ANNUAL REPORT - pkp.pl · The PKP Group’s consolidated financial statement for 2014 includes...

A N N U A LR E P O R T

2014A N N U A L R E P O R T

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Introduction

Report on the operations of PKP Group Companies

Corporate social responsibility activitiesModernity measured by responsibility

Research projects as an element of quality management

01 PKP Group

02 PKP S.A.

03 PKP Polskie Linie Kolejowe

04 PKP CARGO

05 PKP Intercity

06 PKP Linia Hutnicza Szerokotorowa

07 PKP Szybka Kolej Miejska w Trójmieście

08 PKP Energetyka

09 TK Telekom

10 PKP Informatyka

Contents

Summary103

003PKP GROUP | ANNUAL REPORT 2014

Ladies and gentlemen,

On behalf of the Board of PKP S.A. and the PKP Group Compa-nies, I am pleased to present to you the Annual Report of the PKP Group for 2014.

Thanks to the big commitment of all employees I can proudly an-nounce that rail service is back in the game! Activities that focus on improving the comfort and safety of passengers helped us stop the decline in the number of passengers in PKP Intercity S.A. and turned around this undesirable trend. Additionally, we had consistently implemented the PKP Group’s Strategy developed at the beginning of the term of the current Board.

The most important event of the past year was the introduction on the Polish railway tracks of a new category of Express Intercity Premium trains, that is, the Pendolino. These modern trains offer maximum comfort. Importantly, we also witnessed significant improvements in travel times between major cities in Poland as a result of modernization works carried out in recent years.

We still continue to invest in improving the safety and comfort of travel, hence last year we purchased 40 train sets of Polish production, that will be in use on the tracks as early as 2015.

Customer satisfaction surveys confirm that the implementa-tion of the adopted Strategy is delivering the desired results. The number of passengers satisfied with their journey on PKP Intercity S.A. trains has increased by more than half. More and more passengers also appreciate the cleanness and the quality of services at railway stations and on trains, as well as punctuality and shorter travel times.

2014 was marked by record investment in railway lines, rolling stock and stations. Total expenditures for investment purposes in the PKP Group totaled to 9.8 billion PLN. We modernized over 1,400 km of track and and we have completed the building or renovation of 21 railway stations.

By standardizing the management of projects, we have increased the level of absorption of EU funds allocated to rail for another year in a row. The amount of funds used totaled more than 5 billion PLN, which is more than double than in 2013.

The unprecedented scale of infrastructure investments has resulted in improved safety. Our activities in this area included the development of a training program and an increase in employment of traffic safety staff. As a result, in the past year we recorded the lowest number of accidents in Polish railways history.

We maintained a high pace of privatization of the PKP Group Companies. PKP CARGO S.A. shares enjoyed unfailing investor interest, as confirmed by the June sale of shares for more than 500 million PLN. The funds obtained from the privatization

The most important event of the past year was the introduction on the Polish tracks of a new category of Express Intercity Premium trains, that is, the Pendolino.

and property sales led to a further reduction of the historic net debt, which we have already managed to reduce by 80 % since 2012. In 2014 we started other privatization processes

– TK Telekom Sp. z o.o. and PKP Energetyka S.A.

The past year was also marked by further dynamic development of PKP CARGO S.A., the second largest rail freight carrier in the European Union. A breakthrough in the international expansion strategy of this company was the purchase of the Czech carrier Advanced World Transport B.V. at the end of 2014. It was the first such transaction in the history of the PKP Group.

Furthermore, we are actively expanding on the real estate mar-ket. In December 2014 the Xcity Investment Sp. z o.o. company was set up. Its activity is dedicated to real estate development projects with a total estimated value exceeding 8.8 billion euro. The Company is poised to become a major player in the real estate development market.

This does not mean, however, that the process of change in the PKP Group has come to an end. On the contrary, our plans for 2015 include the realization of investments at the level of 11.3 billion PLN, an introduction of services operated by the technologically advanced electric multiple unit trains by PKP Intercity S.A., the finalization of the privatization pro-cesses of TK Telekom Sp. z o.o. and PKP Energetyka S.A. and the development of the PKP Group Strategy for 2015–2018. These tasks also include the preparation of investment processes for the new EU perspective in which more than 10 billion euros has been allocated for rail network development.

I wish to thank to all employees at the PKP Group, co–workers, contractors and most of all customers who daily verify the results of the work performed. We are proud that you appre-ciate our efforts. I hope that our future projects will bring even better results.

You can see the scope of the tasks performed and the changes introduced by reading this Annual Report.

I hope you will find the Annual Report interesting reading. p

Introduction

Warsaw, July 2015

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3 five companies operating in areas related to railway services (three railway printing houses, Natura Tour Sp. z o.o. providing tourist services and Polskie Koleje Linowe Sp. z o.o. providing mountain cable railway services).

PKP S.A. contributed elements of movable assets to the newly formed companies. Real estate property was leased to the companies, mainly because of its unclear legal status and then brought in ‘in kind’ as the process of regulating its legal status is being established.

As a result of the changes in ownership, including the pri-vatization processes and the restructuring processes being conducted, at the end of 2014 the PKP Group included:

3 Polskie Koleje Państwowe Spółka Akcyjna (hereinafter referred to as PKP S.A.) – parent company;

3 PKP Intercity S.A. (hereinafter referred to as PKP Intercity) and PKP Szybka Kolej Miejska Sp. z o.o. (also being the infrastructure administrator of No. 250 Line, hereinafter referred to as PKP SKM) – the operator companies providing services on the passenger transport market;

3 PKP CARGO S.A. (hereinafter referred to as PKP CARGO) and PKP Linia Hutnicza Szerokotorowa Sp. z o.o. (also being the infrastructure manager of No. 65 Line – a broad–gauge line, hereinafter referred to as PKP LHS) – the operator compa-nies providing services on the freight transport market;

The PKP Group’s consolidated financial statement for 2014 includes financial data for eight Companies of the PKP Group (PKP S.A., PKP Intercity, PKP SKM, PKP CARGO, PKP LHS, PKP Energetyka, PKP Informatyka, TK Telekom) and Przedsiębiorst-wo Spedycyjne Trade Trans Sp. z o.o. (a company depended on PKP CARGO). These Companies underwent full consolidation. Additionally, PKP S.A. was a minority shareholder in PKP PLK, which had an impact on the consolidation of this enterprise under the equity method.

This report describes consolidated financial and operational data, and individual data for each of the companies is dis-cussed further in the report.

3 PKP Polskie Linie Kolejowe S.A. (hereinafter referred to as PKP PLK) – the company managing standard railway lines;

3 PKP Energetyka S.A. (hereinafter referred to as PKP Ener-getyka), PKP Informatyka Sp. z o.o. (hereinafter referred to as PKP Informatyka) and TK Telekom Sp. z o.o. (hereinafter referred to as TK Telekom) – companies providing services related to railway infrastructure management;

3 CS Szkolenie i Doradztwo Sp. z o.o., Drukarnia Kolejowa Kraków Sp. z o.o., Natura Tour Sp. z o.o. – companies operating in areas unrelated to railway transportation.

01PKP Group

1.1 About the PKP GroupThe PKP Group was established in 2001 as a result of the restructuring process of the Polskie Koleje Państwowe (Polish State Railways) state enterprise.

This process aimed at separating transport activities from railway in-frastructure management and the establishment of independent legal entities in the secondary areas of activity.

Polskie Koleje Państwowe Spółka Akcyjna was established on 1 January 2001 as a result of the commercialization of the Polskie Koleje Państwowe state enterprise and entered into the rights and obligations of its predecessor. Furthermore, on the basis of the Polskie Koleje Państwowe state enterprise Act of 6 July 1995 and the Act of 8 September 2000 on the commercialization, restructuring and privatization of the Polskie Koleje Państwowe state enterprise, the following companies were established in 2001 in the areas of:

3 railway passenger transport: PKP Intercity Sp. z o.o. (since 2008 PKP Intercity S.A.), PKP Przewozy Regionalne Sp. z o.o., PKP Warszawska Kolej Dojazdowa Sp. z o.o., PKP Szybka Kolej Miejska w Trójmieście Sp. z o.o.;

3 freight transport: PKP CARGO S.A., PKP Linia Hutnicza Szerokotorowa Sp. z o.o.;

3 railway infrastructure management: PKP Polskie Linie Kolejowe S.A.;

3 activities supporting the core business: PKP Energetyka Sp. z o.o. (since 2009 PKP Energetyka S.A.), PKP Informatyka Sp. z o.o. and Telekomunikacja Kolejowa Sp. z o.o. (since 2010 TK Telekom Sp. z o.o.);

3 moreover, the following entities were established:

3 nine companies providing services for infrastructure renovations and repairs and two companies dealing with rolling stock repairs.

3 three companies operating in secondary areas, such as training (CS Szkolenie i Doradztwo Sp. z o.o.), pharmacy (Farmacja Kolejowa Sp. z o.o.) and supplies (Ferpol Sp. z o.o.).

Source: PKP Intercity.

3 Scheme of the PKP Group in 2014

PKP Linia Hutnicza

SzerokotorowaPKP Szybka Kolej Miejska

w Trójmieście

Drukarnia Kolejowa Kraków

Natura Tour CS Szkolenie i Doradztwo

PKP Energetyka

PKP Intercity

PKP CARGO

PKP Polskie Linie Kolejowe

PKP Informatyka

TK Telekom

PKP S.A. Parent company

PKP GROUP | ANNUAL REPORT 2014 | PKP GROUP 009PKP GROUP | ANNUAL REPORT 2014 | PKP GROUP008

5,604.0 million PLN including the main item of income from the transport of goods, which amounted to 3,749.4 million PLN and income from the transport of persons of 1,854.6 million PLN. In 2014 the level of grants from the State budget, which is the main subsidy and funding for international and interprovincial transport, amounted to 647.0 million PLN, and com-pared to 2013 increased by 46.6 million PLN (including due to the higher funding that PKP Intercity received from the State budget for the conduct of interprovincial transport).

The lower level of net revenue from the sale of products and services was primarily due to lower transport revenue, which was the result of a decrease in revenues from PKP CARGO (reduced demand for coal due to a decrease in electricity production and limits on exports of the aforementioned raw materials as a result of the continuing significant price falls of coal on world markets, partially offset by higher trans-portation of aggregates and building materials related to the launch of numerous infrastructure investments).

Item 2013 2014Change

2014–2013 %

Net revenues from the sale of products and services, including: 8,571.8 8,393.3 –178.5 –2.1 %

Sale of transport services, including: 5,864.8 5,604.0 –260.8 –4.4 %

Freight transport 3,988.0 3,749.4 –238.7 –6.0 %

Passenger transport 1,876.7 1,854.6 –22.1 –1.2 %

Public subsidy 600.4 647.0 46.6 7.8 %

Sale of other services 2,707.0 2,789.3 82.3 3.0 %

Change in the balance of products 0.4 3.9 3.5 810.8 %

Manufacturing cost of products for internal purposes 61.7 79.5 17.8 28.8 %

Net revenues from sales of goods and materials 1,557.3 2,028.6 471.3 30.3 %

Net revenues from sales and equivalent revenues 10,191.3 10,505.3 314.1 3.1 %

X Consolidated sales revenues and equivalent revenues for 2013–2014 (in million PLN)

The increase in net revenue from the sale of goods and materials is largely the result of higher level of revenue by PKP Energetyka (increase sales of electricity mainly in the ‘Third Party Access’ segment referred to as TPA and continuing development of initiatives of energy trading in the wholesale market).

Operating expenses in 2014 totalled 10,496.0 million PLN and compared to 2013 were higher by 248.1 million PLN, that is by 2.4 %.

The increase in operating expenses affected the value of goods and mate-rials sold due to the increase in the purchase of electricity (derived growth in electricity sales in the TPA segment), as well as the commencement and continuation of sale of gas and fuel respectively by PKP Energetyka.

1.2 Finances

In 2014, the PKP Group continued the restructuring process in order to adjust its resources to its actual needs. The actions were aimed at extending the area of activity and minimizing negative economic effects, mainly in transport companies. The effect of these activities is the observed improvement in the financial results.

Item 2013* 2014Change

2014–2013 %

Net sales revenues and equivalent revenues 10,191.3 10,505.3 314.1 3.1 %

Operating expenses 10,247.8 10,496.0 248.1 2.4 %

Profit (loss) on sales –56.6 9.4 66.0 –

Other operating revenues 802.8 895.5 92.7 11.6 %

Other operating expenses 657.8 884.0 226.1 34.4 %

Profit/loss on other operating activities 145.0 11.6 –133.4 –92.0 %

EBIT 88.4 20.9 –67.4 –76.3 %

EBITDA 823.2 751.4 –71.7 –8.7 %

EBITDA margin 8.1 % 7.2 % – –

Financial revenues 768.3 423.8 –344.5 –44.8 %

Financial expenses 570.8 363.2 –207.6 –36.4 %

Profit/loss on financial activities 197.5 60.6 –136.9 –69.3 %

Profit (loss) of business activities 285.9 81.6 –204.3 –71.5 %

Profit (loss) of shares in controlled entity –493.6 216.2 709.8 –

Gross profit (loss) –207.7 297.8 505.4 –

Income tax 50.6 –17.4 –68.0 –

Profit (loss) of minority shareholders 14.9 –144.4 –159.4 –

Net profit (loss) –273.2 459.6 732.8 –

Net profitability –2.7 % 4.4 % – –

X Consolidated profit and loss account for 2013–2014 (in million PLN)

The result from sales in 2014 amounted to 9.4 million PLN and improved compared to 2013 by 66.0 million PLN, which was mainlythe result of revenue growth as a result of maintaining the dynamic development of selected Companies in the PKP Group, while reducing operations costs as a result of the positive effects of continuing restructuration.

Net revenues from sales of products and services in 2014 were realized at the level of 8,393.3 million PLN, which is lower by 2.1 % in comparison to 2013. The dominant position in the structure of revenues in 2014 con-tinued to be income from the sale of transport services in the amount of

*Figures restated for the purpose of ensuring comparability.

X In 2014, the PKP Group improved its net result in comparison to 2013.

↑732.8 million

PKP GROUP | ANNUAL REPORT 2014 | PKP GROUPPKP GROUP | ANNUAL REPORT 2014 | PKP GROUP 011010

parison to 2013, supplementary capital increased by 39.6 million PLN and other reserve capital by 56.6 million PLN. As a result of the loss in 2013 the loss carried forward from the previous year increased by 549.5 million PLN.

Liabilities and provisions for liabilities constituted 57.9 % of total lia-bilities and increased by 231.1 million PLN in comparison to the end of 2013. The change in provisions and liabilities balance was mainly due to the increase in value of long–term liabilities (borrowings and loans, as well as issue of debt securities), prepayments (receipt of capital grants by the PKP Group Companies) and provisions for liabilities (increase in the provision for retirement benefits at the decrease of provisions on account of deferred income tax and other provisions) and decrease of short–terms liabilities (repayment of loans, credits and debt securities).

Item 31.12.2013 31.12.2014Change

2014–2013 %

Fixed assets 18,970.5 20,734.1 1,763.6 9.3 %

Current assets 5,481.2 4,583.7 –897.5 –16.4 %

TOTAL ASSETS 24,451.7 25,317.8 866.1 3.5 %

Equity 8,585.0 8,865.8 280.8 3.3 %

Equity of minority shareholders 1,443.7 1,797.9 354.2 24.5 %

Liabilities and provisions for liabilities 14,423.0 14,654.1 231.1 1.6 %

TOTAL LIABILITIES 24,451.7 25,317.8 866.1 3.5 %

X Consolidated balance sheet for 2013–2014 (in million PLN)

As at 31 December 2014 the most significant fixed asset items included tangible fixed assets worth 8,881.2 million PLN (35.1 % of total assets), which include:

3 property, plant and equipment, which mainly include:

3 buildings, premises, civil and water engineering structures, which include: elements of PKP SKM and PKP LHS railways, buildings and equipment forming electricity distribution system and telecommunication lines,

3 advance payments for fixed assets under construction.

3 fixed assets under construction (capital expenditures that had not been completed);

3 advance payments for fixed assets under construction.

Item 2013 2014Structure % Change

2013 2014 2014–2013 %

Depreciation 734.8 730.5 7.2 % 7.0 % –4.3 –0.6 %

Materials and energy consumption 1,571.2 1,546.1 15.3 % 14.7 % –25.1 –1.6 %

Outsourced services 3,317.0 3,259.6 32.4 % 31.1 % –57.4 –1.7 %

Taxes and charges 240,9 235.6 2.4 % 2.2 % –5.3 –2.2 %

Payroll 2,262.4 2,133.3 22.1 % 20.3 % –129.0 –5.7 %

Social security and other benefits 567.6 533.7 5.5 % 5.1 % –33.9 –6.0 %

Other costs by kind 94.3 72.9 0.9 % 0.7 % –21.4 –22.7 %

Value of goods and materials sold 1,459.7 1,984.3 14.2 % 18.9 % 524.6 35.9 %

Total operating expenses 10,247.8 10,496.0 100.0 % 100.0 % 248.1 2.4 %

X Consolidated operating expenses for 2013–2014 (in million PLN)

The decrease in operating expenses was recorded in the cost of salaries, social security and other benefits, as well as the cost of consumption of materials and energy. Additionally, the change in rates for services to access the line of infrastructure administrators of freight and passenger carriers was a positive factor in lowering outsourced service costs of the PKP Group.

In the case of other operating activities, the PKP Group recorded a profit of 11.6 million PLN, which was lower by 133.4 million PLN in comparison to 2013.

The increase in other operating revenues is due to the larger sale of expendable rolling stock, higher write–downs of invest-ment subsidies (settlement of the purchase and modernization of rolling stock), higher income from contractual penalties from companies that provide repair services for PKP Intercity and higher income from the reversal of provisions by PKP Energetyka. Other operating expenses, inter alia, increased as a result of costs of write–downs of penalties that PKP Intercity had calculated to the carrier suppliers.

In 2014 a positive result on financial activity was achieved (60.6 million PLN), which was lower by 136.9 million PLN than that obtained in 2013, due to the high profit on the sale of investments, obtained by PKP S.A. in 2013, at the same time with lower interest costs on financial liabilities in 2014.

In 2014 the PKP Group achieved a profit on business activities of 81.6 million PLN, with a profit of 285.9 million PLN generated in 2013.

The consolidated net profit of 459.6 million PLN, apart from the gross profit result, was affected by the profit from shares in subsidiaries, the value of income tax and minority share-holders’ results.

1.3 AssetsIn 2014, the balance sheet total of the PKP Group increased by 3.5 %, reaching the level of 25,317.8 million PLN as at 31 December 2014.

In comparison with 2013 there was an increase in the value of fixed investment assets while at the same time there was a decrease in current assets, mainly cash. The increase in the assets of the PKP Group was financed by both equity and external capital.

As at 31 December 2014, fixed assets made up 81.9 % of to-tal assets and in comparison to the financial standing as at 31 December 2013, increased by 1,763.6 million PLN. This also resulted from an increase in tangible fixed assets by 1,600.3 million PLN, an increase in long–term investments by 270.7 million PLN and an increase in non–tangible and legal assets by 19.5 million PLN, with a simultaneous decrease in the value of long–term receivables by 139.7 million PLN.

Current assets accounted for 18.1 % of the total assets. In comparison to December 2013, they decreased by 897.5 million PLN as a result of the decrease in short–term investments by 989.7 million PLN. Whereas short–term receivables increased by 55.3 million PLN and inventories by 28.4 million PLN.

As at 31 December 2014, equity capital made up 35.0 % of total liabilities and in comparison to December 2013, equity capital increased by 280.8 million PLN. It resulted from a net profit in 2014 of 459.6 million PLN with a net loss for the 2013 financial year at the level of 273.2 million PLN. In com-


1.4 InvestmentsIn 2014 the PKP Group Companies incurred capital expenditure at the record amount of 9,844.5 million PLN, that is 42.9 % more than in 2013.

The investment activity was focused mainly on the upgrade of railway lines, construction investments, modernization and purchase of rolling stock. Sources of funding for capital expenditures included own funds, EU funds, State budget subsidies and other forms of external financing. The most significant investments include the following tasks:

3 The upgrade of railway lines:

3 PKP PLK: – The upgrade of Warszawa – Łódź railway line with the

construction of the Łódź Fabryczna railway station – 859.1 million PLN

– Upgrade of E30 Kraków – Rzeszów railway line – 737.0 million PLN

– Upgrade of E65 Warszawa – Gdynia railway line – 575.0 million PLN

– Upgrade of E59 Wrocław – Poznań railway line – 405.2 million PLN

– Upgrade of E75 Rail Baltica Warszawa – Białystok railway line – 271.9 million PLN

3 PKP SKM: – Extension of No. 250 line with Gdańsk Śródmieście

rail stop construction – 38.6 million PLN

3 Construction investment: 3 PKP Energetyka: – Expansion and upgrade of power distribution

systems of traction and non–traction current, construction and upgrade of buildings and structures and electricity connection to new customers – a total of 425.6 million PLN;

3 PKP S.A.: – Construction of railway stations (including Łódź

Fabryczna, Bydgoszcz, Kraków Główny, Piła Główna, Opole Główne) – 153.1 million PLN

3 The purchase and upgrade of rolling stock: 3 PKP Intercity: – Purchase of 20 train sets ED250 Pendolino

– 1,165.9 million PLN – Upgrade and purchase of passenger carriages

for rail services between Przemyśl – Szczecin and Wrocław – Gdynia – 223.1 million PLN;

3 PKP SKM: – Upgrade of 21 electric multiple units (EZT)

– 102.4 million PLN; 3 PKP CARGO: – Purchase of 200 flatcars – 57.2 million PLN

X Capital expenditure by the PKP Group Companies in 2013–2014 (in million PLN)

Item 2013 Structure % 2014 Structure %Change

2014–2013 %

PKP S.A. 218.4 3.2 % 172.4 1.8 % –46.0 –21.1 %

PKP CARGO* 118.0 1.7 % 145.8 1.5 % 27.8 23.6 %

PKP LHS 52.3 0.8 % 37.6 0.4 % –14.7 –28.1 %

PKP Intercity 756.0 11.0 % 1,504.3 15.3 % 748.3 99.0 %

PKP SKM 43.6 0.6 % 150.1 1.5 % 106.6 244.7 %

PKP Energetyka 352.1 5.1 % 488.9 5.0 % 136.7 38.8 %

PKP Informatyka 12.2 0.2 % 13.1 0.1 % 1.0 8.0 %

TK Telekom 21.5 0.3 % 26.7 0.3 % 5.2 24.0 %

PKP PLK 5,314.3 77.1 % 7,305.6 74.2 % 1,991.3 37.5 %

PKP GROUP 6,888.4 100.0 % 9,844.5 100.0 % 2,956.1 42.9 %

*Figures compliant with the Accounting Act. PKP CARGO draws up its statutory financial statements according to IAS/IFRS.

Item 31.12.2013 31.12.2014Change

2014–2013 %

Fixed assets: 18,970.5 20,734.1 1,763.6 9.3 %

I. Intangible assets 81.2 100.7 19.5 24.0 %

II. Tangible fixed assets, including: 7,280.8 8,881.2 1,600.3 22.0 %

1. Property, plant and equipment, including: 5,768.0 7,500.0 1,732.0 30.0 %

a. Land, including: 212.7 225.8 13.1 6.2 %

– Right of perpetual usufruct of land 201.7 213.6 11.9 5.9 %

b. Buildings, premises, civil & water engineering structures 1,390.5 1,580.7 190.3 13.7 %

c. Technical equipment and machinery 427.6 567.0 139.4 32.6 %

d. Means of transport 3,719.2 5,111.9 1,392.7 37.4 %

e. Other fixed assets 18.1 14.6 –3.5 –19.1 %

2. Fixed assets under construction 1,219.5 997.5 –222.1 –18.2 %

3. Advance payments for fixed assets under construction 293.3 383.6 90.4 30.8 %

X Selected fixed assets in 2013–2014 (in million PLN)


In 2014, most of the PKP Group Companies recorded a decrease in employment, the largest decreases were in:

3 PKP CARGO – continuation of optimizing the human re-sources program (implementation of Program Dobrowol-nych Odejść – The Voluntary Redundancy Program [VRP]) and a greater than expected number of terminated em-ployment contracts due to acquiring retirement rights;

3 TK Telekom – the restructuring of employment and trans-fer of employees into separate TK Budownictwo and PKP Utrzymanie companies,

3 PKP S.A. – Reorganization of maintenance of real estate plants affecting the organizational changes in the Company and natural attrition as part of acquiring retirement rights.

X Employment structure in the PKP Group by education level in 2013–2014

2013 2014

Secondary – 52 % Vocational – 27 %Higher – 16 %Primary – 5 %

Secondary – 52 % Vocational – 26 %Higher – 17 %Primary – 5 %

X Employment in the PKP Group in 2013–2014

Item

Average employment during a 12 months period

(full-time job positions)

Change 2014–2013

Number of people employed* as at the end

of December (persons)

Change 2014–2013

2013 2014 full-time job positions % 2013 2014 persons %

PKP S.A. 2,758 2,602 –157 –5.7 % 2,743 2,437 –306 –11.2 %

PKP CARGO 22,711 22,013 –698 –3.1 % 22,480 20,830 –1,650 –7.3 %

PKP LHS 1,245 1,282 38 3.0 % 1,247 1,292 45 3.6 %

PKP Intercity 7,348 7,199 –149 –2.0 % 7,246 7,138 –108 –1.5 %

PKP SKM 793 794 1 0.1 % 784 831 47 6.0 %

PKP Energetyka 7,286 7,192 –93 –1.3 % 7,285 7,189 –96 –1.3 %

PKP Informatyka 442 403 –39 –8.8 % 403 403 0 0.0 %

TK Telekom 1,491 816 –675 –45.3 % 1,469 495 –974 –66.3 %

PKP PLK 38,469 37,959 –510 –1.3 % 37,611 38,264 653 1.7 %

PKP GROUP 82,542 80,260 –2,282 –2.8 % 81,268 78,879 –2,389 –2.9 %

1.5 EmploymentThe PKP Group is one of the largest employers in Poland, employing almost 79,000 people. Two Companies of the PKP Group, PKP PLK and PKP CARGO, are in the top ten largest employers in Poland.

In 2014, the PKP Group Companies continued the process of adjusting the level and structure of employment to their current tasks in line with changing market requirements.

*The number of people employed in PKP S.A. includes employees for whom PKP S.A. is the primary place of employment, including its representatives abroad.

As at 31 December 2014, 78,879 people were employed in the PKP Group Companies and in comparison to 31 December 2013 it was lower by 2,389 people, that is by 2.9 %. In 2014 the average number of full–time job positions was 80,260 and decreased by 2.8 % in comparison to 2013.

81,268 people

78,879 people


June

3 In 18 June 2014, as a result of the block trades entered into as a result of the accelerated book building demand, PKP S.A. sold 17.03 % of PKP CARGO shares.

3 Issue by the President of the Railway Transport Office of PKP CARGO of the part A No. PL 1120140006 safety certificate for a period of five years, that is valid to 24 June 2019 and which is an extension of the part A No. PL 1120090001 safety certificate of 25 June 2009, the validity of which had expired on 24 June 2014.

3 Approval of the tariffs for natural gas trading for PKP Energetyka, which took effect from 1 July 2014 for the period of 12 months by the Energy Regulatory Office on 27 June 2014.

July

3 Annual contract signed on 8 July 2014 between PKP Intercity and Minister of Infrastructure and Development for the provision of public services in the area of inter-national rail passenger transport from 1 January 2014 to 31 December 2014.

3 The first annual contract signed on 15 July 2014 for the sale of gas by PKP Energetyka with Przedsiębiorstwo Energetyczne w Siedlcach Sp. z o.o. The contract includes the purchase by the PEC Siedlce of approx. 50 million m3 of gas and extends the existing cooperation of the companies on the basis of synergies.

September

3 27 September 2014 the fund manager of Fundusz Włas-ności Pracowniczej PKP SFIO (Employee Ownership Fund PKP SFIO) changed to ING Towarzystwo Funduszy Inwestycyjnych S.A.

November

3 Issue of the announcement by PKP S.A. on 19 November 2014 inviting all potential investors to express their interest in purchasing shares in Drukarnia Kolejowa Kraków Sp. z o.o. and the purchase of real estate located in Węgrzce.

3 A contract for the provision of public services in rail passenger transport, carried out in the Pomorskie Province. The agreement is valid for the period from 14 December 2014 to 12 December 2015 and was signed by PKP SKM on 28 November and 9 December 2014 respectively.

December

3 The launch of a new category of trains PKP Intercity Express InterCity Premium (EIP) operated by the Pen-dolino trains on 14 December 2014. 9 of the 17 EIP Pre-mium units have been added to regular services with the introduction of the 2014/15 train timetable.

3 Significant reduction in travel times on the main rail routes between major Polish cities along with the new train timetable were achieved.

3 Annual annex to the Agreement was concluded on 23 December 2014 between the Minister of Infrastruc-ture and PKP Intercity, whereby the amount of funding for the interprovincial trains has been increased to 432.7 million PLN.

3 Contract signed on 30 December 2014 by PKP CARGO to acquire 80 % of shares in Advanced World Transport B.V. – the second largest rail freight carrier in the Czech Republic whose business covers a large part of the Central and South European region.

3 In the area of international transport PKP CARGO re-ceived from the relevant safety agencies, which are equivalent to the Railway Transport Office, an extension of Part B safety certificates in the following countries: Slovakia – until 21 May 2019, Germany – until 11 May 2019, Austria – until 24 June 2019, the Netherlands – until 24 June 2019, and issued on 21 May 2014 indefinite cer-tificate in Lithuania, with an entitlement to independent provision of transport services on the Lithuanian railway network on the 1,435 mm standards.

3 Conducting awareness campaigns in the following com-panies:

– PKP LHS – The 3rd edition of employee volunteering ‘EKOlogiczni’ (‘ECOlogical’) – participation in the ‘Sprzątamy Roztoczański Park Narodowy’ event (‘Cleaning Up Roztoczański National Park’);

– PKP Energetyka – ‘Energia dla życia’ (‘Energy for life’) campaign promoting voluntary blood donation in the Company and its surroundings;

– TK Telekom – ‘Z nosem w sieci’ (‘With a nose in the net’) – a nationwide project of free Internet access for children in hospitals, orphanages and other educational establishments.

3 A new Xcity Investment Sp. z o.o. company was appointed, which implements, together with third parties, property development and investment projects on railway premises. Xcity Investment commenced operations in January 2015.

1.6 Main highlights

January

3 The 2013 Budget Act was passed which stipulated, inter alia:

– a designated subsidy for PKP S.A. for investments related to the upgrade of railway stations in the amount of 106.9 million PLN;

– a subsidy for domestic passenger railway transport awarded to railway companies (including companies unrelated to the PKP Group) to compensate for lost revenues due to the application of concessions in the amount of 505.1 million PLN;

– a designated subsidy for PKP Intercity and Przewozy Regionalne Sp. z o.o. for passenger transport (interprovincial and international) in the amount of 375.0 million PLN.

3 The increase of PKP Intercity rating from stable to positive by Fitch Ratings agency.

February

3 TK Telekom announcement on 25 February 2014 of the procedure to select a transaction advisor for the process of the sale of Company shares.

3 Adoption of the 4th Railway Package by the European Parliament on 26 February 2014. Its goal was to finalize work on legislative basics to enable rail industry im-provement of the quality and effectiveness of services provided. Attention was also drawn to the completion of the uniform European railway area, whose key ele-ments are regulations relating to the opening up of the market for domestic rail passenger services and railway infrastructure management.

3 The European Parliament’s adoption on 26 February 2014 of the amendment excluding from the legal requirements those provisions concerning the separation of the insti-tutional railway infrastructure administrator and carrier of broad gauge railway No. 65 line managed by PKP LHS.

March

3 Announcement on 17 March 2014 of the judgment by the Regional Court – Court of Competition and Con-sumer Protection in Warsaw, setting aside the decision of the President of the Office of Competition and Con-sumer Protection [OCCP] (from July 2009) and imposing

a 60.4 million PLN penalty on PKP CARGO due to the abuse of its dominant position.

3 The adoption on 21 March 2014 by the Sejm and on 10 April 2014 by the Senate of the amendment to the Railway Transport Act, the Act on Commercialization, Restructuring and Privatization of the ‘Polskie Koleje Państwowe’ state enterprise and the Railway Fund Act. The new regulations:

– introduce changes in the financing of rail infrastructure administrators (implementation of EU Court of Justice decision of 30 May 2013);

– introduce the reassignment of 500 million PLN Railway Fund from financing the acquisition of PKP PLK shares from PKP S.A. by the State Treasury to finance fixed costs of PKP PLK;

– remove the loophole in the law concerning the regula-tion whereby the President of the Rail Transport Office refuses to approve charges for the use of railway infra-structure proposed by the administrator – amendment provides for the application of charges for access to railway infrastructure in the currently approved amount;

– are designed to eliminate from the legal system those regulations that result in the generation by the railway infrastructure administrator of unjustified financial losses;

– allow local governments and associations of local government units gratuitous acquisition of State–owned companies that were created through a different pro-cedure than commercialization.

April

3 New conditions from 1 April 2014 for the transport of iron ore for the key partner ArcelorMittal Poland S.A. negotiated by PKP LHS.

3 Annual contract signed on 11 April 2014 between the Minister of Infrastructure and PKP Intercity to organize, perform and subsidize interprovincial rail passenger services, providing funding of 322.1 million PLN in 2014.

3 Launching a new and more functional website with the train timetable (rozklad–pkp.pl), introduced by PKP S.A. and TK Telekom Sp. z o.o.


02PKP S.A.www.pkpsa.pl

2.1 About the CompanyPolskie Koleje Państwowe Spółka Akcyjna (Polish State Railways Joint–stock Company) (hereinafter PKP S.A.) was established as a result of the commercialization of the Polskie Koleje Państwowe company pursuant to the Act of 8 September 2000 on commercialization, restructuring and privatization of the state enterprise Polskie Koleje Państwowe.

The entry of PKP S.A. into the commercial register became effective on 1 January 2001 and as of that day the Company started its operation. The State Treasury is the only share-holder of PKP S.A.

The Company plays a dominant role in the PKP Group, operating in the scope of:

3 management of the capital group;

3 owner supervision over the PKP Group Companies;

3 management of its assets;

3 provision of railway workers’ medical services.

The PKP Group Companies placed particular emphasis on effective supervision and coordination of ongoing restruc-turing processes and the preparation of its companies for the planned privatization processes. In 2014 PKP S.A. success-fully completed the sale of a subsequent block of shares in PKP CARGO, the sale of shares held in Huta Stalowa Wola and sale of ZUT REMTRAK shares.

PKP S.A. manages and administers tens of thousands of residential and non–residential properties, including railway stations and premises adjacent to them. In order to reduce costs incurred by the Company intensified sale activities are carried out (for example within the ‘Dworzec na własność’ [‘Own a railway station’] offer), aimed at the disposal of another group of real estate, unused commercially or finan-cially unprofitable. The Company is also continuing the process of enfranchisement of the land held for sale and undertakes the preparation of the property to provide for an in–kind contribution to subsidiary companies.

As manager and administrator, PKP S.A. implements a com-prehensive investment program related to the revitalization of railway stations. As a result of these activities travelers were given access to 100 railway stations. 21 railway station investments were completed in 2014 alone and 21 new im-plementation contracts were signed.

X PKP S.A. manages and administers tens of thousands of properties.

2.2 Management and Supervisory Bodies

Management Board

3 Jakub Karnowski – President of the Management Board

3 Jarosław Bator – Member of the Management Board

3 Piotr Ciżkowicz – Member of the Management Board

Supervisory Board

3 Jacek Barylski – Chairperson

3 Halina Wiśniewska – Deputy Chairperson

3 Leszek Miętek – Secretary

3 Juliusz Engelhardt

3 Cezary Szeliga

3 Jan Lalik

3 Zenon Kozendra

3 Piotr Stolarczyk

3 Magdalena Safjan S Jakub Karnowski – President of the Management Board

PKP GROUP | ANNUAL REPORT 2014 | PKP S.A . 021PKP GROUP | ANNUAL REPORT 2014 | PKP S.A .020

In 2014 operating expenses decreased by 25.0 million PLN and were 853.7 million PLN. The main expenditure items were: external services – 213.6 million PLN, labor costs – 198.9 million PLN, depreciation – 160.3 million PLN, and taxes and fees – 157.1 million PLN, which all together accounted for 85.5 % of total operating expenses.

The largest decrease in expenses in comparison to 2013 was recorded in expenses of materials and energy consumption, that is by 12.5 million PLN. A significant decrease in expenses in comparison to 2013 related to taxes and fees, which de-creased by 8.6 million PLN.

X Operating expenses in 2013–2014 (in million PLN)

Item 2013 2014Structure ( %) Change

2013 2014 2014–2013 %

Depreciation 167.1 160.3 19.0 % 18.8 % –6.7 –4.0 %

Materials and energy consumption 97.1 84.6 11.0 % 9.9 % –12.5 –12.8 %

Outsourced services 213.2 213.6 24.3 % 25.0 % 0.4 0.2 %

Taxes and charges 165.7 157.1 18.9 % 18.4 % –8.6 –5.2 %

Payroll 162.6 164.9 18.5 % 19.3 % 2.2 1.4 %

Social security and other benefits 36.7 34.0 4.2 % 4.0 % –2.6 –7.2 %

Other costs by kind 3.7 3.9 0.4 % 0.5 % 0.2 4.6 %

Value of goods and materials sold 32.7 35.2 3.7 % 4.1 % 2.6 7.9 %

Total operating expenses 878.7 853.7 100.0 % 100.0 % –25.0 –2.8 %

The main reason for the decrease in financial revenues was the high profit on the sale of investments, obtained in 2013 (that is higher by 174.8 million PLN than that achieved in 2014). In addition, in 2014 there was a decline of other financial revenues by 162.0 million PLN, as a result of valuation of financial instruments at the end of 2013, including valuation correction of the value of bonds by 101.6 million PLN and value of loans by 73.7 million PLN. In 2014, financial expenses were 287.2 million PLN and decreased by 84.5 million PLN, in comparison to the previous year as a result of unexpected costs incurred in 2014 lower by 55.2 million PLN interest costs on financial and overdue liabilities and lower by 102.5 million PLN other financial expenses, while also carrying out write–downs of shares in TK Telekom of 73.1 million PLN.

Moreover, there was a decline in depreciation, mainly due to the reduction of resources through the sale of assets, con-tributions in kind and liquidations. At the same time there was an increase in some categories of operating expenses in 2014, inter alia, the cost of external services by 0.4 million PLN, and the value of goods and materials sold by 2.6 million PLN.

In the case of other operating activities PKP S.A. reported a profit of 160.7 million PLN, by 127.6 million PLN higher than that achieved in 2013. The increase in operating profit was influenced by an increase in revenues from the liquidation of fixed assets, as well as an increase in other operating revenues, while at the same time there was a decrease in expenses of the Fundusz Własności Pracowniczej (Workers’ Ownership Fund) (cost of write–off of 15.0 % of funds obtained from the sale of PKP S.A. assets).

Profit from financing activities in 2014 was 212.2 million PLN, and was lower than the result achieved in 2013 by 166.5 million PLN due to higher decline rate of financial income than expenses.

2.3 Finances

In 2014, PKP S.A. recorded a net profit of 219.0 million PLN, which in comparison to 2013 was lower by 13.1 million PLN. The recorded net profit is the result, inter alia, of the sale of shares in companies (including the next tranche of shares in PKP CARGO S.A.) and profit on the sale of real estate.

The Company maintains liquidity at a safe and stable level, thereby realizing the main objective of PKP S.A. in maintaining a safe level of financial liquidity and timely payment of liabili-ties from loans and bonds issued. In 2014 alone total repayment of liabilities from loans and bonds was 1,528.6 million PLN.

The core business in 2014 showed a loss on sales amounting to 153.9 million PLN which was lower than the loss in 2013 by

X Financial results for 2013–2014 (in million PLN)


2014–2013 %

Net sales revenues and equivalent revenues 699.1 699.9 0.8 0.1 %

Operating expenses 878.7 853.7 –25.0 –2.8 %

Profit/loss on sales –179.6 –153.9 25.8 –


Other operating expenses 416.8 350.2 –66.6 –16.0 %

Profit/loss on other operating activities 33.1 160.7 127.6 385.4 %

EBIT –146.5 6.8 153.4 –

EBITDA 20.6 167.2 146.6 713.5 %




Profit/loss on financial activities 378.6 212.2 –166.5 –44.0 %

Gross profit (loss) 232.1 219.0 –13.1 –5.6 %

Income tax 0.0 0.0 0.0 –

Net profit (loss) 232.1 219.0 –13.1 –5.6 %

Net profitability 33.2 % 31.3 % – –

25.8 million PLN. Limiting the losses resulted from the increase in sales revenue and a decrease in operating expenses (mainly materials and energy, fees and taxes, and depreciation).

Net sales revenues in 2014 were realized at a level slightly higher than in 2013, that is an increase of 0.1 %. The dominant position in the structure of revenues from core activities is the revenue from rental and leasing totaling 485.8 million PLN, which is 69.4 % of sales revenue. The second area having a significant impact on the outcome of core operating activities was in housing management which covered revenue from rental of PKP S.A. dwellings, which generated 77.2 million PLN, which represents 11.0 % of revenue. Total revenues from the commercial development of the properties: rental, leasing renovations and sale of utilities accounted for 86.4 % of operating revenues.

In 2014 the Company achieved higher than expected revenues from the sale of materials and goods of 35.7 million PLN (an increase of 2.4 million PLN, y/y), mainly related to the sale of scrap metal from the liquidation of redundant assets.

X Since 2012 PKP S.A. net debt decreased by 80 %.

PKP GROUP | ANNUAL REPORT 2014 | PKP S.A .PKP GROUP | ANNUAL REPORT 2014 | PKP S.A . 023022

2.5 InvestmentsCapital expenditure incurred by the Company in 2014 was 172.4 million PLN and was allocated for construction projects in the company’s organizational units and capital purchases.

The highest capital expenditure was incurred in relation to the following railway stations:

3 Łodź Fabryczna – 28.6 million PLN; 3 Kraków Główny – 21.8 million PLN; 3 Bydgoszcz – 19.9 million PLN; 3 Piła Główna – 7.1 million PLN; 3 Opole Główne – 6.3 mln million PLN; 3 Ełk Główny – 5.6 million PLN; 3 Nowy Sącz – 5.5 million PLN; 3 Jaworzyna Śląska – 4.8 million PLN; 3 Gniezno – 3.8 million PLN.

In addition, in 2014 PKP S.A. completed repairs totaling 40.5 million PLN, which means an increase in spending in comparison to the previous year by 18.2 million PLN. The scope of renovation works included, inter alia, thermo–modernization, repair of roofs, exterior elevations and repairs resulting from breakdowns.


2014–2013 %

Investments – construction 178.9 153.2 –25.8 –14.4 %

Other investments (purchase, upgrade)

39.5 19.3 –20.2 –51.2 %

Total investments 218.4 172.4 –46.0 –21.1 %

Own funds 104.2 98.5 –5.7 –5.5 %

Public funds 77.5 38.9 –38.6 –49.8 %

EU funds 36.7 35.0 –1.7 –4.7 %

X Investments of PKP S.A. in 2013–2014 (in million PLN)

Construction investments were mainly financed with the Company’s own funds, which accounted for 57.1 % of the capital expenditure incurred. Other financial resources came from public funds (22.6 %) and EU funds (20.3 %).

2.4 AssetsThe total assets of PKP S.A. as at the end of 2014 were 17,729.4 million PLN and decreased by 7.9 % in comparison to the previous year.

Fixed assets accounted for 88.6 % of the total assets. At the end of 2014 their value decreased mainly as a result of the sale of shares in subsidiaries, as well as disposal of real estate. Despite the above changes, long–term investments dominated in the structure of fixed assets, that is 78.0 %.

The second largest group in the structure of assets was long–term re-ceivables, which accounted for 19.8 % of the aforementioned assets, and included undue receivables operated under lease agreements of railway lines and other real estate necessary for the management of railway lines by the companies: PKP PLK, PKP SKM and PKP LHS.

The Company reported an increase in tangible fixed assets in comparison to 2013, inter alia, as a result of capital expenditures and the settlement of the legal status of properties.

X Fixed assets in 2013–2014 (in million PLN)

Item 31.12.2013 31.12.2014Change

2014–2013 %

Fixed assets 17,123.5 15,703.1 –1,420.4 –8.3 %


II. Tangible fixed assets, including: 289.2 299.8 10.6 3.7 %

1. Property, plant and equipment, including: 81.4 105.2 23.8 29.2 %

a. Land, including: 17.0 18.6 1.6 9.2 %

– Right of perpetual usufruct of land 15.1 16.7 1.6 10.3 %

b. Buildings, premises, civil & water engineering structures 28.2 31.9 3.7 13.2 %


d. Means of transport 1.2 0.4 –0.8 –65.4 %


2. Fixed assets under construction 207.8 192.5 –15.3 –7.4 %

3. Advance payments for fixed assets under construction 0.0 2.2 2.1 5,259.7 %

III. Long–term receivables 3,223.5 3,108.7 –114.8 –3.6 %

IV. Long–term investments 13,548.6 12,253.4 –1,295.1 –9.6 %

V. Long–term prepayments 50.6 22.6 –28.1 –55.5 %

PKP GROUP | ANNUAL REPORT 2014 | PKP S.A .PKP GROUP | ANNUAL REPORT 2014 | PKP S.A . 025024

2.7 Main highlights

February

3 Opening of the new Kraków Główny railway station, which is the first railway station in its entirety located below platforms.

3 ‘Tego, który zmienia polski przemysł’ (‘He who changes the Polish industry’) award for the President of the Management Board of PKP S.A. – Jakub Karnowski. The award was presented by ‘Nowy Przemysł’ (‘New Industry’) monthly magazine and www.wnp.pl website.

March

3 The sale of PKP S.A. shares in the Poznań City Center mall, which was established as part of a development project implemented by PKP S.A. and TriGranit Development Poland Sp. z o.o.

3 The ‘Przedsiębiorstwa przyszłości 2014’ (‘2014 Companies of the Future’) certificate awarded to PKP S.A. within the Ogólnopolski Program Certifikacji Firm i Innych Jednostek Organizacyjnych Prowadzących Działalność Gospodarczą ‘Przedsiębiorstwo Przyszłości’ (‘Company of the Future’ National Certification Program for Companies and other Institutions Engaged in Economic Activities).

May

3 The largest repayment in 2014 of the tranche of the historical PKP railway debt of approx. 806 million PLN.

June

3 Commencement of modernization of the Bydgoszcz Główna railway station, the first in 2014 investment co–financed from EU funds.

3 Sale by PKP S.A. of a subsequent holding of 17 % of PKP CARGO shares on the Warsaw Stock Exchange within the ABB transaction.

July

3 The construction of the railway station's music stage during the Open'er Festival in Gdynia, which is a periodic PKP S.A. project organized together with the largest Polish festival. As part of the cooperation, a stage was built in front of the railway station Gdynia Główna, where young and inde-pendent Polish bands performed daily open air concerts.

August

3 PKP S.A. rating renewal for the next year by Fitch Rating Agency and confirmation of the high evaluation of the Company.

August – September

3 ‘Świebodzki Targ Kultury’ (‘Świebodzki Cultural Fair’) was the first project initiated by PKP S.A. at the historic Wrocław Świebodzki railway station. Over three weekends during summer, the closed railway station turned into an open creative space. During the festival concerts, film screenings, theater performances, lectures and debates on urban space and workshops for children were held.

3 Launching the ‘Dworzec na warsztat’ (‘Railways station for workshops’) series organized under the banner of the Warszawa Centralna brand. A series of meetings with fans of the Warszawa Centralna brand, were organized in the form of crafts and handicrafts workshops in the railway station, including carpentry classes, bookbinding, restoration of furniture or screen printing.

October

3 The privatization process of TK Telekom was commenced.

3 The ‘Nagroda 25–lecia’ Rynku Kolejowego (‘Railway Market Award commemorating 25 years’) presented to PKP S.A. The prize was awarded for the initiation of the process of ownership changes in the PKP Group, with particular emphasis on the float of PKP CARGO on the Warsaw Stock Exchange.

November

3 Launching its own PKP S.A. pilot program, that is the building of Innowacyjne Dworce Systemowe (Innovative Systemic Railway Stations).

December

3 The start of construction of a new Warszawa Zachodnia railway station, implemented as part of a development project with HB Reavis.

3 The award ‘Kraków bez barier’ (‘Cracow without barriers’) for Kraków Główny railway station as an object adapted to the needs of people with disabilities.

3 The commencement of the first works on the modern-ization of Szczecin Główny railway station, which is an investment financed from EU funds.

3 Published invitations to tender for the purchase of 100 % of shares of the PKP Energetyka company.

X Employment in PKP S.A. in 2013–2014

Item

Average employment during a 12 months period

(full-time job positions)

Change 2014–2013

Number of people employed* as at the end

of December (persons)

Change 2014–2013

2013 2014 full-time job positions % 2013 2014 persons %

PKP S.A. Headquarters 771 802 31 4.0 % 790 804 14 1.8 %

Regions 1,812 1,617 –195 –10.8 % 1,741 1,415 –326 –18.7 %

Railway Medical Services Department 176 183 7 4.2 % 212 218 6 2.8 %

Total employment 2,758 2,602 –157 –5.7 % 2,743 2,437 –306 –11.2 %

2.6 EmploymentAt the end of 2014, a total of 2,437 people were employed in PKP S.A. and decreased by 306 people in comparison to 2013.

The decrease in employment was mainly attributable to the natural attrition of employees eligible for retirement benefits and the restructuring of the company’s employment structure as a result of organizational changes in the Company.

The structure of education is gradually improving. At the end of 2014, the share of employees with higher education

*With its representatives abroad, excluding persons for whom PKP S.A. is not the primary place of employment.

X Structure of employment by age in 2013–2014, excluding persons for whom PKP S.A. is not the main place of employment (in persons)

2013 2014

above 50 years of age – 49 %41–50 years of age – 21 %

above 50 years of age – 44 %41–50 years of age – 19 %

31–40 years of age – 17 %up to 30 years of age – 13 %

31–40 years of age – 21 %up to 30 years of age – 16 %

accounted for 58.8 %, which is an increase of 9.5 percentage points. Concurrent with the observed increase in the share of employees with higher education, there is a decline in the share of workers with primary and vocational education. During 2014 the share of this group of workers in total employment fell to 6.4 %, that is by 9.6 percentage points.

In addition, an upward trend in the share of workers up to 30 years of age in the structure of employees in total was observed in the Company. This share at the end of 2014 was 16.2 % and was higher in comparison to the end of 2013 by 3.3 percentage points.

2,743 people

2,437 people

PKP GROUP | ANNUAL REPORT 2014 | PKP S.A . 027PKP GROUP | ANNUAL REPORT 2014 | PKP S.A .026

03PKP Polskie Linie Kolejowewww.plk–sa.pl

3.1 About the CompanyPKP Polskie Linie Kolejowe S.A. (hereinafter PKP PLK) has been in business since 1 October 2001. As at 31 December 2014, its share capital was 15,869.3 million PLN. The shareholders of the Company include the State Treasury which owns 85.9 % of all shares and PKP S.A., which holds the remaining 14.1 % of shares.

PKP PLK is the railway infrastructure administrator that provides access to infrastructure to licensed railway operators. The Company’s objects are:

3 paid access to railway operators for a fee according to rates pub-lished in the price list approved by the Office of Rail Transportation;

3 service activities supporting land transportation, in particular carrying–out railway transport and railway line management, keeping railway lines in a condition ensuring efficient and safe transport of people and freight, regularity and safety of railway traffic, fire service activities, and environment and property protection on railway premises;

3 engineering activities and related technical consultancy, including surveying and cartographic activities;

3 works related to the construction of railway tracks, underground railways, roads and motorways, telecommunications and electricity lines construction;

3 activities related to the general defense obligation, in particular in the preparation of railway facilities and lines for the purpose of carrying–out defense activities.


Management Board

3 Andrzej Filip Wojciechowski – President of the Management Board

3 Andrzej Pawłowski – Vice-President of the Management Board, Operations Director

3 Piotr Wyborski – Member of the Management Board, Infrastructure Maintenance Director

3 Tomasz Kruk – Member of the Management Board, Operational Quality and Risk Director

3 Karol Depczyński – Member of the Management Board, Financial and Economic Director

3 Marcin Machocki – Member of the Management Board, Investment Director

Supervisory Board

3 Arkadiusz Krężel – Chairperson

3 Gabriela Popowicz – Secretary

3 Piotr Gebel

3 Piotr Góralewski

3 Magdalena Jaworska

3 Artur Kawaler

3 Wiesław Pełka

3 Jan Piechel

3 Ireneusz Piecuch

S Andrzej Filip Wojciechowski – President of the Management Board

PKP GROUP | ANNUAL REPORT 2014 | PKP POLSKIE LINIE KOLEjOwEPKP GROUP | ANNUAL REPORT 2014 | PKP POLSKIE LINIE KOLEjOwE 029028

X Sales revenues and equivalent revenues for 2013–2014 (in million PLN)



2014–2013 %

Net sales revenues and equivalent revenues, including: 4,371.2 4,897.2 526.0 12.0 %

Revenues from providing access to railway lines, including: 2,468.3 1,922.6 –545.7 –22.1 %

Rail freight operators 1,423.1 1,043.8 –379.3 –26.7 %

Passenger transport operators 1,045.1 878.7 –166.4 –15.9 %

Public funds 1,542.8 2,623.0 1,080.3 70.0 %

Revenues from sale of other services 137.2 113.5 –23.6 –17.2 %

Costs of manufacturing goods for internal use 8.0 8.9 0.9 11.9 %

Revenues from the sale of goods and materials 215.0 229.1 14.1 6.6 %


2014–2013 %

Depreciation 853.4 995.6 142.1 16.7 %

Materials and energy consumption 472.6 439.3 –33.3 –7.0 %

Outsourced services 1,189.8 1,249.8 60.0 5.0 %

Taxes and charges 67.8 69.0 1.3 1.9 %

Payroll 1,838.5 1,893.4 55.0 3.0 %

Social security and other benefits 456.9 468.5 11.7 2.6 %

Other costs by kind 32.2 28.3 –3.8 –11.8 %

Value of goods and materials sold 0,0 0.0 0.0 –

Total operating expenses 4,911.1 5,144.0 233.0 4.7 %

Operating expenses amounted to 5,144.0 million PLN and were 233.0 million PLN higher than in 2013. The reported increase in costs was due to the commissioning of sections of modernized rail routes, a wider range of repair and maintenance works and an increase in labor costs. At the same time as a result of the optimization activities the Company reduced the cost of raw materials, energy and other costs by kind.

The increase of other operating revenues recorded in 2014 in comparison to 2013 was due to higher write–offs of investment subsidies, release of reserves for compensation for an accident in Szczekociny, and reversal of write–downs of receivables covered by the settlement from Przewozy Regionalne.

Higher write–downs of receivables from Przewozy Regionalne (not covered by the settlement), higher cost of contractual penalties and damages claims and the changed method of presenting labor reserves were recorded in 2014. This contributed to the increase in other operating expenses y/y.

The decrease in the operating result by 67.6 million PLN in comparison to 2013 was mainly the result of foreign exchange rate losses and the creation of write–downs of the value of shares held by Przedsiębiorstwo Naprawy i Utrzymania Infrastruktury Kolejowej w Krakowie Sp. z o.o.

3.3 FinancesIn 2014 PKP PLK suffered a net loss of 147.5 million PLN, lower by 298.5 million PLN than in 2013.

The improvement in the result was a consequence of the re-structuring in the Company and receipt of a higher subsidy from the State budget and the Railway Fund.



2014–2013 %



Profit (loss) on sales –539.9 –246.9 293.0 –




EBIT –445.5 –79.4 366.1 –

EBITDA 408.0 916.2 508.2 124.6 %


Financial revenues 55.4 69.7 14.3 25.8 %

Financial expenses 55.9 137.8 81.9 146.3 %

Profit/loss on financial activities –0.5 –68.1 –67.6 –

Gross profit (loss) –446.0 –147.5 298.5 –

Income tax 0.0 0.0 0.0 –

Net profit (loss) –446.0 –147.5 298.5 –

Net profitability –10.2 % –3.0 % – –

In 2014, sales revenues amounted to 4,897.2 million PLN and were higher by 526.0 million PLN, in comparison to 2013, which essentially resulted from the receipt of higher public funds by 1,080.3 million PLN while at the same time with lower reve-nues by 545.7 million PLN from sharing railway lines and lower by 23.6 million PLN revenue from the sale of other services.

Lower revenues from sharing of railway lines was the result of lower performance of operational work by carriers of passen-

gers by 3.3 % and freight by 0.3 %, and lower rates of access to railway infrastructure by 20.4 %. Reduced rates for passenger and freight trains in 2014 resulted from the implementation of the provisions contained in the judgment of the Court of Justice of the European Union in case No. C–512/10 in scope of, inter alia, the calculation of charges for minimal access to railway infra-structure. Following the above, the Company developed a new rate card with unit prices taking into account the Court order.


X Use of domestic State funds in 2013–2014 (in million PLN)


2014–2013 %

Earmarked subsidy 1,198.5 1,852.6 654.0 54.6 %

POIiŚ [OPI&E] subsidy for technical support 38.6 54.6 16.1 41.6 %

Railway Fund part ‘B’ – repairs and maintenance 208.8 66.6 –142.2 –68.1 %

Compensation for accounting normalization 31.9 35.9 4.1 12.7 %

Railway Fund part ‘E’ – running expenses 65.0 613.3 548.3 843.5 %

3.6 InvestmentsPKP PLK investment activity, as administrator of the national railway infrastructure, is designed to increase performance and efficiency of the country’s transport system through the implementation of a broad–based program of modernization of railway lines included in the Long Term Railway Investment Program [LTRIP] to 2015.

In 2014, a document was prepared that supplements the LTRIP. The need to develop the document resulted from fundamental changes in the structure of EU funds for the rail infrastructure sector in Poland, which took place with the start of EU’s new budgeting period for 2014–2020.

In 2014 the Company achieved record capital expenditure of 7,305.6 million PLN. The dominant positions among the tasks completed were the construction investment including in the main the modernization of railway lines, which incurred expenses of 4,382.4 million PLN

The Company achieved record pace of investment implementa-tion, which was made possible by improving the management of the investment process and strict monitoring of the tasks. Rules for reporting the progress were implemented, as well as monitoring in the field, and a risk management system enabling the identification of threats and taking preventive measures.

X The value of investments made without work under construction in 2013–2014 (million PLN)

20142013

7,3065,314

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

X Structure of investment financing sources in 2014

7,306 million PLN

EU funds – 61 % Loans/bonds – 23 %Own resources – 8 %

Railway Fund – 4 %Subsidies – 4 %


3.4 AssetsThe highest part of the Company’s fixed assets constitute tangible fixed assets. In 2014, tangible fixed assets rose by 20.0 %, mainly due to railway infrastructure upgrades.

Buildings, premises, civil and water engineering structures continued to dominate the structure of tangible fixed assets, although their share decreased in the total amount of assets, by 5.6 percentage points in comparison to 2013. At the same time, during the 2014 financial year, resources for fixed assets under construction increased in the structure discussed by 6.9 percentage points.

3.5 SubsidiesIn 2014, similarly as in the preceding years, PKP PLK was granted subsidies for ongoing operations and investment activities.

In the case of the State subsidy there was a change of objective, for which the received funds are to be used. In 2014, PKP PLK received a grant for managing the railway infrastructure and its protection. In 2013, the goal was to maintain the railway

infrastructure and repairs. By the decision of the Minister of Infrastructure and Development the size of the State budget subsidy provided to PKP PLK was reduced during the year by 86.0 million PLN.

Financing from the Railway Fund is approved annually from ‘Material and financial plan of the use of financial means from the Railway Fund’. This financing method decreases the level of expenses used to calculate access rates and thanks to which fees for use of the railway infrastructure are lowered.

A designated subsidy for technical support for projects under the Infrastructure and Environment 2014–2020 Operational Program is aimed at the implementation of financial tasks from EU structural funds.


2014–2013 %

Fixed assets 32,618.0 39,138.9 6,520.9 20.0 %

I. Intangible assets 13.1 11.6 –1.5 –11.3 %

II. Tangible fixed assets, including:: 32,487.3 39,009.3 6,522.0 20.1 %


a. Land, including: 3,121.1 3,295.0 173.9 5.6 %

– Right of perpetual usufruct of land 3,092.6 3,261.5 168.9 5.5 %

b. Buildings, premises, civil & water engineering structures 18,945.7 20,550.3 1,604.5 8.5 %


d. Means of transport 58.1 60.9 2.8 4.7 %

e. Other fixed assets 7.3 9.0 1.7 23.0 %

2. Fixed assets under construction 9,759.6 14,413.6 4,654.0 47.7 %

3. Advance payments for fixed assets under construction 119.0 114.2 –4.8 –4.0 %

On the basis of the Council Regulation [EEC] of 26 June 1969 on common rules for the normalization of the accounts of railway companies, PKP PLK is entitled to compensation for expenses incurred resulting from the obligation to main-tain level crossings. The regulation is intended to lead to a lasting assurance of equal competition conditions between the various branches of transport.


3.8 Main highlights

January

3 The new Ursus Niedźwiadek railway station was opened for Warsaw residents.

February

3 The commissioning by the Company of modernized tracks from Gdańsk Oliwa to Gdynia Chylonia (1.5 months before planned completion deadline). Other works were also completed ahead of schedule on tracks leading from Pruszcz Gdański to Gdańsk Główny, which were carried out as part of the modernization of the Warszawa – Gdynia line.

March

3 PKP PLK commenced the modernization of the connec-tion from the Kraków Główny railway station and the International Airport in Balice.

3 Completion of revitalization works on more than 50 km route from Toruń – Bydgoszcz. Since March 2014 the train trip between the two major cities of Kujawsko–Pomorskie Province was reduced to less than three quarters of an hour.

April

3 The inauguration of the 10th edition of the ‘Bezpieczny przejazd’ (‘Safe Crossing’) social campaign under the slogan ‘Zatrzymaj się i żyj!’ (‘Stop and live!’).

June

3 Commissioning of the first new platform at the Łódź Widzew railway station.

3 PKP PLK is awarded the SAP Poland ‘2014 Innovation Award’.

July

3 The contract signed by PKP PLK for the revitalization of more than 30 km of tracks on the Rybnik – Wodzisław Śląski – Chałupki route.

3 Successful testing of the modern ERTMS traffic control system was carried out.

3 The contract signed with Bank Gospodarstwa Kra-jowego in regard to the bond issue program for up to 2.2 billion PLN.

August

3 The Company completed works on the Łódź Widzew – Zgierz line.

October

3 PKP PLK signed a contract for the supply, commissioning and maintenance of a railway traffic simulator and connectivity together with personnel training.

November

3 PKP PLK signed a letter of intent in the Warsaw ag-glomeration.

December

3 A new train timetable was introduced, which was in-fluenced mainly by a reduction of travel times on key routes. In addition, new Express InterCity Premium trains appeared on the tracks, which significantly increased the comfort of the journey.


2014–2013 %

Construction investment, including: 5,166.9 7,182.7 2,015.7 39.0 %

Modernization of railway lines 3,996.8 4,382.4 385.6 9.6 %

Other investments 147.3 122.9 –24.4 –16.6 %

Total investments 5,314.3 7,305.6 1,991.3 37.5 %

X List of investments made by the Company in 2013–2014 (in million PLN)

3.7 EmploymentAverage employment in PKP PLK in 2014 was 37,959 full-time job positions and was lower in comparison to 2013 by 510 full-time job positions. The number of employees at the end of 2014 was 38,264 people, which is an increase of 653 persons in comparison to the previous year.

The increase in employment by 653 persons in comparison to the end of December 2013, resulted mainly due to supplementing employment in maintenance and traffic engineering areas (which implemented the proposals made by the Team for verification of technical units), addi-tional tasks related to the maintenance and operation of passenger infrastructure, acquisitions of technical signal boxes from 1 April 2014, delays in the implementation of the investment and related to it inability to liquidate traffic posts (lower closures within the VRP). The scale of generational gap in PKP PLK has been identified and assessed in 2014, thanks to which the Company could take supplementary measures in employment deficiencies.

14

X Employment in PKP PLK in 2014 was:

X The Company took measures to limit risk in the generational gap.

37,959 full-time job positions

X From March 2014 train travel between the two biggest cities in Kujawsko–Pomorskie Province was reduced to less than three quarters of an hour.

20

< 45 min

PKP GROUP | ANNUAL REPORT 2014 | PKP POLSKIE LINIE KOLEjOwE 035PKP GROUP | ANNUAL REPORT 2014 | PKP POLSKIE LINIE KOLEjOwE034

S Adam Purwin – President of the Management Board


Management Board

3 Adam Purwin – President of the Management Board

3 Jacek Neska – Member of the Management Board for Commercial Matters

3 Wojciech Derda – Member of the Management Board for Operations

3 Łukasz Hadyś – Member of the Management Board for Finances

3 Dariusz Browarek – Member of the Management Board, Employee Representative

Supervisory Board

3 Jakub Karnowski – Chairperson

3 Piotr Ciżkowicz – Deputy Chairperson

3 Krzysztof Czarnota

3 Kazimierz Jamrozik

3 Marek Podskalny

3 Konrad Anuszkiewicz

3 Stanisław Knaflewski

3 Jacek Leonkiewicz

3 Sławomir Baniak

3 Raimondo Eggink

04PKP CARGOwww.pkp–cargo.pl

4.1 About the Company‘Since 30 October 2013, PKP CARGO is listed on the Warsaw Stock Exchange.’

PKP CARGO S.A. (hereinafter PKP CARGO) was established under Article 14 of the Act of 8 September 2000 on the commercialization, restructuring and privatization of the state–owned Polskie Koleje Państwowe.

Besides providing freight railway transport services, PKP CARGO and other Companies of the PKP CARGO Logistics Group provide their customers additional services covering intermodal services, freight forwarding (domestic and inter-national), terminals (trans–loading and storing goods at the junctions of broad and standard–gauge tracks on Poland’s eastern border and in other key locations around the country) and siding services. Moreover, the PKP CARGO Group deals with rolling stock maintenance and repairs.

PKP CARGO is the largest rail freight operator in Poland (according to Office of Rail Transport data) and the second largest rail freight operator in the European Union in terms of transport performance (according to Eurostat data). The Company is expanding its activity geographically by taking advantage of the opportunities offered by liberalization of the European rail freight market. Currently, PKP CARGO has security certifications, which enable the provision of independent railway transport services on the territory of the Czech Republic, Slovakia, Germany, Austria, Belgium, the Netherlands and Hungary.

Since 30 October 2013, PKP CARGO is listed on the Warsaw Stock Exchange. The public offering was the first successful share offering of a national rail freight carrier in the European Union. A total of 48.3 % of shares were traded publicly. In June 2014, as a result of the block trades signed as a result of the accelerated book building, PKP S.A. sold 17.03 % of PKP CARGO shares. The shareholding structure as at the end of December 2014 is shown in the side chart.

X Shareholder structure as at the end of December 2014

33.0 %

In December 2014, PKP CARGO signed an agreement to acquire 80 % stake in Advanced World Transport B.V. (hereinafter AWT), the second largest rail freight carrier in the Czech Republic, whose operations include Europe, Central and Southern Europe. It was the first ever foreign takeover of a company by the PKP Group. Besides achieving synergies within the rolling stock operation, the acquisition of AWT will provide PKP CARGO with an increased share of the Czech market and a significant share in the course of the Baltic – Adriatic transport corridor. At the beginning of 2015, the Company will continue its activities in the area of acquisitions on the rail freight operators market. It is planned to enter into an agreement to acquire 49 % stake in Pol–Miedź Trans Sp. z o.o., 44 % of stake in PS Trade Trans Sp. z o.o. and 49 % of shares in PKP CARGO International a.s.

PKP S.A. – 33.0 %ING OFE – 10.6 %Morgan Stanley – 5.3 %

Aviva OFE – 5.2 %EBOiR – 5.1 %Other shareholders – 40.8 %

PKP GROUP | ANNUAL REPORT 2014 | PKP cARGO 037PKP GROUP | ANNUAL REPORT 2014 | PKP cARGO036

X Structure of operating expenses in 2013–2014

2013 2014

Cost of employee benefits – 41.7 %Outsourced services – 31.4 %Consumption of raw materials and supplies – 15.7 %Depreciation and write–downs – 8.8 %Other operating expenses – 0.9 %Other costs by kind – 0.6 %Value of goods and materials sold – 0.5 %Taxes and charges – 0.4 %

Cost of employee benefits – 37.1 %Outsourced services – 34.0 %Consumption of raw materials and supplies – 16.4 %Depreciation and write–downs – 8.6 %Other operating expenses – 1.2 %Other costs by kind – 1.1 %Value of goods and materials sold – 0.8 %Taxes and charges – 0.8 %

4,180 million PLN

3,792 million PLN

expenses amounted to 3,792.3 million PLN and were lower than in 2013 by 387.8 million PLN. Their decline was caused by lower performance of transport works, which contributed to reducing the cost of access to railway infrastructure, the purchase of traction fuel and electricity and costs of materials used for the maintenance of rolling stock. At the same time in 2014 there was a non–recurring item for the conduct of VRP, at a cost of 257.1 million PLN, which affected the financial result in 2014. To the end of January 2015, 2,894 employees benefited from the VRP, that is 13.9 % of all employees at the end of 2014. In case of correction of the net financial result by the cost of provisions establishing for the implementation of VRP the net profit for 2014 would have been 266.9 million PLN.

In 2014, the Company generated net financial income of 17.9 million PLN, and in comparison to 2013 was higher by 10.4 million PLN. The increase in profit from financial activities was affected by both financial income higher by 3.7 million PLN, as well as financial costs lower by 6.7 million PLN. In terms of financial income in comparison to 2013, there was an in-crease in revenues from dividends and other financial income (mainly refund of interest paid to the OCCP) and a decline in interest income from deposits and bank accounts. On the other hand, in the scope of financial expenses, mainly interest expenses have decreased while at the same time there was an increase in costs of negative exchange rate differences.

4.3 Finances

In 2014, PKP CARGO recorded a net profit of 58.6 million PLN that was 35.5 million PLN lower than the profit in the previous year.

In 2014, PKP CARGO achieved operating income of 3,842.6 million PLN and it was a decrease in comparison to 2013 by 444.9 million PLN. Lower revenues were primarily caused

X Total income statement for 2013–2014 (in million PLN) drawn up in compliance with IAS/IFRS


2014–2013 %

Income from operating activities 4,287.5 3,842.6 –444.9 –10.4 %

Operating expenses 4,180.1 3,792.3 –387.8 –9.3 %

EBIT 107.5 50.3 –57.2 –53.2 %

EBITDA 468.3 382.5 –85.8 –18.3 %

EBITDA margin 10.9 % 10.0 % – –



Profit before tax 114.9 68.2 –46.7 –40.7 %

Income tax 20.9 9.6 –11.3 –54.0 %

Net profit 94.1 58.6 –35.5 –37.7 %


Other total income not reclassified in the financial results 13.4 –29.7 –43.2 –

Total income 107.5 28.9 –78.7 –73.2 %



2014–2013 %

Depreciation and write–downs 360.9 332.2 –28.7 –7.9 %

Consumption of raw materials and supplies 685.8 593.8 –92.0 –13.4 %

Outsourced services 1,418.7 1,191.5 –227.2 –16.0 %


Cost of employee benefits 1,551.0 1,583.4 32.4 2.1 %


Value of goods and materials sold 34.5 15.4 –19.1 –55.4 %


Total operating expenses 4,180.1 3,792.3 –387.8 –9.3 %

by a decrease in freight revenue by 345.1 million PLN as a consequence of lower mass of transported goods by 3.3 % y/y, mainly coal. The Company also recorded a decrease in revenues from sales of scrap metal by 27.7 million PLN and other operating income by 31.3 million PLN. Operating

PKP GROUP | ANNUAL REPORT 2014 | PKP cARGOPKP GROUP | ANNUAL REPORT 2014 | PKP cARGO 039038

4.6 EmploymentAs at the end of 2014, PKP CARGO employed 20,830 people and it was a drop by 1,650 people.

The main reason for the decrease in employment was resignations of employees eligible for retirement benefits. Moreover, in 2014 the Company used the redundancy clause, on the basis of Article 54 of the 8 September 2000 Act on the commercialization, restructuring and privatization of the Polskie Koleje Państwowe state enterprise, to release its employees from their obligation to provide work in the case of reduced demand for PKP CARGO transport. The average number of employees (full-time job positions) made redundant in 2014 was 91.

Additionally, on 29 December 2014 application to participate in the VRP was launched, which lasted until 15 January 2015. After verification of applications the Company agreed to use the Program for 2,894 people who as of 1 February 2015 ceased to be employees of PKP CARGO. It is estimated that implementation of the Program will generate savings of at least 100 million PLN per year.

4.4 Assets

As at 31 December 2014, the total value of tangible fixed assets of PKP CARGO was 3,709.1 million PLN and was 175.3 million PLN higher than in the previous year. The increase in assets was attributable to capital expenditures, mainly for the purchase, renovation and modernization of the rolling stock and at the same time write–downs of depreciation costs, as well as from the sale and disposal of fixed assets.

As at the end of 2014, PKP CARGO owned 1,256 diesel locomo-tives and 1,162 electric locomotives. From the total of 2,418 locomotives, 2,409 were owned by the Company while 9 were leased or rented. Moreover, the Company owned 61,593 carriages.

In comparison to 2013 the number of carriages was reduced by 938 units. This change was the result of scrapping due to poor technical condition while providing 210 units of new carriages to service intermodal transport.

4.5 InvestmentsPKP CARGO in 2014 incurred capital expenditures of 542.4 million PLN (as to IAS/IFRS), which accounted for 155.9 % of that incurred in 2013.

Capital expenditures in 2014 were intended mainly for projects relating to the rolling stock, including periodical repairs of carriages and locomotives, modernization of locomotives (10 units) and the purchase of carriages (200 units of platform carriages for transport of containers).

Moreover, PKP CARGO incurred expenditure for the construc-tion of the Poznań Franowo container terminal, modernization of the Rolling Stock Maintenance Point in Węgliniec and the purchase of IT services (computer hardware and software) for the Company.

X Selected fixed assets in 2013–2014 (in million PLN) in compliance with IAS/IFRS

X List of investments made by the Company in 2013–2014 (in million PLN) in compliance with IAS/IFRS


2014–2013 %

Construction investments 42.1 11.1 –31.0 –73.5 %

Upgrade of locomotives 23.3 48.2 24.9 106.7 %

Rolling stock repair components 229.8 396.6 166.8 72.6 %

Purchase of carriages 11.4 57.2 45.8 400.2 %

IT 32.3 20.6 –11.6 –36.1 %

Machinery and equipment 8.3 5.9 –2.4 –29.3 %

Other investments 0.5 2.7 2.1 395.3 %

Total investments 347.8 542.4 194.6 55.9 %


2014–2013 %

1. Property, plant and equipment 3,515.2 3,698.3 183.1 5.2 %

a. Land, including the right of perpetual usufruct 127.3 125.4 –1.9 –1.5 %

b. Buildings, premises, civil & water engineering structures 397.6 396.8 –0.9 –0.2 %

c. Technical equipment and machinery 79.4 72.8 –6.6 –8.4 %

d. Means of transport 2,905.1 3,098.5 193.4 6.7 %




4.8 Main highlights

May

3 Optimizing the internal structure of PKP CARGO by reducing the number of plants from 10 to 7.

June

3 The establishment of CARGOTABOR – one of the largest rolling stock companies in Europe. The Company was formed as a result of consolidation of rolling stock companies within the PKP CARGO Group.

July

3 PKP CARGO starts e–invoices service. After the intro-duction in 2013 of the Electronic Waybill, this is the next element of computerization of the transport process in the Company.

3 PKP CARGO was given a license by the Lithuanian Office of Rail Transport to drive trains with its own traction, on the standard gauge railway network.

September

3 Receipt of an investment loan of over 500 million PLN granted by Bank Gospodarstwa Krajowego.

October

3 The introduction of a new flexible structure of the com-mercial division in PKP CARGO, taking into account the allocation of tasks on the model of large corporations (front, middle and back office), which gives more time to the acquisition of new orders and improves cooperation with PKP CARGO customers.

November

3 PKP CARGO commences to employ and independently train drivers, filling a gap in the Polish railway edu-cation system.

3 PKP CARGO uses drones to guard against theft of cargo.

December

3 The introduction of Lean Management strategies in all PKP CARGO rolling stock repair workshops.

3 PKP CARGO signed a contract to acquire 80 % stake in AWT, the second largest rail freight carrier in the Czech Republic. The purchase of AWT is the first ever foreign acquisition carried out by a company within the PKP Group.

4.7 Freight transportIn 2014, PKP CARGO transported 109.7 million tons of cargo and it was a decrease in comparison to the previous year by 3.7 million tons.

In 2014 the average distance of transports was also lower by 5.2 km as a result of a decline in transport of coal to seaports, which represent one of the longest transport distances. As a result of the drop of the mass of transported cargo and a reduction in the average transport distance, the transport performance was also reduced by 1,547.0 million tkm.

The decrease in transportation was mainly related to solid fuels as a result of reduced demand for coal (due to the drop in electricity pro-duction and limitation in oil production as a result of lower prices on world markets). Transports of metals and iron ore were also lower due to the limited transportation of iron ore in transit from Polish ports to the southern neighboring countries. The transport of aggregates and building materials increased as a result of the continuation and commencement of new infrastructure projects.

X List of transport indices in 2013–2014


2014–2013 %

Freight transport (million tons)

113.4 109.7 –3.7 –3.3 %

Transport performance (million tkm)

29,892.0 28,345.0 –1,547.0 –5.2 %

Average transport distance (km)

263.6 258.3 –5.2 –2.0 %



Management Board

3 Jacek Leonkiewicz – President of the Management Board

3 Piotr Rybotycki – Member of the Management Board for Operations

3 Magdalena Zajączkowska-Ejsymont – Member of the Management Board for Finances

Supervisory Board

3 Piotr Ciżkowicz – Chairperson

3 Maria Sędek

3 Milena Pacia

3 Paweł Szwajgier

3 Piotr Marczak

3 Artur Forma

3 Krzysztof Piotr Ciećka S Jacek Leonkiewicz – President of the Management Board

05PKP Intercitywww.intercity.pl

5.1 About the CompanyPKP Intercity S.A. (hereinafter PKP Intercity) is the biggest passenger transport operator in the PKP Group. The Company started operations on 1 September 2001 by being taken out of the PKP S.A. structure.

Until 2008, PKP Intercity exclusively operated on the mar-ket of dedicated passenger railway transport both in the case of domestic and international transport. Initially, the Company focused its activity on the premium segments of railway transport, but as it developed, it extended its offer to economy class by introducing the Tanie Linie Kolejowe brand (currently Twoje Linie Kolejowe (TLK)) to which the InterCity (IC) brand and PKP InterCity’s flagship product, the Express InterCity Premium (EIP) were added in 2014.

The Company’s domestic offer is based on the following products:

3 Express Intercity Premium (EIP) – as of 14 December 2014 the ED250 trains (hereinafter Pendolino) run regularly on the routes connecting Warszawa with Trójmiasto, Kraków, Katowice and Wrocław.

3 Express InterCity (EIC) – comfortable carriages with modern rolling stock owned by PKP Intercity. Until the implementation of the EIP segment, EIC–class trains were the fastest and most comfortable trains driving on Polish tracks, connecting large city centers.

3 Twoje Linie Kolejowe (TLK) is a nationwide network of day and night long distance routes in the economy segment, connecting hundreds of towns in Poland (including tourist resorts and academic centers). Trains regularly traveling between Warszawa – Łódź are also included in this segment.

3 InterCity (IC) – the new IC category includes trains with new and modernized carriages, thanks to EU funding. The IC brand was founded in November 2014.

European routes are serviced by EuroNight, EuroCity and international express trains.


PKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT yPKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT y 045044

X Structure of sales revenues for 2013–2014 (in million PLN)


2014–2013 %

Net sales revenues and equivalent revenues 1,801.1 1,776.8 –24.2 –1.3 %

Domestic trains 944.0 868.8 –75.1 –8.0 %

Tickets 849.0 778.1 –70.9 –8.3 %

Additional fees (reserved–seat tickets, WL, BC etc.) 35.6 33.1 –2.5 –7.0 %

Luggage, rail mail, conductor deliveries 3.9 3.6 –0.3 –8.0 %

Railway travel allowances 42.6 40.2 –2.4 –5.6 %

Other revenues from transport 12.9 13.8 0.9 7.2 %

International trains 225.2 225.0 –0.2 –0.1 %

Tickets 134.5 117.1 –17.4 –12.9 %

Additional fees (reserved–seat tickets, WL, BC etc.) 40.7 38.4 –2.2 –5.5 %

Other revenues from transport 50.0 69.5 19.5 38.9 %

Subsidies 583.6 628.4 44.8 7.7 %

Product subsidy 177.3 167.7 –9.6 –5.4 %

Subsidy for international trains 50.0 29.8 –20.2 –40.4 %

Subsidy for interprovincial trains 356.3 430.8 74.5 20.9 %

Revenues owed to third party operators 4.7 3.6 –1.1 –22.5 %

Other sales 40.2 45.8 5.6 13.8 %

Sales of goods and materials 3.2 5.0 1.8 56.3 %



2014–2013 %

Depreciation 193.8 211.7 17.9 9.3 %


Traction energy 294.8 257.9 –36.9 –12.5 %

Materials (including rolling stock repair) 38.1 33.5 –4.6 –12.1 %

Outsourced services 852.5 746.1 –106.4 –12.5 %

Access to railway routes 449.1 333.6 –115.5 –25.7 %

Repair services 161.3 142.3 –19.1 –11.8 %


Payroll 346.5 373.1 26.6 7.7 %


Costs related to staff training 2.3 2.7 0.4 18.1 %


Value of goods and materials sold 2.5 5.0 2.5 98.8 %

Total operating expenses 1,881.5 1,781.7 –99.8 –5.3 %

5.3 FinancesIn 2014 PKP Intercity improved its net profit in comparison to 2013 by 33.1 million PLN and at EBITDA level the result increased by 58.5 million PLN.

The Company generated sales revenues of 1,776.8 million PLN and they were lower than in 2013 by 24.2 million PLN, mainly as a result of lower revenues from ticket sales in respect of both domestic and international sales, while at the same time higher funding received for interprovincial transport.

In 2014, operating expenses totaled 1,781.7 million PLN and were lower in comparison to 2013 by 99.8 million PLN. The decrease in costs was the result of incurring lower costs of traction energy consumption (fewer operational works in electric traction and decrease in charges), lower cost of outsourced services (inter alia, due to a decrease in charges to rail infrastructure access and lower repair costs of rolling stock while at the same time higher cost of IT services). However, depreciation costs increased (completion of part



2014–2013 %

Net sales revenues and equivalent revenues 1,801.1 1,776.8 –24.2 –1.3 %

Operating expenses 1,881.5 1,781.7 –99.8 –5.3 %

Profit/loss on sales –80.4 –4.8 75.6 –



Profit/loss on other operating activities 41.4 6.3 –35.1 –84.8 %

EBIT –39.1 1.5 40.5 –

EBITDA 154.7 213.2 58.5 37.8 %




Profit/loss on financial activities –53.3 –54.4 –1.2 –

Gross profit (loss) –92.3 –53.0 39.3 –42.6 %

Income tax –5.1 1.2 6.3 –

Net profit (loss) –87.2 –54.2 33.1 –37.9 %

Net profitability –4.8 % –3.1 % – –

of the rolling stock investment) as well as labor costs (salary increases).

The result on other operating activities in 2014 was 6.3 million PLN. Compared with the previous year, the Company achieved higher revenues from the sale of idle rolling stock and higher revenues due to investment subsidy write–downs. At the same time, inter alia, as a result of a write–down of receivables from penalties accrued by carriage suppliers, other operating expenses increased in comparison to 2013.

The net loss in 2014 was the result of a negative result on financial activities of 54.4 million PLN, which was related to interest costs on financial liabilities (increase in funding for capital expenditures) and the revaluation of the ZUT REMTRAK shares.

PKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT y 047PKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT y046

5.5 InvestmentsIn 2014, the Company incurred almost doubled the amount of capital expenditures than in 2013, that is 1,504.3 million PLN. Expenditures related mainly to the purchase and modernization of rolling stock and construction investments.

Investments for the renewal of rolling stock included the modernization of carriages intended for rail services between Przemyśl – Szczecin, modernization of ED74 electric multiple unit and modernization of electric locomotives.

Investment projects in the area of the purchase of rolling stock included, inter alia, the purchase of 20 Pendolino trains and purchase of new passenger rolling stock intended for rail services between Wrocław – Gdynia.

Within construction investments the Company completed the construction of the TMW depot. The Company also invested in rail track infrastructure in the Company’s various plants.

5.6 Passenger transportPKP Intercity carried 25.5 million passengers in 2014 and it was a decrease in comparison to 2013 by 5.2 million passengers. Together with the decrease in the number of passengers there was a decrease in transport performance (by 11.7 %) and operational works measured in train–km (by 8.3 %).

The decreases were due to the modernization works being conducted on the most important railway lines and the emergence of alternative transport services.

X List of capital expenditure incurred by the Company in 2013–2014 (in million PLN)

X Transport operating data for 2013–2014


2014–2013 %

Construction investment 122.8 25.1 –97.7 –79.6 %

Upgrade of rolling stock 174.3 179.5 5.2 3.0 %

Purchase of rolling stock 443.3 1,270.1 826.8 186.5 %

Purchase of machines and equipment 5.2 16.4 11.2 215.4 %

Other 10.5 13.2 2.7 25.7 %

Total investments 756.1 1,504.3 748.2 99.0 %


2014–2013 %

Passenger transport (million people) 30.7 25.5 –5.2 –16.9 %

Transport performance (million pkm) 7,084.5 6,252.5 –832.0 –11.7 %

Operational works (million train–km) 42.1 38.6 –3.5 –8.3 %

Operational works (gross million tkm) 13,184.3 12,126.0 1,058.3 –8.0 %

Number of trains in use (thousand units) 102.2 93.4 –8.7 –8.6 %

5.4 AssetsAs at the end of 2014, the value of the Company's fixed assets was 4,350.6 million PLN and higher than in the previous year by 1,376.3 million PLN.

The value of property, plant and equipment at PKP Intercity at the end of 2014 totaled 3,576.0 million PLN and in comparison to end of 2013 was higher by 1,621.4 million PLN. Part of the investment was completed in 2014 with the commissioning of 16 Pendolino trains and 25 new carriages, as well as the modernization of 57 carriages and 47 locomotives. The increase in the value of buildings, premises, civil and water engineering management was mainly due to setting up the Technical Maintenance Workshop (hereafter TMW) to service Pendolino trains.

The various means of transport (89.4 %) constituted the dominant share in the structure of property, plant and equipment. As at 31 December 2014 the Company had 408 locomotives, 30 electric multiple units, 2,608 carriages (including 4 antique carriages made in 1929 and 1956) and 68 pairs of broad gauge bogies for carriages. The majority were second class carriages (1,590 units).



2014–2013 %

Fixed assets 2,974.3 4,350.6 1,376.3 46.3 %

I. Intangible assets 12.4 8.9 –3.5 –28.3 %

II. Tangible fixed assets, including: 2,874.6 4,244.7 1,370.2 47.7 %


a. Land 85.3 84.2 –1.1 –1.3 %



d. Means of transport 1,709.7 3,198.2 1,488.5 87.1 %





PKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT y 049PKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT y048

5.9 Main highlights

January

3 PKP Intercity’s rating was raised by the Fitch Rating Agency.

3 The contract was signed with T–Mobile for WiFi and multimedia services in PKP Intercity trains, giving passengers of EIC trains the option to use the wireless network while traveling.

March

3 Implementation of the offer ‘Weekendowa Biletomania’ (‘Weekend Ticketing’) – one million cheap tickets from PKP Intercity.

April

3 The emergence of new PKP Intercity carriages between Wrocław – Trójmiasto, as well as the introduction of the one queue system at ticket counters at subsequent railway stations (inter alia, Lublin, Kielce, Olsztyn, Koło-brzeg, Skierniewice).

May

3 The contract was signed for the purchase of 20 electric multiple units from Pesa Bydgoszcz S.A.

June

3 Purchase of 2,000 tablets for conductor's teams and receipt of the first modernized diesel locomotive from NEWAG S.A.

July

3 The first free WiFi PKP Intercity train (EIC) for passengers.

3 The introduction of ‘Karta Dużej Rodziny’ (‘Large Family Card’), a system of discounts and special concessions for families with more than 3 people.

3 Positioning and monitoring devices installed in all PKP Intercity locomotives.

August

3 Streamlined the cleaning model in PKP Intercity trains by implementing ‘Czyszczenie w biegu’ (‘Cleaning on the run’), that is additional cleaning services on trains.

3 New uniforms designed for cabin crew of Express InterCity Premium trains in a classic style and in the carrier’s colors.

September

3 A contract was signed with Pesa Bydgoszcz for the production of 10 new diesel locomotives.

3 Alstom was given certificate of approval for Pendolino trains.

November

3 The introduction of presale of tickets for Express Inter-City Premium trains (Pendolino).

December

3 A New Timetable. A reduction in travel times between the biggest cities.

3 The launch of a new category of InterCity trains (IC).

3 The implementation of Express InterCity Premium trains for regular use.

5.7 EmploymentEmployment in the Company as at 31 December 2014 totaled 7,138 people and was lower than in 2013 by 108 people.

In 2014, there was an increase in the number of young workers – up to 35 years of age and people aged over 55 years. The Company conducted intensive personnel work in the area of electric multiple unit train teams. PKP Intercity independently recruited staff and trained candidates for licenses and the train driver's certificate.

5.8 SubsidiesIn 2014, PKP Intercity received a product subsidy to compensate for lost income related to statutory discounts of 167.7 million PLN, that is 9.6 million PLN less than in 2013.

Under the contract for the provision of public services for interprovincial passenger rail services, in 2014 the Company performed operating works at the level of 27.9 million train-km, carrying 18.2 million passengers having received funding of 430.8 million PLN.

On the other hand, within the contract for the provision of public services for international passenger rail services, PKP Intercity performed operating works of 2.5 million train–km, carried 1.4 million passengers and received funding of 29.8 million PLN.

X Structure of employment by age as at the end of 2013 and 2014 (in persons)

Age range 2013 2014Change

2014–2013 %

<25 254 274 20 7.9 %

26–35 1,006 1,101 95 9.4 %

36–45 1,813 1,656 –157 –8.7 %

46–55 3,066 2,948 –118 –3.8 %

>55 1,107 1,159 52 4.7 %

X Subsidies received by the Company in 2013–2014 (in million PLN)


2014–2013 %

Product subsidy 177.3 167.7 –9.6 –5.4 %

Subsidy for international trains 50.0 29.8 –20.2 –40.4 %

Subsidy for interprovincial trains 356.3 430.8 74.5 20.9 %

X PKP Intercity received funding for transport services:

↑460.6 million PLN


PKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT yPKP GROUP | ANNUAL REPORT 2014 | PKP INTERcIT y 051050


Management Board

3 Łukasz Górnicki – President of the Management Board

3 Mirosław Smulczyński – Member of the Management Board for Sales and Operations

Supervisory Board

3 Łukasz Górecki – Chairperson

3 Andrzej Żurkowski

3 Piotr Hołymczuk

3 Sławomir Baniak

3 Stanisław Chlebowski

3 Zbigniew Wysocki

S Łukasz Górnicki – President of the Management Board

06PKP Linia Hutnicza Szerokotorowawww.lhs.com.pl

6.1 About the CompanyPKP Linia Hutnicza Szerokotorowa Sp. z o.o. (hereinafter PKP LHS) was established under the Act of 8 September 2000 on the commercialization, restructuring and privatization of the state–owned Polskie Koleje Państwowe and started operations on 1 July 2001.

The Company's goal since its inception is the management of LHS line’s infrastructure, including railway stations’ infrastructure, buildings and structures located along the No. 65 railway line, carrying out freight transport within the traction service and the provision of additional services associated with freight transport.

The Company manages and carries out transport based on the LHS line, which is Poland's longest broad–gauge railway line (1,520 mm track gauge) intended for freight transport. It joins the Polish–Ukrainian Hrubieszów/Izow rail border crossing with Sławków in Silesia and is nearly 400 km long.

PKP GROUP | ANNUAL REPORT 2014 | PKP LINIA HUTNIczA SzEROKOTOROwAPKP GROUP | ANNUAL REPORT 2014 | PKP LINIA HUTNIczA SzEROKOTOROwA 053052


2013 2014

Materials and energy consumption – 29.9 %Outsourced services – 29.7 %Payroll – 20.3 %Depreciation – 13.0 %Social security and other benefits – 4.6 %Other costs by kind – 1.0 %Taxes and charges – 0.9 %Value of goods and materials sold – 0.6 %

Materials and energy consumption – 30.5 %Outsourced services – 29.3 %Payroll – 20.4 %Depreciation – 13.1 %Social security and other benefits – 4.7 %Other costs by kind – 1.0 %Taxes and charges – 0.9 %Value of goods and materials sold – 0.1 %

In 2014, the Company recorded a decrease in revenues and expenses from other operating activities by 3.2 million PLN and 2.1 million PLN respectively. The lower level of the items described resulted from a non–recurring item in 2013 which was penalty cost and damages claim for reimbursement of independently collected benefits by Qwantum. At the same time, the Company has made write–offs of dues for the above penalty, determining it to be uncollectible. In addition, the accounting of costs of abandoned investments started in previous years influenced the state of other operating expenses in 2013.

The increase in financial revenues in 2014 to the level of 1.5 million PLN was mainly caused by higher interest reve-nues from bank deposits, interest on overdue receivables and obtaining foreign exchange gains. In turn, the increase in financial expenses by 0.2 million PLN in comparison to 2013 resulted from accounting of provisions for liabilities and revaluation of shares in the KOW media & marketing Sp. z o.o. company in the absence of interest expenses on bank credit and foreign exchange losses in 2014.

6.3 FinancesIn 2014, the Company recorded a net profit of 74.9 million PLN and was lower only by 0.1 million PLN than that obtained in 2013, which was a record result in the Company’ history.

In 2014, PKP LHS recorded sales revenues of 424.0 million PLN, an increase in comparison to 2013 by 13.6 million PLN. Trans-port service revenues with 94.4 % hold a dominant position in the revenue structure. Their increase to 400.1 million PLN (i.e. 4.5 %) was due to both an increase in the mass of the goods transported and higher income from additional fees. Other revenues accounted for 5.6 % of net revenues and primarily consist of revenues from transport services in transport of goods, leasing property to other entities, Customs Agency income and the sale of scrap metal and waste.

Operating expenses totaled 328.9 million PLN and were higher in comparison to 2013 by 13.3 million PLN. An increase was recorded in all categories of costs by kind. Depreciation

increased as a result of commissioning of completed projects. Larger consumption of materials used in the renovation of railway infrastructure, rolling stock and commercial buildings at the same time at lower unit price of purchase of traction fuel resulted in an increase in costs of consumption of materials and energy. Higher costs of outsourced services were mainly the result of expenditure on repair services of the railway line and commercial buildings with a decline in the cost of transport services and repair of rolling stock. On the other hand, an increase in the average employment by 38 full-time job positions, introduction of staff promotions from August 2014 and the cost of social security from bonuses paid to employees from the 2013 profit, resulted in higher labor costs.

X Financial results for 2013–2014 (million PLN)


2014–2013 %


Operating expenses 315.6 328.9 13.3 4.2 %

Profit/loss on sales 94.8 95.1 0.3 0.3 %

Other operating revenues 3.8 0.6 –3.2 –85.2 %


Profit/loss on other operating activities –1.1 –2.3 –1.2 –

EBIT 93.6 92.8 –0.9 –0.9 %

EBITDA 134.7 135.8 1.1 0.8 %

EBITDA margin 32.8 % 32.0 % – –



Profit/loss on financial activities –0.3 0.1 0.4 –


Income tax 18.3 18.0 –0.3 –1.9 %

Net profit (loss) 75.0 74.9 –0.1 –0.1 %


316 million PLN

329 million PLN


6.5 InvestmentsIn 2014, the Company incurred capital expenditures of 37.6 million PLN.

The expenditures included mainly the reconstruction of railway traffic control devices on the Werbkowice LHS and Miączyn LHS passing loop, expansion of Gołuchów LHS railway station, construction of parking for trucks at the Sławków LHS railway station and building an access road to Zamość Bortatycze LHS railway station. For 2015 the Company is planning further development projects and projects aimed at increasing the safety of train operations on the LHS line.

6.6 EmploymentPKP LHS at the end of 2014 employed 1,292 people, 45 more than at the end of 2013.

The increase in the number of staff was due to the necessity to employ new staff in order to retrain them before people of retirement age leave the Company. In addition, on 1 February 2014 the Company terminated the contract to an outsource company to conduct reloading operations at the Re–Loading Terminal in Szczebrzeszyn and took over the implemen-tation of comprehensive reloading services in–house, which necessitated additional employment of staff.

X List of capital expenditures incurred by the Company in 2013–2014 (in million PLN)


2014–2013 %

Upgrade of railway station 26.8 26.1 –0.7 –2.8 %

Upgrade of workshop facilities

5.5 7.2 1.7 31.0 %

Purchase of rolling stock 16.5 0.0 –16.5 –100.0 %


Total investments 52.3 37.6 –14.7 –28.2 %



2014–2013 %

Depreciation 41.0 43.0 1.9 4.8 %

Materials and energy consumption 94.5 100.2 5.8 6.1 %

Outsourced services 93.7 96.3 2.6 2.7 %


Payroll 64.0 67.0 3.0 4.7 %


Other costs by kind 3.2 3.2 0.0 1.2 %


Total operating expenses 315.6 328.9 13.3 4.2 %

6.4 AssetsAt the end of 2014 the value of tangible fixed assets totaled 501.3 million PLN and it was a decrease in comparison to the end of the previous year by 9.5 million PLN. This was caused by investment expenditures valued lower than the value of depreciation.

The Company’s operating activity is based on its assets: diesel locomotives, carriages, carriage bogies and other

machinery and equipment contributed in kind by PKP S.A., assets produced by the Company, a railway line and other property necessary for the operations of the Company being used under the D54 agreement with PKP S.A.

At the end of 2014 PKP LHS held 77 locomotives, 96 carriages, 66 broad gauge bogies and 184 standard gauge carriage bogies. Covered carriages and remaining flat carriages formed part of the equipment for rescue trains and machines for track works and for cranes. In turn, the bogies were necessary to perform basic tasks in the transport of goods in non–reloading gauge switching situation. The Company transported freight goods in leased carriages owned by the Commonwealth of Independent States (CIS) railway companies.



2014–2013 %

1. Property, plant and equipment 458.7 481.7 23.0 5.0 %

a. Land, including the right of perpetual usufruct 2.7 2.8 0.1 3.8 %






PKP GROUP | ANNUAL REPORT 2014 | PKP LINIA HUTNIczA SzEROKOTOROwA 057PKP GROUP | ANNUAL REPORT 2014 | PKP LINIA HUTNIczA SzEROKOTOROwA056

6.8 Main highlights

February

3 PKP LHS starts independent reloading operations at the Re–Loading Terminal in Szczebrzeszyn. The takeover of reloading operations from an outside party resulted from the desire to expand the range of services offered to the Company’s clients to include loading services, unloading services with the possibility of storage of goods, and the organization of road transport.

April

3 Participation in the 19th TransRussia International Transport and Logistics Trade Exhibition in Moscow.

3 Completion of the implementation of changes in the PKP LHS organizational structure. Confirmation of the new Regulations and the Company’s Organizational Structure.

May

3 Taking part in an international carriers meeting in Odessa, during which the development of the transport system was discussed, as well as improvements in technolog-ical operations during transportation of containers, development of innovative models of governance and creation of a uniform information space. PKP LHS representatives presented the range of services pro-vided by the Company.

June

3 PKP LHS was in 11th place in the overall classifica-tion of the Ranking Największych Firm Lubelszczyzny ‘Złota Setka’ (‘The Golden Hundred’ Lubelszczyzna Largest Companies Ranking) organized by the ‘Dziennik Wschodni’ (‘Eastern Daily’) newspaper. In the category of large companies employing more than 250 people the Company came in 10th place, for most profitable company in 5th place, for the highest net return in 4th place, for the highest gross profit in 5th place, for the biggest investors in 7th place, for the biggest employer in 9th place, and for the biggest exporters in 15th place.

3 The ongoing reconstruction since August 2013 of rail-way traffic control devices on the Werbkowice LHS and Mięczyn LHS passing loops was completed. As a part of the project modern computer equipment was introduced and incorporated into the newly formed Local Control Center at Zamość Bortatycze LHS railway station. Passing

loops are equipped with full audio–visual monitoring, enabling the person on duty in the LCC to see the trains passing and also the containers fitted with the necessary equipment to conduct train traffic. For the Company it was another step in raising the level of safety and more efficient use of existing infrastructure.

July

3 The contract was signed to implement the reconstruction of the Gołuchów LHS railway station and to adjust its current track system for transport operations. The total investment is over 14 million PLN.

September

3 The Company was among the winners of the international transport industry award ‘Złoty Rydwan’ (‘Gold Chariot’) and was awarded in the ‘Outstanding achievements in railway transport’ category for significant contribution in the search for new practices to improve rail freight transport. The award was presented during the InnoTrans 2014 International Trade Fair for Transport Technology.

October

3 The 3rd ‘Sprzątamy Roztoczański Park Narodowy’ (‘Cleaning Up Roztoczański National Park’) event, as part of ‘EKOlogiczni’ (‘ECOlogical’) corporate volunteering program. The activity was in line with PKP LHS objectives in the field of social responsibility and environmental area. The aim of the project was to formulate and pro-mote ecological awareness among Company employees.

December

3 PKP LHS received the title ‘Sponsor Kultury Zamościa 2014’ (‘2014 Sponsor of Zamość Culture’). The award was given by the mayor of the city for promoting the creation of material conditions for the development of culture. This is the Company's fifth award.

3 Completion of the access road to Zamość Bortatycze LHS railway station. The implementation of the project improved access of trucks over 5 tons to the railway station, and also created favorable transport conditions for PKP LHS customers.

6.7 Freight transportsIn 2014, PKP LHS transported 10.7 million tones of cargo, which was the best result in the Company’s history. In comparison to 2013 there was an increase by 0.6 million tons (that is, 5.9 %).

In the wake of the increased mass of transported goods the performance of the transport works increased by 168.3 million tkm and operational works by 0.2 million train–km. There was a slight decrease, that is by 0.8 %, in the average transport distance, which was 331.8 km in 2014.

The increase in transported mass of the goods mainly related to the transport of iron ore (due to the continued high level of steel production), textiles, food and fodder (as a result of improvement and stabilization of the situation in the energy and food sector) as well as coal (as a result of transportation of raw materials for the export and applicable em-bargo on imports of coal to Ukraine in 2013). However, in comparison to 2013 transport of raw and processed minerals declined (following the completion of infrastructure projects in the LHS line region) and coal and briquettes (due to the collapse of coal imports from Ukraine due to the closure of mines in eastern Ukraine).



2014–2013 %

Freight transport (millions tons) 10.1 10.7 0.6 5.9 %

Transport performance (million tkm) 3,369.7 3,538.1 168.3 5.0 %

Operational works (million train–km) 2.1 2.2 0.2 7.2 %

X Increase in transported goods in comparison to 2013.

↑5.9 %


S Maciej Lignowski – President of the Management Board


Management Board

3 Maciej Lignowski – President of the Management Board

3 Bartłomiej Buczek – Member of the Management Board, Director of Transport

Supervisory Board

3 Marian Woźniak – Chairperson

3 Marek Chacuk

3 Piotr Ciechowicz

3 Grażyna Kozłowska-Plewa

3 Marek Machnikowski

3 Arnold Modrzejewski

3 Marta Postuła

3 Janusz Szczepański

07PKP Szybka Kolej Miejska w Trójmieściewww.skm.pkp.pl

7.1 About the CompanyPKP Szybka Kolej Miejska w Trojmieście Sp. z o.o. (hereinafter PKP SKM) was separated from the PKP S.A. structure and started its operations on 1 July 2001, taking over the tasks, employees and property of Zakład Szybkiej Kolei Miejskiej w Trójmieście that had been liquidated.

The aim of the Company is to manage and maintain No. 250 Railway Line (Gdańsk Śródmieście – Rumia) and to carry out passenger transport on the route. The Company’s objectives also include carrying out regional passenger railway transport on other railway lines in Pomorskie Province.

PKP SKM was granted licenses by the President of the Office of Rail Transport for an indefinite period aimed at providing passenger railway transport services and to lease rail electric multiple units. Moreover, the Company has valid security certificates for both railway infrastructure administrator and railway operator, and also safety authorization for the administrator of railway lines. The transport is carried out on the basis of and under the agreement concluded with the Local Government of the Pomorskie Province being the public administration body responsible for the organization and financing of regional passenger railway transport carried out as part of providing public services.

The ownership structure changed over the years of Company’s operation, while the structure as at December 2014 is shown on the side chart.

X Shareholder structure as at the end of December 2014

44.3 %

PKP S.A. – 44.3 %State Treasury – 20.7 %City of Gdańsk – 15.3 %Pomeranian Provincial Self–Government – 12.4 %City of Gdynia – 3.1 %City of Sopot – 2.6 %City of Pruszcz Gdański – 1.5 %City of Rumia – 0.1 %

PKP GROUP | ANNUAL REPORT 2014 | PKP SzybK A KOLEj MIEjSK A w TRójMIEścIE 061PKP GROUP | ANNUAL REPORT 2014 | PKP SzybK A KOLEj MIEjSK A w TRójMIEścIE060

Operating expenses in 2014 totaled 150.9 million PLN and were higher in comparison to the previous year by 12.2 million PLN. Their growth was driven by the increase in depreciation costs following the commissioning of completed projects in 2013–2014. The consumption of materials used for repairs of rolling stock, rail infrastructure, machinery and equipment had also increased. The costs of outsourced services were also higher due to increased costs of access to PKP PLK rail infrastructure, transport and repair services and rental of rolling stock, while the cost of operating train traffic, tele-communications services, commissions from ticket sales and maintenance of power equipment were lower. The introduction of wage increases from October 2013, incentive bonus payments and the creation of employee benefits reserve contributed to higher labor costs.

In comparison to 2013, the Company recorded a decrease in other operating revenues and expenses by 15.4 million PLN and 20.7 million PLN respectively. The decrease was

related to non–recurring items. On the revenues side, in 2013, the TS Opole was charged penalties for delays in the upgrade of electric multiple units. At the same time, on the expenses side, receivables from the above penalty considered to be a doubtful debt were written–off and considered to be unre-coverable, as well as expenses of the abandoned investments that were begun in the previous years were included in the accounting. Moreover, higher write–offs of the investment subsidy in 2014 had an impact on the result.

The decrease in financial income of 1.7 million PLN in com-parison to 2013 was due to lower interest income on bank deposits and overdue receivables (in 2013 interest accrued on penalties imposed on TS Opole).

The settlement of deferred tax of 1.5 million PLN also had an impact on the achieved net profit of 1.7 million PLN.


2013 2014

7.3 FinancesIn 2014, the Company recorded a net profit of 1.7 million PLN which was higher by 0.7 million PLN than the profit recorded in the previous year.

In 2014, the Company generated sales revenue of 142.8 million PLN, an increase in comparison to 2013 by 7.0 million PLN. Revenues from ticket sales together with the subsidy increased by 2.7 million PLN, which was a consequence of several events. In March 2014, PKP SKM introduced an increase in quarterly ticket prices and new offers on trans-port charges, which transformed the structure of the tickets sold in favor of one–off tickets, which had a higher margin. The frequency of trains has also increased (tact in rush hours every 7.5 minutes, with tact every 10 minutes in 2013) and due to the completion of modernization works to the E65 line trains on the route to Tczew were restored. Following the increase in works performed operating revenues from local government subsidies were higher by 3.1 million PLN in comparison to 2013. Other sales revenues increased by

1.1 million PLN and constituted 7.6 % in the revenue structure. In comparison to 2013 revenues also increased from the sale of rights to use travel concessions by employees, retirees and their family members. The Company also received higher rental income from land and access to track closures. At the same time revenues from giving access to No. 250 line to other carriers were lower.



2014–2013 %



Profit/loss on sales –2.9 –8.1 –5.2 –




EBIT 0.7 0.7 0.0 0.6 %

EBITDA 11.5 15.0 3.6 31.1 %




Profit/loss on financial activities 1.0 –0.5 –1.5 –


Income tax 0.7 –1.5 –2.2 –

Net profit (loss) 1.0 1.7 0.7 72.3 %


Payroll – 29.1 %Outsourced services – 26.3 %Materials and energy consumption – 24.7 %Social security and other benefits – 8.0 %Depreciation– 7.7 %Other costs by kind – 2.8 %Taxes and charges – 1.3 %Value of goods and materials sold – 0.1 %

Payroll – 28.2 %Outsourced services – 26.1 %Materials and energy consumption – 23.3 %Depreciation – 9.5 %Social security and other benefits – 8.7 %Other costs by kind – 3.0 %Taxes and charges – 1.2 %

139 million PLN

151 million PLN

PKP GROUP | ANNUAL REPORT 2014 | PKP SzybK A KOLEj MIEjSK A w TRójMIEścIEPKP GROUP | ANNUAL REPORT 2014 | PKP SzybK A KOLEj MIEjSK A w TRójMIEścIE 063062

7.5 InvestmentsIn 2014, PKP SKM incurred capital expenditure of 150.1 million PLN, which mainly covered the upgrade of 21 electric multiple units and extension of No. 250 line together with the construction of Gdańsk Śródmieście station stop. For 2015 the Company is planning a continuation of the investment project ‘Rozwój szybkiej kolei miejskiej w Trójmieście’ (‘Development of the Tricity commuter rail’), which will mean further improvement of passenger comfort and safety.

7.6 EmploymentAt the end of 2014 PKP SKM employed 831 people and it was an increase of 47 people in comparison to 2013.

The changes were due to additional employment of conductors and electric multiple unit driver teams and were caused by the return to the frequency of trains every 7.5 minutes in peak travel times and the resumption of the Gdańsk Główny – Tczew connection. Additionally, to guard against the risk of generational gap, the Company employed apprentice train drivers, who completed training for a driver’s license co–financed by District Labor Office, in order to continue training for a driver’s certificate. Moreover, in 2013 employment was adjusted for the reduction in operational works and in 2014 it was necessary to supplement vacancies (inter alia, in the Rolling Stock Repair Section).

X List of capital expenditure incurred by the Company in 2013–2014 (in million PLN)


2014–2013 %

Railway line upgrade 36.2 45.3 9.1 25.1 %

Upgrade of rolling stock 5.0 102.4 97.4 1,930.4 %





2014–2013 %

Depreciation 10.7 14.3 3.6 33.2 %




Payroll 40.3 42.6 2.3 5.7 %





7.4 AssetsAt the end of 2014 the value of tangible fixed assets amounted to 398.0 million PLN. Compared to 31 December 2013 the increase was mainly the value of the means of transport as a result of the modernization of 21 electric multiple units. The increase in the balance of fixed assets under construction resulted in capital expenditures for the construction of a new station Gdańsk Śródmieście with an extension of No. 250 line.

PKP SKM carries out its transport activity using 66 electric multiple units of the following types: EN57, EW58 and EN71. The average age of vehicles is 33 years. The condition of the rolling stock improved in the course of upgrades on 22 units of EN57 electric multiple units in 2013–2014. In addition, in subsequent years, the Company plans to renew the rolling stock park through the acquisition of brand new vehicles.

Moreover, the Company manages the electrified double–track No. 250 Gdańsk Śródmieście – Rumia railway line, which in-cludes 22 railway stations and rail stops, as well as the Gdynia Cisowa railway station depot.



2014–2013 %

1. Property, plant and equipment 244.9 337.5 92.6 37.8 %






2. Fixed assets under construction 17.3 60.5 43.2 250.5 %


7.9 Main highlights

February

3 A contract was signed with ZNTKiM in Gdańsk for the repair of components for EN57 and EN71 electric multiple units and contracts with POLGARD S.C. for the provision of the Passenger Information Monitoring System for 4 electric multiple units (3 EN57, 1 EN71).

March

3 Recommencement of trains on the Gdańsk Główny – Tczew route.

3 A contract was signed with PPMT in Gdańsk to modernize the track system, i.e. the reconstruction of the railroad switch head at the Gdańsk Wrzeszcz railway station.

May

3 A contract was signed with INEX, Rajbud, Poltrain and MSE consortium for the project ‘Usprawnienie układu komu-nikacyjnego dostępu na peron na przystanku osobowym Gdynia Cisowa’ (‘Streamlining the transport system for access to the platform at the Gdynia Cisowa passenger train stop’).

June

3 A contract was signed with Dekpol to prepare project documentation and to modernize works to adapt the SKM Sopot Kamienny Potok platform infrastructure for people with limited mobility.

August

3 CS Training and Consulting as well as the Centre for Training and Examination in PKP SKM, in cooperation with District Labor Offices, completed training for the train driver license for 29 drivers.

September

3 The launch of the sale of SKM tickets in Sopot, Gdańsk and Pruszcz Gdański in 51 AVISTA automatic ticket ma-chines (which were up to then selling ZTM Gdańsk tickets).

3 A contract was signed with WYG Consulting to prepare the ‘Wstępna analiza wykonalności (pre–studium) rozbu-dowy systemu kolei aglomeracyjnej w kierunku Tczewa’ (‘Preliminary feasibility study (pre–study) of suburban railway system development in the direction of Tczew’) document.

October

3 A contract was signed with PPMT to complete the task ‘Regulacja torów w celu zmniejszenia odstępu pomiędzy krawędzią peronu a progiem wagonu na linii kolejowej

nr 250’ (‘Adjusting tracks to reduce the gap between the platform edge and the carriage threshold on the No. 250 railway line’).

3 Completion of the modernization of 21 electric multiple units within the ‘Development of the Tricity commuter rail’ project. The last two electric multiple units were officially commissioned during the ‘open day’ of the SKM Gdańsk Śródmieście railway stop being built.

November

3 A contract was signed with BPBK in Gdańsk to prepare project documentation for the ‘Przebudowa przystanku SKM Rumia Janowo’ (‘Reconstruction of the SKM Rumia Janowo railway station’) project.

3 Contracts No. 232/U//401/DIF/2014 and 233/U//386/DIF/2014 were signed to provide public services for passenger rail travel in the Pomorskie Province for the period from 14.12.2014 to 12.12.2015.

3 Completion of the year long process of bond issue for 36.2 million PLN, in cooperation with the bank BGK S.A.

3 The announcement of the tender for the construction and delivery of 2 sets of new 4–part electric multiple units.

December

3 Adoption of a resolution to increase the share capital by 0.5 million PLN and the takeover of 1,000 new shares by the Municipality of the City of Gdynia.

3 A contract was signed with PIXEL for the supply of 14 sets of the Passenger Information System and spare parts for electric multiple units.

3 A contract was signed with ELESTER–PKP for the purchase and installation of meters to measure power usage collected and discharged to traction lines together with the computer system for data analysis for EN57 and EN71 electric multiple units.

3 Approval by the President of the Railway Transport Office of basic individual charges for use of railway infrastructure for the 2014/2015 train timetable.

3 The completion of works to the extension of the No. 250 railway line and the construction of a new SKM Gdańsk Śródmieście passenger stop, and the construction of holding tracks and modernization of No. 3 platform at the Gdańsk Główny railway station as part of Zadanie 3 Projektu 'Rozwój szybkiej kolei miejskiej w Trójmieście' (Task 3 ‘Development of PKP SKM’ Project).



2014–2013 %

Passenger transport (million people) 35.2 35.7 0.5 1.5 %

Transport performance (million pkm) 801.6 859.1 57.5 7.2 %

Operational works (million train–km) 3.0 3.7 0.7 23.3 %

Operational works (gross million tkm) 761.9 825.3 63.4 8.3 %

X Subsidies received by the Company in 2013–2014


2014–2013 %

Product subsidy 16.8 16.6 –0.1 –0.8 %

Local government subsidy 19.6 22.6 3.1 15.7 %

Funding from Railway Fund 12.0 11.4 –0.6 –4.7 %

Subsidy under POiŚ [OPI&E] 14.9 85.6 70.7 475.5 %

Subsidy RPO 0.0 0.2 0.2 –

7.7 Passenger transport In 2014, PKP SKM carried 35.7 million passengers and it was an increase in comparison to the previous year by 0.5 million people.

Together with the increase in the number of passengers the transport performance measured in passenger–km also increased (by 7.2 %), operational works measured in train–km (by 23.3 %) and the average transport distance (by 5.6 %).

The reason for the growth of indicators relating to passen-ger transport in 2014 was the increase in the frequency of trains – tact during rush hours every 7.5 minutes, compared to tact every 10 minutes in 2013 and the reopening of Gdańsk Główny – Tczew connection.

7.8 SubsidiesThe Company receives a local government subsidy from the Local Government of the Pomorskie Province for the provision of public services in passenger railway transport and a public product subsidy as compensation for revenues lost due to honoring statutory allowances.

Besides the subsidy to provide transport services, the Com-pany was granted a subsidy from the Railway Fund and the European Union under the Operational Infrastructure and Environment Program to implement the ‘Development of the Tricity commuter rail’ project. In 2014, PKP SKM also received funds from the Pomorskie Province Regional Operational Program to finance ‘Opracowanie dokumentacji przedprojek-towej dla zadania «Rozbudowa systemu kolei aglomeracyjnej Trójmiejskiego Obszaru Metropolitalnego w kierunku Wejhe-rowa»’ (‘The preparation of pre–project documentation for the «Extension of Tricity Metropolitan area suburban railway system in the direction of Wejherowo»’).

X Percentage increase in transport performance in PKP SKM:

↑7.2 %



Management Board

3 Tadeusz Skobel – President of the Management Board

3 Wojciech Szwankowski – Member of the Management Board, Sales Director

3 Marta Towpik – Member of the Management Board, Financial Director

Supervisory Board

3 Łukasz Szarawara – Chairperson

3 Michał Chróst

3 Marta Sitko

3 Konrad Szutenbach

3 Andrzej Łukasik

3 Andrzej Niezgoda

S Tadeusz Skobel – President of the Management Board

8.1 About the CompanyThe essence of activities of PKP Energetyka S.A. (hereafter PKP Energetyka) is the conduct of tasks for the proper functioning of rail transport in the broadly understood field of energy and distribution of electricity to customers outside the railway sector.

As a result of the introduction of concessions to trade in gas fuels in September 2013, the Company started the sale of gas at the beginning of July 2014. Other concessions and licenses held by the Company include:

3 license to trade in electricity;

3 concession to distribute electricity;

3 license to sell diesel fuel for combustion traction vehicles;

3 license for railway transport of goods.

At the end of 2014 PKP S.A. began the process of PKP Energetyka privatization (on 30 December 2014 an invitation was published to tender for the purchase of 100 % of the shares), which is expected to be completed in the third and fourth quarter of 2015.

08PKP Energetykawww.pkpenergetyka.pl

PKP GROUP | ANNUAL REPORT 2014 | PKP ENERGET yK APKP GROUP | ANNUAL REPORT 2014 | PKP ENERGET yK A 069068

11.3 million PLN, mainly as a result of higher other operat-ing expenses (in 2014 the Company made a provision for loss–making contracts that PKP Energetyka implemented as a consortium member or as consortium leader together with Przedsiębiorstwo Napraw Infrastruktury Sp. z o.o.).

a contract for the modernization of the E–65 Warszawa – Gdynia and Kraków – Medyka railway lines, and, as a consortium partner in the modernization of the railway line Warszawa Zachodnia – Skierniewice, No. 9 line (Malbork) the E–30 line on the Krzeszowice – Krakow Główny section.

In comparison to 2013, in 2014 PKP Energetyka recorded a decrease in the result on other operating activities by

X Structure of electric power sales segment in 2013–2014 (in million PLN)

2013 2014

TPA – 757.5 million PLN

Traction energy – 605.4 million PLN

Non–traction energy – 268.4 million PLN

Wholesale market and verification – 92.4 million PLN

TPA – 966.4 million PLN

Traction energy – 525.6 million PLN

Non–traction energy – 164.1 million PLN

Wholesale market and verification – 533.8 million PLN

X Selected operating data of the Company for 2013–2014


2014–2013 %

Electric power sales volume (turnover) in GWh 6,590.4 7,661.4 1,071.0 16.3 %

Traction energy 2,269.5 2,158.8 –110.7 –4.9 %

Non–traction energy 4,320.9 5,502.6 1,181.7 27.3 %

Master agreements 988.6 671.8 –316.8 –32.0 %

TPA sales 3,332.3 4,830.8 1,498.5 45.0 %

Electric power sales volume (distribution services) in GWh 3,398.9 3,336.8 –62.1 –1.8 %

Traction energy 2,269.5 2,158.8 –110.7 –4.9 %

Non–traction energy 1,129.4 1,178.0 48.6 4.3 %

Fuel sales volume in m3 37,745.5 40,435.5 2,690.0 7.1 %

Gas sales volume in GWh – 315.3 – –

8.3 FinancesIn 2014, PKP Energetyka recorded a net profit of 48,7 million PLN, that was lower by 41.2 million PLN than in 2013, which resulted from the lower result at each level of the business activity.

Sales revenues result amounted to 78.2 million PLN and was 35.4 million PLN lower than in 2013. Income from sales amounted to 4,316.9 million PLN and were higher by 811.3 million PLN than in 2013. The higher volume of electricity sold was observed mainly in the segment of customers with no access to the Company’s TPA network and the increase in railway line up-grades was due to the acquisition of additional construction works from PKP PLK.

The dominant segments PKP Energetyka activities are sales and electricity distribution segments with 50.7 % and 19.6 % share respectively in the revenue structure. The size of the revenue share of the trading segment in 2014 remained

similar to the previous year. The distribution segment’s share has slightly declined in favor of growth of construction and modernization of railway lines.

In 2014, operating expenses totaled 4,238.7 million PLN and were 846.7 million PLN higher than in 2013 (due to higher sales, with a rise in the value of power and fuels purchased for the purpose of resale). The higher operating expenses in comparison to 2013 included the costs of materials and energy consumption resulting from a wider range of construction works performed, and the cost of outsourced services, including costs of subcontractors (change of the scope of work in 2014). In 2014, the Company as a consortium leader completed



2014–2013 %



Profit/loss on sales 113.6 78.2 –35.4 –31.2 %



Profit/loss on other operating activities –1.9 –13.3 –11.3 –

EBIT 111.7 64.9 –46.8 –41.9 %

EBITDA 191.3 156.3 –35.0 –18.3 %






Income tax 23.2 14.7 –8.5 –36.7 %

Net profit (loss) 90.0 48.7 –41.2 –45.8 %


1,724 million PLN

2,190 million PLN


8.5 InvestmentsPKP Energetyka’s strategy includes the concentration of capital ex-penditures for the modernization (of existing electric power distribution systems) and the development (in terms of connecting new electricity customers), construction and modernization of power systems of traction networks (as a part of the priority program of Modernizacja Układów Zasilania MUZa (Modernization of Power Supply Systems MPSS), as well as building its own Rozdzielcze Punkty Zasilające (RPZ) (Supply Distri-bution Panels [SDP]). Total investment costs incurred in 2014 totaled 488.9 million PLN.

Financing of capital expenditures was mainly from own funds, the value of which amounted to 339.5 million PLN. The funds raised from grants (0.2 million PLN) have been allocated for equipment for reactive power compensation in electric power supply systems, funds from the bond issue (123.2 million PLN) have been earmarked for the modernization of the traction line networks (MPSS program), and the acquisition of motor vehicles a part of leasing (worth 25.9 million PLN).

X Structure of capital expenditure financing sources in 2013–2014 (in million PLN)

315.3 31.9 5.0 0.0339.5 123.2 25.9 0.2

Own funds Loans and bonds Financial leasing Grants

50

100

150

200

250

300

350

400

0

X List of capital expenditures incurred by the Company in 2013–2014 (in million PLN)


2014–2013 %

Construction projects 296.5 425.6 129.1 43.5 %

Upgrade of rolling stock 11.1 2.3 –8.8 –79.6 %

Purchase of rolling stock 10.9 1.7 –9.2 –84.0 %

Other, including: 33.7 59.3 25.6 76.0 %

Purchase of machinery and equipment 13.2 47.8 34.6 262.7 %

IT systems and equipment 16.2 9.8 –6.4 –39.7 %


2014 2013



2014–2013 %

Depreciation 79.6 91.4 11.8 14.8 %



Energy distribution service 439.1 455.6 16.5 3.8 %

Construction services 129.0 296.8 167.8 130.0 %


Payroll 379.6 400.4 20.8 5.5 %



Value of goods and materials sold 1,799.4 2,348.5 549.1 30.5 %

Purchase of power 1,640.1 2,158.2 518.1 31.6 %

Purchase of fuels 158.4 160.0 1.6 1.0 %

Purchase of gas – 29.5 29.5 –

8.4 AssetsAs at 31 December 2014, the value of tangible fixed assets in PKP Energetyka totaled 1,729.3 million PLN and in comparison to the previous year increased by 441.7 million PLN, that is by 34.3 %. The assets increase resulted from in – kind real estate contributions from PKP S.A. and from investments.

The dominant item in the Company’s assets is buildings and equipment forming the electricity distribution system, whose net value accounts for 55.2 % of the total assets of the Company.



2014–2013 %

Fixed assets 1,406.2 1,892.9 486.6 34.6 %


II. Tangible fixed assets, including: 1,287.6 1,729.3 441.7 34.3 %

1. Property, plant and equipment, including: 976.2 1,280.3 304.1 31.1 %

a. Land 72.6 88.6 16.0 22.1 %






PKP GROUP | ANNUAL REPORT 2014 | PKP ENERGET yK A 073PKP GROUP | ANNUAL REPORT 2014 | PKP ENERGET yK A072

8.7 Main highlights

February

3 Commencement of operational cooperation on gas trading with GAZ–SYSTEM S.A. and signing the contract with Polska Spółka Gazownictwa for fuel distribution.

April

3 The commissioning in Złotoryja of the referential modernization project of the 110 kV station for Tauron Dystrybucja company. During project implementation the experience gained was used, inter alia, at working with high voltage devices within the Modernization of Power Systems traction network.

May

3 In another consecutive year in a row, from among the leading suppliers of electricity in Poland, PKP Energetyka reported the least amount of interruptions in the supply of electricity to its customers. The average time of all interruptions was about 190 minutes, which positions the Company at the European level.

June

3 The photovoltaic panels with an output of 140 kW were installed on PKP Energetyka factory buildings in Słot-winy. They provide energy for the plant’s needs, and at the same time are connected to the nationwide distribution network.

July

3 The Energy Regulatory Office approved rates for trading in natural gas for the Company. From 1 July PKP Energety-ka joined the group of entities, which offers customers gas and electricity in one package.

October

3 The Company won the bid to modernize 1,224 street lamps in LED technology and 608 sodium lamps that illuminate the city of Łódź. The project is worth 2.3 million PLN.

November

3 The first contract was signed for the sale of electricity and gas as part of the dual fuel offer. Luvena became the Company’s client. Under the terms of the contract, to the end of 2015 Luvena will purchase 30 GWh of gas and 15 GWh of electricity.

8.6 EmploymentEmployment in the Company as at 31 December 2014 totaled 7,189 people and was lower than at the end of 2013 by 96 people.

The reduction in employment in the Company in 2014 was a result of employees’ leaving following agreement between the parties or resignations from work after acquiring the right to retirement and disability pension as well as rehabilitation services.

Employment admissions in 2014 resulted from the need to supplement the vacancies and the growing demand for workers to work on the modernization of the railway infrastructure. In the reporting period, a total of 389 people were employed.

Those over 45 years of age form the main group of the Company’s em-ployees. Changes in employment that occurred in 2014 contributed to the increase in the number of employees aged 26–35 years and those above 55 years. Changes in the regulations on early retirement account for the size of last age group.


1,3971,487

36–45

0

500

1,000

1,500

2,000

2,500

3,000

3,5002014 2013

1,8151,626

>55

2,7843,018

46–55

960931

26–35

233223

<25



Management Board

3 Michał Hamryszak – President of the Management Board

3 Edyta Glinka – Member of the Management Board

3 Piotr Jezierski – Member of the Management Board

Supervisory Board

3 Jarosław Bator – Chairperson

3 Małgorzata Butwicka

3 Beata Kasprzyk

3 Mirosław Lisowski

3 Szymon Nowak

3 Andrzej Śliwiak

S Michał Hamryszak – President of the Management Board

9.1 About the CompanyTK Telekom Sp. z o.o. (hereinafter TK Telekom) is a telecommunications operator, which offers comprehensive and flexible IT solutions, satisfying both the needs of companies from the railway sector, as well as outside of it.

The Company's activities, in particular, include services:

3 wired, wireless and satellite telecommunications;

3 IT and computer systems;

3 management of websites (hosting) and Internet portals.

PKP S.A. resumed TK Telekom privatization process in October 2014, which facilitated the selection of an investor in the second quarter of 2015. Finally, Netia S.A. presented the best conditions of sale, which in the preliminary contract agreed to pay more than 221.0 million PLN for 100 % of the shares. Both parties are currently waiting for the process of obtaining corporate and administrative approvals (as at 12 June 2015).

09TK Telekomwww.tktelekom.pl

PKP GROUP | ANNUAL REPORT 2014 | TK TELEKOMPKP GROUP | ANNUAL REPORT 2014 | TK TELEKOM 077076

The Company obtained a profit of 1.7 million PLN on other operating activities. For comparison, in 2013 a loss of 5.2 million PLN was incurred. Higher revenues from other operating activities in comparison to those from 2013 result-ed mainly from the disposal of fixed assets (sale of HAFAS system), contractual penalties and damages received while at the same time lower releases of actuarial reserves and grants received.

The Company recorded a loss of 13.9 million PLN on the financial activity. This outcome is lower by 16.2 million PLN in comparison to 2013 and is the result of a loss incurred from the sale of TK Budownictwo.

X Operating expenses in 2013–2014 (million PLN)


2014–2013 %

Depreciation 34.7 24.8 –10.0 –28.7 %


Outsourced services 97.5 67.8 –29.7 –30.4 %

Taxes and charges 3.1 2.4 –0.7 –24.1 %

Payroll 86.3 53.1 –33.2 –38.5 %

Social security and other benefits 9.7 8.5 –1.2 –12.2 %


Value of goods and materials sold 13.9 17.5 3.6 25.9 %

Total operating expenses 268.5 190.5 –78.0 –29.1 %

X Sales revenues and equivalent revenues for 2013–2014 (in million PLN)


2014–2013 %

Net revenues from the sale of products and services 260.0 175.9 –84.1 –32.3 %

Telephone services 52.6 31.7 –20.9 –39.7 %

Internet services 29.9 29.2 –0.7 –2.2 %

Services related to the sale of bit rate 83.1 48.0 –35.1 –42.2 %

Data transmission 19.6 18.7 –0.9 –4.4 %

Railway–specific services 20.3 9.0 –11.4 –55.9 %

Maintenance and construction services 36.4 11.9 –24.4 –67.1 %

Other 18.2 27.4 9.2 50.6 %

Net revenues from the sale of goods and materials 17.1 20.8 3.8 22.1 %

Cost of production for the unit’s own needs 2.0 0.8 –1.2 –61.5 %

Net revenues from sales and equivalent revenues 279.1 197.5 –81.5 –29.2 %

9.3 FinancesIn 2014, the Company generated a net loss of 4.7 million PLN. This is a net result lower by 10.5 million PLN than in 2013, the main reason was the loss incurred on the sale of shares in TK Budownictwo.

The Company earned sales revenues of 197.5 million PLN and they were lower than in 2013 by 81.5 million PLN, mainly due to the separation from TK Telekom of the following companies: TK Budownictwo (lower maintenance–construction revenues), PKP Utrzymanie (lower revenues from railway specific services) and TK Telekom Interkonekt (lower revenues from sales of telephone services) and price erosion in the telecommunications market.

In 2014, TK Telekom incurred operating expenses of 190.5 million PLN, lower by 78.0 million PLN in comparison to 2013, which was the effect of separating the maintainability and construction activities from the Company, carrying out the VRP, reduction in rates of MTR and lower cost of leasing fiber laser.



2014–2013 %

Net sales revenues and equivalent revenues 279.1 197.5 –81.5 –29.2 %

Operating expenses 268.5 190.5 –78.0 –29.1 %




Profit/loss on other operating activities –5.2 1.7 6.9 –

EBIT 5.4 8.8 3.4 63.4 %

EBITDA 40.1 33.5 –6.6 –16.4 %

EBITDA margin 14.4 % 17.0 % – –


Financial expenses 1.1 15.2 14.1 1,284.7 %


Gross profit (loss) 7.7 –5.1 –12.7 –

Income tax 1.8 –0.4 –2.3 –

Net profit (loss) 5.8 –4.7 –10.5 –

Net profitability 2.1 % –2.4 % – –

X Revenues structure in 2013–2014

In the PKP Group of entities – 43 % Not in the PKP Group of entities – 57 %

In the PKP Group of entities – 54 %Not in the PKP Group of entities – 46 %

2013 2014

279 million PLN

198 million PLN

PKP GROUP | ANNUAL REPORT 2014 | TK TELEKOM 079PKP GROUP | ANNUAL REPORT 2014 | TK TELEKOM078

9.7 Main highlights

January

3 TK Interkonekt was registered and TK Budownictwo set up.

March

3 TK Telekom company was divided by allotting and trans-ferring part of TK Telekom Sp. z o.o. assets in the form of an organized part of the company to a new compa-ny, that is PKP Utrzymanie z o.o. This was followed by a reduction of share capital to 384,900,500.00 PLN.

April – December

3 Program Dobrowolnych Odejść (The Voluntary Redun-dancy Program [VRP]) was conducted, which benefited a total of 121 employees.

July

3 Changes were introduced to the organizational struc-ture of TK Telekom, dictated by the need to tidy up the functionality and organization of the Company, in order to adapt the structure after separating the Telecommunications Works Division, Maintenance Divi-sion and the takeover of interconnection contracts by TK Telekom Interkonekt Sp. z o.o. and the preparation of the Company’s privatization process.

November

3 Transfer to PKP S.A. of shares in TK Budownictwo Sp. z o.o. The new owner changed the company’s name to PKP Budownictwo Sp. z o.o.

December

3 In 2014, efforts to privatize TK Telekom were also con-tinued. The process of Due Diligence was carried out in several stages, to which two parties, who were interested in buying the Company and which were selected in earlier proceedings, were privy to. The company mCorporate Finance S.A. was chosen as the privatization advisor.

9.6 EmploymentThe number of employees in the Company at the end of 2014 to-taled 495 people and was lower than at the end of the previous year by 974 people. The decrease was mainly due to the sepa-ration from the Company of construction and maintainability activity and the conduct of the Program Dobrowolnych Odejść (The Voluntary Redundancy Program [VRP]) in 2014.

The structure of employment shows an increase in the em-ployment rate of people with higher education, which is 50.9 % of all employees. More than half of the employees (55.2 %) have technical education. To meet the changes brought about by technological progress in telecommunications, the level of highly skilled employees in the Company will gradually grow, both as a result of the recruitment of people with knowledge in the field of new technologies, as well as from the creation of conditions for professional development of opportunities for current employees, especially in the form of self–education.

X Capital expenditure incurred in 2014 (in million PLN)


2014–2013 %

Construction projects 16.5 26.3 9.8 59.8 %

Purchase of machinery and equipment 2.1 0.0 –2.1 –98.6 %

Purchase of other fixed assets 0.8 0.4 –0.4 –53.9 %

Other investments 2.1 0.0 –2.1 –100.0 %


9.4 AssetsThe decrease in the value of property, plant and equipment in TK Telekom by 94.1 million PLN was a consequence of the transfer of part of property, plant and equipment to PKP Utrzymanie and TK Budownictwo and liquidation of assets (unnecessary in the business activity).

The dominant part in the structure of property, plant and equipment was buildings, premises, civil and water engineering (56.8 %) and machinery and equipment (27.4 %).

9.5 InvestmentsThe value of the Company's capital expenditure was 26.7 million PLN. The main completed tasks included construction investments, the pur-chase of machinery and equipment and other fixed assets.

The only source of the Company's investments financing both in 2013 and 2014 were the Company’s own funds. Capital expenditures mainly included the construction of telecommunication systems equipment, network access and telecommunication wires and computerization of the Company.



2014–2013 %

1. Property, plant and equipment 291.9 197.8 –94.1 –32.2 %







X Reduction in property, plant and equipment in TK Telekom.

X Capital expenditure incurred.

26.7million PLN

↓94.1million PLN

PKP GROUP | ANNUAL REPORT 2014 | TK TELEKOM 081PKP GROUP | ANNUAL REPORT 2014 | TK TELEKOM080


Management Board

3 Adam Filutowski – President of the Management Board

3 Jan Starzyk – Member of the Management Board

Supervisory Board

3 Andrzej Pieczara – Chairperson

3 Jacek Iwański

3 Paweł Jasiński

3 Witold Pyrgiel

3 Małgorzata Butwicka

S Adam Filutowski – President of the Management Board

10.1 About the CompanyThe activities of PKP Informatyka Sp. z o.o. (hereinafter PKP Informatyka) are broadly defined as IT services, in particular the development of application software (systems and applications), especially for the PKP Group Companies (both railway and railway–related companies), as well as maintenance services, including direct maintenance of systems and applications and technical support services. Additionally, the Company also provides its services in the area of co–location, hosting, web services, computer hardware service, structured cabling and operates throughout the country.

10PKP Informatykawww.pkp–informatyka.pl

PKP GROUP | ANNUAL REPORT 2014 | PKP INFORMAT yK APKP GROUP | ANNUAL REPORT 2014 | PKP INFORMAT yK A 083082

Implementation of contracts entered into with the Company’s contrac-tors requires an appropriate level of expenditure for the information technology operations. In 2014, PKP Informatyka incurred operating expenses at the level of 107.7 million PLN. The increase in cost by kind in 2014, in comparison to the previous year, mainly related to the cost of materials and energy consumption and the cost of outsourced services.

In addition, the increase in relation to 2013 of costs arising from the purchase of materials and energy, resulted from the sale of handheld ticket validation devices and mobile ticket terminals for STADLER, Koleje Dolnośląskie and ŁKA, as well as expenditure for servers purchased for PKP PLK use.

Higher purchase costs of outsourced services include primarily the higher cost of renting premises due to the transfer of the building to SPV Projekty Warszawskie.

The value of goods and materials sold in 2013 includes the value of the server sold to PKP CARGO as part of implementing the Corporate Data Warehouse.

In comparison to 2013, in 2014, PKP Informatyka reported a deterioration in the result on other operating activities by 12.0 million PLN following payment of contractual penalties, reserves set up for the penalties and contractor claims, as well as write–downs on receivables and produc-tion in progress.

10.3 FinancesIn 2014, PKP Informatyka incurred a net loss of 6.9 million PLN with net profit in 2013 at 13.1 million PLN. The deterioration in net financial result is the consequence of non–recurring items that negatively affected the result obtained in other operating activities.

In 2014, PKP Informatyka achieved sales revenues of 111.8 million PLN and they were lower by 5.7 million PLN, in comparison to 2013 as a result of obtaining lower revenues from the PKP Group Companies, mainly from PKP PLK (in 2013 high revenues from the implementation of the Dynamic Passenger Information for the Warsaw Central railway station and the modernization of Hurtownia Danych (Data Warehouse) SAP WP) and PKP CARGO (achieving lower income from the SANKO project, the Corpo-rate Data Warehouse BI project in 2014 and high revenues in 2013 from the implementation of the SMB CARGO system and server sales). At the same time, the Company also achieved higher revenues from PKP Intercity from the implementation of new projects (Rolling Stock Monitoring and Positioning system, Rolling Stock Management system and RMS system).



2014–2013 %

Net sales revenues and equivalent revenues 117.5 111.8 –5.7 –4.9 %





Profit/loss on other operating activities 1.1 –10.9 –12.0 x

EBIT 17.0 –6.8 –23.8 x

EBITDA 24.4 –0.7 –25.1 x

EBITDA margin 20.7 % –0.7 % – –

Financial revenues 0.3 0.3 0.0 –3.5 %


Profit/loss on financial activities 0.0 0.1 0.1 x

Gross profit (loss) 17.0 –6.7 –23.7 x

Income tax 3.9 0.2 –3.6 –94.4 %

Net profit (loss) 13.1 –6.9 –20.0 x

Net profitability 11.1 % –6.2 % – –



2014–2013 %

Depreciation 7.4 6.1 –1.3 –17.2 %



Renewal of licenses and technical assistance 11.6 15.6 4.0 34.4 %

Other IT services 18.5 15.0 –3.5 –19.0 %

Taxes and charges 1.4 1.3 –0.2 –12.2 %

Payroll 33.5 35.4 2.0 5.9 %





X Implementation of the Rolling Stock Monitoring and Positioning system.

PKP GROUP | ANNUAL REPORT 2014 | PKP INFORMAT yK APKP GROUP | ANNUAL REPORT 2014 | PKP INFORMAT yK A 085084

10.4 AssetsAt the end of 2014, the value of tangible fixed assets amounted to 15.3 million PLN, which accounted for 44.8 % of the Company’ total assets.

In comparison to the previous year the state of tangible fixed assets decreased by 12.7 million PLN. The lower state of tangible fixed assets was primarily the result of separating from the PKP Informatyka struc-ture of its spin–off SPV Projekty Warszawskie division, which resulted in a decrease in the value of the land position by 7.9 million PLN, and buildings, premises and civil and water engineering by 10.7 million PLN.

The Company recorded the increase in the ‘fixed assets under construc-tion’ item by 6.3 million PLN from the purchase of the HAFAS system from TK Telekom.


10.5 InvestmentsIn 2014, the company incurred capital expenditures of 13.1 million PLN, of which 97.4 % was financed from own funds. The incurred expenditures focused on the RMS project task related to the provision of services to PKP Intercity, the purchase of the HAFAS system and current purchases (mainly computer hardware).

In 2013, the Company incurred capital expenditures of 12.2 million PLN. The main item of expenditure was capital investments for the purchase of 100 % of the shares of Kole-jowe Zakłady Łączności in Bydgoszcz (KZŁ). The remaining asset expenditures resulted from tasks associated with the consolidation of servers.

X List of capital expenditure made by PKP Informatyka in 2013–2014 (in million PLN)


2014–2013 %

Purchasing HAFAS system – 6.3 6.3 –

RMS project task – 3.3 3.3 –

Current purchases – computer hardware – 2.3 2.3 –

Server consolidation 0.9 – –0.9 –

Capital investments 10.2 – –10.2 –

Other 1.1 1.2 0.2 15.8 %



2014–2013 %

Fixed assets 43.1 34.1 –9.0 –20.8 %


II. Tangible fixed assets, including: 28.1 15.3 –12.7 –45.4 %

1. Property, plant and equipment, including: 28.1 9.0 –19.0 –67.9 %

a. Land 8.2 0.4 –7.9 –95.7 %




2. Fixed assets under construction 0.0 6.3 6.3 –

X Increase in 'fixed assets under construction' following purchase of HAFAS system.

↑6.3 million PLN

PKP GROUP | ANNUAL REPORT 2014 | PKP INFORMAT yK A 087PKP GROUP | ANNUAL REPORT 2014 | PKP INFORMAT yK A086

10.6 EmploymentThe state of employment as at 31 December 2014 was 403 people and was at the same level as at the end of 2013. The Company accounted for the largest group of employees aged 46–55 years, that is 34.5 % of total employment.

The second largest group was represented by employees between 26–35 years of age, that is 24.3 % of total employment. Young workers, up to 25 years of age, constitute 2.7 % of total employment. On the other hand, as much as 53.1 % of total employees have work experience of more than 21 years. The vast majority also have higher education (75.7 % of total employment).

9883

26–35

119

<25

20142013


0

20

40

60

80

100

120

140

160

7082

>55

139142

46–55

8587

36–45

10.7 Main highlights

February

3 PKP Informatyka became an authorized XEROX service partner. The Company services the manufacturer’s equipment, including printers, copiers and multifunction devices.

3 PKP Informatyka won the Koleje Śląskie tender to supply 45 modern mobile terminals for conductors.

3 The new dynamic passenger information system, commissioned by PKP PLK, which was installed on modernized platforms at Poznań Główny railway sta-tion was implemented and the testing period had been completed. Since December 2013, the system handled 20,000 trains. It consists of 94 platform displays, mas-ter displays and info–kiosks. The PKP PLK relational timetable, available on a scrolling LCD touch–screen, is new feature for passengers.

April

3 A new dynamic passenger information system at the Warszawa Wileńska railway station was commissioned. PKP Informatyka Group is the manufacturer and installer of the system. The system is created using platform dis-plays and master displays made in LCD technology, which offers passengers clear and easy to read information.

3 The contract was signed to implement ITS Koszalin, which will control the traffic lights at thirteen intersections and will display information on electronic displays about road conditions and in urban car parks.

July

3 PKP Informatyka became the biggest provider of IT solu-tions and services for the TSL sector in the subsequent edition of the TOP200 Report.

September

3 PKP Informatyka successfully passed the certification audit in the Integrated Management System for the required quality and effectiveness. PKP Informatyka currently has: ISO 9001: 2008 quality management system Certificate, ISO/IEC 27001: 2005 Information security management system Certificate and ISO/IEC 20000–1:2011 IT service management system Certificate.

3 A contract was signed with PKP Intercity to support IT services to maximize revenue from passenger services. The solution ensures the implementation of dynamic price management (inter alia, known from airlines).

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Corporate social responsibility activities

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Modernity measured by responsibility The active support of management processes, staff development, local communities and improving safety in the railway area are the selected areas of the PKP Group activities implemented in line with the idea of corporate social responsibility (CSR).

More than 3 years ago PKP S.A. and the other Companies of the PKP Group began changes, with the aim to transform inefficient (and perceived by most Poles in a negative way) enterprise into a modern and client focused business. At that time, the approach to management was radically changed, where the main determinant was to place the passenger at the center of attention. Travelers already see and appreciate the changes that have taken place in the PKP Group during that time, which is reflected in the increase in the number of railway passengers. In parallel with the optimization of business processes, effective mechanisms to strengthen re-lations with stakeholders were worked out and the principle of sustainable development was introduced.

PKP S.A. was the first in the PKP Group Companies to develop and adopt a strategy for corporate social responsibility (CSR). Business objectives do not change: the first is to build a coherent, well–managed and effective organization, but in their implementation the influence that the Company has is taken into account, by taking specific initiatives and actions. For PKP S.A. the most important directions in the CSR strategy are the improvement of safety at railway stations and com-fort of travelers and to create a friendly workplace where employees can count on the continuous development of skills and competencies, as well as attention to health and safety.

Responsibly managed real estate

In keeping with the strategy of corporate social responsibility, for PKP S.A., as the owner of railway property, it is most impor-tant to effectively use potential assets. The railway station has to be a safe, clean, comfortable and modern place, meeting the highest standards where the journey for each passenger and encounter with the infrastructure managed by PKP S.A. leave a positive experience. This is achieved through, inter alia, a large–scale program of modernization of railway stations and involvement in development projects.

Over the last two years 63 railway stations were completely renovated and restored. Both on new and renovated buildings modern architectural solutions are used, which in the case of historic buildings their unique historic character is respected. The renovations, modernization and aesthetization increase the value of the property, which then affects its marketability and increased interest from potential commercial tenants. The program of modernization of railway stations, for improving the quality of passenger service, their comfort and satisfaction, covers not only the objects in big cities but also in smaller towns.

Renovated and modernized railway stations are becoming more modern, and at the same time more accessible for people with mobility problems. In 2014, in order to develop effective solutions to support people with disabilities in collaboration with Fundacja Integracja (Integration Foun-dation) accessibility audits were conducted at 22 railway stations. The audits were completed with the participation of persons with reduced mobility, in particular for whom the introduced improvements are designed. Recommenda-tions were developed which identified possible solutions to increase the comfort and safety of persons with disabilities (including lowering the ticket counters, designating an area when waiting for help to board to the train, building ramps, touch paths, tactile maps, etc.).

In 2014, work was also completed on the adaptation of 14 premium category railway stations to introduce selective collection of municipal waste. The premises are equipped with labeled bins and containers, individually selected and matched to the design and arrangement of the particular railway station. This aspect was particularly important for stations under the heritage protection of the conservator (Gdynia, Rzeszów and Tarnów).

In 2014, as a response to the requirement that investments be made on the basis of dialogue, taking into account pro–envi-ronmental issues, the concept of Innowacyjne Dworce Syste-mowe (IDS) (Innovative Systemic Railway Stations [ISRS]) was developed. ISRS are established in places where the already existing railway stations are too big and are not adapted to local needs. The single–story railway station buildings are built according to a standard formula, made from recycled elements environmentally friendly and economical to main-tain, using ecological solutions such as heat pumps or solar panels. Each ISRS consists of three modules: railway station, urban and parking.

PKP S.A. ensures that good cooperation with local governments is maintained, thanks to which in recent years there has been an increase in the number of railway stations and disused railway lines sold to local governments. Railway stations do not only have the transport function, but are often centers of cultural life, for example, the railway station in Rumia, which is transformed into the so–called ‘stacja kultury’ (‘cultural station’). Currently, at the Gdynia Główna railway station an area is being used to operate a theater run by the City Hall of Gdynia Fundacja Klinika Kultury (Cultural Clinic Foundation). Regular passenger services and occasional tourist rides are organized on the revitalized railway lines, and bike paths and public roads are created on the remaining lines that have been taken over.

Railway stations are used as places for exhibitions, perfor-mances and concerts. In 2014, at the stations: Wrocław Główny, Kraków Główny and Gdynia Główna, promotional campaigns were held as part of the Dni Otwarte Funduszy Unijnych (EU Funds Open Days), organized as part of the celebrations marking the 10th anniversary of Polish membership in the European Union. Also, the Dworcowa Scena Akustyczna fes-tiwalu Open’er (Open’er Festival’s Acoustic Railway Station Stage) was set up in Gdynia, while the Warszawa Centralna and other premium railway stations have become among other things, places for a special exhibition prepared by the editorial staff of ‘Newsweek Poland’ to celebrate 25 years of socio–economic freedom, under the patronage of the President of the Republic of Poland.

Corporate social responsibility activities

In August 2014, the project ‘Świebodzki Targ Kultury’ (‘Świe-bodzki Cultural Fair’) was completed inaugurating a long–term revitalization of Świebodzki railway station in Wrocław. The railway station area changed into an arena of cultural events, in which the Wrocław inhabitants and guests from all over the country were able to take part in the avant–garde events, such as concerts, lectures, debates, and workshops for children. An outdoor cinema was also operated at the station. During the holiday season creative workshops for children and youth were held also at the Warszawa Centralna railway station.

There is a particularly noteworthy initiative implemented at the railway station in Sosnowiec Maczki, where the Silesian University of Technology and PKP S.A. created a Scientific and Education Center for Rail Transport. The center will educate engineers – specialists for the railway sector. The center’s activity is to significantly contribute to the increase in the competitiveness of this mode of transport in Poland. At the initiative of PKP S.A. in Warsaw a new cultural institution, the Museum Station is being created, where the most interesting collections of rolling stock and heritage rail–related technology will be gathered.

PKP GROUP | ANNUAL REPORT 2014 | cORPORATE SOcIAL RESPONSIbILIT y AcTIvITIESPKP GROUP | ANNUAL REPORT 2014 | cORPORATE SOcIAL RESPONSIbILIT y AcTIvITIES 093092

pation of its employees and clients. The training program will be further developed on the e-learning platform. The Ethics Program Management System at the PKP Group includes the Ethics Commission and the reporting mechanism, called 'The Ethics Line', that allows for safe and anonymous conveying of information on irregularities and unethical behaviour cases by employees, subcontractors and suppliers.

In 2014 a number of additional policies were created and accepted in the PKP Group, these included anti-harassment, receiving and giving of gifts and benefits and the guidelines on the management of conflict of interest, as well as the use of social media guidelines. This has resulted in a positive change to the organizational culture, and the received information on abuses and fraud shows that it positively impacts on the reduction of their incidence, assists in conflict resolution

Security – the key value

Since 2011, the number of railway accidents fell by a quarter and people affected by 44 %. There were 14 % fewer accidents recorded at level crossings in 2014 than in 2013. This is the result of the social awareness campaign ‘Bezpieczny Prze-jazd’ (‘Safe crossing’) conducted since 2005, and also due to the biggest in history investment program under which PKP PLK renovates thousands kilometers of railway lines and modernize 1,400 crossings and 3,000 railway junctions for the sum of 3 billion PLN. PKP PLK conducts safety training, employs 1,000 people in positions associated with safety, maintenance and traffic operation. This translates into visible results, and due to the implementation of the Poprawa Bezpieczeństwa Kolejowego (Railway Safety Improvement) program, 2014 had the lowest number of accidents in history.

cialized non–government organizations effective measures are carried out aimed at helping homeless people staying at railway stations to return to society. Since 2009, PKP S.A. has been a member of the European association of railway enterprises Klub Europa (Club Europe – European Charter for Development of Social Initiatives in Stations). Projects implemented by PKP S.A. in 2012–2014, aimed at raising the level of safety and comfort of travelers in railway station areas are recognized as innovative and effective in the European railways circles.

The purchasing of new rolling stock and electric multiple units (including the ED250 Pendolino), as well as carriages and locomotives and the modernization of already existing stocks constitute investments, which PKP Intercity adopted in 2014 to increase security. The new and modernized rolling stock, in addition to lower energy consumption and higher passenger comfort, is fully compliant with the TSI.

The employee in the center of attention

One of the priorities of PKP S.A.’s CSR strategy is to strengthen PKP employee competences to build the Company’s goodwill and improve quality of services offered. The PKP Group in-vests in developing intellectual capital and modernization solutions in HR. Employees benefit from modern training conducted also on-line. In 2014, PKP S.A. implemented the ‘Rozwijaj się z PKP’ (‘Develop with PKP’) program under which within 6 months 102 two-day training sessions had been carried out, which covered nearly 1,900 employees. People employed in the PKP Group Companies also have access to LuxMed health and life insurance policies and a broad sys-tem of benefits, including FitProfit and Multisport packages. PKP S.A. implemented the ‘Wspieramy zdrowie’ (‘We support health’) program, which aims to reach all employees (who on a daily basis are struggling with health problems), together with identification, diagnosis and medical support.

The PKP Group has a ‘Code of Ethics’, which sets out rules of behavior of the PKP Group employees in relations with co-workers, individual and business clients, suppliers, com-petitors, social environment and the natural environment. All the employees of the PKP Group, that is over 80,000 people, have received the guidelines in relation to the de-sirable behaviour and common values that are in force in the PKP Group. The Chief Ethics Officer for the PKP Group and the Ethics Officers for the PKP Group Companies have been appointed, and a training program was conducted on ethical values (reliability, good governance, safety, modernity, responsibility and respect) that were jointly worked out by the PKP Group Companies’ representatives with the partici-

and improves the work environment. In May 2014 the PKP Group joined the UN Secretary General’s 'Global Compact' initiative, taking on board the relevant ethics in business issues (the Coalition of Ethics Officers was implemented on 10 December 2014) and the matter of sustainable transport.

Pro-labor initiatives are undertaken separately in individual Companies. The Blood Donors’ Club (HDK) operates at PKP Energetyka in agreement with the Polish Red Cross. More than 470 Company employees, together with their families, belong to the club. Under the ‘Energia dla życia’ (‘Energy for Life’) program HDK members collected more than 1,000 liters of blood. The blood donation campaigns are also supported by PKP Intercity; in November 2014, a series of collections in all Company plants was organized as part of the ‘PRC Honorary Blood Donation Days’.

The ‘EKOmocni’ (‘ECOstrong’) educational program that mo-tivates employees to environmentally friendly behavior in the workplace is another initiative of PKP Energetyka. Paper saving and rational energy management and waste segre-gation not only serves to protect the natural environment, but also helps to reduce the Company's operational costs. PKP Intercity carries out selective collection of municipal waste in offices and industrial waste from technical support facilities for recycling. Drivers employed by the Company are trained in economical driving behavior, thus reducing energy consumption and its negative impact on the environment.

PKP SKM w Trójmieście supports various forms of physical activity enjoyed by its employees. The Company operates a sports club, and employees can also use the funded sports packages. The Mobilna Strefa Zdrowia PZU – Przystanek Zdowie (‘Health Stop’ – PZU Mobile Health Zone) was launched in 2014. Employees of PKP SKM could take advantage of free check ups specialist doctors advice.

As part of employee volunteering conducted in PKP Energetyka, the Company supports, inter alia, orphanages, by organizing occasional collections for Christmas and Children’s Day. Food parcels and school supplies are donated during the campaigns.

PKP Informatyka participated in a job trade fair, during which its employees encouraged potential candidates to join their team, presenting job offers for young, talented and ambitious people who are planning a career in computer programing.

The social campaign ‘Safe crossing’, which aims to improve safety at railroad crossings, is one of the leading projects implemented in the PKP Group since 2005 and one of the biggest such campaigns in Europe. The scale of activities and their social recognition have been recognized interna-tionally. As part of the Europejska Karta Bezpieczeństwa Ruchu Drogowego (EKBRD) (European Road Safety Card [ERSC]), an initiative of the European Commission, PKP PLK has been awarded an honorable mention for increasing safety at railroad crossings.

PKP S.A. developed rules for the PKP S.A. Railway Station Security Center and introduced procedures in the event of threats and emergencies at railway stations and other buildings managed by the Company. At the same time for several years PKP S.A. has been a partner of the Ministry of Labor and Social Policy in the program for reducing and alleviating homelessness. Together with representatives of local government administration, police, and municipal guards and with the support of street workers from spe-



students are given information about safe behavior on trains and around railway areas. Children also learn about railway traditions and professions within the railway sector.

As part of the ‘Development of the Tricity commuter rail’ program conducted at the Wybrzeże (Polish seaside) the railway infrastructure on No. 250 line (managed by PKP SKM) was modernized in such a way so that it would be useful to passengers with reduced mobility, including parents with prams and strollers and visually impaired and blind people. The rolling stock park was modernized, adapting it to the needs of disabled people and the youngest travelers (including changing tables in restrooms). The Company provided a tab on its webpage for people requiring assistance during the journey, where information can be found about the organi-zation of transport. Bike racks have been installed in trains for cyclists using PKP SKM services and free transportation for bicycles has been guaranteed.

For many years PKP LHS has been conducting a program of pro-environmental activities, focusing on minimizing the im-pact of the use of the railway line on nature in Roztoczański National Park. Activities undertaken jointly by PKP LHS and the Park Management are aimed at conducting scientific re-search and popularizing the idea of protecting the Roztocze natural and cultural heritage through the implementation of joint campaigns and social projects. Such activities make it possible for inhabitants of these regions and the entire Poland to use the resources of the natural environment.

In the right direction

Within the ‘Wizja zrównoważonego rozwoju dla polskiego biznesu 2050’ (‘2050 Vision for sustainable development for the Polish business sector’) project, carried out with the broad commitment of business and the support of the Ministry of Economy, the condition of infrastructure was considered to be the key factor for the country’s socio-economic development. Transport infrastructure translates into increases in other sectors, determines the quality of life of local communities, while also affecting job creation and regional development. The condition of the railway infrastructure, access to modern technologies and the development of sustainable construction are leading aspects of the PKP Group activities.

The implementation of processes resulting from the corporate responsibility strategy supports and systematizes railway property management activities, and further strengthens the image of PKP S.A. as a socially responsible organization. In conjunction with the projects implemented to improve working conditions (including through the principles set out in the ‘Code of Ethics’), it translates into greater employee involvement and

Building a relationship with the environment

Initiatives undertaken as part of the CSR strategy, effectively support the development of the organization, they have a positive impact on both the internal relations, as well as cooperation with other stakeholders. A PKP Group Founda-tion was established to optimize and make better use of the effects of involvement in philanthropic activities; it imple-ments safety and railway education programs and promotes the ‘friendly rail’ model. At the PKP Group level, the Foundation supports important social initiatives and carries out its own nationwide activities. In 2014, the Foundation conducted two grant programs, whose beneficiaries were upper secondary schools and scientific circles at Polish technical universities. The Foundation cooperates with the Railway Museum in Warsaw, where it organized a ‘Wikiekspedycja kolejowa’ (‘Rail Wikiexpedition’) photographic exhibition and also supported an exhibition of historical railway maps. It has also prepared a nationwide ‘Szkoła Przyjazna Bezpieczeństwu’ (‘Safety Friendly School’) educational program, which included, inter alia, excursions to a railway station and a train trip for the youngest pupils.

PKP CARGO S.A. looks after historic rolling stock, to ensure that the historic railway heritage is preserved. It takes care of several dozen old locomotives and other historic rolling stock exhibits and railway equipment in centenary-old Roundhouse in Wolsztyn, near Poznań, and in Open-air Rail Train Museum in Chabówka in Małopolska Province. During summer, the Company prepares two special events for railway enthusiasts, particularly promoting the history of railways, especially among the youngest audiences. Roundhouse Wolsztyn hosts ‘Parada parowozów’ (‘Locomotive Parade’), which is the most prestigious show in the hobbyist’s circles, which can attract more than tens of thousands of participants from around the world. The second event is ‘Parowozjada’ (‘Locomotive Ride’), which is held in Chabówka each year at the end of August.

PKP Intercity is actively involved in social activities, realizing dreams of the youngest railway fans by providing free tickets for non-governmental organizations, and organizing ‘rail’ meetings in primary schools and kindergartens. On the other hand, ‘PKP SKM dla najmłodszych’ (‘PKP SKM for the youngest’) is a project run by PKP Szybka Kolej Miejska w Trójmieście, where during meetings with primary school and kindergarten

an increase in work quality, and as a result the achievement by the Group’s Companies planned business goals.

As a confirmation of the above, PKP S.A. was honored, inter alia, with the title of ‘Przedsiębiorstwo Przyszłości’ (‘Employer of the Future’), awarded by the Foundation for the Develop-ment of Education and Higher Education. According to the certification committee experts, PKP S.A. is an organization that is managed in a modern and professional manner, in accordance with the new strategic management principles, that recognizes as its priorities the development of a modern organizational culture, implementation of innovation and the effective creation of intellectual capital.

PKP S.A. has also received the title of ‘Etyczna Firma’ (‘Ethical Business’), awarded by ‘Puls Biznesu’ magazine and PwC. The selected initiatives, including the ‘Code of Ethics’ program to reduce homelessness at railway stations, the CSR strategy and the PKP Group Foundation have been identified as ‘good practices’ in the prestigious Responsible Business Forum report. For projects and activities undertaken in 2014, and taking into account the requirements of corporate social responsibility, PKP S.A. was awarded ‘Biały Listek CSR’ (‘CSR White Leaf’) by the ‘Polityka’ weekly magazine, which is awarded to companies operating in accordance with ISO 26000. This confirms that PKP S.A., as a modern organization, recognizes that its activities affect various stakeholder groups, who are employees, con-tractors, customers and local communities. Thanks to the responsible approach to business, corporate governance, transparent procedures and improving standards, the image is strengthened and the value of the PKP Group is increased.


Research as an element of quality management

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Research for the management of internal processes

2014 also opened a new chapter in implementing projects to manage internal processes within the organization. A pe-riodic measure of satisfaction of the organization’s internal customer was introduced to the PKP S.A. research plan. This is a quantitative study of employees with elements of qual-ity that will enable the optimization of internal processes through organized knowledge drawn from the organization itself. This project is part of a modern company management

analysis allow not only to monitor current levels of satisfaction, but also to determine which areas are most important for the customers in a given period.

Comfort is invariably the most important of all factors surveyed. In addition, due to the numerous infrastructure investments carried out in 2014 and possible inconvenience, an increase in the importance of such areas as punctuality and travel time was observed among our customers.

Apart from the satisfaction survey, the second key pillar of the management system and quality control are periodic 'tajemniczy klient' (mystery shopper) surveys, which in 2014 were extended to ticket counters and PKP Intercity Customer Service Centers and New PKP S.A. Railway Offices.

Marketing effectiveness research and the needs and experiences of customers

Development and optimization of PKP Intercity selling prices resulted in the need for their regular and clear communication. Detailed measurements of the effectiveness of individual campaigns were taken, not only in terms of sales growth, but also from the perspective of brand, image and awareness of services and customer understanding of the marketing communication. Subsequent effectiveness surveys helped to match services better and give their promotion a friendly and understandable form.

Analysis of customer needs and behaviors plays a key role in market research, which serves to improve and optimize the services provided. Therefore, in 2014, a comprehensive qualitative exploration of user experiences and needs of various types of railway stations was carried out and a project to meet the expectations of passengers on services on board EIC trains. In addition, due to the planned closure of the Railway Museum and in its place the creation of a new cultural institution, the Museum Station, a study was also conducted among people interested in protecting the railway heritage. The results will help to design a facility that meets the requirements of visitors.

Research undertaken in 2014 primarily involved the continuation of the most important periodic project, the III and IV wave of the PKP Group customer satisfaction survey used for planning and pro-client project management.

The satisfaction measurements are carried out on board PKP Intercity trains twice a year and are based on more than sixty questions about satisfaction at different levels of generality. The design of the study and selected methods of statistical

X Importance of respective areas of satisfaction

Travel comfort

Train punctuality

Travel time

Cleanliness in the carriage

Safety on the train

Information during the journey

Convenience of buying a ticket

Safety at the railway station

Cleanliness at the railway station

30 %

20 %

16 %

12 %

9 %

6 %

4 %

2 %

2 %

24 %

11 %

13 %

14 %

8 %

9 %

10 %

8 %

4 %

IV wave, n=1000III wave, n= 1000

X The PKP Group customer satisfaction surveys – demographic and behavioral characteristics of individuals participating in the study based on selected questions:

Age:

Purpose of the journey:

Education:

Time of arrival at the station before train departure:

65–80 years of age




Tourist journey

Journey to work | from work, to school | from school, to university | from university

Private journey – other than tourist

Business trip

Declined to answer

Bachelor | engineering | MA | doctorate | MBA

Post College | incomplete higher

Completed secondary education | vocational or secondary school

Basic vocational | incomplete higher secondary

Incomplete primary | primary and gymnasium

Do not remember

More than 30 min before departure

21-30 min

11-20 min

6-10 min

5 min or earlier

IV wave n=1000

IV wave n=1000

IV wave n=1000

IV wave n=1000

III wave n=1000

III wave n=1000

III wave n=1000

III wave n=1000

6 %

10 %

5 %

8 %

2 %

13 %

2 %

10 %

5 %

20 %

25 %

36 %

10 %

19 %

58 %

15 %

1 %

0 %

1 %

1 %

5 %

23 %

22 %

31 %

11 %

18 %

60 %

14 %

18 %

16 %

18 %

18 %

51 %

40 %

53 %

39 %

26 %

34 %

24 %

35 %

model based on objectives. An equally important element of internal research is to measure the level of employee engagement, conducted in PKP S.A. for the first time in 2014. Both of the above research processes, on the one hand, helped to optimize procedures, and on the other hand, to work to raise the motivation of employees in such a way as to in fact increase the effectiveness and reliability of the entire organization.

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The PKP Group ended 2014 making a profit at all levels of activity, with net profit of 460 million PLN. Continuing the restructure process, expanding areas of business and minimizing the negative business situation in transport companies resulted in a significant improvement in the financial performance compared to previous years.

A key area of activity of the PKP Group’s Companies was the implementation of the investment program at an unprece-dented record level. Total expenditures for this purpose were 10 billion PLN, which means that it was almost half as much higher than in 2013. As a result, 1,400 km of tracks were reno-vated, 21 new and refurbished railway stations commissioned and the quality of its rolling stock was improved. In addition, from December 2014, PKP Intercity passengers have the oppor-tunity to travel in modern Pendolino trains, which resulted in significant reductions in travel times on routes from Warsaw to Gdańsk, Cracow, Katowice and Wrocław. Investments in rail infrastructure had a positive impact not only on the quality of services provided by the PKP Group, but also created better conditions for the development of the entire rail transport. The source of financing came mostly from European Union funds, which totaled 5 billion PLN.

2014 was also marked by dynamic development of PKP CARGO, the largest in Poland and the second freight carrier in the Euro-pean Union. Proof of the Company’s strong market position is the carrying out of numerous of acquisitions. In December 2014, a contract was signed to purchase shares in Advanced World Transport in the Czech Republic. It was the first ever foreign takeover of a company by the PKP Group’s business entity. At the beginning of 2015 is also planned to sign an agreement to acquire stakes in other companies active in the rail freight

market: Pol-Miedź Trans, PS Trade Trans and PKP CARGO In-ternational a.s.

In 2014, Xcity Investment Sp. z o.o., a new business entity appeared in the PKP Group. Its main aim is to make optimal use of undeveloped land owned by PKP S.A., through the imple-mentation of commercial projects. The total value of ongoing and planned projects until 2018 is estimated at more than 8.8 billion euros. The planned projects relate to attractive locations in the centers of the largest Polish cities, such as Warszawa Główna, Centralna Park, Kraków Bosacka, Wrocław Świebodzki and Łódz Fabryczna.

In June 2014, as a result of block trades PKP S.A. completed the sale of 17 % of PKP CARGO shares. Last year, the pri-vatization process in the Group’s subsequent companies, including TK Telekom and PKP Energetyka, was commenced and which was successfully continued in 2015. Thanks to the income from privatization it was also possible to signifi-cantly reduce the level of PKP S.A ‘s historic debt. Since 2012, net debt decreased by 80 % and at the end of 2014 was merely 0.8 billion PLN.

Summary

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