Our Business

Letter of the chairman of the Supervisory Board

GRI G4-1

Dear Investors,

In 2017 the PKP CARGO Group operated under conditions in which the demand for rail freight rose significantly. Its driving force was rooted in the persistently robust business conditions in Poland and in the European Union member states. The GDP growth rate in Poland accelerated in this period to 4.6% yoy from 2.9% yoy in 2016, while rail freight transport measured by freight turnover rose by 8.3% yoy. The intensification of road and rail investments co-financed by European funds under the 2014-2020 financial perspective, among other factors, the development of intermodal transport along the New Silk Road, greater demand for ores and metals stemming from the favorable standing of the metallurgical industry on global markets, the upswing in transshipments in sea ports and the introduction of further regulations to curtail the illicit economy in fuel sales were conducive to increasing domestic and international transport.

The PKP CARGO Group functioned on a competitive market in 2017 on which more than 70 licensed rail operators were service providers. During this period the Group strengthened its leadership position and its market share measured by freight turnover rose to 51.4%. Here one must emphasize that transport services were provided in a period in which many rail lines were closed on account of refurbishment and modernization. In turn, this contributed to the cargo supply routes getting longer and therefore more rolling stock and employee resources had to be involved. The PKP CARGO Group’s transportation and financial results generated in these conditions in 2017 may be deemed to be very good. The positive net profit and its growth compared to 2016 are particularly pleasing. The growth in EBITDA is also noteworthy as it proves the Group is more strongly committed to renewing its rolling stock potential and its ability to conduct repairs and renovations. I am convinced that these results confirming the PKP CARGO Group’s robust financial condition will be well received by our investors.

In October of 2017 the CEO and CFO of PKP CARGO S.A. tendered their resignations from serving in these capacities. In this situation, without any unnecessary delay, the Supervisory Board delegated Mr. Krzysztof Mamiński, the PKP CARGO S.A. Supervisory Board Chairman to discharge the CEO’s duties temporarily as it was driven by the need to ensure that the Company has the ability to operate efficiently and manage its operations. At the same time, an executive search was announced to fill the vacant positions in the Company’s Management Board. We are counting on the Management Board being able to function with a full team in the near future and for it to utilize its competences completely and focus on achieving the targets embraced in the Business Plan for 2018.

From the outset of 2017, rail freight operators have been supported by the strong and stable pace of GDP growth in Poland, and by the gradually improving circumstances in the key branches of industry, inter alia, the metallurgical industry and the construction industry. We may also gaze into the future with optimism because cargo transport is strongly correlated with the Polish economy’s macro economic ratios, especially with the situation in the power sector, the construction industry and the manufacturing industry. In turn, the leading market indicators published by the Central Statistical Office suggest that the positive economic trends will continue over the upcoming months. In 2018 further growth in the transport of aggregates and construction materials is anticipated as a result, among others, of the intensification in infrastructural investments and civil engineering and building construction. Growth in hard coal transport is also assumed as Polish mines ramp up their production according to the statement made by the ministry of energy, and this will be supported by imports of this commodity. The further development of intermodal transport within the framework of the New Silk Road and in transport services furnished to sea ports is also planned.

All these factors stimulate the demand for the PKP CARGO Group’s logistics and transport services on the domestic and international markets. I am convinced that the company will utilize its entire potential in an optimal manner during these favorable conditions. We are poised to achieve this objective organizationally and in terms of our human resources and to sustain this favorable trend in the operations of the PKP CARGO Group throughout 2018.

Respectfully,

Mirosław Antonowicz
Deputy Chairman of the PKP CARGO S.A. Supervisory Board