Transportation expenses

In 2018, transportation expenses amounted to RUB 1,469.5 bn, up 6.3% y-o-y.

Payroll expenses amounted to RUB 439.9 bn, up by RUB 14.9 bn (or 3.5%) y-o-y.

• higher expenses dependent on transportation volumes (up by RUB 4.6 bn);
• higher payroll expenses due to company-wide salary indexation by 2.2% as of 1 March 2018, by 0.9% as of 1 October 2018, by 0.3% as of 1 November 2018 and by 0.3% as of 1 December 2018 under Russian Railways’ Collective Bargaining Agreement for 2017-2019 (up by RUB 20.7 bn);
• higher expenses related to the 2018 FIFA World Cup Russia™, initiatives to make salaries and wages more competitive, etc. (up by RUB 5.4 bn).

• optimisation measures taken to improve labour productivity;
• railway track overhauls with used materials being reclassified as capitalised costs;
• lower social payments and contributions to the BLAGOSOSTOYANIE Non-State Pension Fund due to a decrease in the number of eligible employees.

Social expenses amounted to RUB 124.9 bn, up by RUB 5.4 bn (or 4.5%) y-o-y. This was the result of higher payroll expenses subject to social contributions.

Fuel expenses amounted to RUB 110.7 bn, up by RUB 22.3 bn (or 25.3%) y-o-y. This was the result of:

• a 2.9% increase in diesel driven transportation volumes in terms of gross tonne kilometres (up by RUB 2.2 bn);
• a 24.1% surge in diesel fuel prices (including excise duties) (up by RUB 21.6 bn);
• optimisation measures taken to reduce fuel consumption, including optimised use of boiler equipment, company vehicles, etc. (down by RUB 1.5 bn).

Electricity expenses amounted to RUB 166.7 bn, up by RUB 10.5 bn (or 6.7%) y-o-y. This was the result of:

• a 4.5% increase in electric driven transportation volumes in terms of gross tonne kilometres (up by RUB 6.5 bn);
• a 2.1% increase in average electricity tariffs (up by RUB 4.5 bn);
• optimisation measures taken to reduce electricity consumption (down by RUB 0.5 bn).

Other material expenses (materials and other material expenses) amounted to RUB 259.9 bn, up by RUB 7.6 bn (or 3%) y-o-y.

This was the result of:

• higher expenses dependent on transportation volumes (up by RUB 4.4 bn);
• higher expenses driven by rising prices for products consumed by Russian Railways (up by RUB 8.2 bn);
• higher expenses (up by RUB 2 bn) related to rising overhaul volumes, with railway track overhauls with used materials being reclassified as capitalised costs;
• higher expenses related to contracts made with Yakutian Railway starting from 2018 (up by RUB 2.1 bn);
• higher maintenance expenses (up by RUB 1.9 bn) driven by the greater scope of work and indexation;
• higher expenses related to the 2018 FIFA World Cup Russia™ (up by RUB 1.6 bn);
• lower expenses, including due to optimisation initiatives (down by RUB 12.6 bn).

Depreciation amounted to RUB 230.3 bn, up by RUB 10 bn (or 4.5%) y-o-y. This was the result of the commissioning of new fixed assets as part of Russian Railways’ investment programme, the disposal of some inactive non-core assets, the reclassification of railway track overhauls with used materials as capitalised costs, etc.

Other expenses amounted to RUB 137.2 bn, up by RUB 17 bn (or 14.2%) y-o-y. This was largely the result of:

• higher expenses driven by rising prices for products consumed by Russian Railways (up by RUB 2.3 bn);
• higher tax expenses (up by RUB 11.3 bn) due to the property tax rate rising from 1 to 1.3% (on public railway tracks and related facilities) and the cancellation of tax benefits on movable assets put into operation since 2013;
• higher expenses related to transport safety and security in compliance with the Russian laws (up by RUB 4.8 bn);
• lower expenses, including due to optimisation initiatives (down by RUB 1.4 bn).

In 2018, as a result of ongoing cost management and operational excellence initiatives, Russian Railways’ transportation costs increased by a meagre 0.9% (on a comparable basis)Translated into a comparable basis, excluding increase in expenses related to transport safety and security, legislative changes affecting the tax on movable assets (with the tax rate rising by 1.1 pp) and property (with the tax rate rising by 0.3 pp), and expenses related to contracts made with Yakutian Railway., which is far below the average annual inflation of 2.9%.