Letter from the President

President, Chairman of the Executive Board

Dear colleagues, customers, shareholders and partners,

In 2020, FESCO successfully tackled numerous challenges related to the COVID-19 pandemic and the financial shocks that followed. The Group was able to maintain financial stability and even improve most of its key indicators.

At the end of the year, our net debt / EBITDA ratio stood at 2.8x (excluding the IFRS 16 impact).

This came as a result of our consistent efforts since 2016 to improve the quality and quantity of our services in key focus areas. Thanks to this work, FESCO was able to boost its market share in port and terminal services, while the Commercial Port of Vladivostok (VMTP) evolved into Russia’s largest sea port in terms of container handling, reaching its historical maximum for this activity.

VMTP’s share in heavyweight container handling in the Russian Far East increased from 44% to an all-time high of 45%.

The market share of FESCO’s inland terminals in Novosibirsk and Khabarovsk expanded from 21% and 19% to 22% and 27%, respectively.

FESCO ramped up its presence in the intermodal transportation market – among other things, by offering superior service to its more than 10,000 customers. Despite the pandemic-related restrictions, we managed to reduce lead times for containers shipped from the Asia-Pacific region to Moscow to less than 25 days, which is twice as quick as via the Suez Canal.

The Company works continuously to expand its geography. In 2020, we added 45 regular railway services, bringing their number to a total of 50.

FESCO’s operational excellence is supported by our progress in IT, which has been particularly helpful during the pandemic. Ongoing is the expansion of MY.FESCO, a personal account allowing customers to order services and track their cargo online. Last year, 62% of all transportation requests were placed through MY.FESCO. In total, the Company received 95,000 requests in 2020 vs 69,000 a year earlier, with about 20% of our customers using MY.FESCO.

A drive for deeper integration between FESCO business units, as well as the well-coordinated work of our cross-functional teams, helped achieve greater synergies that resulted in a number of records by VMTP.

In 2020, handling volumes reached 11.4 mt, or an all-time high of 672 thousand TEU, the best result in Russia. VMTP handled 1,654 container trains, setting a record for the number of trains handled in a week (41). Daily rail car handling reached 575 units (including 386 unloaded and 189 loaded), with a new all-time high for cars handled in a day (852).

We also pressed on with the expansion of our project logistics portfolio, completing a number of complex deliveries for our customers. FESCO transported extra heavy equipment for the first power unit of the Rooppur Nuclear Power Plant in Bangladesh and the Yerevan Thermal Power Plant in Armenia(the latter was under construction at the time). This was complemented by several challenging missions using the Northern Sea Route.

In 2020, the Company invested over RUB 3 bn in fixed assets, including:

  • RUB 0.8 bn to remodel berths and terminals at VMTP;
  • RUB 1.1 bn to buy or maintain railway assets, with 90% of capital expenditures paid to purchase or carry out major repairs on wheel sets;
  • RUB 0.9 bn to renew the Shipping Division’s assets, including RUB 0.8 bn to buy two bulk carriers.
  • RUB 0.2 bn to boost IT potential for better customer service. In particular, an automated management system was deployed at the Novosibirsk terminal, while FESCO Integrated Transport embraced an electronic workflow, with 70% of customers and 50% of suppliers connected.

We carried on with our strategy to dispose of non-core assets, closing the sale of our grain segment (Trans-Grain and related assets). The strategy helps us focus on the most profitable business areas, maintaining our strong competitive position.

In today’s challenging economic environment, we place even more emphasis on improving the quality of our services, reducing lead times, and streamlining our processes for customers.

We are also well aware of the need to invest in the professional development of our employees. To this end, we provide constant training opportunities to our staff and nurture talent by working with major universities in regions where we operate.

As part of our revised corporate social responsibility strategy, which was adopted last year, we invest heavily in local communities, primarily focusing on our native Primorye Territory. We work to promote the development of civil society and socially-oriented non-profit organisations and encourage our employees to take part in corporate volunteering.

On behalf of the entire FESCO team, I would like to thank our customers, partners, shareholders and investors for being with us, and look forward to many more years of effective cooperation and great achievements.

Arkady Korostelev

President, Chairman of the Executive Board