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3/17/2017 12:00:00 AM

Intermodal transport and international transportation prove the strengths of PKP CARGO - Group results in 2016.

In 2016 the PKP CARGO Group's revenues amounted to 4,411 million PLN, with EBITDA of 562 million PLN. The Group stopped the decline in the volume of freight and has increased intermodal transport in terms of weight by 25% y/y. The Group's presence in foreign markets increased by 55% y/y calculated with freight business. The Board of PKP Cargo expects that in 2017 it will be achievable to maintain the positive trend in the change in market share and take advantage of expected growth, including the situation related to large infrastructure projects.

In 2016 the PKP CARGO Group transported 111.5 million tonnes of goods and achieved freight business at the level of 28.5 billion tkm (both -4% y/y). At the same time the share of the market in the freight business amounted to 51.6%. Transportation was carried out by five entities from the capital group: PKP Cargo, PKP CARGO SERVICE and three carriers included as belonging to PKP CARGO AWT Group, operating in the Czech Republic, Slovakia and Hungary.

"It certainly was not an easy year for us. However, despite the extremely difficult market environment, we were able to stop the decline in the volume of freight and reverse the unfavorable trend for us. Since May, our market share has been steadily increasing. This is the result of our hard work and the many changes that we introduced as a new Board of Directors. We have never intended to give up, because we want to win and we like to do so. I am convinced that we have not said the last word and that in 2017 our performance and the customer satisfaction with our work will continue to grow," - says Maciej Libiszewski, president of PKP CARGO. The company spares no efforts to improve customer satisfaction and customer contentment, making this one of its priorities.

"We introduced a new sales model and we are still expanding commercial structures adapted to the highest standards to provide comprehensive freight services. All this is to be closer to the Customer and to respond quickly to their expectations and needs. As a result of these activities, we rather quickly improved the work of the commercial departments and we won several important contracts," emphasizes Libiszewski.

The strong points of PKP CARGO remain intermodal transport and international transportation. Intermodal transport is growing in strength recently, and the New Silk Road and rail transport of containers from China to Europe have become an additional impulse to development. PKP CARGO understands this trend and uses it well, becoming the undisputed leader in this type of transport in the country and an increasingly important player in Europe. The increase in foreign freight business in the transport of containers in 2016 was 110% y/y. Last year, PKP CARGO launched its own forwarding company in Germany, which will enable even better use of the potential of the Western European markets. "We are looking for partners abroad to use our fleet even more effectively outside Poland and on longer routes. We are active on the New Silk Road, we are also conducting talks on the development of cooperation with railways in the countries of the Adriatic, the Baltic and the Black Sea, and through our strategic partnership with the AWT Group we have become one of the key operators in the Czech Republic," adds the president Libiszewski. Without a doubt, intermodal transport and international transportation are segments which the carrier will also strengthen this year. The Company intends to make good use of the projected economic growth and the return of prosperity for large infrastructure projects. Among plans for 2017 are also a continuation of the process of renewal of rolling stock and to increase the market share in specialist freight. "PKP CARGO is a company that is not going to stand still, and we will be growing," sums up the president Libiszewski.

Freight by the PKP CARGO Group in 2016 was affected by the general macroeconomic conditions and lower than expected economic growth, which resulted in difficult market conditions. In particular, there was a weakness in infrastructure construction and a lower demand for freight of basic construction materials (gravel, stone, sand and cement) as well as weak demand for hard coal, including in exports. The rail freight market in Poland in 2016 decreased compared to the previous year by 1.2%.

The operating income of the PKP CARGO Group in the fourth quarter amounted to 1 197 million PLN (-6% y/y), with operating costs at the level of 1,133 million PLN (-14% y/y). EBITDA amounted to 216 million PLN (+ 129% y/y) and a net profit of 75 million PLN. After four quarters of 2016, results were as follows: operating income 4,411 million PLN (-0.1% y/y), operating expenses 4,437 million PLN (+ 4% y/y), EBITDA of 562 million PLN (-12% y/y), net profit -41 million PLN.

Results by segment were as follows:

Intermodal

This segment is growing the most dynamically in the whole market for rail freight in Poland. In 2016 it was responsible for 9% of the total freight business of the Group. PKP CARGO is counting on further growth in this transport group.

In 2016 an increase in weight of goods transported by 25% y/y, including by 76% y/y in international transport.

Dynamic development of the New Silk Road. An increase in transport by land from/to China in 2016 by 102% y/y measured by the weight of goods transported.

An increase in the weight of containers transported from/to Polish ports in 2016 by 7.7% y/ y.

Development of transport outside Poland - an increase in freight business by 110% y/y and an increase in the weight of containers transported by 76% y/y.

Developing connections with the seaport terminals in Poznań, Warsaw, Radomsko and Łódż.

Fuel

After the twelve months of 2016 results in this segment of the freight business were as follows: hard coal 11.07 billion tonnes-km (-11% y/y); these declines, however, were largely offset by increases in: coke and lignite of 1.47 billion ton-km (+ 22% y/y), and liquid fuels of 1.09 billion tonnes-km (+ 30% y/y) .

The following have had an impact on the results of this segment:

A reduction of hard coal production in 2016 by 2.5% y/y, i.e. 1.8 million t.

An increase of ARA coal prices in 2016 by 81% to $ 86/t.

An increase in energy/electricity production in 2016 by 0.53% y/y, including a drop in production in power plants based on coal by 0.65% y/y.

A reduction of coal reserves in Poland by 56.9% (2.5 million tonnes at the end of December 2016 against 5.8 million tonnes at the end of December 2015).

Aggregates market

The postponed market launch of large infrastructure investments affected the freight of aggregates and building materials, the second largest freight transport segment of the PKP CARGO Group. Freight business achieved in the last year amounted to 4.64 billion tonnes-km (-12% y/y). Slowly a revival in this segment is being seen, due to the increasing number of projects, as evidenced by an increase in freight recorded in the fourth quarter of 2016 (for the first time in 2016) by 9% y/y in terms of weight of goods transported, and freight business achieved.

In November 2016 agreements were concluded with the KE for financing of 16 transport investments in the amount of over 1.9 billion, including 10 PKP PLK projects for the amount of 1.6 billion euros. This bodes well for the future.

Results in this segment were affected by:

Shifts in the implementation of infrastructure investments and the smaller scale of construction works in comparison with 2015.

The reducing of rail investment.

A smaller scale of local investments, financed by local governments, with a large share in the demand for construction aggregates.

A decrease in construction output in 2016 by 14.1% y/y and in units specialising in building of civil engineering projects by 14.5% y/y, and in the fourth quarter of 2016 declines respectively of 13.2% y/y and 9.5% y/y.

Metals and ores

The freight business achieved in this group of goods exceeded 3.40 billion tkm (-8% y / y). The results in this segment were affected by:

A reduction of steel production (in 2016 production was 8.9 million tonnes, i.e. less by 2.8% y/y) due to the suspension of the supply of raw materials [iron ore] for one of the key customers of the Group as a result of repairs conducted on a furnace. There has also been a significant impact on the freight volume of metals and ores (both raw materials and semi-finished and finished products) in 2016 arising from renovations of the COS line (Continuous Steel Casting) in two key customer groups conducted in the second and third quarters of 2016.

Import duty on steel products from China and Russia introduced by the EU.

An Increase in the prices of production raw materials: coke and iron ore.

Read also:

4/14/2017

On Tuesday, April 10th, 2017 in Shanghai, the President of PKP CARGO Maciej Libiszewski and the President of Worldwide Logistics Group Jacky Lim signed the agreement to tighten cooperation which would enable PKP CARGO to be established in China.

2/21/2017

A common international bill of lading and an increase in reloading in the Euroterminal in Sławków are the main objectives of PKP LHS and PKP Cargo, which will allow better use of the potential of the New Silk Road.

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