Management of working capital
In accordance with its approved financial strategy, Russian Railways employs an aggressive model for the management of working capital, which involves reducing the financial cycle as much as possible in order to quickly release and spend funds to finance its current and investment activities.
This model features is characterised by negative net working capital and means that the Company utilises its current liabilities as a source of investment activities.
In 2015, the Company’s negative net working capital totalled RUB (-148.6) bln. As a result of changes to the net working capital, a positive cash flow was generated in 2015 in the amount of RUB 15.6 bln.
|Item||actual 31/12/2014||actual 31/12/2015||+/— vs. start of year||% vs. start of year|
|Suburban passenger companies (SPC)||38.9||39.5||0.6||102|
|Federal Railway Transportation Agency (FRTA)||27.2||26.2||–0.9||97|
|Ministry of Health and Social Development of the Russian Federation||0.0||10.9||10.9||—|
|Commercial (trade) debt of buyers and customers||16.7||16.7||0.0||100|
|prepayments under exchange contracts for the Alpika-Service motorway||0.0||69.1||69.1||—|
|prepayments under business contracts||29.6||23.7||–5.9||80|
|по for operating activities||5.7||4.3||–1.4||75|
|по for investment activities||23.9||19.4||–4.5||81|
|Taxes and fees to extra-budgetary funds||14.8||15.1||0.3||102|
|Other debtors (including contributions to charter capital)||30.1||18.2||–11.9||60|
|accounts receivable in current assets||122.7||135.3||12.6||110|
|accounts receivable in non-current assets||34.5||84.1||49.6||244|
As of the end of 2015, total accounts receivable amounted to RUB 219.4 bln (an increase of 40% versus the start of 2015, or RUB 62.2 bln).
Of total accounts receivable:
- commercial debt (short-term outstanding trade debt on sales according to signed contracts) amounted to RUB 16.7 bln. The turnover period for this debt was 3.5 days (the same level as in 2014);
- prepayments under business (commercial) contracts — RUB 23.7 bln;
- non-commercial activities — RUB 179.0 bln (primarily related to decisions adopted at the government level):
- current debt restructured for 10 years that originated as a result suburban passenger transportation by suburban passenger companies (RUB 39.5 bln) and the FRTA (RUB 26.2 bln). Debt decreased by RUB 0.3 bln in the current year,
- debt of the Ministry of Health and Social Development of the Russian Federation to compensate for expenses on the suburban transportation of federal benefit recipients (RUB 10.9 bln),
- long-term debt of the Russian State Property Committee under an exchange contract for the motorwaycomponent of the Olympic project Alpika-Service (RUB 69.1 bln), which is to be paid for using state property on the basis of decisions adopted by the executive authorities. The Company received property in 2015 to offset more than RUB 24 bln in accounts receivable,
- actual overpayment of taxes generated according to the provisions of legislation (RUB 15.1 bln),
- other debtors, including transit settlements under agency and commission contracts and penalties, among other items (RUB 18.2 bln).
At the same time, there was a decrease in the debt of other buyers and customers (RUB —1.9 bln), prepayments for other counterparties (RUB —5.9 bln) and debt on contributions to charter capital (RUB —13.6 bln).
The proportion of overdue accounts receivable totalled 0.8% in 2015, or the same level as the previous year.
The Company’s accounts payable increased by RUB 36.7 bln (or 12%) in 2015 to RUB 342.3 bln.
|Item||actual 31/12/2014||actual 31/12/2015||+/—
vs. start of year
vs. start of year
|Debt to suppliers and contractors||148.1||182.0||33.9||123|
|for investment activities||78.9||98.4||19.5||125|
|по for operating activities||69.2||83.6||14.4||121|
|Debt to personnel on wages and transactions with accountable persons||13.6||14.5||+0.9||107|
|Debt for social insurance and security||8.4||9.2||0.8||110|
|Debt to budget for taxes and fees||24.6||17.8||–6.8||72|
|Prepayments received, including:||100.4||104.9||+4.5||104|
|Total accounts payable||305.6||342.3||+36.7||112|
|Indicator||2014||2015||+/— vs. 2014||+/— vs. 2014, %|
|for operating activities||29.2||33.4||+4.2||114|
|for investment activities||42.1||53.4||+11.3||127|
Accounts payable to suppliers and contractors totalled RUB 182.0 bln as of the end of 2015, including RUB 98.4 bln for investment activities and RUB 83.6 bln for current activities.
One of the main principles Russian Railways utilises in managing its working capital is the use of accounts payable to suppliers and contractors as a source of funding for the Investment Programme (the volume of the Company’s contractual obligations directly depend on the deadlines for the payment of work, services and supplies).
In order to maintain the planned contractual volume in 2015, the Company’s standard settlement terms and conditions were amended to extend the deadlines for final settlement under investment contracts to 60 days and for other contracts on supply, work or services to 45 days.
In this connection, the turnover period for accounts payable to suppliers and contractors was 40.8 days for the Company as a whole in 2015, which is 6.3 days more than in 2014, but is consistent with the standard settlement conditions for contracts of Russian Railways.
Overdue accounts payable to suppliers and contractors makes up less than 1% of total debt.
The Company’s inventory decreased 10.3% in 2015.
The Company’s inventory was valued at RUB 61.9 bln as of 31 December 2015, down by RUB 7.1 bln from the start of the year.
Production process inventory (raw commodities and materials) was 2.7 months for materials and spare parts in 2015 and 0.85 months for fuel.
In order to optimise the Company’s inventory and align it with the volume of work, measures were drafted and implemented in 2015 to involve surplus inventory in the production process:
- the sale of 640,900 tonnes of scrap metal;
- the involvement of surplus material and technical resources in business turnover.
This made it possible to generate additional income of RUB 6.9 bln from the sale of scrap metal and save RUB 1.5 bln in funds for the purchase of new material and technical resources.
|Item||Balance as of 31/12/2014||Balance as of 31/12/2015||Deviation
|raw materials and supplies, similar assets||67.0||60.7||–6.3|
|work in progress costs||1.0||0.7||–0.3|
|finished products and goods for resale||0.4||0.1||–0.3|