The structure of the Company's operating expenses for 2018 and 2017 respectively is given below.
|RUB mln||share of operating expenses, %||share of revenue, %||RUB mln||share of operating expenses, %||share of revenue, %|
|Third-party charges related to principal activities||45,671||68.3||59.3||37,785||64.7||57.6|
|Payroll and related charges||6,422||9.6||8.3||5,809||9.9||8.9|
|Freight and transportation services||5,407||8.1||7.0||6,549||11.2||10.0|
|Materials, repair, and maintenance||3,427||5.1||4.5||3,182||5.4||4.9|
|Depreciation and amortisation||2,927||4.4||3.8||2,668||4.6||4.1|
|Taxes other than income tax||725||1.1||0.9||581||1.0||0.9|
|Total operating expenses||66,886||100.0||86.9||58,438||100.0||89.1|
The Company’s operating expenses increased by RUB 8,448 million, or 14.5% year-on-year, to RUB 66,886 million compared to RUB 58,438 million in 2017. This rise was due to a significant increase in the third-party charges related to principal activities.
Third-party Charges Related to Principal Activities
Costs of third-party charges related to principal activities increased from RUB 37,785 million to RUB 45,671 million, up 20.9% year-on-year. This was primarily driven by a higher volume of the Company’s operations, tariff indexing by the Russian Railways and other subcontractors, and growth in international transportations with the involvement of outsourced transportation services. The weakening of the Russian rouble against the US dollar and Euro in 2018 had an impact on the cost of currency payments with foreign railway administrations and sea shipping companies.
Adjusted Operating Expenses
In 2018, adjusted operating expenses, as defined in the Key Financial Indicators and additional information section above, grew by 2.7% year-on-year, from RUB 20,653 million to RUB 21,215 million. This was primarily due to the increase in payroll costs and costs for taxes other than income tax, as well as an increase in rent payments.
|Item||2018||2017||Change for period|
|RUB mln||%||RUB mln||%||RUB mln||%|
|Payroll and related charges||6,422||30.3||5,809||28.1||+613||+10.6|
|Freight and transportation services||5,407||25.5||6,549||31.7||(1,142)||(17.4)|
|Materials, repair, and maintenance||3,427||16.2||3,182||15.4||+245||+7.7|
|Depreciation and amortisation||2,927||13.8||2,668||12.9||+259||+9.7|
|Taxes other than income tax||725||3.4||581||2.8||+144||+24.8|
|Adjusted operating expenses||21,215||100.0||20,653||100.0||+562||+2.7|
Freight and Transportation Services
Expenses related to freight and transportation services decreased by RUB 1,142 million, or 17.4% year-on-year, to RUB 5,407 million for the full year of 2018. This is due to several reasons:
- thanks to the Company’s efforts on optimisation of the fleet management, the savings on empty run costs offset the impact of tariff indexation by the Russian Railways;
- due to changing the customers’ preferences towards the integrated freight forwarding and logistics services.
Payroll and Related Charges
Payroll and related charges increased by RUB 613 million, or 10.6% year-on-year, from RUB 5,809 million in 2017 to RUB 6,422 million in 2018. This increase was mainly due to the base salary indexing and performance-linked payments on the back of improved financial and operating results. The growth was partially offset by a decrease in the average headcount from 3,533 to 3,502 employees.
Depreciation and Amortisation
Depreciation and amortisation increased by RUB 259 million, or 9.7% year-on-year, to RUB 2,927 million compared to RUB 2,668 mln in 2017, reflecting an increase in capital expenditures in 2018, and also the contribution of CJSC Logistics-Terminal and LLC SpecTransContainer consolidation.
Materials, Repair, and Maintenance
Expenses related to materials, repair, and maintenance were up by 7.7% year-on-year to RUB 3,427 million for the full year of 2018, compared to RUB 3,182 million in 2017. This was mainly due to an increase in the number of flatcar repairs resulted from a higher fleet utilisation. The other factor was a higher average repair price also contributed to this increase mainly as prices for flatcars components went up amid the growing customer demand in Russia.
Taxes Other Than Income Tax
Taxes other than income tax increased from RUB 581 million to RUB 725 million, up 24.8% year-on-year, mainly due to an increase in the amount of accrued value added tax (VAT) for international transportation, justifiability of the application of 0% rate for which has not been documented.
Rental payments increased by RUB 131 million, or 47.0% year-on-year, from RUB 279 million to RUB 410 million, due to the increase of operational leasing of the flatcars.
Other Operating Expenses
Other operating expenses are an aggregate of various expense items such as security, consulting expenses, fuel and energy, licences and software, communication service and loss of sale of fixed assets, etc. In 2018, other operating expenses increased from RUB 1,585 million to RUB 1,897 million, up 19.7% year-on-year. This primarily resulted from an increase in fuel, licences,and software and was partially offset by a decrease in consulting expenses and security costs.
Interest expenses increased by RUB 251 million, or 39.6% year-on-year, from RUB 634 million in 2017 to RUB 885 million in 2018, mainly due to an increase in principal.
Growth of interest income by RUB 164 million, or 54.5% year-on-year, from RUB 301 million in 2017 to RUB 465 million in 2018, was mainly driven by an increase in the balances in deposit accounts due to the lag of actual capital expenditures from the target ones.