitiveness, the company con- tinues to focus on projects which are intended to increase the overall efficiency in the use of freight Ing. Martin Vozár, MBA wagons through their active management, as well as Chairman of the Board of Directors and CEO projects aimed at ensuring a more favourable traction Železničná spoločnosť Cargo Slovakia, a. s. electric power price corresponding to the amount of energy withdrawn from the network. The Company also actively seeks to minimise the impact of legisla- tive changes in the Labour Code which will come into effect in May this year, or from the beginning of the following year 2019. At the same time, the manage- ment accepts and wants to fulfil the need to gradually increase the basic wages of employees, in particular the operations staff. ZSSK CARGO Annual Report for 2017 5 LIST OF USED ABBREVIATIONS AVV General Contract of Use for Wagons (GCU) BTS BULK TRANSSHIPMENT SLOVAKIA, a.s. CEF Connecting Europe Facility ČD Czech Railways (České dráhy) CTT Combined Transport Terminal DCM Diesel consumption measurement EU European Union IAS International Accounting Standards IASB International Accounting Standards Board IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards ISO International Organization for Standardization IT Information Technologies MÁV Hungarian State Railways (Magyar Államvasutak) MPU Motive Power Unit MTC Ministry of Transport and Construction of the Slovak Republic OIS Operation Information System PCM Power consumption measurement PGV Regulation on Use of Wagons in International Rail Transport of Goods RIV Agreement Governing the Exchange and Use of Wagons between Railway Undertakings TAF TSI Telematics Applications for Freight TSI Technical specifications for interoperability UTI Intermodal Loading Unit UZ Ukrainian Railways VAT Value Added Tax ZSSK Železničná spoločnosť Slovensko, a.s. ZSSK CARGO Železničná spoločnosť Cargo Slovakia, a.s. ŽSR Železnice Slovenskej republiky 6 ZSSK CARGO Annual Report for 2017 MILESTONES Q Gaining new shipments in the export of building (main switch, circuit breakers and static charger). materials + 650 thousand tonnes, especially to UZ In 2017, the revitalisation of electric power con- and MÁV sumption measurement (PCM) and diesel con- sumption measurement (DCM) was carried out Q The deployment of container trains from China to to re‑establish traction energy measurement on the EU and back (regular lines to Budapest and to/ MPUs, to increase the accuracy of traction power from Duisburg; a testing train to Bratislava) with and diesel consumption planning, as well as to ena- transshipment at the Combined Transport Termi- ble tracking the movement of MPUs outside the ter- nal (CTT) Dobrá, i.e.