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PKP CARGO Group reports net profit up 38% after three quarters of 2014

PKP CARGO Group has increased its net profit by 38% after the nine months of 2014. The consolidated net profit was PLN 227m and the revenues were PLN 3.17bn. PKP CARGO has successfully adapted to the challenging market conditions that came in the wake of the slower GDP growth and the difficult situation in the coal industry. Diversification of income sources, verticalization and combination of Company divisions have yielded the expected results. Consequently, a year after its stock exchange debut, the company was able to meet all its commitments made to the investors at the time of the IPO. The good financial standing allows PKP CARGO to continue with optimisation of its processes, investments into rolling stock and workforce and further growth in Poland and abroad, including acquisitions.

At the end of Q3, PKP CARGO Group had more than 57% share in the rail freight transport market in terms of transport performance and more than 48% share in terms of freight volume. For the last several months, the carrier has observed a growth in its market share. In Q3, PKP CARGO Group exceeded 50% market share in terms of freight volume. This is the best result achieved this year.

After the three quarters of 2014, PKP CARGO Group posted a revenue of PLN 3.17bn. Operating costs decreased by 18% year-on-year to PLN 2.88bn. This allowed EBITDA to increase by 9% year-on-year to PLN 554m and the net profit to grow by 38% to PLN 227m. The third quarter was another consecutive reporting period in which the Polish carrier reported an increase in the profit and EBITDA margin coupled with cost reduction.

As a result of the measures taken in the previous months, a year after the IPO (30.10.2013), PKP CARGO can announce that its IPO commitments about optimising the Group’s activities, improving cost discipline and strengthening its position in the region have been fulfilled.

“The recent months have demonstrated that PKP CARGO can flexibly respond to the market situation. Our well-designed offer for customers, cost discipline and changes in process management have translated into a market share growth and impressive, better-than-expected financial performance. The financial buffer we have thus created will help us implement actions aimed at both internal changes within PKP CARGO and at further growth. We are heading towards 2015, a challenging year that we must be well prepared for. Our short-term priority will be to maintain the growth momentum and finalise our acquisition processes – says Adam Purwin, the President of the Management Board of PKP CARGO.

Market growth expected by PKP CARGO

Even though this is a difficult year for rail freight carriers, PKP CARGO Group has been steadily consolidating its market position. In Q3, the cargo market has grown by 4.5m tons vs. Q2. Out of these additional 4.5m tons, PKP CARGO took a share of 82%, i.e. 3.8m tons. The Group reported a similar result in terms of transport performance in Q3, taking a 79% share in the market growth compared with the second quarter.

Coal transport, one of the key business segments of PKP CARGO Group, fell by 7% year-on-year. This is an effect of the low competitiveness of Polish coal and the decrease in its exports. Despite the growing number of transports on domestic routes and in transit, the major 42% year-on-year decrease in hard coal exports caused this whole transport category to shrink notably. After Q3, hard coal transports represented 37% of all transports of PKP CARGO Group in terms of transport performance compared with 40% reported a year before.

Since the beginning of 2014, we have observed a steady increase in the transport of aggregate and construction materials. In Q3, PKP CARGO Group carried nearly 15.9m tons of freight in this category, 13% more than a year before. As a result, the share of aggregate and construction materials in the total freight carried by PKP CARGO increased to 21% compared with 18% a year before. PKP CARGO notes a good outlook for this transport segment – the upcoming months will see continuation of the record infrastructural investments in Poland, with more than PLN 355bn to be spent on development of transport infrastructure in the years 2014-2020. PKP CARGO also sees business growth opportunities connected with i.a. new energy and hydro-technical investments.

The increased infrastructural investments can also favourably affect metal and ore transports. In Q3, the transport performance in this segment increased to 912m kilometre-tons vs. 779m kilometre-tons in Q2.

In the latter half of the year, PKP CARGO has been also improving its market position in intermodal operations. The investments into this business segment have already yielded results – over the recent months, the carrier put to operation 160 new, 80-foot container platforms. The company continues to implement initiatives that will allow it to develop and diversify its customers portfolio, including by offering attractive logistics solutions such as the “operator train” on the route between the Tri-city ports and the Poznań-Franów terminal.

Savings and investments

PKP CARGO has again reported cost savings in the three main categories: electricity & fuel and access to infrastructure. Overall, operating costs dropped by 12% year-on-year to PLN 2.88bn (vs. PLN 3.29bn a year before).

Investments in the first 9 months of 2014 increased by 65% to PLN 419m, including nearly PLN 100m spent on upgrades of locomotives and purchase of freight wagons.

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