85,500km. Second-longest rail track in the world accounting for nearly 87% of the country s freight turnover excluding pipelines

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1 STRATEGIC REPORT MARKET REVIEW Russia s rail network at a glance Russia and railways are inseparable; the rail network plays a key strategic role in connecting Russia s economy to world markets and linking parts of the country together. 85,500km Second-longest rail track in the world accounting for nearly 87% of the country s freight turnover excluding pipelines 10,000km Served from east to west SERVING THE ECONOMY OF THE LARGEST COUNTRY IN THE WORLD BY THE SIZE OF TERRITORY W 11 Time zones UTC

2 Overview Strategic Report Governance Financial Statements Additional Information 4,000km 1.1m 2.5tn 1.3bn Served from north to south Number of freight railcars operating at the end of 2017 Overall freight rail turnover in 2017 (tonnes-km) Freight transported in 2017 (tonnes) Key Russia s rail network s key illustrative routes Globaltrans operating subsidiaries, their branches and representative offices E 25

3 STRATEGIC REPORT> MARKET REVIEW CONTINUED Bulk cargoes continue to lead growth Overall Russia s freight rail turnover grew strongly in 2017 recording a 6% year on year increase to reach 2,493.0 billion tonnes-km. The main drivers behind this strong performance were very favourable dynamics in the bulk cargo transportation alongside an increase in overall journey distances on the back of a shift in client logistics. In terms of tonnage, the performance in 2017 was also noteworthy. Overall transportation volumes jumped 3% to 1,266.5 million tonnes. As in, bulk cargoes led the outperformance, with particularly robust performances recorded in the coal and metallurgical cargoes segments, which triggered increased demand for gondola cars, the key operational segment for Globaltrans. Coal was one of the fastest-growing bulk cargo segments in 2017, as rising global thermal coal prices drove exports. Rail shipments of coal (including coke) rose by 9% year on year to million tonnes. Coal represented 29% of Russia s overall rail cargo volumes in favourable global conditions. Rail shipments of iron ore, the other main sub-category, were largely in line with the previous reporting period. The share of metallurgical cargoes in overall freight rail transportation volumes in Russia was 17%. Construction materials (including cement) contributed 13% of Russia s overall freight rail transportation volumes in Rail shipments of construction materials slipped back by 5% year on year to million tonnes after a good performance in. Towards the end of the year these volumes showed signs of recovery. The oil products and oil segment accounted for 19% of the overall freight rail transportation volumes in The demand in this segment stabilised in 2017 at million tonnes. The volumes of the metallurgical cargoes segment (including ferrous metals, scrap metal and ores) increased 1% year on year to million tonnes. Ferrous metals were the best performer with volumes increasing, primarily on the back of +6% Year on year increase in overall Russia s freight rail turnover in

4 Overview Strategic Report Governance Financial Statements Additional Information +3% Year on year increase in overall Russia s transportation volumes in 2017 Russia s freight rail turnover, -17 (billion tonnes-km) Russia s monthly freight rail turnover, -17 (billion tonnes-km) +11% +2% +9% +8% +7% +7% +5% +5% +4% +6% +6% +5% 250 2, % 200 2, , , , Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec 2017 Russia s freight rail transportation volumes, -17 (million tonnes) Breakdown of Russia s freight rail transportation volumes by cargo, , % 1, , , , % 22% 29% Coal (including coke) Oil products and oil Metallurgical cargoes (including ferrous metals, scrap metal and ores) Construction materials (including cement) Other 17% 19% 27

5 STRATEGIC REPORT> MARKET REVIEW CONTINUED 1.1m units Total Russia s railcar fleet at the end of 2017 Russia s freight rail transportation volumes by cargo, -17 (million tonnes) Coal (including coke) Oil products and oil % % Metallurgical cargoes (including ferrous metals, scrap metal and ores) Construction materials (including cement) % %

6 Overview Strategic Report Governance Financial Statements Additional Information Structural shift in railcar market improves supply-demand dynamics At the end of 2017, Russia s fleet of rolling stock comprised 1.1 million units, of which gondola cars accounted for 46% of the total or around 493 thousand units and rail tank cars for 23% or around 251 thousand units. The share of other railcars (including flat and hopper cars) was about 30%. After several years during which the Russian gondola market was in surplus, the market finally came back into balance over the course of A concerted effort to tackle the oversupply situation began in, when rail operators started widespread decommissioning of old rolling stock. That process accelerated over the course of and, as government legislation came into force that made decommissioning mandatory for all types of rolling stock, with a few exceptions, once the end of their useful life was reached. Companies like Globaltrans, that own modern fleets, were not materially impacted by the regulatory changes, as these mostly affected those rail operators whose fleets were comprised of older units. Over and, Russia s overall gondola fleet continued to shrink under the impact of the industry scrappage schemes and minimal railcar replacement production. As a result, there was a total net decrease of about 90 thousand units or 16% compared to the end of. In 2017, the annual gondola production was partially matched by an annual scrappage with the net increase in gondola capacity of about 18 thousand units or 4% absorbed by the growth in the market demand. The rail tank segment of the market, in contrast, continued to operate at surplus capacity while the decline of overall fleet continued in Over the last three years, the rail tank car fleet in Russia fell by about 40 thousand units or 14% compared to the end of on the back of scrappage rates significantly exceeding new production. 46% Share of gondola cars of the Total Russia s railcar fleet at the end of 2017 Total Russia s railcar fleet at year-end, -17 (thousand units) Total Russia s railcar fleet by car type, at end of 2017 (thousand units) 1, % 1,081 31% Gondola cars (493 thousand units) Rail tank cars (251 thousand units) Other railcars (334 thousand units) 1,161 1,245 1,206 46% 23% Source: RZD, Company estimations Source: RZD, Company estimations 29