Agreed Approved by decision of the Management Board by decision of the Board of Directors of JSC «NC «KTZ» of JSC «NC «KTZ» on October 27, 2015, №02/30 on November 26, 2015, №11 (Amendments and additions have been made by the Board of Directors of JSC «NC «KTZ» on February 11, 2016, №2) Joint stock company “National Company “Kazakhstan Temir Zholy” Development strategy until 2025 January 2016 Content 1. Introduction ........................................................................................................................................... 3 2. Brief summary ....................................................................................................................................... 4 3. Current situation analysis ................................................................................................................... 5 3.1. Analysis of the external environment ......................................................................................................... 5 3.1.1. Trend overview in freight & passenger transportation ............................................................................ 5 3.1.2. Regulatory framework ............................................................................................................................. 9 3.1.4 PEST analysis ......................................................................................................................................... 11 3.2. Internal environment analysis................................................................................................................... 12 3.2.1 Comparison of operational and financial indicators with peer companies ............................................. 12 4. Mission and vision .............................................................................................................................. 21 5. Strategic initiatives ............................................................................................................................. 22 5.1 STRATEGIC GOALS OF JSC “NC “KTZ” ............................................................................................. 22 To fullfil its mission and vision effectively, JSC «NC «KTZ» intends to systematically work towards the following strategic goals: ................................................................................................................................ 22 5.2 TARGET STRUCTURE OF JSC «NC «KTZ» ........................................................................................ 22 5.3 Blocks of strategic initiatives (BSI) in the rail and 3PL sectors ................................................................ 23 BSI 1 “Development of the sales function in the domestic market” ............................................................... 24 BSI 2 “Increase in own car utilization” ........................................................................................................... 24 BSI 3 “Container transit development” ........................................................................................................... 24 BSI 4 “PASSENGER TRANSPORTATION EFFICIENCY IMPROVEMENT” ......................................... 25 BSI 5 “OPERATIONAL PERFORMANCE IMPROVEMENT” ................................................................... 25 BSI 6 “PMO DEVELOPMENT” .................................................................................................................... 26 BSI 7 “CHANGING THE GOVERNMENTAL REGULATION OF THE RAILWAY INDUSTRY” ........ 27 BSI 8 “CHINA‟S SUPPORT OF TRANSIT VIA KAZAKHSTAN” ............................................................ 27 SUSTAINABILITY OF STRATEGIC INITIATIVES UNDER A STRESS SCENARIO ............................ 27 5.4 STRATEGIC DIRECTIONS FOR DEVELOPMENT types of ACTIVITIES ........................................ 27 5.5 FUNCTIONAL STRATEGIES................................................................................................................. 29 6. Target KPIs .......................................................................................................................................... 32 6.1. TARGET EVA ......................................................................................................................................... 32 2 1. Introduction In his address “The „Kazakhstan-2050 Strategy‟ – the new political course of an accomplished state”, the country‟s president N. A. Nazarbayev set an objective for Kazakhstan to join the world‟s top-30 most developed states by 2050. This implies higher effectiveness and scale of the Samruk-Kazyna Fund and its companies‟ activities. To address this challenge, the Fund has developed a transformation program. One of the program‟s key targets is an essentially higher level of efficiency regarding labor force and tangible/intangible resources used by the Fund and its PCs. Accordingly, the Fund has set out the following strategic KPIs to be achieved by JSC «NC «KTZ»: 1. Economic value added (EVA) 2. Customer satisfaction 3. Corporate governance rating 4. Transportation safety 5. Social stability rating 6. Environmental impact JSC “NC “KTZ” is a major transport and logistics holding of national standing and is one of the Fund‟s assets. In compliance with President Nazarbayev‟s order to establish a national logistics operator with a full range of assets and competencies, based on JSC «NC «KTZ», the following companies have been placed under the company‟s management: the Aktau seaport, Khorgos International Center of Boundary Cooperation, Khorgos – Eastern Gates free economic zone and an airport network. As a national logistics operator, JSC «NC «KTZ» deals with the Kazakhstan-2050 Strategy‟s target of developing transit potential and doubling transit traffic through Kazakhstan by 2020 and increasing it 10-fold by 2050. In addition, to develop the role of the private sector in the Kazakhstan economy, the government initiated a Privatization Program for a wide range of state assets. The Program will make a significant change in the asset portfolio structure of JSC «NC «KTZ» and the industry as a whole. As part of achieving the targets set by the President, the Government and the Shareholder, JSC «NC «KTZ» has designed and is now implementing an operational transformation program. Transformation objectives are being achieved by JSC «NC «KTZ» amid a growing economic downturn and political tensions in other EAEU countries. Given the changing environment and the business expansion of JSC «NC «KTZ», a decision has been made to renew the development strategy. 3 2. Brief summary By 2025, KTZ should become an integrated transport and logistics company, whose objectives shall include, aside shareholder value growth, implementation of the government strategy on transit transport and logistics services. At the same time, the company shall fullfil the goal of increasing EVA up to KZT ~ 117 bn by 2020. The company shall continue to fullfil all of its commitments in providing its customers with quality service. To fullfil its objectives, JSC «NC «KTZ» plans to: ■ Realize the Privatization Program in full; ■ Development of transit potential; ■ Developing a step-by-step investment plan. The plan will be updated regularly with actual container transit growth taken into account; ■ Participation in management of companies with partial ownership (after privatization) through corporate governance mechanisms and measure implementation monitoring to create value at their level. 4 3. Current situation analysis 3.1. ANALYSIS OF THE EXTERNAL ENVIRONMENT 3.1.1. TREND OVERVIEW IN FREIGHT & PASSENGER TRANSPORTATION FREIGHT TRANSPORTATION TRENDS There are four areas [Illustration 1], changes in which affect the share of rail transport in global shipment: 1. Changes in train productivity 2. Technological changes 3. Legislative changes 4. Changes in consignor behavior. Sixteen trends are distributed throughout these areas, 8 of which will have the highest impact on the share of rail transport in the next 10 years. ILLUSTRATION 1 – FREIGHT TRANSPORTATION TRENDS SOURCE: McKinsey Transport and Logistics Practice Color shows the type of impact of trends on the industry (green - positive, yellow – neutral, red – negative). Trends in the field of productivity and efficiency Growing competition on the rail market results in a broader supply of rail services. Using “Big data” allows rail companies to make their services more convenient and predictable, especially in a part of passenger transportation, which also helps to increase share of rail in the total traffic. In turn, high level of competition with auto and requirements to decrease costs leads to reduction of wagon loads in Europe, since they are more cost base, that decrease the share of rail transport in economy. 5 Changes in the field of technology has a fairly high impact on the industry and implies a possible infrastructure expansion, as well as the creation of a developed transport network, which, in general, should have a positive impact on capacity growth, convenient use of services and predictability of their provision. In terms of environmental safety, the impact of technology development on rail transport is expected to be negative, due to the energy efficiency growth of trucks. Changes in consignors‟ behavior will have a positive impact on the industry in terms of cargo containerization and a higher demand for “green logistics” – the former improving convenience for clients and the latter boosting the
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