Letter from the President

Arkady Korosteljov

Dear colleagues, customers, shareholders and partners,

In 2021, FESCO, having successfully adapted to the new realities associated with from the COVID-19 pandemic, improved its financial and operational situation a lot. Not only did we not only show resilience in the face of difficult circumstances, but also acquired unique experience of working under crisis conditions and created a ‘durability reserve’.

As at the end of 2021, our net debt / EBITDA ratio stood at 0.5x (excluding the IFRS 16 impact), dropping from 2.8x as at the end of 2020.

The improvement of our financial indicators was the result of systematic efforts to develop our business, improve service quality and expand the range of services offered across various areas.

In the market of transit transportation from Asia to Europe via the ports of the Russian Far East, the Company’s market share grew from 15% in 2020 to 18% in 2021. In the growing market of transit from Asia to Central Asia, FESCO also expanded its presence, accounting for 17% of the transportation services compared to 15% in 2020.

FESCO ramped up its presence in the intermodal transportation market, in part by offering superior service to its more than 12 thousand customers. The Group’s companies acquired more than 1.8 thousand new customers in the reporting year.

In expanding our international trade service, we have not forgotten the domestic market: the market share of FESCO’s inland terminal in Novosibirsk grew from 23% in 2020 to 28%. Our position in the domestic transportation in the Far East has also improved, with FESCO’s shipping lines already carrying 38% of all container cargo. The domestic cargo handling volumes, including that to Russia’s remote northern territories, grew by 15% in 2021.

The Company keeps expanding its geography all the time. Last year a new service was launched via the port of Lianyungang in China, as well as a range of new Russian domestic transportation services, including connections between Vladivostok and Rostov-on-Don, Moscow and Chita, and St Petersburg and both Irkutsk and Khabarovsk.

FESCO’s market share in port and terminal services continued to grow. An all-time record of 13.3 million tonnes was set in handling volumes at the Commercial Port of Vladivostok, while container handling also grew to a record level of 757 thousand TEU. In 2021, VMTP processed 43% of all container cargo handled in the Russian Far East.

FESCO’s business digitalisation efforts have made a significant contribution to our operational successes. Last year, a digital twin of VMTP was launched, allowing for improvements in process automation and more accurate forecasting of the Port’s operation. We are continuing the expansion of the MY.FESCO service, which our customers use to order services and track their cargo online. 2021 saw 31% more orders made through MY.FESCO as compared to 2020. More than half of FESCO Integrated Transport’s customers make their orders using MY.FESCO.

In 2021, the Company invested RUB 23.9 billion in fixed assets, including:

  • RUB 8.1 billion invested in railway assets, primarily in the expansion of the fitting platform fleet;
  • RUB 5.6 billion invested in developing various liner logistics assets, mainly for the upgrade and expansion of the container equipment stock;
  • RUB 6.2 billion used to upgrade the Shipping Division’s assets;
  • RUB 1.5 billion invested in VMTP, including berth remodelling and equipment renewal;
  • RUB 571 million invested in information technology;
  • over RUB 220 million invested in developing FESCO’s existing terminal network in Novosibirsk and Khabarovsk.

We remained focused on the strategy to help transform FESCO into an intermodal transportation leader. Last year, we added three new vessels to our fleet: FESCO Olga, FESCO Yanina and FESCO Sofia. In line with its assets expansion programme, FESCO increased the number of containers it operates to record high 109 thousand TEU. As part of its port and terminal network development efforts, the Group acquired Gaydamak Port in Vladivostok. Grain handling facilities equipped with elevators will be constructed at the terminal.

The digitalisation of the Company’s services with allow us to further simplify operations for our customers, reduce costs throughout the entire chain, and maintain our competitive position.

Significant resources are directed to the development of our personnel, because it is a highly professional team that ensures FESCO’s successful growth. We keep designing and offering training and professional development programmes for all specialists. The Group’s talent pool is continuously expanded and strengthened through cooperation with universities.

Substantial efforts were taken last year to support sustainable development of local communities, especially in the Primorye Territory, which is the key region of our operation. Long-term partnerships are developed with Russia’s leading institutions in the cultural, educational, and social spheres.

On behalf of the thousands that make up the FESCO community, I would like to thank all of our partners and customers, our shareholders and investors for our productive cooperation, and express hope that we will continue working hand in hand for our common future!

Arkady Korosteljov, President, Chairman of the Executive Board