Think Railways

“Optimization, expansion and investments – that is the best summary of  the successful year 2014 for the PKP CARGO Group. We have optimized the transport process and organizational structure of the Group, which resulted in significant reduction of its operating costs and, along with further diversification of the revenue sources, enabled reaching the result standing at almost PLN 300 million”,says Chief Executive Officer of PKP CARGO Adam Purwin. ''This is subsequent year in a row, in which we allocated more than a  half billion PLN into modernization and purchase of rolling stock and commenced the process of locomotive drivers training at the unique scale, employing almost 500 persons”, adds the PKP CARGO CEO. “We made a historical step towards development of our activity outside Poland. In December 2014, we signed the agreement on purchase of the second largest carrier in the Czech Republic, openly presenting our offer to the European markets. The planned acquisition forms the bases for further development of PKP CARGO in our region of Europe. However, our development is focused not only on presence on the new markets. We wish to build our position based on new and innovative logistics products. Our response to the changing market is the unique offer reflecting extensive competences of our Group”, emphasizes Adam Purwin.

Stable PKP CARGO’s share in demanding market

The year 2014 was highly demanding for rail freight carriers. Comparing to 2013, the market shrank by app. 2% decrease in terms of freight volume and by 1.5% decrease in terms of transport performance. Difficult situation in the coal sector had significant impact on freight volume. Export of Polish coal, managed by PKP CARGO in almost 100%, recorded a noticeable decrease. Despite growing domestic freight and transit services, export decrease by almost a half - from 3.67 billion tkm to 1.76 billion tkm in the next year was decisive for weaker results of the entire solid fuel sector, which dropped down by 9% YOY. Upon excluding coal export, solid fuel transport performed by PKP CARGO increased by 7% YOY, from 9.63 billion tkm to 10.32 billion tkm. Hard coal transport in 2014 accounted for app. 37% of all shipments of PKP CARGO group in terms of transport performance, comparing to more than 39% in 2013. According to data provided by the Central Statistical Office, after three quarters of 2014, PKP CARGO serviced 73% of domestic coal freight.

From the beginning of 2014, PKP CARGO continued to increase the level of aggregate and construction material freight. Throughout the entire year, the company shipped more than 21.5 million tonnes of freight in this category, which is by 9% more comparing to the previous year. In result, the share of aggregates and construction materials in total freight of PKP CARGO in terms of transport performance increased to 21.5%, comparing to 18.4% in the last year. This freight segment presents highly favorable perspectives. In the upcoming years, record infrastructural investments will be continued. Amount to be allocated for transport infrastructure development in the years 2014-2020 is as much as PLN 350 billion. In 2014 and 2015 PKP PLK, the country’s rail infrastructure operator, intends to spend more than PLN 15 billion on development and modernization of rail infrastructure. After three quarters of 2014, aggregate and construction material freight carried out by PKP CARGO reached 63% of total freight in Poland.

The metals and ores category recorded decrease comparing to the previous year, in particular in the 4Q 2014. Transport performance in this group decreased in this quarter by 32%, down to 0.84 billion tkm, comparing to 1.22 billion tkm a year earlier. Total 2014 decrease amounted to 20% YOY. The main reason behind the decreased transport of metals and ores is the situation in Ukraine. The stream of semi-products from Donbas Region has almost completely vanished.  After three quarters of 2014, PKP CARGO held 51% share in metals, ores and scrap transport in Poland.

Chemicals category brought highly positive transport results to the PKP CARGO Group. In the last quarter of 2014, total transport in this segment increased by 21% and by 13% in annual scale, from 1.68 billion tkm in 2013 to 1.90 billion tkm in 2014. This segment generates high perspectives for PKP CARGO due to dynamic development of the Polish chemical industry both in the country and abroad. PKP CARGO has been already testing the new logistics solutions based on rail freight and offer them to the customers exporting the goods to the European countries.

“PKP CARGO is a natural and reliable partner of large industrial groups. We hold the necessary resources and know-how to provide effective support to our business partners”, says Member of the Management Board in charge of Commerce at PKP CARGO Jacek Neska. “We transport more than 70% of coal, more than 60% of aggregates and construction materials, more than a half of metals, ores and scrap. Our share in container freight has also exceeded 50%. We continue to compete for the new orders on demanding and highly competitive market and offer the new and more effective logistics solutions to our customers. Our offer is based not only on rail freight, but also on combined transport. This is an opportunity for PKP CARGO development in the country and abroad”, adds Jacek Neska.

Additional rolling stock, effective transport peak management

The year 2014 was highly demanding for rail freight carriers in terms of infrastructural conditions. Due to modernization works carried out by PKP PLK, average commercial speed of PKP CARGO trains have decreased month after month, to reach only app. 21 km/h in November and December. Lower commercial speed translates into greater demand on personnel and rolling stock, which in turn increases the operating costs.

The greatest rolling stock demand is recorded in the course of so called transport peak at the turn of the 3Q and 4Q. Preparing for transport peak in 2014, PKP CARGO provided more than three thousand additional goods wagons. That umber of wagons may successfully operate as the entire rolling stock of a medium-size rail carrier. Additional goods wagons were ready on time thanks to merger of three companies servicing the rolling stock in the PKP CARGO Corporate Group into a single powerful entity – PKP CARGOTABOR – and introduction of cutting-edge methods of production and cost management.

“We managed the transport peak at the record number of renovations and fortuitous events, such as DB strikes in Germany”, says Member of the Management Board in charge of Operations at PKP CARGO Wojciech Derda. “The factors contributing to our success included effective preparation of additional railway cars, organizational changes to the company, including implementation of the top-down management model and decrease in the number of divisions. This enabled more effective and faster decision-making process and enhanced flexibility of the entire company”, adds Wojciech Derda.

PKP CARGO carries out the rolling stock investments of future impact on the company’s operation. At the beginning of January 2015, the company announced the tender procedure, prepared in the previous year, for purchase of even up to 20 multi-system locomotives for international freight purposes. Value of the contract may reach even PLN 400 million. Establishment of the PKP CARGOTABOR company provides the opportunity of independent railway cars manufacturing - goods wagons and container cars. PKP CARGO has been carrying-out business analyses of this project.

The Management Board recommends payment of dividend

In 2014, PKP CARGO Group cut the costs in all main categories: power (by 5%), fuel (by 2%) and access to infrastructure (25%). Total operating costs upon eliminating the one-off effects of payment of privatization bonus in 2013 and carrying-out of the Voluntary Leave Programme decreased by 13% YOY, from PLN 4.48 billion to PLN 3.91.

Carrying-out of the Voluntary Leave Programme constituted the PKP CARGO’s key investment in future The total of 3041 employees joined the programme. Total VLP cost of PLN 265 million encumbered the result for the 4Q 2014. The Management Board of PKP CARGO estimates the annual savings of app. PLN 100 million thanks to the Programme. Such approach assumes the return from the investment after 2.5 year at the latest.

“Financial condition of PKP CARGO enhances further development. Optimization of the Group’s operation gave us the incentive for further acquisitions. The most important is that the investments delivered by PKP CARGO pose no threat to payment of dividend. We will recommend allocation of PLN 110  million, i.e. 40% of consolidated profit adjusted with one-off events”, says Member of the Management Board in charge of Finance at PKP CARGO Łukasz Hadyś.

Final decision on payment of dividend will be made by the General Assembly of PKP CARGO.