Our Business

Letter of Acting President of the Management Board in 2017

GRI G4-1

Dear Investors,

It is my honor to convey to you the PKP CARGO Group’s 2017 Annual Report. I do this with all the greater satisfaction as the information it contains is positive and confirms that last year we worked effectively and completed the year successfully. Our results also testify to the strengthening of the Group’s position in this period as the unchallenged leader on the rail freight market in Poland and as one of the largest operators on the European market.

Last year, the PKP CARGO Group carried 119.1 million tons of cargo and handled freight turnover of 31.0 billion tkm. At the same time, our market share measured by freight turnover in Poland was 51.6%. Five entities in the Group performed freight transport: PKP CARGO, PKP CARGO SERVICE and three carriers in the AWT Group forming part of the PKP CARGO Group operating in the Czech Republic, Slovakia and Hungary. PKP CARGO Group’s revenues in 2017 totaled PLN 4,738.6 million, while its EBITDA came in at PLN 701.9 million. We earned a net profit of PLN 81.7 million.

2017 was a period during which we successfully executed the PKP CARGO Group’s strategy up to 2020 and perfected previously implemented changes, above all in the management and sales of transportation services. Among other things, we simplified the decision-making system, especially at the level of our various units, which has benefited us in terms of cooperating with our clients. Our units can more effectively utilize their greatest strength, which is their excellent knowledge of the local market. We can react more quickly to client needs and plan our joint efforts better. The principle of “being closer to our clients” has assumed a practical and tangible dimension. 

We have improved our freight results

Last year was highly successful in terms of the transportation results and the PKP CARGO Group’s market share. In every subsequent month of 2017 our transportation services were higher than in the same period of the previous year in terms of freight volume and freight turnover alike. The robust conditions in the manufacturing industry, the development of Polish sea ports and the pace of growth in infrastructural investments were conducive to that happening. Despite the greater demand for our services compared with the tasks incorporated in the Business Plan for 2017, we additionally managed to handle this significant stream of cargo. It should be emphasized that this transpired at a time when a large number of rail lines were closed on account of undergoing modernization and it was necessary to make detours involved with changing traction. This demanded a maximum degree of mobilization and preparation of the appropriate amount of rolling stock and a larger number of employees, all with little lead time.

Important trade contracts we entered into made a direct contribution to our 2017 performance, including among others contracts with the largest entities in the mining industry, the power sector and the metallurgical industry.
 We are elated that our offers were the most favorable when compared with the competition. The PKP CARGO Group is the main partner of the mining and power industries. We are responsible for 2/3 of the coal transportation market in Poland when measured by freight turnover. By continuing their cooperation with the PKP CARGO Group, our business partners confirm how highly they assess the quality of our services and our market experience, which is a large challenge while also being a reason for satisfaction. I would like to take this opportunity to emphasize the noteworthy role played by our staff numbering more than twenty thousand and its commitment and responsibility when doing this tough job, without which it would not have been possible to generate such robust economic and transportation results.

We have enhanced the level of our operations abroad

The upward movement in the freight turnover performed on international markets is proof positive of the PKP CARGO Group’s greater degree of activity there. In general, in 2017 it climbed 271 million tkm, i.e. 11.2% yoy. The Group is well-prepared to face these ambitious challenges organizationally, technologically and with respect to the potential residing in its management and logistics know-how.

Moreover, we are pursuing active efforts to enhance the commercial attractiveness of container service and the organization of rail transportation. Transport between China and Europe through Poland along the New Silk Road is one of our top priorities for the PKP CARGO Group’s expansion on international markets. We are glad that we are able to find a common plane for discussion with our business partners from the Middle Kingdom to streamline the logistics services provided to transport along this route. I am convinced that our cooperation will accrue the expected effects in the form of higher transport, not just from China but also from the opposite direction in relations with European countries.

In addition, we have held talks with other partners committed to providing transport along the New Silk Road to make the transportation offering more attractive and respond to the challenges related to onboarding a larger stream of cargo in trade between China and Europe.

We have established cooperation with PKP LHS to ramp up the container transport with China while tapping into the PKP LHS line and the Euroterminal in Sławków. This especially relates to joint trade projects in international transportation that will be handled using a single waybill, partially using normal gauge lines and partially using the PKP LHS’s wide gauge line. The gateway for transportation from the East consists of the Brześć-Terespol border crossing and the Transshipment Region in Małaszewicze located in its direct vicinity. Cargotor belonging to our Group is undertaking measures to modernize the infrastructure in existence there. The signing of an agreement to conduct a study for this region was a preliminary stage thereof. Similarly, another company from the PKP CARGO Group - PKP CARGO Centrum Logistyczne Małaszewicze entered into preparatory work for the second stage of expansion of the container terminal. In both instances we intend to utilize the opportunities for obtaining funding for the investment using EU funds.

An important event in 2017 was the signing by PKP CARGO S.A. and Port Gdańsk S.A. of a memorandum of collaboration with the Romanian rail operator CFR Marfa and the Port of Constanța. This project is aligned to the political and economic idea of the ABCs of the Three Seas Initiative (Adriatic Sea, Baltic Sea and Black Sea) stimulating economic activity on Europe’s North-South axis. The potential in the countries from this region is not currently being used to the fullest extent; that is why, we are striving to develop it. This creates an opportunity for the Polish economy and for the PKP CARGO Group. We are a transit country, we have extensive East-West roads. So the time has arrived to step up the pace in our operations, also along the North-South axis in Europe. Tapping into synergies while jointly handling transport along the North-South axis in Europe with the Czech AWT Group, of which PKP CARGO S.A. became the sole owner after acquiring another 20% equity stake in 2017 will support this process.

We are continuing the process of renewing our rolling stock

Considering the growing demand for transportation services the PKP CARGO Group is on a track toward intensive renewal of its rolling stock. We will continue to modernize our rolling stock whenever that is economically viable. At the same time, we are continuing the process of its replacement, inter alia, by purchasing new locomotives and wagons. The receipt of another three multi-system locomotives for transborder transportation was an example of such efforts in 2017. As a result, we now have 16 locomotives of this type. There are also plans to purchase 80-foot platform wagons in connection with the anticipated financing for this project using EU funds to develop intermodal transport.

An important step toward modernizing rolling stock was the opening of a modern line of wheel set production and wagon repairs in PKP CARGOTABOR in Zduńska Wola-Karsznice. This new investment will enable the unit to increase the number of wagon sets by 150% ultimately. The manufactured wheel sets were granted with a certificate admitting them for usage in the European Union, and they will soon be used in the rolling stock of the PKP CARGO Group not only in the country but also across Europe. Therefore, we will practically be self-sufficient in terms of manufacturing single block wheel sets.

As we care about high client service standards and natural environmental protection we have launched a formal process to outfit the brake systems of wagons operated thus far with cast iron brake inserts, modern composite inserts which greatly reduce noise when riding the rails and when braking. We will strengthen our presence on the market for European rail transportation by fulfilling the new EU requirements in this field.

The reinstatement to full activity of the rolling stock maintenence units (PUT) located in Jasło, Stróże and Nowy Sącz, which are successfully discharging their current maintenance tasks, rounds out the list of actions referring to the rolling stock maintenance.

We gaze into the future with optimizm

The PKP CARGO S.A. Management Board’s dialogue with trade unions is conducive to effective collaboration. By the power of the memorandum of agreement entered into by both parties, as of 1 September 2017 the salaries of the Company’s employees grew. This memorandum of agreement and the successful completion of this stage of social dialogue mean that the relations between the trade unions and the Management Board are full of understanding. This portends well for the future and evidences that in an atmosphere of calmness we can jointly measure up to the challenges we face.

I can assure you that the PKP CARGO Group is well prepared to handle the higher demand for transport linked to the development of the economy, including also large infrastructural projects that will take on an ever greater pace in subsequent years. By rendering logistics services at the highest level we would like to sustain this favorable trend from 2017. The multi-billion investments co-funded using EU funds to modernize rail lines and create a coherent network of rail connections contributing to improved operation of cargo transport that are steadily being launched should advance our cause. I am also counting on a return to the concept of energy security based on having our own fuel resources and implementing EU regulations concerning EU regulations pertaining to the fees for road transport contributing to enhancing the railway’s competitiveness.

 The PKP CARGO Group has enormous potential we will strive to utilize in the interest of the Polish economy, our clients and shareholders.

Respectfully, 

Krzysztof Mamiński

acting President of the PKP CARGO S.A. Management Board