In the first half of 2016, PKP CARGO Group operating income amounted 2.12 billion PLN, which is about 3% more than in the corresponding period of the previous year. For PKP CARGO, the last six months have been a period of reorganization and transition from the vertical to the territorial management model. The Group is also developing prospective market segments, in particular intermodal transport, as well as it is intensifying cooperation with partners from the Middle Kingdom, among others, organizing transport of containers through the New Silk Road.
A real challenge for the company within the last six months were difficult market conditions, rail freight and the situation of the Ostrava-Karviná Mines (OKD), the largest customer of the AWT company, which is a member of PKP CARGO Group . In August, creditors of OKD decided to restructure this company, as well as they recognised the claims against AWT. In the coming months, the biggest Polish carrier will continue focusing on maintaining its leadership in the country and developing its business activity in Central and Eastern Europe.
- The rail freight market continues to decline in favour of other means of transport. Dozens of railway in Poland is fighting for the same piece of the pie, regularly decreasing for several years. This trend needs to be reversed. PKP CARGO adapts to new conditions, and the Board shall endeavour to make rail an attractive partner for our current and future customers - says Maciej Libiszewski, CEO of PKP CARGO.
- In recent months, we resigned from the vertical management model and introduced management area, much more efficient for freight rail. The results are already visible - every month since May we systematically improve our market share. Now it is time to "retool" ourselves. We want to invest in rolling stock in order to be able to perform transport in stable segments, we consistently focus on intermodal transport, which may soon achieve a double-digit share of the total PKP CARGO transport work . We are actively searching for partners abroad to make our fleet even more often used outside Poland and at longer distances. Recently, at our container terminal we hosted delegations from Poland and China, including the presidents of both countries, we also talked with partners from Croatia and several other countries from Central and Eastern Europe. PKP CARGO is a forward-looking company with great potential, which we intend to release regularly - adds Maciej Libiszewski.
Due to the application for insolvency of OKD, presented in May 2016, impairment tests of AWT Group's assets were carried out. The probability to recover the debt from OKD was also assessed. Based on the results of this work, PKP Cargo decided to make (after the first half of 2016) write-offs due to permanent impairment of the AWT Group's assets in the amount of 35 million PLN and write-downs of receivables from supplies and services in the amount of 63 million PLN. These write-downs charged the result of PKP Cargo Group
In the first half of 2016 PKP CARGO Group transported more than 52.2 million tons of goods (similarly to last year's result) and delivered the transport work at the level of 13.5 billion tonne-kilometres (-2%). Transportation was delivered by five entities from the capital group: PKP Cargo, PKP CARGO SERVICE and three carriers belonging to AWT Group (which is a member of PKP CARGO Group), operating in the Czech Republic, Slovakia and Hungary.
The PKP CARGO Group's share in the Polish rail freight market in the first half of 2016 amounted to 51.2% (-4.8) in terms of transport performance and 43.8% (-4.1) in terms of weight. PKP CARGO transport services were affected by the challenging market circumstances, in particular the strongly shrinking aggregates market, the effect of application of the formula "design and build" by the implementation of large infrastructural investments in Poland. This resulted in a shift of deadlines for the implementation of these investments.
PKP CARGO Group's revenues amounted to 2.12 billion PLN (+ 3%), with the operating costs of 2.32 billion PLN (+ 23%). EBIDTA in terms of half-year amounted to 130 million PLN (-67%) and net profit amounted to -195 million PLN (153 million PLN in the previous year, taking into account the approx. 140 million PLN profit on occasional acquisition of AWT). The result of the first half of 2016 debited to the write-downs for asset impairment of AWT Group in the amount of 35 million PLN, and write-downs of receivables from AWT supplies and services in the amount of 63 million PLN.
Getting closer to the recovery of aggregates market, nearly 60 percent increase in the fuels segment, 25-percent increase in the containers transport
The first six months of 2016 were a challenging time for the freight. A delay in the commencement of major infrastructure investments in Poland, which have significantly reduced aggregate transport, had the biggest impact on this market In connection with the renovation of a blast furnace at the plant of the key customer of PKP CARGO in the southern Poland and, as a result, a decline in the level of domestic steel production by over 11% in the first half of 2016, transportation in this segment decreased, also affecting transports of ores and pyrites.
At the same time in the first half of 2016 PKP CARGO recorded significant increases in transport in several prospective, not susceptible to the seasonal effect commodity groups. Dynamically developing intermodal transport (+ 25% in the transport performance), a large increase in PKP CARGO recorded in the segment of liquid fuels (+ 59% in terms of transport work). Also the transport of coke increased significantly (+ 24% in terms of transport work).
Solid fuels: Coal and coke are the largest segment of the freight transport in PKP CARGO. In the first half of 2016 they reached together, similarly to last year's result, 45% of all transport work, which in this segment amounted to 6.1 billion tkm (-1%, including coal -3% and coke + 24%).
Aggregates and Building Materials: Still delayed in time, start the implementation of large infrastructure investments affected the transport of aggregates and building materials, the second largest freight transport segment of PKP CARGO. In the first half of the year, this segment accounted for 13% of the total transport work of PKP CARGO Group, 4% less than last year. The transport performance completed during this period was 1.8 billion tkm (-24%). Experts predict that the transport of aggregates and building materials market should revive in the coming months due to the anticipated commencement of major infrastructure investments (both road and rail).
Metals and ores: In the first half of the year, transport in this segment accounted for 13% of all transport work of PKP Cargo Group, similarly to the corresponding period of 2015. The performance of this group of goods exceeded 1.7 billion ton-km (-7%).
Intermodal transport This segment is the fastest growing on the whole rail freight market in Poland. In the first half, the PKP CARGO Group performed over 1.1 billion ton-km in intermodal transport, 25% more than in the corresponding period of the previous year. This segment is growing steadily - after six months, it was responsible for 9% of the total transport performance of the Group, which is 1.9% more than in the corresponding period of 2015. PKP CARGO hopes for further growth in this commodity group.
The agreement with the employees guarantees the performance.
In June 2016, after the multi-stage negotiations, PKP CARGO has reached an agreement with the employees and remuneration change postulated by them. Both sides agreed to postpone the conclusion of an agreement ending a collective dispute by the end of 2016. Subsequent decisions will take into account the company's financial situation.
The agreement was a continuation of the dialogue with the employees' social representatives, lasting since March this year, when the agreement was made between the Board of PKP CARGO and trade unions on the introduction of changes in the conditions of remuneration in the form of additional protocols to the Collective Bargaining Agreement for Employees.
East and South - the strategic directions of development
During the last few months, the Management Board of PKP CARGO intensified international cooperation, seeking new business opportunities abroad.
The first Chinese container train under the brand name "China Railway Express" arrived to to the transshipment terminal in June. This composition was welcomed by the presidents of Poland and China: Andrzej Duda and Xi Jinping. Chinese partners are keenly interested in further development of the rail link between the Middle Kingdom and Europe, and PKP Cargo wants to be a partner of this logistic project . The biggest Polish carrier submits intermodal transport the current and future investments, hoping for further growth of this perspective segment of transport. The management of PKP CARGO regularly meets with Chinese partners, which results in continuous broadening of cooperation. Currently, the Group handles an average of approx. 20 container services running weekly between China and Europe.
Better situation with AWT, certain sources of funding
Recent months have brought a calming of the situation of the Ostrava-Karviná Mines (OKD), a major customer of AWT, the Czech railway company, which PKP CARGO purchased in 2015. In August, creditors of OKD made a decision in the court the restructuring of the company. The court also acknowledged 73 million PLN claims of OKD for the Group PKP CARGO. AWT continues to execute transportation for OKD on pre-paid rule.
The Group has provided certain sources of financing for development. PKP CARGO has access to more than 1.7 billion PLN funds for investments, of which more than 162 million PLN is cash. The remaining part are credit lines, guaranteed, among others, by Bank Gospodarstwa Krajowego, the European Bank for Reconstruction and Development and the commercial banks.