STEADY PROGRESS Global Ports Investments PLC Annual Report 2017 GLOBAL PORTS RUSSIA’S LEADING CONTAINER TERMINAL OPERATOR BASED ON THROUGHPUT AND CAPACITY IN THIS REPORT Overview Corporate Governance Parent Company 1-5 28-45 Financial Statements Key Strengths 1 Corporate Governance 30 1-43 About Us 2 Board of Directors 32 Directors’ Report and Parent Company Executive Management 38 Financial Statements 1 Strategic Report Terminal Directors 40 6-27 Risk Management 42 Additional Information Chairman’s Statement 8 1-4 Chief Executive Officer’s Statement 10 Consolidated Directors’ Responsibility Statement 1 Market Overview 12 Financial Statements Definitions 2 Strategy 14 Shareholder Information 1-69 and Key Contacts 4 Business Review 16 Directors’ Report and Consolidated Corporate Social Responsibility 25 Financial Statements 1 OVERVIEW KEY STRENGTHS 7 No.1 marine container terminals container terminal in Russia and Finland 1 operator in Russia 2 Limited CAPEX requirements due to well invested Undisputed industry leader in Russia in terms of throughput terminals and available container capacity. and capacity covering 2 major sea basins. 1.2m 2.7m TEU– consolidated marine tonnes of consolidated container throughput in 2017 marine bulk throughput Handling almost one in three containers A record result for the Group as 2017 share entering and coming in and out of the country. of non-container revenues increased to 23%. HIGHLIGHTS OF THE YEAR 27% USD146m 7% reduction in LTIFR Free Cash Flow generated increase in consolidated by the Group container throughput 22% USD81m USD484m increase in Group’s reduction in Group reduction in Group Net Debt consolidated bulk cargo Net Debt over last five years (2013-2017) throughput Delo Group 3 APM Terminals Ilibrinio Establishment Ltd Free-float (LSE listing) Polozio Enterprises Ltd APM Terminals operates a global terminal network of 22,000 professionals with 74 operating 20.5% port facilities and 117 Inland Services operations in 58 countries around the globe. 30.75% APM Terminals is a part of A.P. Moller-Maersk, the world’s largest integrator of container and ports logistics. Delo Group is one of the largest private transportation and logistics holding companies in Russia. The Group offers a full range of services in the port of Novorossiysk, including Ownership stevedoring, tug boats and vessels bunkering (“DeloPorts”). Delo Group also offers 4 multimodal freight forwarding services using own inland terminals, warehouses, flatcars Structure (“RUSCON”). Delo Group operates two port terminals and five inland terminals and employs a workforce of 2,600 people. Delo Group has made over USD 300 million of investment into the development of 30.75% 9% terminals and port infrastructure since 2004. Currently its stevedore assets offer over 3.5MT of throughput capacity at its KSK grain terminal and over 350,000 TEUs of capacity at its NUTEP container terminal. 9% 1. Eurogate currently has a 20% effective ownership interest in ULCT; Container Finance currently has a 25% effective ownership interest in Finnish ports. 2. Based on 2017 overall container throughput in the Russian Federation ports (Source: ASOP) and public sources on capacity. 3. On 12 April 2018 Delo Group has acceded to the shareholder agreement with APM Terminals B.V. and TIHL has been released from its obligations under such agreement. 4. As of April 2018. ANNUAL REPORT 2017 1 ABOUT US PERFORMANCE FOCUS ON OPERATIONAL EFFICIENCY AND FREE CASH FLOW The recovery in the Russian container market continued through the second half of 2017, and total market recorded volumes grew by 16% for the full year. Growing consumer demand stimulated imports that, when combined with increased containerisation of exports, drove the resulting market growth. Against this backdrop, the Group continued second half of the year. The Group also Performance to implement its strategy of capitalising on delivered a record performance in Consolidated As a result Global Ports generated Revenue the recovery of the container market, Marine Bulk Cargo Throughput, posting a 21.9% of USD 330.5 million, Adjusted EBITDA of USD developing additional revenue streams, year-on-year increase in 2017 to reach an 201.6 million and Free Cash Flow of USD 145.9 improving operational efficiency, maximising all-time high of 2.7 million tonnes. Looking million in 2017. The Group’s Net Debt reduced free cash flow generation and deleveraging. forward, the Group is strategically well by a further USD 81.4 million over the period. positioned to benefit from the continued Global Ports’ Consolidated Marine Container expansion of Russia’s underdeveloped container Throughput volumes grew by 6.8% as a whole market, supported by real wage growth and in 2017, having accelerated by 11.8% in the recovery in consumer sentiment. Consolidated Financial and Operating Data 2017 2016 Change Selected IFRS Financial Information USD million USD million USD million Change % Revenue 330.5 331.5 -1.0 -0.3% Cost of sales and administrative, selling and marketing expenses -191.2 -222.7 31.5 -14.1% Operating profit/(loss) -5.4 -0.5 -4.9 1086.3% Net profit/(loss) -53.0 61.3 -114.2 -186.5% 2017 2016 Change BALANCE SHEET AND CASH FLOW STATEMENT USD million USD million USD million Change % Total assets 1,655.6 1,643.0 12.6 0.8% Cash and cash equivalents 130.4 119.3 11.2 9.4% Net cash from operating activities 173.9 195.8 -21.9 -11.2% CAPEX on cash basis 28.0 18.0 10.0 55.8% 2017 2016 Change SELECTED NON-IFRS FINANCIAL INFORMATION USD million USD million USD million Change % Total operating cash costs 128.9 107.1 21.8 20.3% Adjusted EBITDA 201.6 224.3 -22.7 -10.1% Adjusted EBITDA margin 61.0% 67.7% Net debt 865.9 947.3 -81.4 -8.6% Net debt to Adjusted EBITDA 4.3 4.2 0.1 1.7% Free Cash Flow 145.9 177.8 -31.9 -17.9% 2 GLOBAL PORTS INVESTMENTS PLC OVERVIEW Key Milestones January-December: Generating November: Headquarters December: Delo Group agreed December 2017: FAS new revenue streams relocated to St. Petersburg to become co-controlling Settlement agreed The Group reached an all-time high The Group relocated its Russian shareholder in Global Ports The Moscow Arbitrage Court of 2.7 million tonnes in consolidated HQ to Saint Petersburg, and TIHL entered into an agreement approved the terms of a marine bulk handling (+22% y-o-y) consolidated multiple locations to sell its 30.75% stake in Global settlement agreements between driven by coal handling at VSC and in St. Petersburg into one central Ports to Delo Group, one of the the Russian Federal Antimonopoly bulk cargo handling at PLP. High office building allowing further largest private transportation Service (FAS) and the Group’s and heavy Ro-Ro handling grew centralisation, improvement of and integrated logistics holding VSC, PLP and FCT terminals with by 59%. governance structure and savings companies in Russia, which respect to the antimonopoly laws on rent costs, travelling and other through its subsidiary DeloPorts, findings of FAS in April 2017 in running expenses. provides stevedoring, tugboat and relation to the pricing of bunkering services in the port of stevedoring services in Russian Novorossiysk in the Black Sea Basin, ports. The terms of the alongside operating container and settlement will not have any grain shipment terminals*. material impact on the Group’s financial position or cash flow and will not negatively affect operating activities in any significant way. Global Ports Segment Data RUSSIAN PORTS SEGMENT 2017 2016 Change Change % Gross marine container throughput, 000s TEU 1,372.5 1,283.9 88.6 6.9% Gross container throughput of inland terminals, 000s TEU 287.9 288.9 -1.0 -0.3% Ro-Ro (thousand units) 23.9 15.0 8.9 59.0% Cars (thousand units) 95.4 96.4 -1.0 -1.0% Bulk cargo marine (thousand tonnes) 2,731.2 2,236.0 495.2 22.1% Bulk cargo inland (thousand tonnes) 822.7 658.4 147.5 21.8% Revenue, USDm 360.5 359.7 0.8 0.2% Adjusted EBITDA, USDm 242.0 264.3 -22.4 -8.5% Adjusted EBITDA margin, % 67.1% 73.5% OIL PRODUCTS TERMINAL SEGMENT 2017 2016 Change Change % Oil products gross throughput (million tonnes) 2.1 2.6 -0.5 -17.7% Revenue, USDm 51.4 59.0 -7.6 -12.9% Adjusted EBITDA, USDm 7.6 18.6 -11.0 -59.1% Adjusted EBITDA margin, % 14.9% 31.6% FINNISH PORTS SEGMENT 2017 2016 Change Change % Gross container throughput, 000s 115.6 187.5 -71.9 -38.4% Revenue, USDm 10.9 12.9 -2.0 -15.4% Adjusted EBITDA, USDm 1.8 1.5 0.3 19.4% Adjusted EBITDA margin, % 16.3% 11.6% * Transaction closed on 12 April 2018. ANNUAL REPORT 2017 3 ABOUT US MAP STRONG PRESENCE IN RUSSIA’S KEY CONTAINER GATEWAYS Global Ports is one of the leading container operators in Russia’s two main sea cargo basins. Our efficient, well-invested terminals provide for low CAPEX requirements and high cash flow generation. Baltic Sea St. Petersburg Basin Moscow Cargo from Ekaterinburg the Americas Far East Basin Cargo from the Americas By sea By rail By road By Sea By Rail The Baltic Sea Basin’s container terminals are close to key The Far East Basin is the fastest route for transporting transhipment hubs for Russia’s inbound and outbound containers from Asia to the European part of Russia and containers, such as Hamburg and Rotterdam. The basin has many CIS countries and transit to EU. The shorter transit a strong customer base due to its economic development, time is a key advantage for customers shipping high-value access to Russia’s most populous regions and cost-effective and time-sensitive cargo.