Our Business

Letter of CEO

GRI G4-1, G4-13, G4-22, G4-23

Dear Investors,

I am delighted to present to you the PKP CARGO Group’s first ever integrated report. With it, we intend to depict the full picture of the activities we took throughout 2017 in order to elevate our resources to a level consistent with the requirements of the modern transportation market in accordance with the principles of sustainable development.

2017 was a very successful year for the PKP CARGO Group in terms of its operational and financial results. The Group’s revenues rose to approximately PLN 4.74 billion with EBITDA coming in at just below PLN 702 million while our net profit climbed to almost PLN 82 million. However, what is very important is that these results were achieved while simultaneously maintaining cost discipline. PKP CARGO also strengthened its market position – last year we were responsible for almost 52% of freight turnover in Poland.

Today, it would be difficult to overstate the importance of PKP CARGO on the rail freight market and in the Polish economy. Having regard for our rolling stock capacity and scope of operation, we play the role of the national operator engaged in delivering valuable cargo to the economy, especially bulk cargo such as coal to the power sector and iron ore and coke to the metallurgy industry. We also transport goods for the chemical, construction and agricultural industries, as well as for many others.

Last year, we undoubtedly benefited from the growing interest in rail freight transport as Poland is enjoying a high pace of economic growth that has translated into a boom, especially in infrastructural investments. They, in turn, are driving the need for more extensive deliveries, chiefly of aggregates and construction materials. We have also endeavored to respond to the climbing market demand for intermodal transport. These two segments of transport enjoyed the fastest growth rates, thereby contributing to the strengthening of our market position and the growth in the company’s value.

The results generated in 2017 underpin the ambitious albeit realistic targets we have defined for 2018 and subsequent years. The current management board’s strategic objective is to grow organically and recover the domestic market share surrendered in previous years. We intend to achieve this goal by leveraging the Company’s capabilities and the vibrant Polish economy better and by benefiting from the development of international transport. In upcoming years we also intend to pursue mergers and acquisitions (M&A) on the domestic and international market to become an important global player in transport and logistics.

PKP CARGO is striving to grow its market share measured by freight volume to approximately 60% within the next 5 years - leaders on local rail freight markets in other European countries have market shares at that level. To extend the role we play on the market, we plan to enhance our operating efficiency, utilize economies of scale better and seize the synergies we have with other group entities. In addition, we will secure the indispensable resources to achieve our targets. That is why we would like to accelerate the growth rate of our EBITDA in comparison with the last several years.

Expanding our activity on the international market is another path we will take to grow the Company in the short and medium term. To this end, we have already kicked off work on some joint ventures. There is no doubt that intermodal transport, currently accounting for more than 10% of our freight volume will be one of the transport segments that will shape PKP CARGO’s future.

The actions we are taking are our response to the increasingly wider stream of cargo generated by the New Silk Road and the cargo delivered to Poland’s sea ports. For Poland is doing a better job of harnessing its favorable location at the crossroads of the east-west and north-south trade routes and PKP CARGO also wants to join in on this process. This means more than just the New Silk Road; it also involves the Central Airport project as the major logistics hub in Poland and our part of Europe. We also intend to take an active role in the Three Seas Initiative to develop the north-south transport corridor which is of crucial significance to countries in this part of Europe. During this freight boom we want to take advantage of PKP CARGO’s intrinsic capacity to the greatest extent possible. We will strengthen our position on the domestic and international market by discounting all these benefits.

To respond effectively to our clients’ needs we are striving to expand our resources, especially rolling stock and develop our transshipment infrastructure. For this purpose, we have applied for an EU grant to underwrite the purchase of modern traction rolling stock and specialist wagons and expand and outfit the container terminal in Małaszewicze, which is the gateway to Europe for cargo traveling from the east.

We also want to become more and more modern so as to be able to take the greatest possible advantage of the rail modernization process currently underway. It is our intention to benefit from engineering and technological accomplishments in our transport activity, such as in the New Industrial Revolution 4.0. We are working with our partners to devise innovative solutions pertaining to modern rail vehicles and how to power them. We have the ambition to become the leader of innovation in rail transport. I am confident that all these efforts will produce measurable results to benefit our shareholders and business partners.

Czesław Warsewicz

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