Message from the Chairman of the Board of Directors

Message from the Chairman of the Board of Directors

Dear Colleagues,

FPC’s performance in 2015 has once again confirmed the strength of our business model. It is pleasing to note that the Company has been recognised as the best subsidiary of Russian Railways by organisational performance in 2015.

FPC’s activities are closely interwoven with the national economy. In 2015, the Russian transport services market felt the pressure of further declines in real disposable household incomes.

Nevertheless, the Company has successfully met its passenger turnover targets. Specifically, in 2015, we over-achieved our target by 0.4%, reaching 86.1 billion passenger-kilometres, with trains made up by FPC posting 81.1 billion passenger-kilometres, or 100.2% of the target. It should be emphasised that in 2015, FPC’s net profit was also above the target.

Since its inception in 2010, the Company has consistently pursued its well thought-out cost control policy. As part of our crisis-response efforts, we have optimised our route network, transformed our governance structure, improved technical processes and standards, and introduced e-ticket sales, which enabled labour productivity gains.

A significant portion of the Company’s capex programme is channelled annually to the rolling stock upgrades. In 2015, we spent RUB 16.5 billion, or 92.4% of the total capex, on purchases of carriages and the rolling stock upgrades. A total of 185 new passenger carriages were bought in 2015, including the innovative carriages by Patentes Talgo S.L. the Company will use to offer high-speed service on the Moscow — Nizhny Novgorod route. We have also acquired 70 double-decker carriages, which has improved the Company’s competitive edge by reducing transportation costs. FPC’s railcar fleet has also been upgraded with new third-class and RIC carriages to serve passengers on international routes. In addition, in 2015, we have completed our Passenger Rolling Stock Upgrade project.

The remaining capex totalling RUB 1.3 billion, or 7.6%, was used to support depot upgrades, IT projects, and other initiatives.

To attract more passengers we ran multiple promotions throughout the year, offering price reductions depending on the booking date and location of seats. We have also pioneered discounted fares in the regulated segment, covering third-class and common carriages. During 2015, we further implemented the dynamic pricing system.

All the above efforts, combined with further enhancement of our service offering, will certainly drive the Company’s competitive edge in the transport services market.

We entered 2016 with a stronger focus on customer experience, as RZD Holding had declared 2016 the Year of the Passenger. RZD has approved a wide range of initiatives. To support this drive FPC is tasked with ensuring faster train services, improving the affordability of tickets, upgrades of the rolling stock, development of value-added services, provision of improved staff training and multiple other tasks. FPC is open to new initiatives and, therefore, I am confident that every project will bring about a positive change, contributing to an even higher customer focus.

Sergey Maltsev