RZD Capital Public Limited Company Directors' report and audited financial statements For the financial 31 December 2015 Registered number: 459983
RZD Capital Public Limited Company Contents Page(s) Directors and other information 1 Directors' report 2-5 Independent auditor's report 6-7 Statement of comprehensive income 8 Statement of financial position 9 Statement of changes in equity 10 Statement of cash flows 11 Notes to the financial statements 12-25
RZD Capital Public Limited Company Page 1 Directors and other information Directors Rolando Ebuna (PHL) (Appointed: 29 June 2016) Thomas O' Beirne (Irish) (Appointed: 29 June 2016) Eimir McGrath (Irish) (Resigned: 29 June 2016) Deirdre Glynn (Irish) (Resigned: 29 June 2016) Registered Office Pinnacle 2 (Up to 29 June 2016) Eastpoint Business Park Dublin 3 Ireland 2nd Floor (From 29 June 2016) Palmerston House Fenian Street Dublin 2 Ireland Corporate Services Deutsche International Corporate Services (Ireland) Limited (Resigned: 29 June 2016) Provider and Pinnacle 2 Company Secretary Eastpoint Business Park Dublin 3 Ireland Cafico Corporate Services Limited (Appointed: 29 June 2016) Palmerston House Fenian Street Dublin 2 Ireland Cafico Secretaries Limited (Appointed: 29 June 2016) Palmerston House Fenian Street Dublin 2 Ireland Principal Paying Agent Solicitor Auditor Deutsche Bank AG London Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland Ernst & Young Chartered Accountants Harcourt Centre Harcourt Street Dublin 2 Ireland Trustee Deutsche Trustee Company Limited (Resigned: 29 June 2016) Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom Cafico Trust Company Limited (Appointed: 29 June 2016) Palmerston House Fenian Street Dublin 2 Ireland Bankers Deutsche Bank AG London Bank of Ireland Winchester House 2 Burlington Plaza 1 Great Winchester Street Burlington Road London EC2N 2DB Dublin 4 United Kingdom Ireland
RZD Capital Public Limited Company Page 2 Directors' report The directors present the Directors' Report and audited financial statements of RZD Capital Public Limited Company (the Company ), for the financial 31 December 2015. The financial statements have been prepared under International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and in accordance with the provisions of Companies Act 2014. Principal activities, review of business and future development The Company was incorporated on 15 July 2008. The principal activity of the Company is the issuance of debt securities for the purpose of financing loans to Joint-Stock Company Russian Railways, ("Russian Railways" or the "Borrower"), a joint-stock company established under the laws of the Russian Federation. Russian Railways is one of the largest transportation companies in the world. On 22 January 2013, the Company was re-registered as a public limited company as defined in the Companies Act 2014. On 29 March 2010, the Company issued an aggregate principal amount of US$1,500,000,000 5.739 percent Loan Participation Notes due 2017 with limited recourse to the Company for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Irish Stock Exchange. On 23 March 2011, the Company issued an aggregate principal amount of 350,000,000 7.487 percent Loan Participation Notes due 2031. On 20 June 2011, the Company issued a further 300,000,000 7.487 percent Loan Participation Notes due 2031 which were consolidated and form a single series with the 350,000,000 7.487 percent Loan Participation Notes due 2031. These Loan Participation Notes were issued on a limited recourse basis for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Irish Stock Exchange. On 2 April 2012, the Company issued an aggregate principal amount of RUR25,000,000,000 8.30 percent Loan Participation Notes due 2019. On 17 October 2012, the Company issued a further RUR12,500,000,000 8.30 percent Loan Participation Notes due 2019 which were consolidated and form a single series with the RUR25,000,000,000 8.30 per cent Loan Participation Notes due 2019. These Loan Participation Notes were issued on a limited recourse basis for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Irish Stock Exchange. On 5 April 2012, the Company issued an aggregate principal amount of US$1,000,000,000 5.70 percent Loan Participation Notes due 2022. On 16 October 2012, the Company issued a further US$400,000,000 5.70 per cent Loan Participation Notes due 2022 which were consolidated and form a single series with the US$1,000,000,000 5.70 per cent Loan Participation Notes due 2022. These Loan Participation Notes were issued on a limited recourse basis for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Irish Stock Exchange. On 26 February 2013, the Company issued CHF525,000,000 2.177 percent Loan Participation Notes due 2018 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Swiss Stock Exchange. On 26 February 2013, the Company issued CHF150,000,000 2.730 percent Loan Participation Notes due 2021 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Swiss Stock Exchange. On 18 April 2013, the Company issued 1,000,000,000 3.374 percent Loan Participation Notes due 2021 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Irish Stock Exchange. On 6 March 2014, the Company issued 500,000,000 4.60 percent Loan Participation Notes due 2023 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. These Loan Participating Notes are listed on Irish Stock Exchange. The Borrower of the loans and receivables is a reputable company and is one of the largest transportation companies in the world. Their operations are primarily located in the Russian Federation and consequently, the Borrower is exposed to the economic and financial conditions of the Russian Federation as well as the economic fluctuations on international markets. In 2014, certain sectoral sanctions against Russia were imposed by several countries. The sanctions continue to be in effect in 2015. While the Borrower is not directly subjected to sanctions, the sanctions along with a drop in crude oil prices and a significant devaluation of the Russian Rouble continue to have adverse effect on the Russian economy. The Borrower has been rated BBB- by Fitch as at 31 December 2015 (2014: BBB-). While the directors believe that the Borrower is taking appropriate measures to support the sustainability of its operations under the current circumstances, expected further deterioration in the areas described above could negatively affect the Borrower s results and financial position in a manner not currently determinable.
RZD Capital Public Limited Company Page 3 Directors' report (continued) Results and dividends The results for the financial year are set out on page 8. The comparative figures are for the financial 31 December 2014. The directors do not recommend the payment of a dividend in respect of the financial 31 December 2015 (2014: US$nil). Directors The names of the directors who were in office at any time during the financial year are set out below: Rolando Ebuna (PHL) (Appointed: 29 June 2016) Thomas O' Beirne (Irish) (Appointed: 29 June 2016) Eimir McGrath (Irish) (Resigned: 29 June 2016) Deirdre Glynn (Irish) (Resigned: 29 June 2016) Directors, secretary and their interests The directors and company secretary who held office on 31 December 2015 had no direct or beneficial interest in shares, shares options, deferred shares and debentures of the Company, at 31 December 2015 and/or at 1 January 2015, or at the date of appointment if later, requiring disclosure in the Directors' Report pursuant to section 329 of the Companies Act 2014. Secretary On 29 June 2016, Deutsche International Corporate Services (Ireland) Limited resigned and Cafico Secretaries Limited was appointed as the company secretary of the Company. From 29 July 2016 the registered office of the Company is 2nd Floor, Palmerston House, Fenian Street, Dublin 2, Ireland. Going concern The Borrower's operations are primarily located in the Russian Federation. Consequently, the Company is exposed to the economic and financial markets of the Russian Federation which display characteristics of a developing market. The legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. The political and economic instability witnessed in Ukraine has had and may continue to have a negative impact on the Russian economy. Certain sanctions were implemented by EU and the United States of America against Russian officials and businessmen. So far, these events have not had a significant impact on the Company s operations and financial position. However, the impact of future instability in Ukraine, should it continue, and/or additional sanctions against Russia, if they were to be implemented against the Borrower, is at this stage difficult to determine. These financial statements reflect management s assessment of the impact of the Russian business environment on the operations and the financial position of the Company. The future business environment may differ from the Company s assessment. The Directors anticipate that the financial assets will continue to generate enough cash flows on an ongoing basis to meet the Company s liabilities as they fall due. Principal risks and uncertainties The main risks arising from the Company s financial instruments are credit risk and foreign exchange risk. The Company s exposure to risks and its objectives, policies and processes for measuring and managing risk are outlined in Note 19 of the financial statements. Accounting records The measures taken by the board of directors of the Company (the "Board") to secure compliance with the Company s obligations, under Section 281 to 285 of the Companies Act 2014, to keep adequate accounting records are the use of appropriate systems and procedures and ensuring that competent persons are responsible for the accounting records. The Company appointed the Corporate Services Provider to maintain the accounting records of the Company independently. The accounting records are kept at 2nd Floor, Palmerston House, Fenian Street, Dublin 2. Subsequent events On 19 February 2016, the Company entered into a funding agreement with Russian Railways for the repurchase of 1,000,000,000 3.3744 percent Loan Participation Notes due 2021. On 4 March 2016, 92,178,557 principal amount of the 1,000,000,000 Loan Participation Notes due 2021 were repurchased and cancelled by the Company and the accrued interest of 2,625,424 on such principal amount were also paid. A corresponding amount of the loan of Russian Railways together with accrued interest is also deemed repaid. On 29 June 2016, Eimir McGrath and Deirdre Glynn resigned and Rolando Ebuna and Thomas O' Beirne were appointed as the directors of the Company. Deutsche International Corporate Services (Ireland) Limited resigned and Cafico Secretaries Limited was appointed as the company secretary of the Company. Deutsche Trust Company resigned and Cafico Trust Company Limited were appointed as the Share Trustee of the Company. From 29 June 2016 the registered office of the Company is 2nd Floor, Palmerston House, Fenian Street, Dublin 2, Ireland. There have been no other subsequent events that require disclosures in these financial statements up to the date of signing this report.
RZD Capital Public Limited Company Page 4 Directors' report (continued) Annual corporate governance statement The Board is responsible for establishing and maintaining adequate internal control and risk management systems for the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company s financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reporting process. These include appointing the Corporate Services Provider to maintain the accounting records of the Company independently. The Corporate Services Provider is contractually obliged to maintain adequate accounting records as required pursuant to a corporate services agreement entered into between the Company and the Corporate Services Provider. The Corporate Services Provider is also contractually obliged to prepare for review and approval by the Board the annual report, including financial statements, intended to give a true and fair view. The Board evaluates and discusses significant accounting and reporting issues as the need arises. From time to time, the Board also examines and evaluates the Corporate Services Provider s financial accounting and reporting routines. The Corporate Services Provider has operating responsibility for internal control in relation to the financial reporting process. The Company s policies, and the Board s instructions, with relevance for financial reporting are updated and communicated via appropriate channels, such as e-mail, correspondence and meetings, to ensure that all financial reporting information requirements are met in a complete and accurate manner. The Board has an annual process to ensure that appropriate measures are taken to consider and address the shortcomings identified and measures recommended by the independent auditors. Given the contractual obligations on the Corporate Services Provider, the Board has concluded that there is currently no need for the Company to have a separate internal audit function in order for the Board to perform effective monitoring and oversight of the internal control and risk management systems of the Company in relation to the financial reporting process. Capital structure Other than the share trustees, no person has a significant direct or indirect holding of equity securities in the Company. No person has any special rights of control over the Company s share capital. There are no restrictions on voting rights. With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association. The Articles of Association themselves may be amended by special resolution of the shareholders. Powers of directors The Board is responsible for managing the business affairs of the Company in accordance with the Articles of Association, which allow it to enter into contracts and perform all tasks necessary to conduct the business of the Company. The Board may delegate certain functions to the Corporate Services Provider and other parties, subject to supervision and direction by the Board. Audit committee Statutory audits in Ireland are regulated by the European Communities (Statutory Audits) Regulations (Directive 2006/43/EC), 2010 (S.I. 220 of 2010). According to the regulations, if the sole business an Irish special purpose vehicle (an "SPV") relates to the issuing of asset backed securities, such SPV is exempt from the requirement to establish an audit committee (under Regulation 91(9)(d) of the Regulations). The Company has availed of this exemption and has not established an audit committee. Independent auditors Ernst & Young, Chartered Accountants, has expressed its willingness to continue in office in accordance with Section 383(2) of the Companies Act 2014. Rolando Ebuna Director Thomas O' Beirne Director Date: 5 September 2016
RZD Capital Public Limited Company Page 5 Directors' Responsibilities Statement The Board is responsible for preparing this Directors' Report and financial statements in accordance with applicable Irish law and those International Financial Reporting Standards ( IFRS ) as adopted by the European Union and as applied in accordance with the Companies Act, 2014. The Board is required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of its profit or loss for that financial year. In preparing those financial statements, the Board are required to: select suitable accounting policies and then apply them consistently; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; make judgements and estimates that are responsible and prudent; and state that the Company has complied with IFRS as adopted by the EU and in accordance with the Companies Act 2014. The Board is responsible for keeping proper books of accounts which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements are prepared in accordance with the Companies Act 2014. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for prevention and detection of fraud and other irregularities. The books of account are kept at the Company s registered office at 2nd Floor, Palmerston House, Fenian Street, Dublin 2. The Board is also responsible for preparing a Directors Report and Annual Corporate Governance Statement that complies with the requirements of the Companies Act, 2014. The Board confirms that to the best of its knowledge and belief: it has complied with the above requirements in preparing the financial statements; the financial statements, prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the Companies Act 2014, give a true and fair view of the state of the assets, liabilities, financial position and of its profit of the Company for the financial year then ended; and the Directors Report includes a fair view of the development and performance of the business of the Company, together with a description of the principal risks and uncertainties that it faces. Signed on behalf of the Board of Directors by: Rolando Ebuna Director Thomas O' Beirne Director Date: 5 September 2016
INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF RZD CAPITAL PUBLIC LIMITED COMPANY We have audited the financial statements of RZD Capital Public Limited Company for the 31 December 2015 which comprise the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows and the related notes 1 to 23. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2014. This report is made solely to the company's members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors Responsibilities Statement set out on page 5, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014. Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the assets, liabilities and financial position of the company as at 31 December 2015 and of its profit for the year then ended; the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2014; and the financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014. Continued /...
INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF RZD CAPITAL PUBLIC LIMITED COMPANY (Continued) Matters on which we are required to report by the Companies Act 2014 We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion the accounting records of the company were sufficient to permit the financial statements to be readily and properly audited. The company statement of financial position is in agreement with the accounting records. In our opinion the information given in the directors report is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of sections 305 to 312 of the Companies Act 2014 which require us to report to you if, in our opinion, the disclosures of directors remuneration and transactions specified by law are not made. Martina Keane for and on behalf of Ernst & Young Chartered Accountants and Statutory Audit Firm Dublin 6 September 2016
RZD Capital Public Limited Company Page 8 Statement of comprehensive income For the financial 31 December 2015 Financial Financial Note 31 Dec 2015 31 Dec 2014 Interest and similar income 5 357,670,247 396,013,969 Interest and similar charges 6 (357,691,636) (395,522,538) Other income 7 162,087 319,934 Gross profit 140,698 811,365 Operating expenses 8 (129,320) (300,829) Foreign exchange loss 9 (4,119) (502,907) (133,439) (803,736) Profit on ordinary activities before taxation 7,259 7,629 Taxation 10 (1,815) (1,907) Profit for the financial year 5,444 5,722 Other comprehensive income - - Total comprehensive income for the financial year 5,444 5,722 All items dealt with in arriving at the profit for the financial 31 December 2015 related to continuing operations. The accompanying notes on pages 12 to 25 form an integral part of these financial statements
RZD Capital Public Limited Company Page 9 Statement of financial position As at 31 December 2015 Note 31 Dec 2015 31 Dec 2014 Assets Cash and cash equivalents 11 6,077,021 6,105,391 Interest and other receivables 12 127,617,596 135,859,095 Loans and receivables 13 6,710,908,820 7,063,506,294 Total assets 6,844,603,437 7,205,470,780 Liabilities and equity Liabilities Interest and other payables 14 133,499,161 141,795,863 Debt securities issued 15 6,711,027,705 7,063,603,790 Total liabilities 6,844,526,866 7,205,399,653 Equity Share capital 16 53,597 53,597 Retained earnings 22,974 17,530 Total equity 76,571 71,127 Total liabilities and equity 6,844,603,437 7,205,470,780 On behalf of the Board The financial statements were approved by the Board of Directors and authorised for issue on 5 September 2016. Rolando Ebuna Director Thomas O' Beirne Director The accompanying notes on pages 12 to 25 form an integral part of these financial statements
RZD Capital Public Limited Company Page 10 Statement of changes in equity For the financial 31 December 2015 Retained Total Share capital earnings equity US $ Balance as at 1 January 2014 53,597 11,808 65,405 Total comprehensive income for the financial year - 5,722 5,722 Balance as at 31 December 2014 53,597 17,530 71,127 Total comprehensive income for the financial year - 5,444 5,444 Balance as at 31 December 2015 53,597 22,974 76,571 The accompanying notes on pages 12 to 25 form an integral part of these financial statements
RZD Capital Public Limited Company Page 11 Statement of cash flows For the financial 31 December 2015 Financial Financial 31 Dec 2015 31 Dec 2014 Cash flows from operating activities Profit on ordinary activities before taxation 7,259 7,629 Adjustments for: Foreign exchange loss 4,119 502,907 Interest and similar income (357,670,247) (396,013,969) Interest and similar charges 357,691,636 395,522,538 Total 32,767 19,105 Net changes in operating assets and liabilities Increase in other receivables (11,986) (217,772) Decrease in other payables (43,217) (1,628,459) Loans and receivables - (691,333,000) Interest paid (369,247,218) (392,704,280) Interest received 369,247,218 393,204,073 Tax paid (1,815) (1,907) Net cash used in operating activities (24,251) (692,662,240) Cash flows from financing activities Proceeds from issuance of debt securities - 691,333,000 Net cash generated from financing activities - 691,333,000 Net decrease in cash and cash equivalents (24,251) (1,329,240) Cash and cash equivalents at beginning of the financial year 6,105,391 7,937,538 Effect of foreign exchange translation on cash and cash equivalents (4,119) (502,907) Cash and cash equivalents at end of the financial year 6,077,021 6,105,391 The accompanying notes on pages 12 to 25 form an integral part of these financial statements
RZD Capital Public Limited Company Page 12 Notes to the financial statements For the financial 31 December 2015 1. Corporate information RZD Capital Public Limited Company (the "Company") is a special purpose company incorporated under the laws of Ireland with limited liability on 15 July 2008 with registered number 459983. The principal activity of the Company is the issuance of debt securities for the purpose of financing loans to Russian Joint-Stock Company Railways ("Russian Railways" or the "Borrower"), a joint-stock company established under the laws of the Russian Federation. The Company was re-registered as a public limited company on 22 January 2013 as defined in the Companies Act 2014. On 29 March 2010, the Company issued an aggregate principal amount of US$1,500,000,000 5.739 percent Loan Participation Notes due 2017 with limited recourse to the Company for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. On 23 March 2011, the Company issued an aggregate principal amount of 350,000,000 7.487 percent Loan Participation Notes due 2031. On 20 June 2011, the Company issued a further 300,000,000 7.487 percent Loan Participation Notes due 2031 which were consolidated and form a single series with the 350,000,000 7.487 per cent Loan Participation Notes due 2031. These Loan Participation Notes were issued on a limited recourse basis for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. On 2 April 2012, the Company issued an aggregate principal amount of RUR25,000,000,000 8.30 percent Loan Participation Notes due 2019. On 17 October 2012, the Company issued a further RUR12,500,000,000 8.30 per cent Loan Participation Notes due 2019 which were consolidates and form a single series with the RUR25,000,000,000 8.30 per cent Loan Participation Notes due 2019. These Loan Participation Notes were issued on a limited recourse basis for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways On 5 April 2012, the Company issued an aggregate principal amount of US$1,000,000,000 5.70 percent Loan Participation Notes due 2022. On 16 October 2012, the Company issued a further US$400,000,000 5.70 per cent Loan Participation Notes due 2022 which were consolidated and form a single series with the US$1,000,000,000 5.70 per cent Loan Participation Notes due 2022. These Loan Participation Notes were issued on a limited recourse basis for the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways On 26 February 2013, the Company issued CHF525,000,000 2.177 percent Loan Participation Notes due 2018 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. On 26 February 2013, the Company issued CHF150,000,000 2.730 percent Loan Participation Notes due 2021 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. On 18 April 2013, the Company issued 1,000,000,000 3.374 percent Loan Participation Notes due 2021 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. On 6 March 2014, the Company issued 500,000,000 4.60 percent Loan Participation Notes due 2023 with limited recourse to the Company with the sole purpose of financing a loan to Russian Railways under the terms of a loan agreement between the Company and Russian Railways. The Loan Participation Notes issued by the Company (altogether, the "Notes") are listed on the Irish Stock Exchange and/or the Swiss Stock Exchange. These financial statements represent the financial performance and position of the Company as an individual entity for the financial 31 December 2015. The Company had no employees during the year (2014: none). Re-registration of the Company to a Public Limited Company On 22 January 2013, the Company was re-registered as a public limited company as defined in the Companies Act 2006 (as amended by the Companies Act 2014). The authorised share capital of the Company was increased from 100 to 40,000 by the creation of an additional 39,900 Ordinary Shares of 1 each.
RZD Capital Public Limited Company Page 13 Notes to the financial statements (continued) For the financial 31 December 2015 2. Basis of preparation (a) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) as adopted by the European Union ( EU ) and in accordance with the provisions of the Companies Act 2014, applicable to companies reporting under IFRS. The significant accounting policies set out in Note 3 have been consistently applied in preparing the financial statements for the financial 31 December 2015, the comparative information presented in these financial statements are for the financial 31 December 2014. These financial statements have been prepared under the going concern basis. (b) Basis of measurement The financial statements have been prepared under the historical cost convention except for the loans and receivables and debt securities issued which are measured at amortised cost. The significant accounting policies are set out in Note 3. (c) New standards, amendments or interpretations New and amended standards adopted by the Company There were no new standards adopted by the Company for the first time in the financial 31 December 2015. New standards and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2015 and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the Company except the following set out below: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in July 2014 and is effective for financial periods beginning on or after 1 January 2018, subject to EU endorsement. IFRS 9 replaces IAS 39 in its entirety. This final version of IFRS 9 includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit loss model that replaces the incurred loss impairment model used today. IFRS 9 has three classification categories for debt instruments: amortised cost, fair value through other comprehensive income and fair value through profit or loss. Classification under IFRS 9 for debt instruments is driven by the entity's business model for managing the financial assets and whether the contractual cash flow represents solely payments of principal and interest. An entity's business model is how an entity manages its financial assets in order to generate cash flows and create value for the entity. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually use for risk management purposes. The Company is yet to assess IFRS 9 s full impact and intends to adopt IFRS 9 when it becomes mandatorily applicable. Amendments to IAS 1, Presentation of financial statements (effective for financial periods beginning on or after 1 January 2016). The amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The Company is yet to assess IAS 1's full impact and intends to adopt IAS 1 when it becomes mandatorily applicable. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company. The Company has not adopted any other new standards or interpretations that are not mandatory. Other than as indicated above, the directors anticipate that the adoption of those standards or interpretations will have no material impact on the financial statements of the Company in the financial period of initial application. (d) Functional and presentation currency These financial statements are presented in United States dollar ("US$") which is the Company s functional currency. Functional currency is the currency of the primary economic environment in which the entity operates. The issued share capital of the Company is denominated in Euro and the debt securities issued are denominated in United States dollar, Euro, British pounds, Swiss franc and Russian rouble. The directors of the Company believe that the United States dollar most accurately represents the economic effects of the underlying transactions, events and conditions. (e) Use of estimates and judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements of the carrying value of the assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the financial period in which the estimate is revised and in any financial future periods affected.
RZD Capital Public Limited Company Page 14 Notes to the financial statements (continued) For the financial 31 December 2015 2. Basis of preparation (continued) (e) Use of estimates and judgements (continued) The Company reviews its loans and receivables at each reporting date to assess whether an allowance for impairment losses should be recognised in the Statement of Comprehensive Income. This assessment is based on historical cash flow strength and projected growth assessment of the counterparty and actual results may differ causing future changes to the allowance. No impairment of assets has occurred during the financial year (2014: US$nil). Details of the Company s loans and receivables are disclosed in Note 13. (f) Russian economic environment The Borrower's operations are primarily located in the Russian Federation. Consequently, the Company is exposed to the economic and financial markets of the Russian Federation which display characteristics of a developing market. The legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. The political and economic instability witnessed in Ukraine has had and may continue to have a negative impact on the Russian economy. Certain sanctions were implemented by EU and the United States of America against Russian officials and businessmen. So far, these events have not had a significant impact on the Company s operations and financial position. However the impact of future instability in Ukraine, should it continue, and/or additional sanctions against Russia, if they were to be implemented against the Borrower, is at this stage difficult to determine. These financial statements reflect management s assessment of the impact of the Russian business environment on the operations and the financial position of the Company. The future business environment may differ from management s assessment. 3. Significant accounting policies (a) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and revenue can be reliably measured. Interest income are recognised in the Statement of Comprehensive Income for all instruments measured at amortised cost using the effective interest method. This is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income over the relevant financial period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate a shorter period to the net carrying amount of the financial asset or liability. Interest income include amortisation of any discount or premium, transaction costs or other differences between the initial carrying amount of an interest bearing instrument and the amount at maturity calculated at effective interest rate basis. Fees and commissions which represent a return for services provided or risk borne are credited to income over the financial period during which the service is performed or the risk is borne as appropriate. (b) Taxation Current tax The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the financial period as calculated in accordance with Irish Tax Laws. Taxable profit differs from profit before tax as reported in the statement of comprehensive income because it excludes items of income or expense that are not taxable or deductible. The Company's liability for current tax is calculated using the tax rate that has been enacted or substantively enacted by the reporting date. The Company is subject to Irish corporation tax on profit at the rate of 25%. Deferred tax Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the financial year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
RZD Capital Public Limited Company Page 15 Notes to the financial statements (continued) For the financial 31 December 2015 3. Significant accounting policies (continued) (c) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Company in the management of its short term commitments. (d) Foreign currency transaction Transactions in foreign currencies are translated to the functional currency of the Company at the rates of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates of exchange ruling at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the financial period, adjusted for effective interest and payments during the financial period, and amortised cost in foreign currency translated at the exchange rate at the end of the financial period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the statement of comprehensive income. (e) Financial instruments The main financial instruments held by the Company include the following: - Loans to Russian Railways; and - Loan Participation Notes issued. Classification The Company s financial assets have been recognised as Loans and Receivables which have fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in the Statement of Comprehensive Income when the investments are impaired as well as through the amortisation process. Interest income is recognised, by applying the effective interest rate, on all receivables whether short-term or long-term as long as the receivables are interest bearing. Financial liabilities are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Financial liabilities are subsequently stated at amortised cost, any difference between the proceeds, net of transaction costs, and the redemption value is recognised in the Statement of Comprehensive Income using the effective interest method. Recognition The Company initially recognises all financial assets and liabilities on the trade date at which the Company becomes a party to the contractual provisions of the instruments. Purchases and sales of financial assets and financial liabilities are recognised using trade date accounting. Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expired. Offsetting Financial assets and liabilities are set off and the net amount presented in the Statement of Financial Position when, and only when, the Company has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards or for gains and losses arising from a group of similar transactions. Impairment of financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Company, economic conditions that correlate with defaults, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. The Company assesses at each reporting date whether a financial asset or group of financial assets is impaired.
RZD Capital Public Limited Company Page 16 Notes to the financial statements (continued) For the financial 31 December 2015 3. Significant accounting policies (continued) (e) Financial instruments (continued) Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced, with the amount of the loss recognised in the Statement of Comprehensive Income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the Statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (f) Trade and other receivables Trade and other receivables do not carry any interest and are short term in nature and are accordingly stated at their nominal values as reduced by appropriate allowances for estimated irrecoverable amounts. (g) Trade and other payables Trade and other payables are not interest-bearing and are stated at their nominal value. 4. Profit before taxation is stated after charging: Financial Financial 31 Dec 2015 31 Dec 2014 Directors' remuneration Auditor's remuneration - - (26,947) (29,441) (26,947) (29,441) 5. Interest and similar income Financial Financial 31 Dec 2015 31 Dec 2014 Interest on loans and receivables 360,993,733 399,185,549 Accretion of facility fees 2,237,830 2,251,388 Amortisation of premium (5,561,316) (5,422,968) 357,670,247 396,013,969 All interest income relates to the loans with Russian Railways. 6. Interest and similar charges Financial Financial 31 Dec 2015 31 Dec 2014 Interest on debt securities issued (360,993,733) (398,685,756) Accretion of issue cost (2,426,425) (2,422,860) Amortisation of premium 5,728,522 5,586,078 (357,691,636) (395,522,538) 7. Other income Financial Financial 31 Dec 2015 31 Dec 2014 Other income 148,805 285,206 Bank interest 53 462 VAT refund 13,229 34,266 162,087 319,934 Other income relates to income received from Russian Railways to pay for expenses as per the various loan agreements between the Company and Russian Railways.