Annual report 2017 - pkp.pl · PKP Group 1 Foto: PKP Intercity PKP Group (operating since 2015 as...

Annual report2017

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INTRODUCTION

REPORT ON THE ACTIVITY OF PKP GROUP COMPANIES

CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES

RESEARCH AS AN ELEMENT OF QUALITY MANAGEMENT

SUMMARY

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PKP GROUP

PKP S.A.

PKP Polskie Linie Kolejowe

PKP CARGO

PKP Intercity

PKP Linia Hutnicza Szerokotorowa

PKP Szybka Kolej Miejska w Trójmieście

PKP Informatyka

Xcity Investment

PKP Budownictwo

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Contents

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IntroductionAccordingly, the condition of the whole

railway sector is perceived to a large extent

through the activities of the Companies

comprising Polskie Koleje Państwowe.

In a nutshell: the way people speak of

us affects the way they speak of the

railway industry as a whole. I can say

with full conviction that after many years

of stagnation, the Polish railway sector

is regaining its due position and importance

in the national and European economy.

This would not be possible without a prop

erly handled policies of the government,

which believes that development of rail

transport is an indispensable for building

a sustainable transport system in Poland.

Polish railwaymen also perfectly leverage

the advantageous location on the way

of important trade routes, among others

those connecting Europe with Asia.

On the following pages of this document

you will find more information on how

we are building modern and passenger–

friendly railways that are also attractive

for business clients. It is my pleasure

to invite you to review our report and wish

you good reading.

Krzysztof Mamiński

President of the PKP S.A. Management Board

Dear Sirs and Madams,You have in your hands our new Annual

Report in which, together with the manage

ment boards of the companies operating

under the PKP brand, we summarized the

year 2017.

This report contains, among other things,

the financial data posted by the PKP Group

and the individual Companies, details of the

record–breaking investment projects encom

passing modernization of the rail infrastruc

ture, railway stations, rolling stock, as well

as development of the areas that support

our entire industry, such as information

and telecommunication technology.

Traditionally, the document also contains

information on the business profiles

of the entities comprising the PKP Group,

their assets and management strategy,

employment, management and supervisory

bodies. The report will also inform you

on the social aspects of our Group’s activ

ities. An important portion of the annual

report is devoted to a review of key events

in our railway Companies.

PKP Group is one of the largest employers

in Poland and one of the largest Euro

pean entities consolidating rail transport.

* Composition of the Management Boards and Supervisory Boards of the Companies as at 1 September 2018.

Warsaw, 1 September 2018*

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Report on the activity of PKP Group Companies

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: PKP

Inte

rcity1 PKP Group

(operating since 2015 as PKP Budownictwo

Sp. z o.o.), whose line of business includes,

among others, construction, operation,

maintenance and repairs of telecommu

nications networks, teletechnical systems

and ITC implementations. The company is

a telecommunications operator.

Xcity Investment Sp. z o.o. was established

on 5 September 2014 under the name

of SPV Nieruchomości 100 Sp. z o.o.

The Company has been operating since

early 2015 and its main goal is to prepare

and execute investment projects in order to

develop PKP S.A.’s properties.

As a result of the ownership changes,

including the privatisation, acquisition

and restructuring processes, at the end

of 2017 the PKP Group included: X Polskie Koleje Państwowe Spółka Akcyjna

(hereinafter: PKP S.A.) – the parent

company; X PKP Intercity S.A. (hereinafter: PKP Inter

city) and PKP Szybka Kolej Miejska

w Trójmieście Sp. z o.o. (which is also

the infrastructure manager of line 250,

hereinafter: PKP SKM) – operator compa

nies providing services on the passenger

transport market; X PKP CARGO S.A. (hereinafter: PKP CARGO)

and PKP Linia Hutnicza Szerokotorowa

Sp. z o.o. (which is also the infrastructure

manager of line 65, a broad–gauge line,

hereinafter referred to as PKP LHS)

– operator companies providing services

on the freight transport market; X PKP Polskie Linie Kolejowe S.A.

(hereinafter PLK) – a company managing

standard–gauge railway lines; X PKP Informatyka Sp. z o.o. (hereinafter:

PKP Informatyka) – a company providing

IT services for the railway industry; X PKP Budownictwo Sp. z o.o. (hereinafter:

PKP Budownictwo) – a company providing

building and installation services in areas

of telecommunications engineering

and maintenance of ICT lines; X Xcity Investment Sp. z o.o. (hereinafter:

Xcity Investment) – a company managing

real estates, as well as developing

and implementation of commercial

development projects; X CS Natura Tour Sp. z o.o., Drukarnia

Kolejowa Sp. z o.o. – companies operating

in areas unrelated to railway transpor

tation.

Państwowe state enterprise, the following

companies comprising the PKP Group were

spun off from PKP S.A. in 2001 to conduct

business in the areas of: X railway passenger transport: PKP Intercity

Sp. z o.o. (since 2008 PKP Intercity S.A.),

PKP Przewozy Regionalne Sp. z o.o.; X rail freight transport: PKP CARGO S.A.; X railway infrastructure management:

PKP Polskie Linie Kolejowe S.A.; X local railway line management

and utilising them for transport:

PKP Szybka Kolej Miejska w Trójmieście

Sp. z o.o. and PKP Warszawska Kolej

Dojazdowa Sp. z o.o. (in the field of

passenger transport), and PKP Linia

Hutnicza Szerokotorowa Sp. z o.o. (in the

field of freight transport);

The PKP Group was established in 2001

following the restructuring of a state–owned

enterprise Polskie Koleje Państwowe (Polish

State Railways). The process was aimed

at separating the transportation business

from the railway line management business

and the establishment of independent legal

entities in the secondary areas of activity.

Polskie Koleje Państwowe Spółka Akcyjna

was established on 1 January 2001

and entered into the rights and duties

of its predecessor. Its only shareholder

is the State Treasury represented by the

minister responsible for transportation.

Furthermore, pursuant to Act of 6 July 1995

on the Polskie Koleje Państwowe state

enterprise and Act of 8 September 2000

on the commercialization, restructuring

and privatization of the Polskie Koleje

1.1 About the PKP Group

The PKP Group is a public service establishment as well as a contemporary company operating in the market economy. It is one of the largest employers in Poland and the fourth largest railway group in Europe. It is represented in all international railway orga-nizations. The mission of PKP Group Companies is to build trust and improve the image of railways by increasing the significance of rail transport in Poland, following the model of modern railway compa-nies operating in Europe.

X 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.

[hereinafter TK Telekom]); X the following entities were also

established: X nine companies providing infrastructure

renovation and repair services and two

companies dealing with carriage repairs, X 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.). X 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 moun

tain cable railway services).

PKP S.A. contributed movable assets to the

newly formed companies. Real property,

mainly because of its unclear legal status,

was leased to the companies and then

gradually contributed to them in kind as

soon as its legal status was determined.

On 20 January 2014, the company

TK Budownictwo Sp z o.o. was established

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The consolidated financial statements

of the PKP Group for 2017 contained

financial data for 16 entities, including

seven direct subsidiaries of PKP S.A., two

PKP CARGO subsidiaries and six AWT Group

companies, which are consolidated by

their parent company, PKP CARGO. Those

Companies were consolidated by the full

method. Additionally, PKP S.A. was a minority

shareholder in PLK, as a result of which the

company was consolidated by the equity

method.

This report describes the consolidated

financial data and in its further sections

focuses on standalone data of the individual

companies. The description of individual

companies covers the PKP Group entities

that are consolidated and PLK.

1.2 Finance In 2017, the PKP Group continued the process of optimization its resources to match the actual needs. The actions focused, among others, on expanding the business and using the current economic situation, mainly in transport companies. The effect of these activities is the observed improvement in the financial results.

Consolidated profit and loss account for 2016–2017 (in million PLN)

Item 2016* 2017Change

2017–2016 %

Net sales revenues and equivalents 7,983.2 8,501.4 518.2 6.5%

Operating expenses 7,907.8 8,098.6 190.8 2.4%

Gross sales profit 75.4 402.8 327.4 434.2%

Gross sales profit margin 0.9% 4.7% +3.8 p.p. –

Other operating income 769.5 722.8 –46.7 –6.1%

Other operating expenses 536.9 451.7 –85.2 –15.9%

Profit (loss) on other operating activities 232.6 271.1 38.5 16.6%

EBIT 308.0 673.9 365.9 118.8%

EBITDA 1,053.2 1,423.7 370.5 35.2%

EBITDA Margin 13.2% 16.7% +3.5 p.p. –

Finance income 131.5 185.1 53.6 40.8%

Finance costs 307.8 245.2 –62.6 –20.3%

Profit (loss) on financial activities –176.3 –60.1 116.2 –

Profit (loss) on business activities 131.7 613.8 482.1 366.1%

Write–down of negative goodwill –14.6 –14.9 –0.3 –

Profit (loss) on shares measured by the equity method

–11.0 105.7 116.7 –

Profit (loss) before tax 135.3 734.4 599.1 442.8%

Income tax 29.3 84.9 55.6 189.8%

Profit (loss) attributable to minority shareholders 64.3 3.4 –60.9 –94.7%

Net profit (loss) 170.3 652.9 482.6 283.4%

Net profitability 2.1% 7.7% +5.6 p.p. –

* Figures restated to ensure comparability.

Xcity InvestmentSp. z o.o.

PKP BudownictwoSp. z o.o.

PKP Informatyka Sp. z o.o.

PKP IntercityS.A.

PKP CARGO S.A.

CS Natura TourSp. z o.o.

PKP Linia Hutnicza SzerokotorowaSp. z o.o.

PKP Szybka Kolej Miejska w TrójmieścieSp. z o.o.

Drukarnia Kolejowa Kraków Sp. z o.o.

PKP Polskie Linie Kolejowe S.A.

PKP S.A.- parent company

PKP Group Structure at the end of 2017

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Item 2016 2017Change

2017–2016 %

Total operating expenses 7,907.8 8,098.6 190.8 2.4%

Depreciation and amortization 745.2 749.8 4.6 0.6%

Materials and energy consumption 1,342.8 1,411.5 68.7 5.1%

External services 3,139.6 3,234.0 94.4 3.0%

Taxes and charges 218.6 208.5 –10.1 –4.6%

Payroll 1,868.2 1,904.7 36.5 2.0%

Social security and other benefits 474.1 499.1 25.0 5.3%

Other costs by kind 100.4 80.2 –20.2 –20.1%

Cost of goods and materials sold 18.9 10.8 –8.1 –42.9%


2017–2016 %

Total sales revenues 7,983.2 8,501.4 518.2 6.5%

Net revenues from sales of products and services, including:

7,926.2 8,425.1 498.9 6.3%

Sale of transport services, including: 6,255.0 7,291.0 1,036.0 16.6%

Freight transport 3,727.3 4,601.4 874.1 23.5%

Passenger transport, including: 2,527.7 2,689.6 161.9 6.4%

State budget subsidies 821.5 861.9 40.4 4.9%

Sale of other services 1,671.2 1,134.1 –537.1 –32.1%

Change in inventories of products –0.1 0.0 0.1 –

Manufacturing cost of products for internal purposes 26.7 32.7 6.0 22.4%

Net revenues from sales of goods and materials 30.4 43.6 13.2 43.4%

The PKP Group closed the year 2017

with the sales profit of PLN 402.8

million, improving from PLN 327.4 million

in the previous year, mainly through

higher sales of transport services.

Compared to 2016, the PKP Group achieved

net sales revenues of PLN 8,501.4 million,

or 6.5% higher. The main item

in the structure was maintained by

revenues from the sale of transport

services (PLN 7,291.0 million), of which

63.1% originated from cargo transport

and the remaining 36.9% from passenger

transport.

In 2017, a number of PKP Group companies

achieved higher weight of transported

goods, which caused a direct increase

in transport revenues by PLN 874.1 million.

PKP CARGO posted an increase in trans

port revenues, which was driven

by an 8.3% increase in weight of trans

ported goods. Also, companies such as

PKP LHS and PKP CARGO SERVICE achieved

higher cargo transport, by 1.1% and 93.2%,

respectively. Compared to 2016, transport

decreased in the AWT Group only.

Compared to 2016, transport reve

nues of passenger transport operators

increased by PLN 161.9 million, or 6.4%.

The increase is attributed mainly

to PKP Intercity – extended offering

and a shorter time of travel drove up

the number of passengers by 11.2%.

The Company also received higher subsi

dies from the state budget for interpro

vincial and international transport. On the

other hand, PKP SKM posted an increase

in transport revenues following a 1.1%

increase in the number of passengers

caused by an increased interest of

passengers with the Company’s services

(mainly of the Pomeranian Metropolitan

Railway) and an increase of ticket prices.

The increase of subsidies received from

the State budget for passenger transport

amounted to PLN 40.4 million, due to

a higher number of transported passen

gers (increased statutory subsidy for

domestic passenger transport to compen

sate for revenue lost on account of statu

tory ticket discounts). Additionally, due to

an increased number of connections

covered by the co–funding programme,

PKP Intercity received higher subsidies

to interprovincial and international

connections.

The PLN 537.1 million decline in reve

nues from sales of other services

was caused by lower revenues from

sales of other services, among others

in PKP CARGO, AWT Group, PKP Informatyka

and PKP CARGO CONNECT.

The increase in net revenues from sales

of goods and materials was caused

mainly by higher revenues associated with

the sale of scrap metal from the liqui

dation of non–current assets in PKP S.A.

Consolidated sales revenues and equivalents in 2016–2017 (in million PLN)

In 2017, operating expenses amounted

to PLN 8,098.6 million, or PLN 190.8 million

more compared to 2016. The main

contributors to this increase included:

a 3.0% rise in the cost of external

services (mainly due to higher cost

of access to railway routes and higher

cost of providing transport and freight

forwarding services due to higher volume

of such services), materials and energy

consumption by 5.1% (increased

operational performance of PKP CARGO

and PKP Intercity resulted in a higher

consumption of fuel and traction

energy) labor costs (as a result

of higher costs of non–personnel

remuneration and jubilee awards as well

as social security and other benefits)

and depreciation and amortization.

At the same time, the PKP Group recorded

a decline in other costs by kind by 20.1%,

taxes and charges by 4.6% and cost

of goods and materials sold by 42.9%.

Consolidated operating expenses in 2016–2017 (in million PLN)

At the same time, the PKP Group posted

profits on other operating activities

in the amount of PLN 271.1 million

(PLN 16.6 million higher than in 2016)

mainly due to other operating expenses

being lower than in 2016.

The lower profit on the sale of non–

financial non–current assets (due to

lower sales posted by PKP S.A. following

a decrease in the value of properties

sold), lower revenues on revaluation

of non–financial assets (mainly fixed

assets under construction and receivables

from PKP S.A.) as well as lower revenues

from the settlement of an investment

grant in PKP S.A. and PKP SKM, despite

the higher revenues from contractual

penalties and compensations due to

PKP Intercity from ALSTOM, contributed

to a PLN 46.7 million decrease in other

operating income.

PKP Group’s other operating expenses

were PLN 85.2 million lower as a result

of lower impairment losses on fixed

assets, fixed assets under construction

and receivables in PKP S.A. as well as

a lower revaluation of non–current assets

in the AWT Group. The decrease in other

operating expenses was also affected by

the lower costs of provisions recognized

and the lower value of liquidated non–

financial non–current assets.

The higher revenues from term deposit

interest, higher profit on disposal

of financial assets and higher positive

FX differences, coupled with lower costs

of interest on loans, contributed to the

improvement of profit (loss) on financial

activities by PLN 116.2 million.

The consolidated net profit of PLN

652.9 million was impacted, in addition

to the result on business activities, by the

profit on shares in affiliated entities

measured by the equity method (PLN

105.7 million), write–down of negative

goodwill in subsidiaries (PLN 14.9 million),

the income tax amount (PLN 84.9 million)

and profit attributable to minority share

holders (PLN 3.4 million).

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1.3 Assets In 2017, the balance sheet of the

PKP Group increased by 0.9%, reaching

PLN 25,540.9 million as at 31 December 2017.

The decrease in property, plant and equip

ment and current investments was largely

offset by an increase in long–term accruals,

non–current investments and current

receivables and resulted in a decline in total

assets.

On the other hand, lower financial liabilities

on account of loans and debt securities

issued along, with an increase in equity

resulting from the net profit earned in the

PKP Group, contributed to lower equity

and liabilities.

At the end of 2017, non–current assets repre

sented 83.1% of total assets and fell by PLN

111.6 million as compared to 31 December

2016. The highest reduction was recorded

in property, plant and equipment,

at PLN 376.9 million, mainly due to the fact

that depreciation charges recognized were

higher than realized investments.

At the same time, the PKP Group recorded

an increase in non–current prepayments

by PLN 148.7 million and non–current

investments by PLN 128.1 million compared

to the end of December 2016.

Current assets accounted for 16.9% of total

assets. Compared to the end of 2016, current

investments decreased by PLN 227.2 million

as a result of repayment of loans incurred

and despite a PLN 96.6 million increase

in current receivables, caused a decrease

in current assets by PLN 118.8 million.

As at 31 December 2017, equity repre

sented 40.7% of total equity and liabilities,

increasing by PLN 622.9 million (or by 6.4%)

compared to December 2016. The movement

was driven mainly by an increase in net

profit by PLN 482.6 million and supple

mentary capital by PLN 158.2 million, with

a PLN 18.6 million increase in retained

losses.

Liabilities and provisions for liabilities repre

sented 50.3% of total equity and liabilities,

decreasing by PLN 857.6 million compared

to the end of 2016. The movement in

provisions and liabilities was caused mainly

by the decline in non–current liabilities

by PLN 788.0 million as a result of a repay

ment of interest–bearing liabilities by

PKP S.A. and PKP Intercity, while the balance

of investment loans in PKP CARGO increased

in the same period. Additionally, the value

of accruals was PLN 150.5 million lower.

Consolidated balance sheet for 2016–2017 (in million PLN)

Item31 December

2016*31 December

2017

Change

2017–2016 %

Non–current assets 21,341.7 21,230.1 –111.6 –0.5%

Current assets 4,429.6 4,310.8 –118.8 –2.7%

TOTAL ASSETS 25,771.3 25,540.9 –230.4 –0.9%

Equity 9,777.4 10,400.3 622.9 6.4%

Equity attributable to minority shareholders 2,114.5 2,129.0 14.5 0.7%

Negative goodwill of controlled entities 166.2 156.0 –10.2 –6.1%

Liabilities and provisions for liabilities 13,713.2 12,855.6 –857.6 –6.3%

TOTAL LIABILITIES AND EQUITY 25,771.3 25,540.9 –230.4 –0.9%

Item 31.12.2016 31.12.2017Change

2017–2016 %


I. Intangible assets 91.2 85.4 –5.8 –6.4%

II. Property, plant and equipment, including: 10,051.5 9,674.6 –376.9 –3.7%

1. Fixed assets, including: 9,728.9 9,403.7 –325.2 –3.3%

a. Land 207.5 211.5 4.0 1.9%

b. Buildings, premises and civil and water engineering structures 1,094.1 1,040.9 –53.2 –4.9%

c. Technical equipment and machinery 236.5 218.8 –17.7 –7.5%

d. Means of transport 8,170.7 7,917.3 –253.4 –3.1%

e. Other fixed assets 20.1 15.2 –4.9 –24.4%

2. Fixed assets under construction 312.1 235.5 –76.6 –24.5%

3. Advance payments for fixed assets under construction 10.5 35.4 24.9 237.1%

Selected non–current assets in 2016–2017 (in million PLN)

As at 31 December 2017 the largest non–

current asset items included property, plant

and equipment of PLN 9,674.6 million (37.9%

of total assets), which included: X fixed assets, which mainly include:

X buildings, premises and civil and water

engineering structures, which include

among others elements of PKP SKM

and PKP LHS railways, as well as

the rolling stock maintenance infrastruc

ture of PKP Intercity and PKP CARGO; X means of transport, with the largest

contribution of rolling stock; X fixed assets under construction (those

are capital expenditures that were not

commissioned for use); X advance payments for fixed assets under

construction.

* Figures restated to ensure comparability.

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In 2017, PKP Group Companies incurred

capital expenditures of PLN 6,019.4 million,

or 31.4% more than in 2016. 91.1% of all

capital expenditures were incurred by PLK.

The investment activity was focused mainly

on the upgrade of railway lines as part

of the investment construction activity,

modernization and purchase of rolling stock.

The capital expenditures were financed

with own funds, EU funds, State budget

subsidies, investment loans and other forms

of external financing. The most significant

investments include the following tasks: X Upgrade of railway lines: X PLK:

X upgrade of the E20 railway line Warsaw

– Poznań – PLN 368.9 million; X upgrade of the E30 railway line Zabrze –

Katowice – Krakow, stage IIb

– PLN 267.8 million; X upgrade of railway line 8 – Warsaw

Okęcie – Radom – PLN 200.9 million; X upgrade of railway line 4 – Central

Railway Main Line – PLN 189.5 million; X upgrade of the E30 C–E30 Krakow –

Rzeszów railway line, stage 3

– PLN 165.6 million; X upgrade of the E75 railway line Sadowne

– Czyżew – PLN 147.7 million; X upgrade of the E75 railway line Czyżew

– Białystok – PLN 142.3 million; X upgrade of the E59 railway line Wrocław

– Poznań, stage 4 – PLN 137.7 million; X upgrade of the E30 railway line Kraków

Główny Towarowy – Rudzice

– PLN 109.9 million; X upgrade of railway line 354 – Poznań

Główny POD – Piła Główna

– PLN 107.5 million. X PKP SKM:

X upgrade of railway line 250

– PLN 9.2 million. X Purchase and upgrade of rolling stock: X PKP CARGO:

X purchase of 3 multi–system Siemens

Vectron locomotives – PLN 53.0 million; X upgrade of 16 locomotives

– PLN 64.2 million; X purchase of 89 second–hand EAOS

series coal carriages – PLN 12.5 million. X PKP Intercity:

X overhauls with the upgrade of 13 type

144A carriages, 16 type 111A carriages

to wagons suitable for the transport

of bicycles, 10 type 144A and 145A

carriages and three Z1A carriages to food

service carriages – PLN 158.2 million; X upgrade of 34 EU/EP07 locomotives

and overhaul of two EU/EP07 locomo

tives with an upgrade – PLN 10.1 million. X PKP SKM:

X upgrade of rolling stock (EMUs and EMU

components) – PLN 1.1 million; X purchase of a platform for WM–15

hydraulic track car and upgrade

of the car – PLN 2.4 million; X PKP LHS:

X launch of an upgrade of 10 ST44 locomo

tives to ST40s series – PLN 34.1 million. X Other investment construction activity: X PKP S.A.:

X railway station investments (among

others, Poznań Zachodni, Miechów,

Sosnowiec Maczki, Żarów, Jawor, Olsztyn

Zachodni, Święta Katarzyna, Siechnice

and Żerniki Wrocławskie – Smardzów,

Strzelin, Żagań) and Dynamic Passenger

Information System Installation – stage I

– PLN 38.2 million; X investment construction activity in prop

erty management units

– PLN 15.3 million; X PKP SKM:

X construction of an integrated system

for monitoring safety and managing

information on railway line 250 in

the Tri–City and modernization of the

Gdynia Glowna Commuter Station

building and platforms on railway line

250 (modernization works on platforms

in Gdynia Chylonia and Rumia Janów)

– PLN 9.1 million; X modernization of SKM facilities at the

Gdynia Cisowa Depot station

– PLN 2.7 million.

X PKP LHS: X modernization of railway stations

(among others, installation of

computer traffic control (SRK) devices

at the Sławków LHS station, expansion

of a local traffic control center at the

Zamość–Bortatycze LHS station

and construction of a track for emer

gency parking of damaged carriages with

hazardous cargo, track No. 400S and

water and sewage system at the Zamość

Bortatycze LHS station)

– PLN 39.0 million.

Item 2016 % 2017 %Change

2017–2016 %

PKP S.A. 121.5 2.7% 75.1 1.2% –46.4 –38.2%

PLK 4,070.3 88.9% 5,483.0 91.1% 1,412.7 34.7%

PKP CARGO* 260.8 5.7% 154.5 2.6% –106.3 –40.8%

PKP LHS 15.5 0.3% 79.6 1.3% 64.1 413.5%

PKP Intercity 49.9 1.1% 195.7 3.3% 145.8 292.2%

PKP SKM 57.5 1.3% 29.9 0.5% –27.6 –48.0%

PKP Informatyka 4.2 0.1% 1.5 0.0% –2.7 –64.3%

Xcity Investment 0.0 0.0% 0.0 0.0% 0.0 –

PKP Budownictwo 0.1 0.0% 0.1 0.0% 0.0 0.0%

Total 4,579.8 100.0% 6,019.4 100.0% 1,439.6 31.4%

Capital expenditures by PKP Group companies in 2016–2017 (in million PLN)

* PKP CARGO data originated from the standalone financial statements prepared in accordance with IAS/IFRS. In order to ensure comparability with the data prepared in accordance with the Polish Accounting Act, certain rolling stock repair items were deducted from total expenditures.

1.4 Investments

1819

PKP

Grou

p

At the end of 2017, the PKP Group companies

employed 69,208 people, 694 less than

at the end of 2016. The average employment

level was 69,422 FTEs, down by 110 FTEs

compared to 2016.

The most significant changes in employ

ment levels at year–end were recorded

in PLK, PKP CARGO and PKP Intercity.

The lower employment in PKP CARGO in

terms of FTEs and persons was caused

mainly by the employees becoming

eligible for retirement and disability

benefits. The decline of employment in

terms of employees in PLK resulted from

retirements and the decline in headcount

of the traffic equipment operations team

and in the railroad diagnostics and main

tenance team. On the other hand, the new

routes introduced in the 2017 timetable

and the planned growth of the Company

in the coming years drove PKP Intercity

to increase its headcount.

PKP CARGO24,6%

PKP Intercity11,5%

PKP PLK56,6%

PKP LHS1,9%

PKP SKM1,4%

PKP Informatyka0,5%

PKP Budownictwo0,3%

Xcity Investment0,0%

PKP S.A.3,2%

Other7,3%

Employment structure in the PKP Group at the end of 2017, by company

Employment structure in the PKP Group by age, 2016 –2017

Item

Average employment in the 12–month period

(FTEs)

Change2017–2016

Employment levelat the end of December

(persons)

Chnage2017–2016

2016 2017 FTEs % 2016 2017 persons %

PKP S.A.* 2,231 2,247 16 0.7% 2,292 2,228 –64 –2.8%

PLK 39,154 39,349 195 0.5% 39,503 39,174 –329 –0.8%

PKP CARGO 17,698 17,177 –521 –2.9% 17,429 17,043 –386 –2.2%

PKP LHS 1,271 1,287 16 1.3% 1,307 1,283 –24 –1.8%

PKP Intercity 7,723 7,851 128 1.7% 7,867 7,952 85 1.1%

PKP SKM 885 953 68 7.7% 933 989 56 6.0%

PKP Informatyka 339 341 2 0.6% 350 329 –21 –6.0%

Xcity Investment 30 25 –5 –16.7% 26 23 –3 –11.5%

PKP Budownictwo 201 192 –9 –4.5% 195 187 –8 –4.1%

Total 69,532 69,422 –110 –0.2% 69,902 69,208 –694 –1.0%

< 25 years 26 ‒ 35 36 ‒ 45 46 ‒ 55 > 55 years

1 355

650

-857

-1 789

-53

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

2016 2017

Employment in the PKP Group in 2016–2017

* Including its representatives abroad and employees for whom PKP S.A. is not the primary place of employment.

1.5 Employment As at the end of 2017, the PKP Group employed more than 69 thousand people, which makes it one of the largest employers in Poland. In 2017, 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.

2021

PKP

Grou

p

1.6 Major events

JanuaryJuly

September

October

November

December

March

April

June

May

X Mr. Andrzej Bogusz appointed as a new Member of the Xcity Investment Management Board. X Tightening of cooperation between PKP LHS and PKP CARGO involving development of a joint international consignment note

and an increase of transshipment operations at the Euroterminal in Sławków. Attainment of these goals will enable a better utilization of the potential for the New Silk Road.

X Signing of an agreement on the utilization of railway land for the purposes of the government „Apartment Plus” program. The document was signed by PKP S.A., BGK Nieruchomości and Xcity Investment.

X The Extraordinary Shareholder Meeting of PKP S.A. dismisses Mr. Mirosław Pawłowski from the position of the President of the PKP S.A. Management Board and the following from the positions of Management Board Members: Ms. Cecylia Lachor, Mr. Michał Beim and Mr. Marek Michalski. At the same time, Mr. Krzysztof Mamiński is appointed to the position of President of the Management Board.

X Signing of an agreement between PKP LHS and PKP Budownictwo to design and build a fiber–optic cable and telecommunication cable on a 260–kiometer railway line route from the Zwierzyniec passing loop to the Sławków LHS Control Station. The fiber–optic cable is indispensable to ensure appropriate digital data transmission channels for the purposes of IT systems as well as railway traffic automation and control solutions, which are to be implemented in the future.

X Signing of a letter of intent by PKP S.A., Poczta Polska S.A. and Xcity Investment on cooperation in the development of specified neighboring land.

X Signing of a grant agreement by PKP SKM and the Pomorskie Province to co–finance the Project named „Construction of an integrated system for monitoring safety and managing information on railway line 250 and modernization of the Gdynia Glowna Commuter Station building and platforms on railway line 250”. The Project completion date was set at 30 June 2023. According to the agreement, the total Project cost is PLN 139.6 million and the total eligible expenditures under the Project are PLN 113.5, co–financing received as part of the Regional Operational Programme (hereinafter: ROP) is to be PLN 61.9 million.

X Prestigious title of the „Transparent Company of the Year 2016” awarded to PKP CARGO. The company was recognized for the high quality of communication with the market and for fulfilling its information and reporting duties.

X Signing of an arrangement between PKP S.A., the Tatrzanski Starost, the Polish Tourist and Sightseeing Society and the Tatra National Park tidying up the disputed issue of PKP leasing facilities located on the land owned by the railway to PKL.

X The Extraordinary Shareholder Meeting of PKP S.A. appoints Mr. Mirosław Antonowicz and Mr. Andrzej Olszewski as Members of the PKP S.A. Management Board.

X Minezit SE (formerly MSE) exercised its right to demand a purchase by PKP CARGO of all shares in AWT owned by MSE (“Put Option”). This right of MSE ensues from the Shareholder Agreement signed by PKP CARGO, MSE and AWT on 30 December 2014. In accordance with the Shareholder Agreement, the total sale price of 15 thousand shares representing 20% of all the shares in AWT’s share capital is EUR 27.0 million.

X Signing of a coal transport contract for Enea Wytwarzanie, from Lubelski Węgiel „Bogdanka” tot the Kozienice Power Plant. Under the new contract, PKP CARGO will transport 5.3 million tons of coal over a period of 14 months.

X PKP SKM applies for co–funding of the Project named „Purchase of 10 new electric multiple units to operate commuter transport and modernization of the rolling stock maintenance infrastructure” with the estimated value of the entire project at PLN 393.8 million.

X PKP LHS accepted as a new associate member of the Shareholder Meeting of the TMTM Association of Legal Entities in Astana (Kazakhstan). The meeting of the organization promoting the New Silk Road was attended by more than 80 representatives of railways, ports and transport companies.

X PKP CARGO is awarded co–financing in the amount of EUR 1.8 million as part of the „CEF Transport 2016” call for proposals. CEF support was recommended by the European Commission for the project entitled „Acoustic modernization of cargo wagons to adapt them to functional and system requirements”.

X Signing of a strategic cooperation agreement between Polish and Azerbaijan railways. The document was signed in the Presidential Palace in Warsaw, in the presence of Andrzej Duda, President of Poland and Ilham Alijev, President of Azerbaijan. The agreement will facilitate development of another leg of the New Silk Road.

X The Shareholder Meeting of PKP Budownictwo adopted a resolution dismissing Ms. Edyta Glinka, Management Board President, from the Management Board and appointing Mr. Mirosław Gilarski as Management Board President.

X PKP CARGO signed a contract worth nearly PLN 1.3 billion to continue the provision of services to the ArcelorMittal Group. This contract allows the largest Polish carrier to execute transports for the key global steel producer in three successive years. It is one of the largest contracts in the history of PKP CARGO.

X Opening of the Olsztyn Zachodni railway station to passengers after modernization. It is the first facility remodeled by PKP S.A. within the framework of the Railway Station Investment Program (RSIP) that covers a total of 200 stations across Poland. The task has been implemented through EU co–financing as part of the Operational Programme Eastern Poland.

X Signing of an agreement between PKP LHS and NEWAG S.A. to modernize 10 ST44 diesel locomotives. The agreement concerns modernization of decommissioned ST44 locomotives to type 311Da. The net value of the contract is PLN 95 million.

X Signing of a Cooperation Memorandum by PKP CARGO and the Management Board of Morski Port Gdańsk S.A. with CFR Marfa – Romanian state cargo operator and the Management Board of the Konstance Port in Romania. The document opens the next stage in the development of cooperation between the parties with respect to forwarding services in the railway corridor between the Gdańsk Port and the Konstanca Port.

X The Supervisory Board of PKP CARGO adopts a resolution to dismiss Mr. Jarosław Klasa from the position of the Management Board Member responsible for Operations.

X The meeting of the PKP CARGO delegation with the delegation from the Chinese Henan province. The meeting concerned the cooperation between the PKP CARGO Group with the province’s key container terminal of Zhengzhou International Hub Development and Construction Co., Ltd. The discussion focused on the continuing development of railway cargo transport over the New Silk Road through the PKP CARGO Logistics Center in Małaszewicze.

X Launch of the „Traveler’s Package”, an initiative allowing passengers to purchase a ticket in a single location and a single transaction for trains operated by three different carriers: PKP Intercity, POLREGIO and PKP SKM in the Gdańsk Tri–City. PKP Informatyka is responsible for developing a system integrating offers from the three carriers.

X West Station is the „Office Space Market Project of the Year 2017”. The West Station office complex won in the category of „Office Space Market Project of the Year” in the „Prime Property Prize 2017” competition organized by the PTWP S.A. Group. It was selected from among five nominated investment projects: Business Garden Wrocław, West Station in Warsaw, Hala Koszyki in Warsaw, Wronia 31 in Warsaw and Szucha Premium Offices. West Station is a project executed by Xcity Investment (PKP Group) with HB Reavis, located at Aleje Jerozolimskie in Warsaw. The facility offers 68,000 sqm of office space. The first building was commissioned for use in 2016 and has been leased in its entirety. The second building was completed in September 2017. The project is very well connected with all districts of Warsaw and has a BREEAM Interim environmental certificate at the „Excellent” level. The „Prime Property Prize” is awarded in 12 categories. The plebiscite is used to select companies, projects and personalities who had the greatest impact on events on the commercial real estate market in that year.

X PKP CARGO received a summons from Minezit SE to participate in a notary deed before the Dutch notary in order to pay the put option price of EUR 27.0 million for the 15 thousand shares that constitute the remaining 20% of AWT’s share capital.

X The following tendered their resignation from the PKP CARGO Management Board: Mr. Maciej Libiszewski, the President, and Mr. Arkadiusz Olewnik, the Management Board Member responsible for Finance.

X The PKP CARGO Supervisory Board, following a recruitment procedure, adopted a resolution to appoint to the Management Board Mr. Witold Bawor as the Management Board Member responsible for Operations.

X The PKP CARGO Supervisory Board adopted a resolution, in which Mr. Krzysztof Mamiński, Supervisory Board Member, was delegated to temporarily perform the activities of Management Board President until 26 January 2018. He was also appointed President of the PKP CARGO Management Board.

X Signing of the notary deed and payment of the put option price for 15 thousand shares constituting the remaining 20% of AWT’s share capital in the amount of EUR 27.0 million. Thus, PKP CARGO became the owner of 100% equity stake in the company’s share capital.

X Signing of a memorandum of agreement between PKP S.A. and Poczta Polska S.A. and the National Real Property Resource. Through the memorandum of agreement, the National Real Property Resource received access to the database of properties that may be used in the Apartment Plus program.

X Update of PKP Intercity’s rolling stock strategy for 2016–2020 with an outlook to 2023. The company will spend more than PLN 7 billion on rolling stock upgrades and purchases. Thanks to the capital expenditures, nearly 80% of connections launched by the carrier will utilize new or modernized rolling stock.

X Signing of a contract by PKP CARGO and Knorr–Bremse Systemy Kolejowe Polska Sp. z o.o. to supply LL–type composite brake blocks for replacement in the cargo carriages used. This way PKP CARGO is gradually adjusting its rolling stock to the future EU interoperability requirements and limits the impact of noise on the environment.

X Opening of the Miechów railway station to passengers after modernization. This is the second facility remodeled by PKP S.A. under the Railway Station Investment Program.

February

August

2223

PKP

S.A.

Polskie Koleje Państwowe Spółka Akcyjna

(hereinafter: PKP S.A.) was established

through commercialization of Polish

State Railways under Act of 8 September

2000 on commercialization, restructuring

and privatization of the Polskie Koleje

Państwowe state enterprise. The regis

tration of PKP S.A. in the commercial

register became effective as of 1 January

2001 and on that date the Company

commenced its activity. The State Treasury

remains the sole shareholder of PKP S.A.

The Company’s activity is focused in two

areas: property management and corporate

governance of PKP Group Companies.

In the corporate governance area, special

attention is paid to effective supervision

and coordination of the ongoing

restructuring processes. In the asset

management area, PKP S.A. focuses

initially on the optimum management

of the properties and securing long–term

gains from them. As part of long–term

management, the Company plans to improve

the financial efficiency and to optimize

costs of its properties. Some of them

are contributed to development projects

aimed at building its economic potential.

PKP S.A. also implements a comprehensive

investment program related to

the modernization of railway station

infrastructure with the goal of ensuring high

standard of services on railway stations.

Management Board

2.2 Management and Supervisory Bodies

www.pkp.pl

2.1 About the Company

2PKP S.A. acts as the parent in the PKP Group, overseeing and coordinating the activities of other Companies in order to ensure the highest possible quality of transport and logistic services in respect to passengers and cargo. The Company is also one of the largest property owners in Poland. It also acts as a manager, initiating investments, seeking to ensure the best possible use of railway land and a high standard of service at railway stations.

PKP S.A.

Management Board Member


President of the Management Board

Mirosław Antonowicz

Andrzej Olszewski

Krzysztof Mamiński

Chairman

Andrzej Kensbok

Deputy Chairman

Tomasz Buczyński

Maciej Baranowski

Mirosław Chaberek

Dariusz Wędzki

Grzegorz Muszyński

Leszek Miętek

Henryk Sikora



Krzysztof Golubiewski

Tomasz Miszczuk

Krzysztof MamińskiPresident of the Management Board

Supervisory Board

2425

PKP

S.A.

2.3 Finance In 2017, PKP S.A. recorded a net profit

of PLN 192.8 million, which was

PLN 42.4 million higher than in 2016.

The improvement in the net result was

driven by cost reductions both on the core

activity as well as on other activity

and financing activity.

The Company maintains liquidity at

a safe and stable level, thereby real

izing the main objective of PKP S.A. in

maintaining an appropriate level of cash

that enables timely payment of liabili

ties arising under the outstanding loans

and bonds and coverage of operating

expenditures. In 2017 alone, in comparison

with the previous year, financial liabilities

decreased by PLN 463.6 million, mainly

as a result of repayment of corporate

bonds. Total interest on financial debt

amounted to over PLN 41.6 million, including

PLN 7.2 million on account of bonds

and PLN 34.3 million on account of loans.

Net sales revenues of PKP S.A. amounted

to PLN 702.6 million in 2017, increasing

by PLN 20.2 million PLN as compared to

2016. The increase resulted mainly from

the higher revenues on sales of goods

and materials, revenues from utilities

and other revenues, while lease and rent

income was lower. The higher revenues

from sales of goods and materials were

caused mainly by an increase in the value

of sales of scrap metal from the liquida

tion of redundant non–current assets.

On the other hand, the lower proceeds

from lease and rent resulted from a one–off

event in 2016 (signing of a memorandum

of agreement with Przewozy Regionalne

Sp. z o.o. [hereinafter: Przewozy Regionalne]

related to the overdue fees for the period

from 2013 to 2016).

Lease and rent income was the largest

revenue item amounting to PLN 497.2 million,

or 70.8%. At the same time, the revenue from

residential business was PLN 64.7 million and

was the second highest revenue item (9.2%).

Compared to 2016, operating expenses

in 2017 fell by PLN 51.2 million

to PLN 748.0 million. The largest expense

items included: external services

of PLN 208.3 million, payroll expenses

of PLN 173.8 million, depreciation and amor

tization of PLN 135.1 million and taxes

and charges of PLN 144.8 million; which

all together accounted for 88.5% of total

operating expenses.

The largest decrease in costs was recorded

in the taxes and charges item, which fell

by PLN 12.1 million as a result of lower

property tax (following the changes

in the Act on Local Taxes and Fees, according

to which buildings directly related to

railway traffic were exempt from property

tax). Costs of external services were also

lower, by PLN 11.9 million, which was caused

by the reduction of costs of advisory,

consulting and legal services and costs

of repairs, maintenance and scheduled

inspections. The PLN 8.1 million decrease

in labour costs result from a decrease

in average salary, reduction in personnel

costs and lower actuarial write–offs.

Financial results in 2016–2017 (in million PLN)

Sales revenues and equivalents in 2016–2017 (in million PLN)


2017–2016 %

Net sales revenues and equivalents 682.4 702.6 20.2 3.0%

Net revenues from sales of products 656.4 660.2 3.8 0.6%

Lease and rent 503.7 497.2 –6.5 –1.3%

Utilities 44.4 46.9 2.5 5.6%

Occupational medicine 24.7 25.0 0.3 1.2%

Residential business 68.5 64.7 –3.8 –5.5%

Other 15.1 26.4 11.3 74.8%


Revenues from sales of goods and materials 8.5 21.4 12.9 151.8%


2017–2016 %


Operating expenses 799.2 748.0 –51.2 –6.4%

Gross sales profit –116.8 –45.4 71.4 –

Gross sales profit margin –17.1% –6.5% 10.6 p.p. –



Profit (loss) on other operating activities 189.9 139.4 –50.5 –26.6%

EBIT 73.1 94.0 20.9 28.6%

EBITDA 216.1 229.1 13.0 6.0%

EBITDA Margin 31.7% 32.6% 0.9 p.p. –

Finance income 362.5 172.4 –190.1 –52.4%

Finance costs 285.3 73.6 –211.7 –74.2%

Profit (loss) on financial activities 77.2 98.8 21.6 28.0%


Income tax –0.1 0.0 0.1 –

Net profit (loss) 150.4 192.8 42.4 28.2%

Net profitability 22.0% 27.4% 5.4 p.p. –

2627

PKP

S.A.

In 2017, the Company suffered a loss

on sales in the amount of PLN 45.4 million,

which was PLN 71.4 million less than in 2016.

The improvement of the result was driven

by the fact that sales revenues improved

while operating expenses fell. Adjusted for

depreciation and amortization, the gross

sales profit would be PLN 89.7 million.

PKP S.A. reported a profit of PLN 139.4

million on other operating activities,

which is PLN 50.5 million less than in

2016. The worse result was achieved with

much lower other operating income and

a significant decline in other operating

expenses. At the revenue side, the Company

earned lower profit on the sale of non–

financial non–current assets, lower revenue

on the settlement of an investment grant

and lower revenue on the reversal of impair

ment charges for receivables. The largest

contributors to the lower other operating

expenses included: lower costs of provisions

recognized, lower costs of revaluation

of non–financial assets and liquidation

of non–financial non–current assets.

In 2017, the profit on financial activities

was PLN 98.8 million, or PLN 21.6 million

more than in 2016. The improvement

Depreciationand amortization17,9%

External services27,5%

Taxes and charges19,6%

Payroll22,8%

Other12,2%

2016



Taxes and charges19,4%

Payroll23,2%

Other11,5%

2017

At the end of 2017, the total value

of non–current assets amounted

to PLN 15,046.2 million and constituted

93.2% of total assets. Compared with 2016

the amount of non–current assets fell

by PLN 853.1 million, which was caused mainly

by the lower amount of non–current invest

ments in properties following the annexes

introduced to the D–50 agreement.

The largest non–current asset item

in 2017 was non–current investments,

which accounted for 77.8% of non–

current assets and included non–current

financial assets in related parties

in the amount of PLN 8,013.3 million

and investment pro perty in the amount

of PLN 3,686.0 million.

Non–current receivables were the second

largest item. At the end of 2017 they

amounted to PLN 3,097.6 million

and included outstanding receivables

on account of railway lines operated under

lease agreements and other properties

necessary for the management of railway

lines by PLK, PKP SKM and PKP LHS.

In 2017, the Company reduced the value

of its property, plant and equipment

by PLN 152.1 million as a result of: deprecia

tion charges, contribution of contributions–

in–kind to subsidiaries and a commercial

sale of real property while incurring capital

expenditures.

2.4 Assets

Operating expenses in 2016–2017 (in million PLN)


2017–2016 %

Total operating expenses 799.2 748.0 –51.2 –6.4%

Depreciation and amortization 143.0 135.1 –7.9 –5.5%

Materials and energy consumption 86.5 82.7 –3.8 –4.4%

External services 220.2 208.3 –11.9 –5.4%


Payroll 150.5 146.9 –3.6 –2.4%

Social security and other benefits 31.4 26.9 –4.5 –14.3%



Structure of operating expenses in 2016–2017 (%)

in the result was caused by a large drop

in finance costs by 74.2% while finance

income fell by 52.4%. Finance costs fell

mainly as a result of a decline in the costs

of impairment losses on shares, lower

interest expenses and a reduction in other

costs, including absence of foreign

exchange losses and a decrease in bond

valuation costs. On the other hand,

finance income decreased due to lower

income on revaluation of financial assets

(valuation of PKP Intercity shares in 2016)

and lower dividend income, combined with

the occurrence of positive FX differences.

2829

PKP

S.A.

Item 31.12.2016 31.12.2017Change

2017–2016 %


I. Intangible assets 13.3 14.9 1.6 12.0%

II. Property, plant and equipment, including: 381.2 229.1 –152.1 –39.9%

1. Fixed assets, including: 117.3 97.2 –20.1 –17.1%

a. Land, including: 8.1 1.4 –6.7 –82.7%

b. Buildings, premises and civil and water engineering structures

18.9 9.0 –9.9 –52.4%

c. Technical equipment and machinery 80.4 81.0 0.6 0.7%

d. Means of transport 0.1 0.1 0.0 0.0%



3. Advance payments for fixed assets under construction 0.0 0.2 0.2 –

III. Non–current receivables 3,104.5 3,097.6 –6.9 –0.2%

IV. Non–current investments 12,376.8 11,699.3 –677.5 –5.5%

V. Non–current prepayments 23.5 5.3 –18.2 –77.4%

Non–current assets in 2016–2017 (in million PLN) 2.5 Investments

In 2017, the Company incurred capital

expenditures of PLN 75.1 million (without

advances for tangible fixed assets under

construction), which were allocated for: X capital expenditures for railway stations

– PLN 38.2 million; X investment construction activity

in the Company’s organizational units

– PLN 15.3 million; X capital purchases of including

the purchase of machinery, equipment,

hardware and software – PLN 21.6 million.

The capital expenditures were financed

mainly with the Company’s own funds

in the amount of PLN 52.5 million and with

the funds received from the state

budget and from the EU in the amount

of PLN 22.6 million.

The largest capital expenditures were made

in relation to the following railway stations: X Dynamic Passenger Information System

Installation – PLN 10.0 million; X Poznań Zachodni – PLN 3.9 million; X Miechów – PLN 3.5 million; X Sosnowiec Maczki – PLN 3.3 million; X Żarów – PLN 3.1 million; X Jawor – PLN 2.2 million; X Olsztyn Zachodni – PLN 2.0 million;

X Święta Katarzyna, Siechnice and

Żerniki Wrocławskie – Smardzów

– PLN 1.5 million; X Strzelin – PLN 1.0 million; X Żagań – PLN 0.9 million.

Also in 2017 PKP S.A. carried out renovation

work in the amount of PLN 29.6 million,

down by PLN 5.4 million from the previous

year. The scope of renovation works

included, among others, thermo–moderni

zation, repair of roofs, facade repairs and

repairs resulting from ongoing breakdowns.


2017–2016 %

Railway station investments 77.8 38.2 –39.6 –50.9%

Capital expenditures – construction 14.7 15.3 0.6 4.1%

Other capital expenditures (purchases, upgrades) 29.0 21.6 –7.4 –25.5%

Total capital expenditures 121.5 75.1 –46.4 –38.2%

Own funds 104.8 52.5 –52.4 –50.0%

Public funds 18.4 22.6 4.2 22.8%

EU funds –1.7 0.0 1.7 –100.0%


Capital expenditures of PKP S.A. in 2016–2017 (in million PLN)

3031

PKP

S.A.

Additionally, the percentage of Compa

ny’s employees aged above 55 increased

by 1.4 p.p. to 28.4% of all employees.

At the same time, the percentage

of employees between 46 and 55 years

of age experienced the largest decrease,

by 1.0. p.p. to 24.6%.

Employment in PKP S.A. in 2016–2017

Structure of employment by age at the end of 2016 and 2017 (persons)


2017–2016 %

<25 64 57 –7 –10.9%

26–35 571 537 –34 –6.0%

36–45 452 453 1 0.2%

46–55 587 548 –39 –6.6%

>55 618 633 15 2.4%

Total employment 2,292 2,228 –64 –2.8%

Item

Average employment in the 12–month period

(FTEs)

Change2017–2016

Employment* at the end of December

(persons)

Change2017–2016

2016 2017 FTEs % 2016 2017 FTEs %

PKP S.A. Headquarters 712 718 6 0.8% 718 705 –13 –1.8%

Regions 1,358 1,380 22 1.6% 1,393 1,354 –39 –2.8%

Railway Medical Services Department 161 150 –11 –6.8% 195 182 –13 –6.7%

Total employment 2,231 2,248 17 0.8% 2,306 2,241 –65 –2.8%

2.7 Major events

February

April

March

August

May

June

July

October

November

December

X Signing of an agreement by PKP S.A., Xcity Investment and BGK Nieruchomości on the utilization of railway land

for the purposes of the Apartment Plus program.

X Signing of a letter of intent by PKP S.A., Poczta Polska S.A. and Xcity Investment on cooperation in the development

of specified neighboring land. X The Extraordinary Shareholder Meeting of PKP S.A. dismisses Mr. Mirosław Pawłowski from the position of the Pre si

dent of the PKP S.A. Management Board and the following from the positions of Management Board Members:

Ms. Cecylia Lachor, Mr. Michał Beim and Mr. Marek Michalski. At the same time, Mr. Krzysztof Mamiński is appointed

to the position of President of the Management Board.

X PKP S.A. distinguished in the Report entitled „Responsible Business in Poland 2016. Best Practices”, developed

by the Responsible Business Forum. The organizers recognized, among others, the organization of creative work

shops, the „Book on the Road” campaign or construction of Innovative System Railway Station (hereinafter IDS)

by the Company. X The modernized Wieliczka Park railway station was awarded in the „Well–Cared For Monument 2017” competition

in the category of industrial architecture and engineering construction. X Signing of an arrangement between PKP S.A., the Tatrzanski Starost, the Polish Tourist and Sightseeing Society

and the Tatra National Park tidying up the disputed issue of PKP leasing facilities located on the land owned

by the railway to PKL.

X Commencement of modernization of the western building of the Poznań Główny railway station. X Commencement of modernization of the railway station in Żarów.

X Launch of the 1st edition of the „It’s Your Turn – Save a Life” campaign promoting blood and bone marrow

donation. PKP S.A., PKP Group Foundation and PKP Group companies were involved in the event, which was

organized on 10 selected railway stations. X Opening of the modernized Olsztyn Zachodni railway station. It is the first facility remodeled by PKP S.A.

within the framework of the Railway Station Investment Program that covers a total of 200 stations across Poland.

The task has been implemented through EU co–financing as part of the Operational Programme Eastern Poland. X Signing of a strategic cooperation agreement between Polish and Azerbaijan railways. The document was signed

in the Presidential Palace in Warsaw, in the presence of Andrzej Duda, President of Poland and Ilham Alijev, Presi

dent of Azerbaijan. The agreement will facilitate development of another leg of the New Silk Road.

X Commencement of modernization of three railway stations: Siechnice, Święta Katarzyna and Żerniki Wrocławskie.

The investments are implemented within the framework of the EU support from the Regional Operational

Programme of the Dolnośląskie Province for the years 2014–2020.

X Commencement of modernization of the railway station in Jawor.

X Commencement of modernization of the railway station in Strzelin.

X Commencement of modernization of the railway station in Żagań.

X Opening of the modernized railway station in Miechów.

2.6 Employment In 2017, the average headcount in PKP S.A.

increased by 17 FTEs to 2,248, while

the number of people employed by PKP S.A.

fell by 65 from the end of 2016 down

to 2,241. The increase in average headcount

at the end of 2017 was driven mainly by the

broad Railway Station Investment Program

(RSIP) as well as a gradual expansion

of activity of PKP S.A. and subsidiaries

in the area of property development

projects, including transportation

and logistics projects.

The education structure is gradually

improving. At the end of 2017, employees

with higher education accounted for 65.3%

of the total, rising by 2.1 p.p. annually.

Concurrent with the observed increase

in the percentage of employees with

higher education, the share of employees

with primary and vocational education

is declining. During 2017, the percentage

of this group in the employment structure

fell to 4.5%, i.e. by 0.2 p.p.

* Including foreign representative offices and excluding the persons, for whom PKP S.A. is not the primary place of employment.

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PKP Polskie Linie Kolejowe S.A. (hereinafter:

PLK) has been conducting its operations

since 1 October 2001. As at 31 December

2017 the Company’s share capital was

PLN 16,696.6 million. The shareholders

of the Company include the State Treasury

which owns 67.7% of all shares and PKP S.A.,

which holds the remaining 32.3% of shares.

PLK is the rail infrastructure manager

and provides access to that infrastructure

to licensed rail operators. The Company’s

line of business includes in particular: X service activities supporting overland

transport, in particular operation

of railway traffic and management

of railway lines, maintenance of railway

lines in a condition that ensures efficient

and safe transport of people and freight,

regularity and safety of railway traffic,

fire service activities, and protection

of the environment and property

in railway areas; Other professional,

scientific and technical activities,

not elsewhere classified, including

provision of paid access to railway

lines to railway operators based on

the applicable procedure for setting

and publishing unit rates; X engineering activities and related tech

nical consultancy, including surveying

and cartographic activities; X works associated with the construction

of railway tracks, underground railways,

roads and motorways, construction

of telecommunications and power lines; X activities related to the general defense

obligation, in particular preparation

of railway areas and railway lines

for defense tasks.

3 PKP Polskie Linie Kolejowe S.A.



Management Board

The Company’s task is to ensure the best possible conditions for domestic transport, among others by implementing the largest railway line modernization program in history and to ensure an appropriate level of safety. The national railway line network is an important element of the Polish and European transport system. Its manager, PKP Polskie Linie Kolejowe S.A., offers top quality services to rail operators, working to satisfy the passengers and the senders and recipients of cargo. PLK successfully combines tradition with cutting edge solutions and technologies.

www.plk-sa.plIreneusz Merchel


Vice–President of the Management Board, Operations Director

Management Board Member, Investment Director


Marek Olkiewicz

Arnold Bresch

Management Board Member, Infrastructure Maintenance Director

Piotr Majerczak

Management Board Member, Financial and Economic Director

Radosław Celiński

Ireneusz Merchel

Marcin Piwowarski

Chairman

Artur Kawaler

Magdalena Błaszczyk

Stanisław Ryszard Kaczoruk

Jan Piotr Piechel

Wiesław Adam Pełka

Jakub Kapturzak

Mariusz Andrzejewski

Secretary

Supervisory Board

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3.3 Finance In 2017, PLK achieved a net profit

of PLN 15.1 million. The financial result

was PLN 83.3 million better than that

in 2016. The improvement was driven

mainly by the positive FX differences

on the loans received in foreign currencies

(appreciation of PLN vs. EUR) and reversal

of an impairment charge for shares

in subsidiaries. The result on other

operating activity improved. The increase

in other operating income resulted from

the settlements of non–refundable

EU and domestic funds designated

for modernization of railway infrastructure.

In 2017, sales revenues and equivalents

amounted to PLN 5,717.6 million and were

PLN 142.0 million higher than in 2016, which

resulted mainly from an increase in reve

nues on the provision of access to railway

lines by PLN 64.8 million, an increase

in public funds received by PLN 32.7 million,

PLN 37.3 million higher revenues on the sale

of scrap metal and PLN 5.5 million higher

revenues from sales of other services.

The increase in revenues from co–financing

is a consequence of a PLN 306.7 million

increase in the state budget subsidies

for railway infrastructure manage

ment and maintenance, after a portion

of the Railway Fund resources in the amount

of PLN 150.6 million was shifted from the limit

to be used in 2017 to 2018, which was then

compensated by an increase in subsidies

by this amount. The co–financing from

the Railway Fund was PLN 132.3 million lower

after resources from this Fund decreased

after the limit of resources allocated for 2017

was shifted to 2018. Out of the originally

allocated amount of PLN 270.0 million

for running expenses, the amount

of PLN 119.4 million was used in 2017.

The increase in revenues from the provision

of access to railway lines resulted mainly

from an increase in revenues from freight

carriers following a 9% increase in opera

tional performance after they acquired new

transport orders.

Operating expenses amounted

to PLN 6,530.1 million and were


The increase in expenses was driven mainly

by higher depreciation and amortization

expenses (following a gradual commis

sioning of the completed infrastructural

investment projects), higher payroll

expenses (which resulted among others

from the higher employment level and

an increase in minimum wages since

1 January 2017) and higher costs of external

services, mainly on account of costs incurred

for repairs and maintenance of railway lines.


Sales revenues and equivalents in 2016–2017 (in million PLN)



2017–2016 %

Net sales revenues and equivalents, including: 5,575.6 5,717.6 142.0 2.5%

Revenues from providing access to railway lines,

including:2,136.2 2,201.0 64.8 3.0%

Rail freight operators 1,033.8 1,102.4 68.6 6.6%

Passenger transport operators 1,102.4 1,098.6 –3.8 –0.3%

Public funds 3,191.6 3,224.3 32.7 1.0%

Revenues from sales of other services 99.6 105.1 5.5 5.5%


Revenues from sales of goods and materials 141.1 178.4 37.3 26.4%


2017–2016 %


Depreciation and amortization 1,358.5 1,674.6 316.1 23.3%

Materials and energy consumption 459.6 477.5 17.9 3.9%



Payroll 2,082.3 2,190.7 108.4 5.2%


Other costs by kind 29.5 32.7 3.2 10.8%

Cost of goods and materials sold 0.0 0.0 0.0 –


2017–2016 %



Gross sales profit –374.4 –812.5 –438.1 –

Gross sales profit margin –6.7% –14.2% –7.5 p.p. –

Other operating income 890.4 1,162.4 272.0 30.5%

Other operating expenses 360.0 514.3 154.3 42.9%


EBIT 156.0 –164.4 –320.4 –

EBITDA 1,514.5 1,510.2 –4.3 –0.3%

EBITDA Margin 27.2% 26.4% –0.8 p.p. –

Finance income 56.0 278.0 222.0 396.4%

Finance costs 256.8 69.9 –186.9 –72.8%

Profit (loss) on financial activities –200.8 208.1 408.9 –

Profit (loss) before tax –44.8 43.7 88.5 –

Income tax 23.4 28.6 5.2 22.2%

Net profit (loss) –68.2 15.1 83.3 –

Net profitability –1.2% 0.3% 1.5 p.p. –

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The recorded increase in other operating

income compared to 2016 was driven

mainly by the settlement of funds obtained

for the financing of railway infrastructure

modernization expenditures, from the Railway

Fund, Structural Funds, European Regional

Development Fund, Regional Operational

Programmes, Trans–European Transport

Network TEN–T, Operational Programme

Infrastructure and Environment (hereinafter:

OPI&E) and other non–refundable funds

from EU and national sources. These funds

are settled in parallel with the depreciation

of fixed assets created as a result

of the investments financed from them.

The increase in other operating expenses

in 2017 in comparison with 2016 was

driven mainly by higher costs of provisions

recognized for contractor claims in investment

projects and provisions for employee benefits,

with a simultaneously lower costs arising from

the recognition of impairment losses on non–

financial assets.

The increase of PLN 408.9 million in the result

on financial activities resulted mainly from

an increase in finance income as a result

of foreign exchange gains (foreign exchange

losses occurred in 2016) and reversal

of impairment losses on shares in subsi

diaries. The better result on financial activities

was also influenced by lower costs of interest

on loans and bonds.

Property, plant and equipment consti

tutes the largest item of the Company’s

non–current assets. In 2017, this asset item

increased by 9.9% as a result of the invest

ment process.

Buildings, premises, civil and water engi

neering structures continued to make up

the largest portion of property, plant and

equipment and 68.5% of the total value

of non–current assets. Their share increased

by 0.1 percentage points compared to 2016,

mainly as a result of the modernization

of rail infrastructure. At the same time

during the financial year fixed assets under

construction reduced their share in non–

current assets by 1.8 percentage points.

3.4 Assets

Item31 December

201631 December

2017

Change

2017–2016 %

Non–current assets 48,403.4 53,229.2 4,825.8 10.0%

I. Intangible assets 28,3 31.1 2.8 9.9%

II. Property, plant and equipment, including: 48,246,9 53,031.1 4,784.2 9.9%

1. Fixed assets, including: 37,931,6 41,866.6 3,935.0 10.4%

a. Land 3,617,3 4,084.3 467.0 12.9%

b. Buildings, premises and civil and water engineering structures 33,105.3 36,482.5 3,377.2 10.2%

c. Technical equipment and machinery 1,080.0 1,140.1 60.1 5.6%

d. Means of transport 106.8 130.6 23.8 22.3%

e. Other fixed assets 22.2 29.1 6.9 31.1%

2. Fixed assets under construction 10,255.7 10,340.8 85.1 0.8%

3. Advance payments for fixed assets under construction 59.6 823.7 764.1 1,282.0%

III. Non–current investments 128.2 167.0 38.8 30.3%


2017–2016 %

Public funds, including: 3,242.8 3,298.4 55.6 1.7%

Earmarked subsidy from the state budget 2,742.0 3,048,7* 306.7 11.2%

OPI&E and CEF subsidy for technical assistance 60.3 56.2 –4.1 –6.8%

Railway Fund part ‘E’ – running expenses 325.8 193.5 –132.3 –40.6%

Running expenses (core operations) 274.6 119.4 –155.2 –56.5%

Service of finance costs of EIB loans and bonds (other operating activity) 51.2 74.1 22.9 44.7%

Compensation for accounting normalisation 113.9 0.0 –113.9 –100.0%

Subsidy towards a basic fee relief granted by the Com-pany in respect to trains transporting the World Youth Day participants*

0.8 0.0 –0.8 –100.0%


Use of public funds for the operating activities and other operating activities in 2016–2017 (in million PLN)

3.5 Co–funding

In 2017, PLK was awarded co–funding

in the total amount of PLN 3,298.4 million

for its current activity. The funds from

the state budget subsidy in the amount

of PLN 3,048.9 million were used to cover

the cost of: X management, including administrative

expenses, current infrastructure mainte

nance and repairs, operation of railway

traffic, depreciation and indirect costs; X security; X intermodal relief.

The targeted subsidy for technical assistance

under OPI&E for the years 2014–2020 and

Connecting Europe Facility (CEF) in the total

amount of PLN 56.2 million was used to

finance operating expenses, including: costs

related to employment, improvement of

employee qualifications, expert and legal

support, support of the implementation

process, promotion of good practices applied

in the implementation and monitoring of CEF

projects and update of the manual with

procedures for railway projects implemented

under the CEF.

The funds received from the Railway Fund

were expended based on the Railway Fund’s

Financial Plan for 2017. The Plan speci

fied the limit for the Railway Fund’s funds

designated for running expenses related to

the rail infrastructure management activity.

The funds in the amount of PLN 193.5 million

were used, among others, for salaries

of employees handling the maintenance

and repairs of railway infrastructure, salaries

of the Railway Security Guard (herein

after referred to as SOK), administrative

salaries and rent for the lease of office

space. A portion of the funds was also used

to finance the cost of interest on loans from

the European Investment Bank and bonds

issued.

By the power of Council Regulation (EEC)

no. 1192/69 of 26 June 1969 on common

rules for the normalization of the accounts

of railway companies, PLK was entitled

to receive compensation for its expenses

arising from the obligation to maintain level

crossings and cover the costs of opera

tion of SOK. The regulation was intended

to ensure a lasting of equal competition

conditions between the various branches

of transport. Pursuant to an agreement

signed with the Minister of Infrastructure

and Construction at the time, in 2016

the Company received a compensation

of PLN 113.9 million for the expenditures

arising from the obligation to cover costs

related to SOK’s operation in 2013. In 2017 the

Company received no such compensation.

* Fulfillment of the subsidies plan for 2017 is PLN 3,048.9 million. The amount recorded in the accounting ledgers is PLN 0.2 million smaller, which is due to the adjustments of subsidies for previous years recognized in 2017.

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Employment structure by age

3.6 Investments PLK’s objectives as the manager

of the national rail infrastructure

is to increase performance and efficiency

of the national transport system by imple

menting a broad investment program

involving the modernization of numerous

railway lines. In 2017, the company carried

out the investment projects included

in the National Railway Program till 2023

(KPK), which was accepted in September

2015 and then updated and approved

by a Resolution 106/2017 adopted

by the Council of Ministers on 12 July 2017.

In 2017, PLK incurred capital expenditures

of PLN 5,483.0 million. The funds were

designated mainly for the modernization

of railway lines, which will contribute

in the future to an increase in the capacity

of railway lines and commercial speed

of rail operators.

3.7 Employment

In 2017, the average headcount in PLK

was 39,349 FTEs, up by 195 FTEs from

2016. At the same time, at the end of 2017,

the employment level fell by 329 persons

vs. 2016 down to 39,174 persons.

The decline in employment compared

to the end of December 2016 resulted from

retirements and the decline in headcount

of the traffic equipment operations team

and in the railroad diagnostics and mainte

nance team.

< 25 years 26 ‒ 35 36 ‒ 45 46 ‒ 55 > 55 years

618

484

-622

-759

-50

0

2 000

6 000

8 000

14 000

4 000

10 000

12 000

16 000

18 000

2016 2017

The scope of the individual investment

projects carried out by PLK usually includes

comprehensive replacements of the railroad

superstructure, railway traffic control devices

and power supply facilities (for traction

and non–traction purposes) as well as

modernization of level crossings or liquida

tion of level crossings to replace them with

bridge or tunnel crossings. Replacing old,

worn–out devices and degraded elements

of the rail infrastructure and technical

devices with new ones, made using

modern technologies offers an opportunity

to improve significantly the operational

parameters of railway lines (mainly

maximum speed limits), while maintaining

or usually increasing traffic safety.

In 2017, the investment work carried out

on the railway network managed by PLK

included in particular: modernization,

revitalization or construction of 1037.5 km

of tracks, 182 level crossings as well as

construction or modernization of 39 two–

level crossings.

As part of the modernization and

revitalization works, which included

railroad superstructure, the Company also

replaced infrastructure elements that were

required for conducting safe train traffic

at the permitted speeds, including instal

lation of 534 switches.

As part of the modernization and revitali

zation of railway lines, PLK alters level cros

sings and pedestrian crossings, equipping

them with additional safety and/or warning

devices and eliminates the road and pedes

trian crossings at the track level, replacing

them with viaducts, footbridges or tunnels.

Capital expenditures in 2010–2017 (in million PLN)

2017

5 483

2016

4 070

2015

7 415

2014

7 306

2013

5 314

2012

3 921

2011

3 811

2010

2 757

0

1 000

3 000

4 000

7 000

2 000

5 000

6 000

8 000

9 000

Subsidies36.6%

EU funds43.1%

Recapitalization0.5%

Other3.6%

Loans/Bonds4.7%

Own resources10.8%

Railway Fund0.7%

Structure of investment financing sources in 2017

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3.8 Major events

January

July

March

February

April

May

June

X Signing of an agreement to revitalize major railway lines in the Silesia region, section Chybie – Żory – Rybnik

– Nędza/Turze.

X Signing of an agreement to renovate the circular line in Warsaw – section Warszawa Gołąbki/Warszawa Zachodnia

– Warszawa Gdańska. X Press conference at PAP. Three pillars of the National Railway Program (KPK). Presentation by PLK of investment

plans for 2017 and the objectives of the National Railway Program – significant improvement in railway traffic

in urban agglomerations, improvement of the standard of travel on regional routes and improved conditions

for cargo transport.

X Better railway travel from the Podkarpacie region to the Lubelskie region. Signing of the first agreement under

the Operational Programme Eastern Poland (PO PW) to modernize and electrify the Lublin – Stalowa Wola

Rozwadów route. X Better travel between Warsaw and Poznan. Signing of the first out of three agreements to modernize the Poznań

– Warsaw route.

X Further improvement of railway travel from Grodzisk Mazowiecki to Warsaw – signing of an agreement for work

on the railway line between Warszawa Włochy and Grodzisk Mazowiecki (line 447). X More modern long–distance and commuter railway in Krakow and Małopolskie region – signing of an agreement

to carry out work on the E30 railway line, Kraków Główny Towarowy – Rudzice section and construction of additional

tracks for the commuter line. X Commissioning of a new train stop Gorzów Wielkopolski Wschodni as part of the modernization of the elevated

track section in Gorzów Wielkopolski. X Shortening of train travel from Piła to Poznań by 40 minutes. Signing of an agreement to alter the railway line from

Poznań to Piła.

X Launch of the largest project under the National Railway Program: Warsaw – Lublin. Signing of an agreement

to modernize the Warsaw – Lublin railway line, Otwock – Lublin section. X New train stops and shorter travel from Szczecinek to Ustka. Signing of an agreement to revitalize railway line

no. 405, section from the province border (between Biały Bór and Słosinko stations) – Słupsk – Ustka. X Faster train travel from Grudziądz and Kwidzyn to Malbork. Signing of an agreement to revitalize railway line no. 207,

Gardeja – Malbork section. X Shorter and more comfortable train travel on the Krakow – Zakopane route thanks to a new connecting line

and a train stop in Sucha Beskidzka. Signing of an agreement to design and execute work on the Skawina – Sucha

Beskidzka section of railway line 97 and to design work to build a connecting line in Kalwaria Zebrzydowska. X PLK receives the „2017 SAP Innovation Award” for the project named „Implementation of the SAP HCM system”.

X 15 minutes shorter train travel from Krakow to Zakopane. Commissioning of a new railway connecting line in Sucha

Beskidzka and a new Sucha Beskidzka Zamek train stop. X Commissioning of a remodeled station in Libiąż. X Faster and more comfortable travel from Warsaw to Białystok. Signing of an agreement to modernize the Sadowne

– Czyżew section of the E75 Warsaw – Białystok line. X Social education campaign entitled „Safe Crossing” – „Risk barrier!”. Commencement of the summer holiday

campaign entitled „Safe Fridays”. X Signing of an agreement for the last modernization stage of the Poznań – Wrocław line: work performed

on the Rawicz – Leszno section.

X Safe train travel from Gdańsk. Signing of an agreement to remodel the Gdansk Główny station. X Train travel from Legnica to Lubin and Rudna Gwizdanów. Signing of an agreement to modernize the Legnica – Rudna

Gwizdanów section of railway line 289. X Better train travel by „Wiedenka” and in the Silesia region. Signing of an agreement to design and execute

construction work on the Częstochowa – Zawiercie section. X Faster train travel from Szczecinek to Runowo Pomorskie. Signing of an agreement to revitalize the Szczecinek – Runowo

Pomorskie route.

X The railway opens the Mazury lake district. Signing of an agreement to perform work on the Szczytno – Ełk section

of railway line 219, under the Operational Programme Eastern Poland (PO PW). X PLN 140 million for better travel within the Podlasie region. Signing of agreements under PO PW to modernize routes

between Lewki and Hajnówka and Białystok and Bielsk Podlaski. X More comfortable stations in Biała Podlaska. X Signing of an agreement for the last stage of work on the Siedlce – Terespol section.

X Commencement of modernization of railway line 447 Warszawa Włochy – Grodzisk Mazowiecki. X Press conference at PAP. Acceleration of investments, report on PLK’s investment projects. X More than PLN 267 million for remodeling the Działdowo – Olsztyn route. Signing of an agreement for another PO PW

projects – modernization of railway line 216 Działdowo – Olsztyn. X Shorter railway travel from Opole to Kędzierzyn–Koźle and Katowice. Signing of an agreement to modernize the Opole

– Kędzierzyn–Koźle section.

X Announcement of a tender to develop design documentation for the project entitled “Construction of Podłęże –

Szczyrzyc – Tymbark / Mszana Dolna railway line and modernization of the existing railway line 104 Chabówka – Nowy

Sącz”. X Faster and more comfortable travel from Krakow to Katowice. Signing of an agreement to modernize the Trzebinia –

Krzeszowice section as part of the project entitled “Upgrade of the E30 railway line Zabrze – Katowice – Krakow, stage IIb”. X Half a billion PLN worth of capital expenditures for the Trzebinia – Zebrzydowice route. Signing of an agreement to design

and execute work on the Trzebinia – Oświęcim section as part of the OPI&E project 5.1–12 entitled: “Work on the Trzebinia

– Oświęcim – Czechowice Dziedzice section of railway line 93”. X Better railway travel in the Świętokrzyskie province. Signing of another agreement under PO PW to modernize

the Skarżysko–Kamienna – Sandomierz section of railway line 25. X Quarter of a billion of PLN for increasing safety on 182 level crossings. Signing of an agreement for the implementation

of the „Improvement of safety at level crossings” program. X Innovative railway – National Center for Research and Development and PKP Polskie Linie Kolejowe S.A. announced

a competition for the implementation of the best research and development projects supporting Polish railways within

the framework of the „BRIK – Railway Infrastructure Research and Development” project.

X PLK is the biggest beneficiary of the CEF funding. Signing of further grant agreements for railway investments under

the Connecting Europe Facility (CEF). X More comfortable travel from Szczecin Główny. Signing of an agreement to remodel the Szczecin Główny station

and adapt it to TSI PRM requirements. X Shorter train travel from Rzepin to Kostrzyn. Signing of an agreement to modernize another section of the “Nadodrzanka”

route, the Drzeńsko – Kostrzyn section.

X Opening of a Kraków Zabłocie – Kraków Podgórze connecting line. X Railway opens up Łódź. Signing an agreement to build an underground tunnel in Łódź. X Shorter journey from Kielce to Warsaw via the Central Railway Main Line. Signing of an agreement for the construction

of a new connecting line between Czarnca and Włoszczowa Północ. X Safer and more efficient train journeys. Signing an agreement to install level 2 of the ERTMS/ETCS system on the E20 line

Kunowice – Terespol (excluding the Warsaw junction). X Safer and more efficient train travel. Signing of the first agreement for the implementation of the turnout programme

“Improvement of safety through installation of new railway turnouts in a higher construction standard – stage II”.

August

September

October

November

December

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CARG

O

PKP CARGO S.A. (hereinafter: PKP CARGO)

was established under Article 14 of the Act

of 8 September 2000 on commercialization,

restructuring and privatization of the Polskie

Koleje Państwowe state enterprise.

PKP CARGO in its current legal form was

established in the process discussed above

and commenced its operations in October

2001 having obtained an appropriate

concession from the Minister of Transport.

In addition to the provision of rail freight

transport services, PKP CARGO and other

PKP CARGO Group Companies offer

additional services: intermodal logistics,

freight forwarding (domestic and interna

tional), terminal services (transshipment

and storage goods at the boundaries

of broad– and standard–gauge tracks on

Poland’s eastern border and in other key

locations around the country) and siding

and traction services. It also provides rolling

stock maintenance and repair services and

conducts land remediation activity.

The Company is the largest rail freight

operator in Poland and one of the largest

in the European Union. Currently, PKP CARGO

holds the safety certificates allowing it

to provide independent rail freight services

in the territory of seven European countries:

Czech Republic, Slovakia, Germany, Austria,

the Netherlands, Lithuania and Hungary.

Since 30 October 2013, PKP CARGO has been

listed on the Warsaw Stock Exchange (herein

after: WSE). Its IPO was the first successful

stock offering of a national rail freight carrier

in the European Union. The most successful


www.pkpcargo.com

PKP CARGO is the largest rail freight operator in Poland and one of the largest in the European Union. It is the first European railway company listed on a stock exchange. PKP S.A. continues to be its main shareholder.The PKP CARGO Group is the leader of the Polish market and one of the leading logistics groups in Europe offering professional management of an integrated chain of logistic services.

PKP CARGO4 Czesław Warsewicz Prezes Zarządu

Shareholder structure of PKP CARGO as at 31 December 2017

Other shareholders35,3%

PKP S.A.33,0%

Nationale-Nederlanden OFE15,3%

Aegon PTE5,6%

MetLife OFE5,6%

AVIVA OFE5,2%

debut of a State Treasury company in recent

years was confirmed by: recognition award

from the editors of “Gazeta Giełdy Parkiet”

and the “Best IPO on the Warsaw Stock

Exchange 2013/2014” award from the Warsaw

Capital Market Summit 2014. 48.3%

of the Company’s shares were introduced

into public trading. In June 2014, as a result

of block trades signed following an accel

erated bookbuilding process, PKP S.A. sold

a 17.0% stake in PKP CARGO. In October 2015

the 2–year lock–up period preventing the

sale of employee shares ended.

In 2015, PKP CARGO finalised the process

of acquiring an 80% stake in Advanced

World Transport B.V. (hereinafter: AWT),

the second largest rail freight carrier

in the Czech Republic with operations

in the Central and Southern Europe.

The acquisition of AWT gave PKP CARGO

an increased share in the Czech market

and a significant share in the Baltic –

Adriatic transport corridor. In 2017, Minezit SE

exercised its option to sell 20% of shares

in AWT’s share capital and following

the purchase PKP CARGO became the sole

owner of AWT. In 2015, PKP CARGO S.A.

signed an agreement to acquire a 44.4%

stake in PS Trade Trans Sp. z o.o.,

thus acquiring full ownership of that

company. The company changed its name

to PKP CARGO CONNECT Sp. z o.o. and,

following a consolidation with CARGOSPED

Sp. z o.o. it combined the functions

of a forwarder and an intermodal operator

functioning within the PKP CARGO Group.

4445

Management Board



Management Board Member responsible for Trade

Grzegorz Fingas

Management Board Member responsible for Finance

Management Board Member responsible for Operations

Leszek Borowiec

Witold Bawor

Czesław Warsewicz

Management Board Member, Employee Representative

Zenon Kozendra

Małgorzata Kryszkiewicz

Chairman

ZofiaDzik

Raimondo Eggink

Krzysztof Czarnota

Tadeusz Stachaczyński

Krzysztof Mamiński

Deputy Chairman

Mirosław Antonowicz

Jerzy Sośnierz

Paweł Sosnowski

Władysław Szczepkowski

4.3 Finance In 2017, the PKP CARGO Group earned the net profit of PLN 81.7 million, improving its reported result by PLN 215.4 million.

In 2017, the PKP CARGO Group achieved

operating income of PLN 4,738.6 million,

which was PLN 327.3 million more compared

to 2016. The increase in income was driven

mainly by the higher revenues on account

of rail transportation and freight forwarding

services mainly due to higher volumes

of transports (details of the transport

activity performed by the PKP CARGO Group

is described in Section 4.7 Freight transport).

The PKP CARGO Group also recorded higher

revenues from sales of goods and materials

due to higher sales of scrap metal (among

others waste from repair activities)

and higher sales of goods (especially coal).

At the same time, the PKP CARGO Group

posted lower revenues on the sale of

non–transport services. The most significant

reductions were recorded in the siding

and traction revenues, which resulted

primarily from the termination of the mining

activity in the Makoszowy and Krupiński coal

mines and lower revenues earned on coal

mine sidings.

Statement of comprehensive income for 2016–2017 prepared in accordance with IAS/IFRS (in million PLN)


2017–2016 %

Operating income 4,411.3 4,738.6 327.3 7.4%


EBIT –132.1 155.0 287.1 –

EBITDA 489.5 701.9 212.4 43.4%

EBITDA Margin 11.1% 14.8% +3.7 p.p. –

Finance income 38.9 20.2 –18.7 –48.1%

Finance costs 61.2 59.5 –1.7 –2.8%

Share in the profit of entities measured by the equity method

3.5 0.8 –2.7 –77.1%

Result before tax –150.9 116.5 267.4 –

Income tax –17.1 34.8 51.9 –

Net result –133.8 81.7 215.4 –

Net profitability –3.0% 1.7% +4.7 p.p. –

Total other comprehensive income 42.7 –7.2 –49.9 –

Total comprehensive income –91.1 74.5 165.6 –

Supervisory Board

PKP

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Operating expenses of the PKP CARGO Group in 2016–2017 (in million PLN)


2017–2016 %


Depreciation and amortization and impairment losses 621.6 546.9 –74.7 –12.0%



Taxes and charges 36.3 39.0 2.7 7.4%

Employee benefits 1,442.3 1,508.7 66.4 4.6%


Cost of goods and materials sold 22.1 39.1 17.0 76.9%


Structure of operating expenses of the PKP CARGO Group in 2016–2017

In 2017, operating expenses increased by PLN

40.2 million up to PLN 4,583.6 million, mainly

due to the increase in the cost of employee

benefits, higher cost of external services

and materials and energy consumption,

while the value of depreciation charges

and impairment losses and other operating

expenses fell.

The increase in employee benefits

was caused mainly by salary raises

in PKP CARGO Group companies and

update of the actuarial valuation

of provisions for employee benefits,

despite a reduction of average headcount

in the Group. The increase in the costs

of external services was driven mainly

by an increase in the costs of access to

the lines of infrastructure managers caused

by increasing freight transport. The increase

in the costs of materials and energy

consumption was driven also by an increase

in freight transport as a result of a greater

volume of transport performed on the diesel

traction (due to impediments on PLK lines

and detours) and an increase in the volume

of transport carried out by the PKP CARGO

Group. The decline in depreciation charge

and impairment losses was caused

by the occurrence of one–off events

(reversal of a portion of impairment

losses on the value of rolling stock in 2017

and revaluation of AWT Group’s assets

in 2016).

Depreciation and amortization and impairment losses13,7%

2016

Other costs5,1%

Employee benefits31,7%

Materials and energy consumption14,9%


Depreciation and amortization and impairment losses11,9%

2017

Other costs4,5%

Employee benefits32,9%



In 2017, the PKP CARGO Group incurred a loss

on financial activities of PLN 38.6 million

compared to the loss of PLN 18.9 million

in 2016. The main cause of the

deterioration of the result on financial

activities was the PLN 31.8 million

decrease in the revenues from valuation

of the liability on account of the put

option for non–controlling interests.

At the same time, in 2017 the net result

on foreign exchange differences increased

by PLN 10.4 million as a result of changes

in foreign exchange rates.

In 2016, the PKP CARGO Group incurred

loss before tax of PLN 150.9 million,

compared to the PLN 116.5 million profit

in 2017. It was caused by an improvement

in the operating result and a simultaneous

increase of the loss on financial activi

ties. In 2017, the Group posted a net profit

of PLN 81.7 million. The main reason

for the increase of the financial result in

2017 was the improved situation on the

transport market, which translated directly

into a larger volume of freight and higher

prices of transport services.

4.4 Assets

The largest non–current assets items

include means of transportation. As at

31 December 2017, the PKP CARGO Group

had 2,334 locomotives, including 1,272

diesel locomotives, and PLN 1,062 electric

locomotives. The PKP CARGO Group also had

64,760 carriages at its disposal. Compared to

the end of 2016, the number of locomotives

fell by 237 and carriages by 926, mainly

as a result of the liquidation of rolling stock

in a bad technical shape. In 2017, PKP CARGO

received delivery of the remaining Siemens

Vectron multi–system locomotives out

of the 15 units ordered in the past years.

Selected non–current assets of the PKP CARGO Group in 2016–2017 (in million PLN) according to IAS/IFRS

Item 31.12.2016 31.12.2017Change

2017–2016 %

I. Property, plant and equipment 4,700.6 4,688.0 –12.6 –0.3%


a. Land, including right of perpetual usufruct 160.0 154.8 –5.2 –3.2%


572.8 561.3 –11.5 –2.0%


d. Means of transport 3,777.4 3,790.4 13.0 0.3%



As at 31 December 2017, the amount of property, plant and equipment in the PKP CARGO Group was PLN 4,688.0 million, down by PLN 12.6 million from the previous year.

PKP

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4849


2017–2016 %

Total capital expenditures 532.7 562.0 29.3 5.5%

Investment construction activity 19.1 32.1 13.0 68.1%

Purchase of traction vehicles 200.2 53.0 –147.2 –73.5%

Modernization of locomotives 40.5 67.0 26.5 65.4%

Rolling stock repair components 230.7 358.6 127.9 55.4%

Purchase and modernization of carriages 3.6 14.9 11.3 313.9%

Machinery and equipment 14.4 17.6 3.2 22.2%

ITC development 20.1 16.3 –3.8 –18.9%

Other investments 4.12 2.5 –1.6 –39.0%

4.5 Investments

In 2017, the PKP CARGO Group incurred

capital expenditures of PLN 562.0 million

(according to IAS/IFRS), marking

a 5.5% increase from the 2016 figures.

The capital expenditures were allocated

mainly for the execution of investment

tasks associated with rolling stock

and for the most part included expenditures

for components for rolling stock repairs

in the amount of PLN 358.6 million

(the number of periodic repairs

and periodic inspections performed

in individual periods is derived from

the cycles specified in the Maintenance

System Documentation (DSU) of the rolling

stock approved by the Office of Rail

Transport and the quantum of rolling stock

maintained in working order as required

for the provision of transportation

services). Capital expenditures included

also modernization of locomotives

(PLN 67.0 million) and purchase

of Siemens Vectron multi–system

locomotives (PLN 53.0 million). Other

capital expenditures were associated

with investment construction activity

(PLN 32.1 million), purchase of machinery

and equipment (PLN 17.6 million) and ICT

development (PLN 16.3 million).

Statement of capital expenditures incurred by the PKP CARGO Group in 2016–2017 (in million PLN) according to IAS/IFRS

The increase in the weight of transported

goods in 2017 was driven by an increase

in transport within Poland, which reached

107.4 million tons in terms of freight

volume and 28.3 billion tkm in terms of

transport performance. The structure of

the weight of transported goods indicates

that the transport of aggregates and

construction materials increased to 22.2

million tons as a result of intensified

execution of road and railway investments

in Poland, increased demand for aggregate

transport to concrete plants and factories

of bituminous mass and increased demand

for limestone due to higher production

of metallurgical products. The transport

volume of aggregates and construction

materials was also affected by the increase

in imports from Ukraine and Belarus.

The PKP CARGO Group increased the trans

port of metals and ores to 13.0 million tons,

mainly due to the favourable situation

in the metallurgical industry on global

markets, improving economic situation

in Poland and on foreign markets and lower

imports from China (as a result of duties

introduced by the European Commission

on products sold at dumping prices).

The PKP CARGO Group also recorded

an increase in the transport of chemicals

to 7.0 million tons, which resulted from

an increase in the transport of hydrocarbons

from the east, both in import and in transit,

as well as from an increase in trans

port through seaports. A 49.0% increase

in the freight volume of liquid fuels was

recorded following the reduction of the

so–called „grey market” in liquid fuels trade

as a result of the implemented regulations

(„fuel package”). Intermodal transport

increased by 17.5% compared to 2016

up to 7.6 million tons, driven among others

by the development of transit connections,

increased haulage of freight on the China–

Europe–China route over the New Silk Road

and a greater percentage of bulk cargo

transported in containers.

At the same time the level of solid fuel

transports fell to 57.7 million tons due to:

lower volume of coal transports (after

the share of export transports through

Poland’s southern border increased

at the expense of Polish seaports),

a decrease in coke transports following

a partial shift from conventional to

intermodal transport, indirectly due to

adoption of anti–smog laws and a decrease

in transport from OKD (Ostravsko–Karvinské

Doly) mines.

At the end of 2017, the PKP CARGO

Group employed 23,253 people, which

was 109 more than at the end of 2016.

At the same time, average headcount

measured in FTES fell over the 12–month

period by 163 to 23,278 FTEs. The reduction

of the average headcount was caused

mainly by the employees becoming eligible

for retirement and disability benefits.

4.6 Employment

4.7 Freight transport

List of transport indices of the PKP CARGO Group in 2016–2017


2017–2016 %

Freight transport (million tons) 111.5 119.1 7.6 6.8%

Freight turnover (million tkm) 28,521.0 31,010.0 2,489.0 8.7%

Average transport distance (km) 255.8 260.3 4.5 1.8%

PKP

CARG

O

In 2017, the PKP CARGO Group transported 119.1 million tons of cargo, which was 7.6 million tons more than one year earlier. In 2017, freight turnover increased by 2,489.0 million tkm and the average transport distance increased by 4.5 km to 260.3 km.

5051

4.8 Major events

January

February

March

April

May

June

X Modern, ultra–lightweight drone „Bielik” fitted with cameras that are even better than those of its predecessors

begins the patrolling of railway tracks and land for PKP CARGO. In 2016, thanks to the use of a fleet of unmanned

aircraft, the largest Polish rail operator reduced thefts of transported cargo by nearly 50%. The new acquisition

will allow the Company to take even better care of the security of supplies and railway infrastructure.

X PKP LHS and PKP CARGO tighten cooperation on the New Silk Road. Joint international consignment note

and an increase of transshipment operations at the Euroterminal in Sławków are the main goals of the coopera

tion, which will allow them to make a better use of the potential presented by the New Silk Road.

X Reactivated rolling stock repair points (PUTs) repair PKP CARGO’s rolling stock again. The PUTs in the Compa

ny’s Southern Unit, which were earmarked for liquidation in 2014–15 successfully carry out their maintenance

work. In the period from January 2016 to March 2017, the PUTs in Jasło, Stróże and Nowy Sącz performed in total

1,841 current repairs, 755 P1 inspections, 198 P2 inspections and six P3 inspections of locomotives as well as

8,095 current repairs, 442 P3 inspections and 74 overhauls of carriages. This contributed to an increase

of the Company’s rolling stock availability last year and in this year’s transport process.

X PKP CARGO achieves a significant success as an issuer and a public company listed on the Warsaw Stock Exchange.

It was awarded the prestigious title “Transparent Company of the Year 2016” for high quality of market communica

tion and fulfillment of information and reporting duties.

X PKP CARGO S.A. enters into another major contract for the transport of coal for Enea Wytwarzanie. The largest

railway operator in Poland submitted the best offer in a tender to transport coal from Lubelski Węgiel “Bogdanka”

to the Kozienice Power Plant. Under the new contract, PKP CARGO will transport 5.3 million tons of coal

over a period of 14 months.

X As every year on Children’s Day, the “Summer with Steam Locomotives”, a series of events connected

with the historic railway organized by PKP CARGO, began. Through the „Summer with Steam Locomotives”,

PKP CARGO, Poland’s largest rail operator and patron of monuments of railway technology, popularizes

the history of railway among children and young people and provides access to railway monuments. Meetings

within this program have been organized for several years in various places across Poland. In 2017, thousands

of people visited the PKP CARGO’s Open–Air Museum of Rolling Stock in Chabówka and the “Wolsztyn Locomo

tive Depot” Cultural Institution, as well as the steam locomotive depots in Jarocin and Skierniewice cooperating

with the Company and the Museum Station in Warsaw (former Railway Museum). X PKP CARGO reached a salary agreement with the social side, under which salaries of the Company’s employees

increased as of 1 September this year. By the end of 2017, the amount of PLN 26.7 million was allocated for salary

increases. X PKP CARGO signed one of the largest contracts in its history worth nearly PLN 1.3 billion with ArcelorMittal Group

to continue the provision of services for ArcelorMittal Group. The carrier will carry out transports for the world’s

leading steel producer over the next three years. Under the contract, by the end of June 2020, the Company

will carry out transports of coal, coke, iron ore, stone and metals in favor of the ArcelorMittal Group (ArcelorMittal

Poland S.A., ArcelorMittal Warszawa Sp. z o.o. and ArcelorMittal Ostrava a.s).

July

September

October

December

X PKP CARGO and Port of Gdańsk signed the memorandum of collaboration with the Romanian rail operator

CFR Marfa and Port of Konstanca as part of the Three Seas Initiative. It is another project that activates economic

activities on the North–South Europe axis. X The PKP CARGO Group launched the production of wheel sets in the Rolling Stock Repair Plant PKP CARGOTABOR

in Zduńska Wola–Karsznice. A modern production and repair line for carriage wheel sets has been launched,

as the technical condition of wheel sets has a direct impact on the safety of train traffic. This investment project

is quite important for the process of renewing the PKP CARGO Group’s rolling stock and adapting it to the new

EU requirements.

X PKP CARGO has prepared a birthday surprise for railway enthusiasts on the 16th anniversary of its establishment.

An ET42–029 locomotive was presented painted in historical colors. The oldest unit in this series, the ET42–001 loco

motive, will also be shown. So far, the Company has repainted the following locomotives in accordance with their

historical colors: ET41–001, ET42–001, ET22–003 i 233, EU07–195, ST44–1103, SP42–260, SM30–211, SM42–1006, SU46–47.

X More efficient freight transport and significant improvement of rail traffic safety – those are the key goals

of the project as part of the agreement signed by CARGOTOR Sp. z o.o. (PKP CARGO Group) i SYSTRA S.A. to prepare

a feasibility study and building design for the Małaszewicze Transshipment Area. The agreement is performed

as part of the project 2015–PL–TM–0037–S entitled „Rail infrastructure upgrade in the Małaszewicze Transshipment

Area in Corridor 8 of cargo lines at the EU border with Belarus” co–funded by the Connecting Europe Facility (CEF).

The co–funding level is 85% and the contractor has 670 days to carry out the task.

X PKP CARGO signs a contract with Tauron Wydobycie for the transportation of 11 million tons of coal in 2018–2019

for the total gross amount of PLN 227 million. It is yet another large coal tender won by Poland’s largest freight

carrier. X PKP CARGO S.A. signed a contract with Knorr–Bremse Systemy Kolejowe Polska Sp. z o.o. for deliveries

of LL composite brake blocks (low friction) for installation in the freight carriages used. This way PKP CARGO

is gradually adjusting its rolling stock to the future EU interoperability requirements and limits the impact of noise

on the environment. X PKP CARGO and PKP CARGO Centrum Logistyczne Małaszewicze Sp. z o.o., submitted their applications to the Center

for EU Transport Projects (CUPT) for co–funding of a total of three intermodal projects under OPI&E 2014–2020.

The projects pertain to purchases of specialized rolling stock and modernization and expansion of the container

terminal as well as purchase of equipment.

PKP

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PKP

Inte

rcity

Management Board

5.2 Management and Supervisory BodiesPKP Intercity S.A. (hereinafter: PKP Intercity)

is the biggest passenger transport operator

in Poland, offering domestic and interna

tional long–distance transport. The Company

started its operations on 1 September

2001 following a spin–off from the struc

tures of Polskie Koleje Państwowe S.A.

Initially, the Company focused its activity

on the unsubsidized segment of railway

transport, to expand its offering over time

by introducing the Tanie Linie Kolejowe

(Cheap Railway Lines) category, subse

quently renamed to Twoje Linie Kolejowe

(TLK, Your Railway Lines). In 2008, PKP Inter

city acquired from PKP Przewozy Regionalne

Sp. z o.o. an organized part of the enterprise

operating inter–provincial fast trains. In

2014, the Company’s offering expanded to

include: the Intercity (IC) brand and Express

Intercity Premium (EIP), its flagship product.

Currently, the Company provides transport

services on the qualified passenger trans

port market, in both domestic and interna

tional transport.

The Company’s domestic offer is based

on the following products: X Express InterCity Premium (EIP)

– since 14 December 2014, the exclu

sive Pendolino trains run regularly

on the routes connecting Poland’s largest

cities (i.e. Warsaw, Wroclaw, Krakow,

Katowice and Gdańsk Tricity), a category

operated by 20 Pendolino trains; X Express InterCity (EIC) – consisting

of comfortable trains composed

of contemporary carriages. Until

the implementation of the EIP segment,

the EIC class trains were the fastest

and most comfortable train sets

operating in the Polish railway network

between large city centers;

www.intercity.pl


5PKP Intercity is Poland’s largest railway operator specializing in domestic and international long–distance transport. PKP Intercity’s trains operate mainly between large cities and transport passengers to popular tourist spots. The Company also offers comfortable transport to large European cities.The Company’s motto is „Partner in Your Journey” and its mission is to ensure safe, comfortable and timely travel to its customers.

PKP Intercity




Jarosław Oniszczuk

Artur Resmer

Marek Chraniuk

Supervisory Board Chairman

Tomasz Buczyński

Maria Sędek

Krzysztof Piotr Ciećka

Maciej Gustaw Zaborowski

Krzysztof Mamiński

JarosławGołębiewski

Marek Chraniuk President of the Management Board

X InterCity (IC) – the brand founded

in November 2014 offering travel

in contemporary fast trains. It offers

new FLIRT3 and PesaDART multiple units

and trains composed of modernized

carriages. Their purchase was financed

with EU funds;

X Twoje Linie Kolejowe (TLK) – an economy

brand. It is a well–developed, nation

wide network of day and night long–

distance routes in the economy segment

connecting hundreds of towns in Poland

(including tourist resorts and academic

centres).

The European routes are served

by EuroNight, EuroCity trains

and international fast trains.

Supervisory Board

Foto

: PKP

Inte

rcity

5455

PKP

Inte

rcity

5.3 Finance In 2017, the dynamic growth of PKP Intercity’s

revenues, coupled with a lower increase

in corresponding operating expenses,

contributed to the rise in the gross sales

result by PLN 115.5 million. The revenues

were affected mainly by an increase

in the number of passengers by 11.2% y/y

and an increase in subsidies for interpro

vincial transport. The moderate increase

in operating expenses resulted from

the expansion of the commercial offering,

including higher operational performance.

The Company’s 2017 result was also

materially influenced by the result on other

operating activities also had a significant

influence, since it included compensation

from ALSTOM for delays in the delivery

of Pendolino units. In 2017, EBITDA increased

by PLN 279.8 million y/y.


Structure of sales revenues in 2016–2017 (in million PLN)


2017–2016 %




Gross sales profit margin 1.9% 6.1% 4.2 p.p. –

Other operating income 154.4 320.1 165.7 107.3%



EBIT 148.4 430.5 282.1 190.1%

EBITDA 486.5 766.3 279.8 57.5%

EBITDA Margin 19.6% 28.7% 9.1 p.p. –

Finance income 22.3 36.2 13.9 62.3%

Finance costs 104.5 101.4 –3.1 –3.0%



Income tax 17.8 57.4 39.6 222.5%

Net profit (loss) 48.4 307.9 259.5 536.2%

Net profitability 1.9% 11.5% 9.6 p.p. –


2017–2016 %

Total sales revenues 2,482.7 2,667.0 184.3 7.4%

Domestic trains 1,478.3 1,614.1 135.8 9.2%

Tickets 1,405.4 1,534.7 129.3 9.2%

Additional charges (reserved–seat tickets, WL, BC etc.) 25.1 24.9 –0.2 –0.8%

Luggage, rail mail, conductor deliveries 3.9 4.1 0.2 5.1%

Railway travel benefits 40.0 41.4 1.4 3.5%

Other transport revenue 3.9 9.0 5.1 130.8%

International trains 157.3 150.0 –7.3 –4.6%

Tickets 54.6 54.9 0.3 0.5%

Additional charges (reserved–seat tickets, WL, BC etc.) 38.0 32.7 –5.3 –13.9%

Operation of carriages 64.7 62.4 –2.3 –3.6%

Subsidies 800.6 838.2 37.6 4.7%

Statutory subsidy 262.6 281.6 19.0 7.2%

Subsidy for international trains 15.0 11.0 –4.0 –26.7%

Subsidy for interprovincial trains 523.0 545.6 22.6 4.3%

Revenues owed to third party operators 4.7 4.5 –0.2 –4.3%

Other revenues 39.6 57.5 17.9 45.2%

Sales of goods and materials 2.2 2.7 0.5 22.7%

In 2017, the Company generated sales

revenues of PLN 2,667.0 million, which were

PLN 184.3 million (or 7.4%) higher than

in 2016. The growth applied to revenues

from domestic transport, subsidies received

and other revenues. Higher revenues

from domestic ticket sales and from a

statutory subsidy (revenue on account

of statutory ticket discounts financed

by the State) were caused by a signifi

cant increase in passengers in domestic

transport by as many as 4.3 million

passengers y/y. On the other hand, higher

subsidies for international transport in

2017 allowed the Company to extend the

commercial offer on subsidised trains.

Lower revenues from international trains

were caused by a decrease in revenues on

account of additional fees and operation of

carriages.


to PLN 2,503.3 million and were

PLN 68.8 million (or 2.8%) higher than

in 2016. The increase in operating expenses

resulted from higher operational perfor

mance.

Higher operating expenses included

mainly higher costs of materials

and energy consumption (higher level

of work performed in the electric traction

and higher costs of materials), external

services (higher costs of repairs as a result

of an increase in the number of repairs,

IT services and replacement communica

tion as a result of closing the railway lines),

taxes and charges and labor costs (increase

in employment as a result of an increase

in the commercial offer, as well as

an increase in the level of salaries)

with lower depreciation costs (recogni

tion of depreciation higher than capital

expenditures incurred), other costs by kind

(lower marketing costs) and sales of goods

and materials.

The result on other operating activities

in 2017 was PLN 266.8 million, increasing

by PLN 166.6 million in comparison with

2016. The result at this level was also

materially influenced by the recognition

of compensation from ALSTOM for delays

in the delivery of Pendolino units.

The Company additionally earned higher

revenues from settlement of subsidies

to rolling stock projects and on the revalua

tion of non–financial assets. Other operating

expenses include higher revaluation costs

of non–financial assets and lower other

operating expenses.

At the financial activity level, the Company

earned higher interest income and recog

nized positive exchange rate differences

with lower interest expense on financial

liabilities.

The 2017 net profit amounted

to PLN 307.9 million and was


56PK

P In

terc

ity



2017–2018 %




Energy (including traction energy) 383.2 394.0 10.8 2.8%

Materials 61.1 78.9 17.8 29.1%


Access to railway routes 493.9 497.0 3.1 0.6%

Repair services 277.0 294.0 17.0 6.1%


Payroll 451.9 475.1 23.2 5.1%




Structure of operating expenses in 2016–2017 (%):

5.4 Assets At the end of 2017, the Company’s non–current assets amounted to PLN 5,824.0 million and were PLN 127.3 million lower than the year before.

Value of non–current assets in 2016–2017 (in million PLN)

Item 31.12.2016 31.12.2017Change

2017–2016 %



II. Property, plant and equipment, including: 5,827.7 5,682.0 –145.7 –2.5%


a. Land 94.6 93.3 –1.3 –1.4%


320.3 306.1 –14.2 –4.4%


d. Means of transport 5,374.2 5,231.8 –142.4 –2.6%

e. Other fixed assets 1.0 1.3 0.3 30.0%

2. Fixed assets under construction 14.2 26.3 12.1 85.2%

3. Advance payments for fixed assets under con-struction

0.0 0.0 0.0 –

57

At the end of 2017, the value of PKP Inter

city’s property, plant and equipment was

PLN 5,655.7 million, or PLN 157.8 million less

than at the end of 2016. The decline in value

was caused mainly by the recognition

of the depreciation and amortization

charges that were higher than the capital

expenditures.

Means of transport were the main

item in the structure of non–current

assets (89.8%). As at 31 December

2017, the Company had 367 locomo

tives (including five diesel locomo

tives leased from ČD [Czech Railways],

74 electric multiple units (20 ED250

units, 20 ED160 units, 20 ED161 units and

14 ED74 units), 2,292 passenger carriages,

4 historic carriages and 27 pairs of

broad–gauge bogies for sleeping carriages

used on international routes to Eastern

2017

Other1,5%



External services

43,1%

Payroll23,1%

2016

Other1,8%



External services

43,3%

Payroll22,7%

European countries. 698 carriages were

air–conditioned, which is 16 carriages

more than at the end of 2016. The majority

of the carriages, that is 467 and 1,457,

respectively, were 1st class and 2nd class

carriages. Others were mainly special–

purpose carriages.

In 2017, no contributions–in–kind were

made to the Company, which, in addition to

depreciation charges, caused a reduction

in the value of buildings, premises and civil

and water engineering structures. Currently,

the Company is implementing a compre

hensive plan to modernize its railway

station depots, which will affect the gross

value of its assets in the future.

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In 2017, the Company incurred capital expenditures of PLN 195.7 million, which was 145.7 higher than in 2016. Capital expenditures included mainly the purchase and modernization of rolling stock, investment construction activity.

List of capital expenditures incurred by the Company in 2016–2017 (in million PLN)


2017–2016 %


Modernization of rolling stock 25.6 168.3 142.7 557.4%

Purchase of rolling stock 0.0 0.0 0.0 x

Purchase of machinery and equipment 9.6 4.0 –5.6 –58.3%

Other 1.0 3.1 2.1 210.0%



2017–2016 %

Passenger transport (million people) 38.5 42.8 4.3 11.2%

Transport performance (million pkm) 9,466.3 10,391.1 924.8 9.8%

Operational performance (million train–km) 57.6 58.6 1.0 1.7%

Operational performance (million gross tkm hauled) 18,036.8 18,648.7 0.6 3.3%

Number of trains in use (thousand units) 128.8 133.2 4.4 3.4%

Item

Average employmentin the 12–month period (FTEs) Change

2016 2017 2017–2016 %

Total employment 7,723 7,851 128 1.7%

The modernization of traction vehicles

in 2017 included 36 EU/EP07 locomotives. In

the case of passenger carriages, the modern

ization covered 13 type 144A carriages,

16 type 111A carriages to wagons suitable for

the transport of bicycles, 10 type 144A and

145A carriages to food service carriages and

three Z1A carriages to food service carriages.

Within investment construction activity,

the Company completed the investments

in railway station depots, in order

to standardise and facilitate the train

operation and cleaning processes,

among others an upgrade of rail

and storage infrastructure in the Central

Unit in Grochów and rail infrastructure

in the Southern Unit in Krakow, extension

of a station in the Northern Unit in Olsztyn,

or modernization of the locomotive

and carriage depot in the Western Unit

in Wrocław.

In 2017, PKP Intercity carried 42.8 million

passengers, up by 4.3 million, or 11.2%,

from 2016. The increase in the number

of passengers contributed to a 9.8%

improvement in transport performance,

which rose much quicker than operational

performance expressed in brtkm by 3.3%.

If transport performance increases faster

than operational performance, this means

that the increase in the offering has been

welcome by passengers.

Competitiveness of railway in relation

to other means of transport is the key

factor that decides how attractive railway

transport is and how many passengers

are transported. In recent years, a thorough

modernisation of railway infrastructure

contributed to significantly shorter

travel times on the majority of railway

routes. The Company is expected

to improve its transport offering

in the future as modernized railway routes

are commissioned and investments in new

or modernized rolling stock are carried out.

Transport activity statistics in 2016–2017

5.7 Employment

5.6 Passenger transport

As at 31 December 2017, the Company

employed 7,952 people, which was 85 more

than at the end of 2016. In 2017, the number

of employees in the 26–35 age group

increased by 97, in the under 25 age group

by 21 people, in the above 55 age group

by 83 people. At the same time, the number

of workers in the 36–55 age group fell by 116.

The increase in employment occurred

in the Western Unit, Northern Unit

and in the Company’s Headquarters.

The growing employment results from

an increase in operational performance,

since the expanded offering requires

the company to ensure adequate staff

to service passengers.

Average employment in PKP Intercity in 2016–2017

5.5 Investments

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Structure of employment by age in 2016–2017 (%)



2017–2016 %

<25 490 511 21 4.3%

26–35 1,472 1,569 97 6.6%

36–45 1,617 1,588 –29 –1.8%

46–55 2,812 2,725 –87 –3.1%

>55 1,476 1,559 83 5.6%

Total employment 7,867 7,952 85 1.1%


2017–2016 %


Subsidy for international trains 15.0 11.0 –4.0 –26.7%

Subsidy for interprovincial trains 523.0 545.6 22.6 4.3%

Total 800.6 838.2 37.6 4.7%

Co–funding received by the Company in 2016–2017 (in million PLN)

In 2017, PKP Intercity received a statutory

subsidy to compensate for the revenue lost

in connection with statutory ticket discounts,

in the amount of PLN 281.6 million, that is

PLN 19.0 million more than in 2016.

In 2017, under the contract for the provision

of public services in respect to interprovin

cial passenger rail services, the Company

performed operational performance

at the level of 43.9 million train–kilom

eters, carrying 34.7 million passengers

and received co–funding in the amount


On the other hand, under the contract

for the provision of public services

for international passenger rail services,

PKP Intercity performed operational

performance of 2.9 million train–km, carried

1.9 million passengers and received funding


201746-55 years

34,3%

> 55 years19,6% < 25 years

6,4%

26-35 years19,7%

36-45 years20,0%

201646-55 years

35,7%

> 55 years18,8% < 25 years

6,2%

26-35 years18,7%

36-45 years20,6%

5.8 Co–funding

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5.9 Major events

March

November

December

April

August

September

October

July

June

X One transaction, many discounts. PKP Intercity passengers buying tickets online may benefit from several

discounts in a single transaction. X Rating upgrade. Fitch Rating raised the long–term rating for PKP Intercity in domestic and foreign currency to BBB+.

The long–term country rating was also upgraded, from A+ to AA, and the rating outlook is stable.

X Superbrand. PKP Intercity wins two titles in the “Travel: Superbrands 2016/17“ and “Created in Poland Superbrands

2016/17” categories. The distinctions are given to brands that are most trusted by consumers. X New connection with the Southern neighbour. The Company expanded its network of connections to the Czech

Republic. Travelers from Krakow and Prague obtain a new seasonal train IC “Cracovia”.

X “Traveling with PKP Intercity” launched. A reboot of the passenger magazine. “Traveling with PKP Intercity” provides

the passengers with useful knowledge about PKP Intercity’s offering and interesting places that they can reach

using the Company’s trains. X New connection with Ukraine. Passengers are now able to travel to Kovel. A joint train of PKP Intercity and Ukrainian

Railways runs daily.

X New number of the call center. The new phone number of the PKP Intercity Hotline was launched.

Details of a timetable, offers or travel planning with a disabled person may be obtained by calling 703 200 200. X Together in Poland! PKP Intercity and POLREGIO prepare a joint offer that allows passengers to take an unlimited

number of weekend trips in trains of both operators.

X New ticket offer named Promo. Another pool of low–price tickets introduced into the sales system. The new Promo

offer focused on advanced sales allows passengers to reduce the cost of travel by express trains by up to 55%. X One more train to Ukraine. A new route Przemyśl – Kiev through Ternopil and Vinnytsia is introduced in the time

table. At the same time, the route of the Chełm to Kovel train was extended to Zdolbuniv. Thanks to convenient

access connections, passengers from Warsaw, Wroclaw or Krakow may access this route.

X “National Reading” on board. For the second time PKP Intercity joined the “National Reading” campaign organized

by the President of Poland. This time, “Wesele” was read in the train codename IC “Wyspiański”. X Traveler’s Package Passengers can now purchase tickets for trains operated by three different carriers: PKP Intercity,

POLREGIO and PKP SKM in the Gdańsk Tri–City on a single form in any location in Poland. X Record–Breaking Vacation From June to the end of August, the number of passengers using services provided

by PKP Intercity increased by more than 1.3 million as compared to the Summer of 2016. Those are the best

summer holidays in seven years, in terms of passengers carried. X Locomotives of the future. PKP Intercity, Pojazdy Szynowe PESA Bydgoszcz and Instytut Pojazdów Szynowych “Tabor”

signed a research and development cooperation agreement for developing a design of a dual mode locomotive.

It will be the first Polish design of this type.

X For disabled passengers. Precise procedures were introduced for organizing travel of disabled passengers.

A search engine was placed on the website that incorporates search of trains adapted to the needs of the disabled

and a tab with the necessary information.

X IC gets a medal. PKP Intercity receives the Friend of Integration Medal. X Transfer tickets on the Internet. The intercity.pl website may be used to purchase transfer connection tickets.

The nightly interruption in the operation of the Web Sales System was also shortened. X Demand for train tickets – also on the website. Traveler purchasing their tickets on the intercity.pl website

can now check the demand for tickets on specific trains and select less busy connections.

X Remtrak – end of stage II. Opening celebration of a production hall with specialist workshops of Zakład Usług

Taborowych Remtrak (Rolling Stock Services Unit) in Idzikowice. This is a result of completion of the 2nd stage

of modernization of PKP IC’s technical infrastructure. The capital expenditures amounted to PLN 9 million. X Large Investments Railways. PKP Intercity updates its rolling stock strategy for years 2016–2020 with an outlook

to 2023. The company will spend more than PLN 7 billion on rolling stock upgrades and purchases.

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PKP Linia Hutnicza Szerokotorowa Sp. z o.o.

(hereinafter: PKP LHS) started its operation

on 1 July 2001 by the power of the Founding

Act. Since its inception, the Company’s line

of business is management of the broad–

gauge LHS line infrastructure, including

railway station infrastructure, buildings

and structures located along railway line 65;

freight transport performed under traction

services and provision of additional services

related to freight transport.

The Company manages the infrastruc

ture 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 trans

port. It connects the Polish–Ukrainian

Hrubieszów/Izov rail border crossing

with Sławków in Silesia and is nearly

400 km long.

6 PKP Linia Hutnicza Szerokotorowa



Management Board

PKP LHS is an integrated company acting as manager of railway line 65 and an a freight operator on that line, satisfying the transportation needs of the South–Eastern Poland. The LHS line 65 is the longest broad–gauge railway line in Poland used for freight transport.The company offers a comprehensive door–to–door freight forwarding and logistics service without the need of transshipment on the Poland–Ukraine border, capable of carrying heavy whole–train loads.

www.lhs.com.pl

Zbigniew Tracichleb President of the Management Board




Dariusz Sikora

Andrzej Skiba

Zbigniew Tracichleb

Chairman

Krzysztof Litwin

Konrad Bareja

KrzysztofKrupa

Aleksandra Adamska

MirosławAntonowicz

Supervisory Board

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6.3 Finance In 2017, the Company posted net profit of PLN 54.7 million, which was PLN 17.5 million less than in 2016.



2017–2016 %


Operating expenses 308.6 323.1 14.5 4.7%

Gross sales profit 84.6 72.3 –12.3 –14.5%

Gross sales profit margin 21.5% 18.3% –3.2 p.p. –

Other operating income 1.9 2.0 0.1 5.3%


Profit (loss) on other operating activities –3.2 –4.4 –1.2 –

EBIT 81.4 67.9 –13.5 –16.6%

EBITDA 129.6 115.8 –13.8 –10.6%

EBITDA Margin 33.0% 29.3% –3.7 p.p. –

Finance income 5.7 1.6 –4.1 –71.9%

Finance costs 1.3 1.5 0.2 15.4%

Profit (loss) on financial activities 4.4 0.1 –4.3 –97.7%

Profit (loss) before tax 85.8 68.0 –17.8 –20.7%

Income tax 13.6 13.4 –0.2 –1.5%

Net profit (loss) 72.2 54.7 –17.5 –24.2%

Net profitability 18.4% 13.8% –4.6 p.p. –


2017–2016 %

Total operating expenses 308.6 323.1 14.5 4.7%



External services 80.6 103.5 22.9 28.4%


Payroll 72.2 75.1 2.9 4.0%




In 2017, PKP LHS posted sales revenues

of PLN 395.4 million, up by 2.2 million from

the previous year. Transport revenues

at 91.9% were the main contributor

to the Company’s revenues. Their reduction,

even though the freight volume increased,

was caused by a change in the structure

of transported goods – more cargo trans

ported on shorter distances implied lower

average revenue per ton of cargo. Other

revenues represented 8.1% of net revenues

and consisted mainly of freight forwarding,

lease of properties to other entities, income

earned by the Customs Agency and the sale

of scrap metal and waste.

Operating expenses amounted

to PLN 323.1 million and were


The increase in expenses was driven

by the higher scope of renovation

(higher expenses of infrastructure

repairs). The increased salary costs were

caused by growth in average headcount,

introduction of a promotion campaign,

higher cost of jubilee awards and higher

costs of retirement and disability severance

benefits. On the other hand, lower costs of

materials and energy consumption were

related mainly to renovation materials

as a result of a change in the way repairs

are effected (materials purchased

by the contractor).


Structure of operating expenses in 2016–2017

In 2017, the Company posted a result on

other operating activities that was PLN 1.2

million lower, mainly because of the higher

expenses on other operating activities

resulting from a donation made to the

Polish National Foundation.

The PLN 4.3 million decrease in the result

on financial activities compared to 2016

was driven by a PLN 4.1 million reduction

in finance income, primarily through

revaluation of non–current investments held

by the Company.

Materials and energy

consumption26.4%

2016

Depreciationand amortization15.6%

Payroll29.1%

Other costs2.8%

External services26.1%


consumption21.5%

2017


Payroll29.0%

Other costs2.7%


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6.4 Assets

At the end of 2017, the value of property,

plant and equipment was PLN 500.6 million,

or PLN 50.3 million more than at the end

of the previous year. The increase

in the value of assets was caused by the fact

that capital expenditures were higher than

depreciation charges.

The Company conducts its operations using

its fixed assets: regular and shunting diesel

locomotives, carriages, carriage bogies,

other machinery and equipment and railway

line 65 including its entire accompanying

infrastructure (train stations, passing loops,

buildings and structures). The Company’s

non–current assets were contributed

by PKP S.A. as contributions–in–kind, built

by the Company as a result of its investment

expenditures or are used under a lease

agreement signed with PKP S.A.

At the end of 2017, the Company had

77 diesel locomotives, 96 carriages,

50 broad gauge bogies and 168 standard

gauge carriage bogies. Locomotives were

used for both line and shunting operations.

The average age of line locomotives was

38 years and shunting locomotives

– 41 years. Covered carriages and other flat

carriages constituted equipment of rescue

trains, trackwork machinery sets and cranes.

In turn, the bogies were required to perform

the core operations, i.e. transport of goods

in a no–transshipment gauge switching

situation. The Company transported freight

in carriages that it did not own.

Property, plant and equipment in 2016–2017 (in million PLN)

Item 31.12.2015 31.12.2016Change

2016–2015 %

I. Property, plant and equipment 450.3 500.6 50.3 11.2%


a. Land 7.2 17.8 10.6 147.2%


302.6 287.8 –14.8 –4.9%


d. Means of transport 113.3 98.1 –15.2 –13.4%





2017–2016 %


Modernization of railway stations 10.1 39.0 28.9 286.1%

Modernization of workshop facilities 2.1 3.4 1.3 61.9%

Modernization of rolling stock 0.0 34.1 34.1 –

Purchase of rolling stock 0.0 0.0 0.0 –

Other investments 3.3 3.1 –0.2 –6.1%

6.5 Investments

In 2017, the Company incurred capital

expenditures of PLN 79.6 million, which

included mainly the commencement of

modernization of ten ST44 series loco

motives to ST40s series, installation of

computer hardware at the Sławków station,

expansion of the Local Control Center

at the Zamość Brotatycze station and

construction of a fiber–optic cable between

the Company’s headquarters and the

Zwierzyniec LHS passing loop. For 2018, the

Company is planning further investment

projects aimed at developing transshipment

stations, automating line 65 by installing

traffic control (SRK) devices, improving

the technical condition of the rolling stock

and investment expenditures to improve

safety of train traffic on the LHS line.


6.6 Employment

At the end of 2017, PKP LHS employed

1,283 people, or 24 more than at the end

of 2016. The decrease in the number of staff

was due to the staff leaving for retirement.

More than 30% of the Company’s employees

are above 55 and another 30% are aged

46–55. This situation implies a danger that

a large group of employees may soon retire

or go on a disability leave and the Company

may lose its key competence. In order to

prevent this, the Company tries to hire

and train new employees in a way that

would enable seamless generational

replacement.

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In 2017, PKP LHS transported 10.1 million

tons of cargo, 0.1 million tons (or 1.0%) more

than in 2016. At the same time, transport

performance decreased by 215.5 million tkm

and operational performance by 0.1 million

train–km. The decline in transport perfor

mance resulted from a decrease in average

transport distance, which in 2017 was

309.7 km, 7.5% shorter than in the previous

year.

The increase in the weight of transported

goods was related mainly to the transport

of coal and raw and processed minerals.

On the other hand, the transport of iron ore,

oil derivatives and coke fell.

List of transport indices in 2016–2017


2017–2016 %

Freight transport (million tons) 10.0 10.1 0.1 1.0%

Freight turnover (million tkm) 3,332.5 3,117.0 –215.5 –6.5%

Operational performance (million train–km) 2.0 1.9 –0.1 –5.0%

Average transport distance (km) 334.8 309.7 –25.1 –7.5%

6.8 Major events

6.7 Freight transport

January X A 3% increase in transport in PKP LHS. In 2016, PKP Linia Hutnicza Szerokotorowa transported 9 million 955 thou

sand tons of goods. This is growth of 3% compared to the Company’s performance in 2015.

X PKP LHS and PKP CARGO tighten cooperation on the New Silk Road. The main goals of PKP LHS and PKP CARGO

include a joint international consignment note and elevated transshipment at the Euroterminal in Sławków;

they will allow them to make a better use of the potential presented by the New Silk Road.

X In March 2017, an agreement was signed to design and build a fiber–optic cable and telecommunication cable

on a 260–kiometer railway line route from the Zwierzyniec passing loop to the Sławków LHS Control Station.

Those are the main elements of an investment project to be executed by PKP Budownictwo. X PKP LHS sp. z o.o. in Zamość signed a cooperation agreement with Belintertrans, a Belarusian freight forwarding

company, thus creating an opportunity for its clients to transport freight from Russia through Belarus and then

over a small section through Ukraine to the entry station of Hrubieszów Granica on the LHS line. These plans

are a response to expectations of the Company’s clients, who are interested in developing transports from Russia

to Poland and to Western Europe without a need for transshipment of freight from 1520mm gauge carriages

to 1435mm gauge carriages on the border with the European Union.

X PKP LHS and the Ukrainian Railways signed a letter of intent defining the areas of cooperation in the electrification

of the Ukrainian section of the Kovel–Izov section and development of infrastructure up to the border with Poland

and in the electrification of the railway line on the Polish side to the Hrubieszów LHS station. The agreement call

far, among others, an exchange of experience and scientific and technical knowledge in this respect and coopera

tion in electrifying other joint projects.

May

October

June

July

September

December

X During the European Economic Congress in Katowice, the Management Board of PKP LHS presents the opportu

nities for developing trade over the TMTM route, which is one of the branches of the New Silk Road. This route

facilitates freight transport by rail from China to Western Europe. Thanks to the modernization of the LHS line and

potential offered by the Euroterminal in Sławków, which is the westernmost point of the broad gauge railway line in

Europe, Poland and Silesia region in particular may benefit from increased trading exchange.

X PKP LHS takes part in the 15th International Transport Week in Odessa, Ukraine. X PKP LHS becomes a new member of the TMTM organization. On 14 June 2017 in Astana (Kazakhstan),

the Shareholder Meeting of the TMTM Association of Legal Entities accepted PKP Linia Hutnicza Szerokotorowa

as a new associate member. The meeting of the organization promoting the New Silk Road was attended by more

than 80 representatives of railways, ports and transport companies from Kazakhstan, Azerbaijan, Georgia, Ukraine,

China, Turkey, Latvia, Lithuania, Romania, Bulgaria, Moldova and Poland. X The strategic cooperation document between Polish and Azerbaijan railways was signed on 27 June in the Presi

dential Palace in Warsaw, in the presence of Andrzej Duda, President of Poland and Ilham Alijev, President of Azer

baijan. The agreement was signed by Javid Gurbanov, President of the Azerbaijan Railways and Krzysztof Mamiński,

President of PKP S.A.

X PKP LHS signed in Zamość an agreement for renovation of track surface of the broad gauge line with the total

length of more than 70 km of tracks. The goal is to maintain an appropriate technical condition of the tracks,

ensure safety of transport, improve throughput and prevent excessive noise emission. X On 26 July 2017, PKP LHS and NEWAG S.A. signed an agreement to modernize 10 ST 44 diesel locomotives.

X PKP LHS organized the 1st Economic Railway Forum in Krakow. The meeting was attended by representatives

of transport and forwarding companies from Central Asia and Eastern Europe. They discussed the possibility

of rerouting some of the containers from the Far East maritime route to the intermodal route leading from Iran

and India, through Azerbaijan, Georgia and Ukraine to Silesia, to Sławków, which is the westernmost point

of the broad gauge line in Central Europe. The event was organized under the patronage of the Minister

of Infrastructure and Construction and PKP S.A. X PKP LHS took part in the International Railway Fair TRAKO in Gdańsk, where it presented the alternative versions

of the New Silk Road: from China through Kazakhstan and Caspian Sea and from Iran and India and then through

Azerbaijan, Georgia, Black Sea and Ukraine to Sławków in Silesia, which is the westernmost point of the broad

gauge line in Central Europe.

X As part of the „ECO–logic” employee volunteerism program at PKP LHS, the 6th cleaning campaign of the Roztocze

National Park was held on 7 October 2017. X The authorities in Sosnowiec, Sławków, Special Economic Zone in Katowice, PKP LHS, Euroterminal Sławków

and companies operating in the neighborhood of the logistics center signed a letter of intent to modernize

the road infrastructure in Sławków. The goal is to improve the safety of local road traffic, ensure modern road

infrastructure and use the development opportunity offered by the New Silk Road and the railway corridor

from Asia to Poland. X PKP LHS Transshipment Terminal in Szczebrzeszyn receives the international GMP+ certificate. The certificate

is awarded by LGA InterCert in Nuremberg and confirms compliance with strict procedures relating to transship

ment, transport and storage of feeds. The certification audit was conducted by TÜV Rheinland. The certificate

will allow PKP LHS to improve competitiveness of its offer and raise quality of services for target clients.

X On 6 December, during the meeting of the railway transport sub–commission PKP LHS presented information

on the potential and barriers for development of the broad gauge line. The Company announced that it would

prepare analyses of justification and economic viability of the electrification and extension of the broad gauge line.

PKP LHS is also considering increasing its equity commitment to the Euroterminal Sławków company. By 2025,

the company will double its investment up to PLN 800 million.

February

March

April

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PKP Szybka Kolej Miejska w Trojmieście

Sp. z o.o. (hereinafter: PKP SKM) was estab

lished by the power of the Founding Deed

of 22 December 2000. The Company started

its activity as an independent entity on 1 July

2001, taking over the tasks, employees

and property of the liquidated Zakład

Szybkiej Kolei Miejskiej w Trójmieście.

The objective of the Company is to manage

and maintain railway line 250 (Gdańsk

Śródmieście – Rumia with the Gdynia

Cisowa Depot railway station, the Technical

Inspection Post in Wejherowo) and to carry

out passenger transport on the route.

The Company’s line of business also

includes regional railway passenger

the transport in Pomorskie Province,

on railway lines managed by PLK


www.skm.pkp.pl

PKP SKM w Trójmieście manages and administers railway line 250 (Gdańsk Główny–Rumia) and to conducts passenger transport on the route. The Company’s business also includes regional passenger railway transport in the Pomorskie Province on railway lines managed by PLK and Pomorska Kolej Metropolitalna S.A. (hereinafter: PKM).The Company holds a passenger transport license that allows it to conduct the transport business on the entire territory of Poland.

PKP Szybka Kolej Miejska w Trójmieście7 Maciej Lignowski


The Company’s ownership structure changed over the years of its operation; the structure at the end of December 2017 is shown in the chart below:

Pruszcz Gdanski Township1,2%

Rumia Township0,2%

PKP S.A.68,7%

Gdansk Township13,0%

Pomeranian Province Local Government10,5%

Gdynia Township4,2%

Sopot Township2,2%

and Pomorska Kolej Metropolitalna S.A.

(hereinafter: PKM).

PKP SKM holds the licenses granted

by the President of the Office of Rail

Transport for an indefinite term to provide

passenger railway transport services

and to lease traction units. The Company

also has a current safety certificates of a

rail operator, as well as a safety author

ization for a rail infrastructure manager.

It carries out transport on the basis of

and under the agreement signed with

the Local Government of the Pomorskie

Province being the public administration

body responsible for the organization and

financing of regional passenger railway

transport provided as a public service.

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Management Board

Grzegorz Mocarski

Jakub Dziedzic

Jarosław Kiepura

Marek Machnikowski

Henryk Ćwikliński

Arkadiusz Kawecki

Marian Woźniak


Bartłomiej Buczek

Maciej Lignowski

Management Board Member, Transport Director

ChairmanArnoldModrzejewski

PawełWojtkiewicz

7.3 Finance


In 2017, the Company recorded a net profit of PLN 2.6 million, down by PLN 1.7 million from the profit recorded in the previous year.


Item 2016* 2017Change

2017–2016 %

Net sales revenues and equivalents 209.3 204.7 –4.6 –2.2%



Sales margin –4.0% –3.7% +0.3 p.p. –



Profit (loss) on other operating activities 14.5 11.7 –2.8 –19.3%

EBIT 6.1 4.2 –1.9 –31.1%

EBITDA 27.3 25.3 –2.0 –7.3%

EBITDA Margin 13.0% 12.4% –0.6 p.p. –

Finance income 0.8 1.3 0.5 62.5%

Finance costs 1.5 2.0 0.5 33.3%



Income tax 1.1 0.9 –0.2 –18.2%

Net profit (loss) 4.3 2.6 –1.7 –39.5%


In 2017, PKP SKM’s sales revenues amounted

to PLN 204.7 million and were PLN 4.6 million

lower than in the previous year. The decline

was caused mainly by lower revenues from

local government subsidies as a result

of lower operational performance and lower

subsidy rate per train–km. At the same

time, revenues from passenger transport

increased (i.e. from ticket sales and the

statutory subsidy), as a result of an increase

in the number of passengers trans

ported and an increase in ticket prices.

The Company also reported lower other

operating income, among others as a result

of lower revenues from the sale of transport

services of other companies and lower costs

of manufacturing products for own needs.

* Restated data.

Supervisory Board

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2017–2016 %






Payroll 53.2 57.5 4.3 8.1%




Item 31.12.2016 31.12.2017Change

2017–2016 %

I. Property, plant and equipment 448.3 455.7 7.4 1.7%


a. Land, including right of perpetual usufruct 58.2 57.1 –1.1 –1.9%

b. Buildings, premises and civil and water engineering structures 211.7 218.5 6.8 3.2%






to PLN 212.2 million and were PLN 5.5 million

lower than in the previous year.

The decrease in expenses was caused

mainly by lower operational perfor

mance, which contributed to lower costs

of consumption of traction energy, access

to railway lines and lease of train crews

and conductors. The costs of services

and consumption of repair materials, mainly

those related to railway infrastructure,

were also lower.

At the same time, the Company incurred

higher costs of transport services (transport

carried out on the Gdynia Główna – Słupsk

section in consortium with Przewozy

Regionalne) and higher cost of labor, mainly

as a result of an increase in average head

count by 68 FTEs.


In comparison to 2016, the Company

recorded a decrease in other operating

income and expenses, by PLN 5.1 million

and PLN 2.3 million, respectively.

On the income side, the decrease resulted

from lower revenues from penalties

levied on contractors for late perfor

mance of contracts and lower revenues

from the settlement of investment grants

as a result of the settlement in 2016

of outstanding write–offs of investment

grants after an increase of the co–

financing from CUPT to the project entitled

„Development of the Tricity Commuter

Rail Services”. On the other hand, other

operating expenses were lower than those

in 2016 due to the recognition in 2016 of

an impairment charge for receivables on

account of accrued contractual penalties.

Compared to 2016, the Company recorded

an increase in both finance income

and finance costs, as a result of the sale of

receivables on account of fines for traveling

without a ticket.

7.4 Assets At the end of 2017, the value of property,


up by PLN 7.4 million. Compared to

31 December 2016 the increase was

mainly in the value of buildings, premises

and civil and water engineering structures

and the value of fixed assets under

construction. The value of the above balance

sheet items increased as a result of capital

expenditures.



2016Payroll30.5%

Other costs5.1%


consumption21.7%



2017Payroll33.8%

Other costs3.5%


consumption20.6%


PKP SKM conducts its transport activity using

60 electric multiple units of the following

types: EN57, EN71, EW58 and 31WE. At the end

of 2017, the average age of the vehi

cles was about 36 years. The Company

regularly invests in its rolling stock. Under

the „Development of the Tricity Commuter

Rail Services” project, PKP SKM upgraded

22 EN57 electric multiple units (EMUs)

(project carried out in 2013–2014). In 2015,

the Company further equipped the modern

ized vehicles with electric meters to meter

power usage, monitoring and wheelchair

ramps. Two 31WE Signal series EMUs were

also purchased in 2016. In 2017, PKP SKM

submitted an application to CUPT to co–

finance the purchase of 10 new EMUs

and in 2018 a co–financing agreement

for this project was signed for the amount

of PLN 160 million.

The Company manages the electrified

double–track No. 250 Gdańsk Śródmieście –

Rumia railway line under the D55 agreement.

Line 250 includes the Gdynia Cisowa Depot

railway station, the Technical Inspection Post

in Wejherowo and 24 platforms

on 22 stations and passenger stops.

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7.5 Investments

In 2017, PKP SKM incurred capital expendi

tures of PLN 29.9 million, which included

mainly the modernization of railway line

250 (among others, replacement of turnouts

at the Gdynia Główna, Sopot, Gdańsk Oliwa

stations, alteration of a retaining wall,

and modernization of platforms of Gdynia

Chylonia and Rumia Janów stations.

Additionally, the PKP SKM facilities at the

Gdynia Cisowa Depot station, purchase of a

platform for a WM–15 hydraulic track car and

upgrade of the track car.

As part of the investments in the rolling

stock, the EN57 and EN71 series EMUs

underwent upgrades, among others through

installation of the passenger information

system, replacement of door drives.

The implemented projects were financed

with the company’s own funds (42%),

from the Railway Fund (45%) and from

the Regional Operational Programme (14%).



2017–2016 %



Modernization of rolling stock 11.0 1.1 –9.9 –90.0%

Purchase of rolling stock 31.5 2.4 –29.1 –92.4%


Other 0.9 1.2 0.3 33.3%


2017–2016 %

Passenger transport (million people) 41.9 42.3 0.4 1.0%

Transport performance (million pkm) 1,100.0 1,102.1 2.1 0.2%

Operational performance (million train–km) 5.7 5.1 –0.6 –10.5%

Operational performance (million gross tkm hauled) 1,131.4 1,058.9 –72.5 –6.4%

Average transport distance (km) 26.3 26.1 –0.2 –0.8%

7.6 Employment

7.7 Passenger transport

As at 31 December 2017, PKP SKM employed

989 people, 56 more than at the end of 2016.

The increase in the number of employees

in 2017 was driven mainly by the hiring

of the people who in 2016 worked through

temp agencies (mainly ticket controllers

and persons responsible for handling

payment requests). Additionally, as in

previous years, cooperation with County

Labor Offices was undertaken, as a result

of which, among others, 10 train managers

were hired.

In 2017, PKP SKM carried 42.3 million passen

gers, 0.4 million more than in the previous

year. Along with the increase in the number

of passengers, transport performance also

increased, by 2.1 million passenger–kilo

meters. At the same time, operational

performance measured in train–kilometers

decreased (by 10.5%) along with operational

performance measured in million gross

tkm hauled (by 6.4%) and average transport

distance (by 0.8%).

The increase in the passenger trans

port indicator in 2017 was based mainly

on the increased transportation of passen

gers holding periodic tickets with statutory

ticket discounts. It is mainly a result

of the introduction of combined tickets

allowing passengers to travel on SKM trains

and public transport, while metropolitan

tickets were discontinued. Compared to

2016, the number of passengers using

one–trip tickets with commercial discounts

also increased (the increase resulted

from demand for this type of services

in the summer holidays period).

At the same time, the Company launched

additional trains under separate agreements

with organisers of events taking place

in the Tri–City, e.g. Red Bull Air Race 2017,

Open’er Festival 2017, football matches held

at the Energa Stadium in Gdańsk.

List of transport indices in 2016–2017

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7.8 Co–funding PKP SKM receives a local government

subsidy from the Local Government

of the Pomorskie Province for the provision

of public passenger railway transport

services and a statutory subsidy as compen

sation for revenues lost on account of statu

tory ticket discounts.

Co–funding received by the Company in 2016–2017 (in million PLN)


2017–2016 %


Local government subsidy 72.9 60.6 –12.3 –16.9%

Funding from Railway Fund 6.2 13.6 7.4 119.4%

OPI&E subsidy 34.9 0.0 –34.9 –100.0%

RPO subsidy 0.0 4.1 4.1 –

De minimis aid 0.1 0.1 0.0 0.0%

TOTAL 135.0 102.1 –32.9 –24.4%

In addition to the co–funding related

to the provision of transport services,

the Company also received subsidies from

the Railway Fund for projects to modernize

railway lines and from and the European

Union under the Regional Operational

Programme for the Pomorskie Province

for years 2014–2020.

7.9 Major events

January

February

April

May

X On 1 January 2017, a 30% discount for the people whose employer purchased this service at PKP SKM w the Tricity

ceased to apply. X The Company signed an agreement with PLK for the operation of level crossings, inspection of turnouts

and maintenance of engineering facilities on railway line 250. The agreement was concluded for the period

of validity of the 2016/2017 train timetable, i.e. from 11 December 2016 to 9 December 2017. The total net value

of the agreement during its term is PLN 828,733.60.

X As a result of a tender procedure, on 6 February 2017, the Company signed an agreement with Piotr Mieczkowski

Autoryzowana Stacja Obsługi Serwis Pojazdów Szynowych to carry out level 3 (P3) maintenance repair services

of diesel multiple units: SA 136 series (7 units) and SA 133 series (3 units). The net value of the agreement

is PLN 3,515,000. X On 10 February 2017, the Company signed an agreement with Intrum Justitia for the provision of collection services

in favor of PKP SKM w Trójmieście for receivables resulting from fines for traveling without tickets. The net value

of the agreement is EUR 418,000. X Following a tender procedure, on 10 February 2017 the Company signed an agreement with ZPS Sp. z o.o.

for the provision of level 5 (P5) maintenance repair services for WM–15A hydraulic track car and upgrade it

to hydrostatic drive. The net value of the agreement is PLN 1,720,000. X On 14 February 2017, District Court Gdańsk Północ in Gdańsk, the 8th Commercial Division of the National Court

Register registered an increase of the Company’s share capital to PLN 161,719,000. X Following a tender procedure, on 21 February 2017, the Company signed with Zorin Sp. z o.o. an agreement

for gradual supply of door drives and control systems and technical support during the installation in 13 EN57

EMUs and 5 EN71 EMUs. The net value of the agreement is PLN 2,649,918. X On 24 February 2017, an agreement was signed between the State Treasury (Secured Party) and PKP S.A. (Transferor)

terminating the agreement on ownership transfer of shares in a limited liability company for collateral. The value

of shares in PKP Group companies that were subject to ownership transfer to the State Treasury as collateral

for guarantees extended for PKP S.A.’s liabilities, was much higher than the value of the liabilities. The book value

of the transferred assets was PLN 29,632,010.66 and they were transferred by the Secured Party to the Transferor

upon termination of the Ownership Transfer Agreement.

X Ticket prices were raised as of 1 April 2017. The price of single trip tickets increased on average by 6.13%,

monthly by 5.44% and quarterly by 5.27%. X On 18 April 2017, the Company launched ticket sales through a web platform. X On 25 April 2017, PKP SKM signed with the Pomorskie Province (the institution managing the Regional Operational

Programme of the Pomorskie Province for 2014–2020) Agreements no. RPPM.09.02.01–22–0001/16–00 to co–finance

the Project entitled “Construction of an integrated system for monitoring safety and managing information

on railway line 250 and modernization of the Gdynia Glowna Commuter Station building and platforms on railway

line 250”.

X Following a tender procedure, on 5 May 2017, the Company signed an agreement with PUH Rajbud Sp. z o.o.

(Rajbud) to carry out construction work to adjust tracks to reduce the gap between the edge of the platform

and the entrance to a carriage on railway line 250. The net value of the agreement is PLN 1,075,188.15. X Following a tender procedure, on 15 May 2017, PKP SKM signed an agreement with Pomorskie Przedsiębiorstwo

Mechaniczno–Torowe sp. z o.o. (PPMT) to perform construction work involving replacement of turnouts

at the Gdynia Główna station. The net value of the agreement is PLN 1,959,359.20.

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June

October

August

November

X On 26 May 2017, the Ordinary Shareholder Meeting of PKP SKM w Trójmieście approved the Company’s financial

statements for 2016. X On 30 May 2017, PKP SKM submitted an application to co–finance Project entitled “Purchase of 10 new electric

multiple units to operate commuter transport and modernization of the rolling stock maintenance infrastructure”

with the estimated value of the entire project at PLN 393,751,905.00.

X On 13 June 2017, the Company signed an agreement with ELEKTRO–CAL Sp. z o.o. to perform the task entitled:

„Reconstruction of the sanitary cabin cleaning facility in building A–13” involving construction of a reinforced

concrete structure and internal platform floor. The net value of the agreement is PLN 2,097,549.19. X Following a tender procedure, on 21 June 2017, PKP SKM signed an agreement with Aarsleff Sp. z o.o. to carry out

a project entitled „Alteration of retaining wall at km 3.633–4.058 of railway line 250”. The net value of the agreement

is PLN 2,496,222.54.

X Following a tender procedure, on 1 August 2017, PKP SKM w Trójmieście signed a consortium agreement with

PPMT (Consortium Leader) and Rajbud (Consortium Partner) to perform construction work to alter the trackwork,

including replacement of four worn–out turnouts, rails and sleepers and adjust the layout and profile of turnouts

at the Gdańsk Oliwa passenger train stop. The net value of the agreement is PLN 2,898,643.13. X On 18 August 2017, PKP SKM and PKP Intercity signed agreements on the mutual provision of rail transport services.

The agreements set out the rules for concluding, performing and settling transport agreements concluded

by Operators entering in these agreements. The net amount due to PKP SKM on account of the performance

of the agreement is PLN 9,164,351.85. The net amount due to PKP Intercity on account of the performance

of the agreement is PLN 18,442,689.03. X On 18 August 2017, the company signed an agreement with Przewozy Regionalne on the mutual provision of rail

transport services on trains run by the Operators being parties to the agreement and settlement of revenues

resulting from the sales of the services. The net amount due to Przewozy Regionalne on account of the perfor

mance of the agreement is PLN 1,200,000.00. The net amount due to PKP SKM on account of the performance

of the agreement is PLN 2,256,000.00. X As of 21 August 2017, joint sales of tickets from three rail operators: PKP Intercity, Przewozy Regionalne and PKP SKM,

were launched. The tickets are sold on terms and conditions of and based on offers from the individual operators. X On 23 August 2017, the Company concluded an agreement with Kolejowe Zakłady Automatyki S.A. for the perfor

mance of the task entitled „Preparation of design documentation for the construction of an automatic line

blockade on the Gdańsk Główny – Gdynia Główna section and performance of work on the Gdańsk Główny –

Gdańsk Wrzeszcz section and implementation, startup and launch of the equipment and systems and commis

sioning of equipment and systems completed under this investment project”. The net value of the agreement

is PLN 5,680,000.

X As of 11 September 2017, an offer to sell tickets of three Rail Operators (PKP Intercity, PKP SKM and Przewozy

Regionalne) on a common form in one transaction as a “Traveler’s Package” was introduced. X As a result of the tender procedure, on 18 September 2017 the Company signed an agreement with PPMT

for construction works relating to modernization of the trackwork at the Sopot station including replacement

of turnouts and repair of cargo connections between turnouts. The net value of the agreement is PLN 1,393,471.93. X On 29 September 2017, the Pomorskie Province announced an unlimited tender for the provision of public services

– passenger rail transport services rendered in the Pomorskie Province in the 2017/2018 timetable year. In this

procedure, PKP SKM filed a bid to service task 1. “Agglomeration” task involving the service of the Gdańsk Śród

mieście – Wejherowo/Lębork section by electric trains and sections: Gdańsk – Gdańsk Airport – Gdańsk Osowa/

Gdynia, Kościerzyna/Kartuzy – Gdańsk Airport – Gdańsk, Kościerzyna – Gdynia by diesel trains, offering the amount

of PLN 53,955,000.00. On 31 October 2017, the Pomorskie Province cancelled this procedure in the part related

to the “Agglomeration” task.

X Following a tender procedure, on 10 October 2017 the Company signed an agreement with ZNTK Mińsk

Mazowiecki S.A. for the provision of level 4 (P4) maintenance repair services for three EN57 and EN71 EMUs,

including the improvement of functionality. The net value of the agreement is PLN 4,325,000. X On 17 October 2017, the Extraordinary Shareholder Meeting of PKP SKM adopted a resolution to increase PKP SKM’s

share capital from PLN 161,719,000.00 to PLN 163,719,000.00, i.e. by PLN 2,000,000.00, by creating 4 thousand new

shares with the nominal value of PLN 500 each in the Company’s increased share capital. The Gdynia Township

subscribed to all the newly–created shares and paid for them in cash.

X On 21 November 2017, the Company signed an agreement with PLK to use the throughput capacity to transport

passengers in the 2017/2018 timetable year. The subject matter of the agreement is the provision by the Managing

Party (PLK) to the Carrier (PKP SKM) of the rail infrastructure managed by PLK in order to use the assigned

throughput for: travel of trains, shunting, stoppage of rail vehicles and for the use of Rail Infrastructure Facilities

(OIU). The estimated net value of the agreement during its term, i.e. from 10 December 2017 to 8 December 2018,

is PLN 11,299,000.00. X On 30 November 2017, an annex was signed with the Pomorskie Province to the agreement for the 2015/2016

timetable year, which constitutes the performance of the obligations included in the Terms of Reference

and in the Company’s request, which increased the remuneration due to PKP SKM for a failure to achieve

the anticipated revenues on the PKM sub–tasks for Q4 2016 by the amount of PLN 1,620,124.92.

X On 8 December 2017, an agreement was signed with Pomorska Kolej Metropolitalna S.A. (PKM) to use

the throughput capacity to transport passengers in the train timetable year 2017/2018. The subject matter

of the agreement is the provision by the Managing Party (PKM) to the Carrier (PKP SKM) of the rail infrastructure

managed by PLK in order to use the assigned throughput for: travel of trains, shunting, stoppage of rail vehicles

and for the use of Rail Infrastructure Facilities (OIU). The estimated net value of the agreement during its term,

i.e. from 10 December 2017 to 8 December 2018, is PLN 4,970,252.45. X On 8 December 2017, the Company signed a diesel oil sale agreement with PKP Energetyka. The total estimated

net value of the Agreement during its term cannot exceed the amount of PLN 13,160,000.00. The estimated annual

volume is 2,000–2,625 m³. X The new train timetable for 2017/2018 came into effect as of 10 December 2017. Under this timetable, as part

of the “Agglomeration” task, the Company launched electric traction connections over the Gdańsk Śródmieście

– Wejherowo/Lębork section (Sub–Task 1) and diesel engine connections on the Gdańsk – Gdańsk Airport – Gdańsk

Osowa/Gdynia, Kościerzyna/Kartuzy – Gdańsk Airport – Gdańsk, Kościerzyna – Gdynia sections (Sub–Task 2). X On 14 December 2017, the Company signed for the first time an agreement with the Organizer of Transport

at the Pomorskie Province, for the direct contracting of passenger rail transport services under the 2017/2018 train

timetable in effect as of 10 December 2017. X In 2017, the Company received co–financing from the Regional Operational Programme in the amount

of PLN 4,130,926.16 and from the Railway Fund in the amount of PLN 13,648,877.25. At the same time,

the Company refunded the funds received in the amount of PLN 1,030,174.09 to the Railway Fund.

September

December

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PKP Informatyka Sp. z o.o. (hereinafter:

PKP Informatyka) started its operating

activity on 1 October 2001. The Company’s

line of business includes a broad range of IT

services, in particular development of appli

cation software (systems and applications),

in particular for PKP Group Companies,

as well as operation services, including

direct operation of systems and appli

cations and technical support services.

The Company additionally provides colo

cation, hosting, network services, hardware

repair services, structural network building

services, etc. The Company operates across

the entire country.

PKP Informatyka is the provider of IT

solutions, mainly for the railway market.

It provides IT services to PKP Group compa

nies and other rail operators. All the services

are rendered under three business lines: X railway passenger transport; X rail freight transport; X business management.

Management Board

www.pkp-informatyka.pl


8PKP Informatyka is responsible for the provision of IT services to support rail sector companies.The Company ensures continuous operation of systems and appli-cations that are of key importance for the functioning of the railway market in Poland, including the reservations system and the ticketing system, freight handling system.

PKP Informatyka

Management Board Member, acting Management Board President

Jakub Prusik

Chairman

Małgorzata Butwicka

Jacek Iwański

Maria Nowicka

Witold Pyrgiel

Andrzej Olszewski


RadosławZawierucha

Jakub Prusikacting Management Board President

Supervisory Board

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8.3 Finance In 2017, PKP Informatyka earned a net profit

of PLN 3.1 million, compared to a net profit

of PLN 7.2 million in 2016. The deteriora

tion of the Company’s result was an effect

of a reversal of provisions in 2017 that were

lower than in 2016, coupled with a higher

gross sales result. Additionally, the Company

generated a profit on financial activities

in 2016 as a result of dividends received

from a subsidiary.


In 2017, the Company posted sales revenues

of PLN 75.8 million, PLN 1.9 million less than

in 2016. Within the individual groups, the

largest decline was associated with reve

nues from baskets and projects and leads,

which resulted among others from the

execution of a number of projects in 2016.

In 2017, an important group of revenues

was undoubtedly revenues from sales of

goods and materials as well as revenues

from maintenance and operation services

(performed under standing agreements

that were successfully implemented by the

Company in previous years, mainly SLAs in

PKP CARGO or KURS system maintenance in

PKP Intercity). For both revenue categories,

the Company achieved much higher

levels than it did in 2016. The increase in

revenues from sales of goods and materials

resulted from the supply of equipment to

PKP Budownictwo as part of the „Dynamic

Passenger Information System” project.


2017–2016 %

Net sales revenues and equivalents 77.7 75.8 –1.9 –2.4%



Gross sales profit margin 3.7% 9.4% +5.7 p.p. –



Profit (loss) on other operating activities 3.5 –2.1 –5.6 –

EBIT 6.4 5.0 –1.4 –21.9%

EBITDA 12.7 11.8 –0.9 –7.1%

EBITDA Margin 16.3% 15.6% –0.7 p.p. –

Finance income 2.1 0.1 –2.0 –95.2%

Finance costs 0.2 0.1 –0.1 –50.0%

Profit (loss) on financial activities 1.9 0.0 –1.9 10.0%


Income tax 1.1 1.9 0.8 72.7%

Net profit (loss) 7.2 3.1 –4.1 –56.9%



2017–2016 %

Total sales revenues 77.7 75.8 –1.9 –2.4%

Maintenance 59.0 62.1 3.1 5.3%

Projects and leads 5.0 0.6 –4.4 –88.0%

Baskets 7.4 2.3 –5.1 –68.9%

Sales of goods and materials 6.3 10.8 4.5 71.4%

Sales revenues in 2016–2017 (in million PLN)

Given the nature of the Company’s

operations, operating expenses are directly

conditional upon revenues. By implementing

certain projects and contracts,

the Company acquires appropriate

technologies and licenses that are used

in the service provision process. In 2017,

PKP Informatyka incurred operating

expenses of PLN 68.7 million, which were

PLN 6.1 million (or 8.2%) lower than in 2016.

The decrease included the costs of external

services, labor, materials and energy

consumption and taxes and charges,

while cost of goods and materials sold,

depreciation and other costs by kind

increased.

The decrease in the costs of external

services by PLN 7.6 million, including costs

of other IT services, were caused primarily

by the lower level of revenues and a lower

level of services provided. At the same

time, sale of devices to PKP Budownictwo

under the “Dynamic Passenger Information

System”, among others, directly contributed

to the increase in the cost of goods and

materials sold.

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2017–2016 %





Renewal of licenses and technical assistance 5.2 4.9 –0.3 –5.8%

Other IT services 8.8 3.3 –5.5 –62.5%


Payroll 32.9 28.8 –4.1 –12.5%



Cost of goods and materials sold 5.7 10.7 5.0 87.7%


PKP Informatyka recorded a negative

result on other operating activities

of PLN –2.1 million. The result was lower

than in 2016 as a result of a partial reversal

of provisions and recognition of impairment

charges for non–financial assets that were

lower than in 2016.

On the other hand, the deterioration

of the result on financial activities by

PLN 1.9 million was caused by a dividend of

PLN 2.0 million received in 2016 from

a subsidiary, Kolejowe Zakłady Łączności

Sp. z o.o. No such income was received

in 2017.


8.4 Assets At the end of 2017, the value of property,


which accounted for 18.7% of the Company’s

non–current assets. At the same time,

intangible assets represented 31.7%

of non–current assets.


Item 31.12.2016 31.12.2017Change

2017–2016 %

Non–current assets 32.2 27.8 –4.4 –13.7%

I. Intangible assets 9.7 8.8 –0.9 –9.3%



a. Land, including: 0.3 0.3 0.0 0.0%

b. Buildings, premises and civil and water engineering structures 2.5 2.2 –0.3 –12.0%





III. Non–current receivables 0.0 0.0 0.0 –

IV. Non–current investments 10.2 10.2 0.0 0.0%


Compared to 2016, the amount of property,

plant and equipment fell by PLN 2.8 million

as a result of depreciation charges

and deferral of capital expenditures planned

for 2017 to subsequent periods. It should

also be mentioned that PKP Informatyka

gradually phases out and liquidates

worn–out, outdated and redundant assets.

In 2017 the amount of non–current

investments did not change. Non–current

investments included shares held

by PKP Informatyka in a subsidiary,

Kolejowe Zakłady Łączności Sp. z o.o.

Payroll52.8%

2016

Materials and energyconsumption1.8%


Other9.6% Depreciation

and amortization8.4%

Payroll51.5%

2017

Materials and energyconsumption1.7%


Other18.2%


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8.5 Investments In 2017, the Company incurred capital

expenditures of PLN 1.5 million. The capital

expenditures were fully financed with own

funds. The largest investments included:

purchase of two disk arrays with a blade

server and implementation assistance

and BILKOM system software, purchase

of a license for the CommVault Simpana

centralized backup system, purchase

of a display wall.


2017–2016 %

Purchase of licenses and software – intangible assets 2.2 0.4 –1.8 –81.8%

Fixed assets purchases 2.0 1.1 –0.9 –45.0%



2017–2016 %

<25 8 9 1 12.5%

26–35 63 52 –11 –17.5%

36–45 76 76 0 0.0%

46–55 113 97 –16 –14.2%

>55 90 95 5 5.6%

Total employment 350 329 –21 –6.0%

8.6 Employment

On 31 December 2017, the Company

employed 329 people, which was 21 less

than at the end of 2016. At the same time,

the average employment level increased by

2 FTEs in 2017. Employees aged 46–55 consti

tuted the largest group in the Company,

which accounted for 29.5% of total employ

ment at the end of 2017. The second largest

group was employees over 55 years of age

– 28.9% of total employment. Young workers,

up to 35 years of age, constituted 18.5% of

total employment. On the other hand, as

much as 59.3% of total employees have work

experience of more than 21 years.


Average employment in PKP Informatyka in 2016–2017


Item


2016 2017 2017-2016 %

Total employment 339 341 2 0.6%

Employment structure by age at the end of 2016 and 2017 (%)

201746-55 years

29.5%

> 55 years28.9%

< 25 years2.7%

26-35 years15.8%

36-45 years23.1%

201646-55 years32.3%

> 55 years25.7%

< 25 years2.3%

26-35 years18.0%

36-45 years21.7%

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8.7 Major events

May

June

August

November

October

December

X PKP Informatyka, Kolejowe Zakłady Łączności and Lublin University of Technology concluded a cooperation

agreement in the area of education and scientific research.

X PKP Informatyka and the Catholic University of Lublin signed a cooperation agreement in the area of education,

scientific research, CSR and international projects. X Substantive support during the “Debate with Courier” on the topic of “Common Ticket”.

X PKP Informatyka signed a cooperation agreement with EUROLOOP formed on the basis of the rLoop team,

winner of a prestigious competition announced by Elon Musk, the billionaire entrepreneur promoting a new

means of transport – hyperloop. The agreement concerned joint actions, using hyperloop technology in the

economy, with particular consideration of the railway market.

X Launch of the “Traveler’s Package” project. Through a system integrating offers of several carriers, the tickets

of PKP Intercity, POLREGIO, PKP SKM w Trójmieście, and from 2018 also tickets of Łódź Commuter Railway

and Wielkopolska Railways can be purchased on a single form. In the first phase, the “Traveler’s Package”

was available in ticket offices. X PKP Informatyka and Kolejowe Zakłady Łączności presented its activity on PKP Group’s joint stand at the 12th

International Railway Fair TRAKO 2017 in Gdańsk.

X On 5–6 October, an industry conference was held in Ożarów Mazowiecki, “IT in rail transport” organized

by the Association of Polish Transportation Engineers and Technicians with substantive support from

PKP Informatyka.

X In a modern Security Operations Center operating 24 hours a day, a cybernetic security system was presented

for the representatives of the Infrastructure Commission of the Polish Parliament. The meeting led

to the organization of a meeting of the Infrastructure Commission of the Polish Parliament in the seat

of PKP Informatyka in the beginning of 2018.

X PKP Informatyka is an industry partner of the conference under the title of “Intermodal Transport Development

Program” organized by the Association of Railway Sector Experts and Managers and PKP S.A. X Completion of “Bilkom2” project, a sales platform for railway tickets, including the “Traveler’s Package”.

The new revision of the Bilkom application enables convenient and intuitive review of a timetable and purchase

of a tickets for train travels using the best offer of a carrier at a time. Tickets may be purchased

on the www.bilkom.pl website and since 2018 also through a mobile app.

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Xcity

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Xcity Investment Sp. z o.o. (hereinafter:

Xcity Investment) was established

in September 2014 but started its opera

tions in the beginning of 2015. The Company

was established to act as a specialized

entity to execute property development

projects and facilitate of investment

processes previously performed by PKP S.A.

The core function of Xcity Investment

is to exploit the potential of undeveloped

properties that constitute PKP Group’s

assets, often in attractive locations

of Poland’s major cities. Property devel

opment projects are executed as joint

ventures with private investors. Xcity

Investment’s additional goal is to build

shareholder value by creating a versatile

team that will be able to execute develop

ment projects independently.

Until now, the only project carried out

according to the presented formula

is the development of Poznań (Poznań

City Center) and Katowice (Galeria

Katowicka) railway stations. At the end


www.xci.pl


9Xcity Investment has been established to execute commercial property development projects. It cooperates with external partners to redevelop railway properties in the centers of Polish cities. The company executes investment projects that change neighborhoods, implementing commercial projects that are friendly to local communities; it builds new railway stations and office, commercial, hotel and residential space.

Xcity Investment

Marek ChibowskiPresident of the Management Board

of 2017, the work was continued to execute

five projects located in Warsaw, Gdynia,

Konin and Mińsk Mazowiecki, in the total

amount of EUR 1.5 billion. The Company

additionally conducted proceedings

to select investors for two other locations:

Aleje Jerozolimskie 140 and Szczęśliwicka 62,

and also launched the “Small Development

Projects II” program.

Management Board


Marek Chibowski

Chairman

Iwona Beata Czech–Wojdecka

Łukasz Rydzkowski

Przemysław Ciszak


Andrzej Bogusz


Mateusz Mroz

Supervisory Board

97

9.3 Finance In 2017 Xcity Investment incurred a net loss

of PLN 4.9 million. The negative financial

result is a consequence of the number of

projects and their current implementation

stages, where the operating expenses

incurred in the initial stages are much

higher than revenues earned by the

Company.


In 2017, the Company earned revenues

mainly under the investment projects,

including from investment supervi

sion and administrative supervision,

and under a cooperation agreement with

PKP S.A. Total sales revenues amounted

to PLN 2.3 million.

In 2017, the Company incurred operating

expenses of PLN 7.5 million. The main cate

gories included external services (mainly

business, legal and technical consultancy

services), payroll and social insurance

expenses. The above items combined repre

sented 97.3% of total costs.

The Company earned profit

of PLN 0.3 million on financial activities

resulting from a surplus of interest income

over costs of unrealized FX differences.


2017–2016 %

Sales revenues 1.4 2.3 0.9 64.3%



Gross sales profit margin –450.0% –226.1% 223.9 p.p. –



Profit (loss) on other operating activities 0.0 0.0 0.0 –

EBIT –6.3 –5.2 1.1 –

EBITDA –6.2 –5.2 1.0 –

EBITDA Margin –442.9% –226.1% 216.8 p.p. –

Finance income 1.2 0.4 –0.8 –66.7%

Finance costs 0.2 0.1 –0.1 –50.0%

Profit (loss) on financial activities 1.0 0.3 –0.7 –70.0%

Profit (loss) before tax –5.3 –4.9 0.4 –

Income tax 0.0 0.0 0.0 –

Net profit (loss) –5.3 –4.9 0.4 –

Net profitability –378.6% –213.0% 165.6 p.p. –


2017–2016 %





Taxes and charges 0.0 0.0 0.0 –

Payroll 4.6 4.2 –0.4 –8.7%

Social security and other benefits 0.8 0.7 –0.1 –12.5%


Cost of goods and materials sold 0.0 0.0 0.0 –


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In 2017, Xcity Investment continued its work

on the commenced investment projects.

At the end of 2017, investment contracts were

signed for the following projects: Warszawa

Zachodnia, Warszawa Gdańska, Gdynia

Międzytorze, Konin and Mińsk Mazowiecki.

The Company additionally conducted

proceedings to select investors for two

other locations: Aleje Jerozolimskie 140 and

Szczęśliwicka 62 in Warsaw, and launched

the “Small Development Projects II”

program.

Major events in 2017 included completion

of the construction work and opening

of the 2nd stage of the Warszawa Zachodnia

(West Station) project. At the end of 2017,

the building was almost fully occupied.

9.4 Assets

At the end of December 2017, Xcity

Investment’s total assets amounted

to PLN 21.8 million. On the assets side,

the largest items included current invest

ments, including cash that the Company

obtained following a merger with

SPV Poznań. Another important item was

current receivables, which consisted of tax

receivables and trade receivables.

The Company’s assets were financed mainly

by equity, which accounted for 93.8% of total

liabilities and equity. Current liabilities

consisted of trade liabilities, payroll liabili

ties and tax and social insurance liabilities.

Item31 December

201631 December

2017

Change

2017–2016 %

Non–current assets 0.1 0.1 0.0 0.0%

Current assets 26.3 21.7 –4.6 –17.5%

Current receivables 1.5 1.7 0.2 13.3%

Current investments 24.7 20.0 –4.7 –19.0%

Total assets 26.4 21.8 –4.6 –17.4%

Equity 25.3 20.4 –4.9 –19.4%

Liabilities and provisions for liabilities 1.1 1.4 0.3 27.3%

Provisions for liabilities 0.2 0.2 0.0 0.0%

Non–current liabilities 0.0 0.0 0.0 –

Current liabilities 0.7 1.0 0.3 42.9%

Deferred revenue 0.2 0.2 0.0 0.0%

Total equity and liabilities 26.4 21.8 –4.6 –17.4%

Balance sheet in 2016–2017 (in million PLN)

9.6 Team

9.5 Investment projects

One of Xcity Investment’s key assets

is the professional team responsible

for carrying out investment projects.

At the end of 2017, the Company employed

23 people with knowledge and experience

primarily in the field of project management

and execution of property development

projects. The largest group of employees

consisted of Project Managers, who are

responsible for the preparation,

coordination and execution of successive

stages of an investment project (analysis

and preparation of real property

for a project, investor selection procedure,

performance of an investment contract

and exit from a project). The Company

also employs specialists with knowledge

and experience in construction, lawyers

and legal advisors and people providing

direct support for the specialists

in the project execution process.

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9.7 Major events

January

May

March

February

September

November

June

X Positive responses regarding the participation in two investor selection procedures for the execution

of development projects conducted by Xcity Investment. Eight investors submitted a business part of the response

to the invitation in the procedure to execute the project at ul. Szczęśliwicka 62 and five – in the procedure

to execute the project at Al. Jerozolimskie 140.

X Representatives of PKP S.A., Xcity Investment Sp. z o.o. and the City of Gniezno signed an agreement to carry out

urban planning workshops in Gniezno. The goal is to develop a consistent concept for developing 25 ha of railway

land located in the center of the city, including among others a steam locomotive depot. X The parties undertook to organize and carry out together Charette workshops. They will allow the residents

of Gniezno and all the stakeholders a true influence on the future development plans of the land on the opposite

side of the railway tracks from the PKP station. The plans also include the Gniezno locomotive depot facility.

X PKP S.A., Poczta Polska S.A. and Xcity Investment Sp. z o.o. cooperate to develop the Company’s land. PKP S.A.,

Poczta Polska S.A. and Xcity Investment Sp. z o.o. (a real estate development company owned by PKP S.A.) signed

of a letter of intent on cooperation in the development of neighboring land specified by the parties. X The signatories declare that selected properties will be developed in a rational and optimal manner that takes

into account the expectations of the local communities as well as the interests of the companies.

X Xcity Investment at the European Economic Congress. Andrzej Bogusz, member of the Xcity Investment manage

ment board took part in a discussion panel entitled „Residential construction in Poland”.

X Xcity Investment announces selection of investors for seven new projects. At the tend of September/in early

October of this year, Xcity Investment plans to launch a procedure of selecting investors through negotiations

for development projects located in seven cities. The projects with potential commercial function will be executed

on PKP S.A.’s land in Bielsko–Biała, Elbląg, Koło, Koszalin, Kutno, Oleśnica and Skarżysko–Kamienna. X On 5–9 June 2017 the „Charrette” method urban planning workshops were held in Gniezno. The goal was to develop

a common concept for developing 25 ha of railway land located in the center of the city, including among others

a steam locomotive depot. The property was divided into three distinct functional zones: central, residential

and logistic. The final result of the workshop in Gniezno is the synthetic Charrette workshop report, which forms

grounds for changing the Study and constitutes a proposal for the Local Zoning Plan. Official adoption of these

documents is the first step towards the development of a part of the Gniezno city center located near the railway

station, revitalization of former railway land and locomotive depot facilities.

X West Station is the „Office Space Market Project of the Year 2017”. The West Station office complex won

in the category of „Office Space Market Project of the Year” in the Prime Property Prize 2017 competition organized

by the PTWP S.A. Group. It was selected from among five nominated investment projects: Business Garden Wrocław,

West Station in Warsaw, Hala Koszyki in Warsaw, Wronia 31 in Warsaw and Szucha Premium Offices. X Xcity Investment at the „Shopping Center Forum 2017 CEE Edition”. The Company worked with PKP S.A. to present

the planned investment projects.

X Xcity Investment Sp. z o.o. announces an invitation for negotiations to select investors for Small Development

Projects II (MPD II). MPD II includes five projects located in Bielsko–Biała, Koszalin, Elbląg, Koło

and Skarżysko–Kamienna.

101

102 103

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PKP Budownictwo Sp. z o.o. (hereinafter:

PKP Budownictwo [previously

TK Budownictwo Sp. z o.o.]) has been

operating since 20 January 2014 when

an organized part of an enterprise was

spun off from TK Telekom Sp. z o.o.

In 2017, the Company was being prepared

for a merger with another company,

i.e. PKP Utrzymanie Sp. z o.o.. Accordingly,

a number of organizational and financial

changes were conducted that affected

the ultimate financial result. The main

purpose of the merger is to reduce costs

and inefficient processes and use synergies

between the entities that have a similar

nature of activities. Formally, the process

was completed on 3 January 2018 when

the merger of PKP Utrzymanie Sp. z o.o.

in Warsaw as the surviving company and

PKP Budownictwo Sp. z o.o. in Warsaw as

the acquired company was registered. As a

result, the surviving company changed its

name to PKP Telkol Sp. z o.o. (hereinafter

PKP Telkol).


www.pkpbudownictwo.plwww.telkol.pl


10PKP Budownictwo, a telecommunication service operator, provides services in the area of construction of fiberoptic lines and mainte-nance of telecommunication infrastructure on the railway and road market.The Company’s main advantage is significant experience of its employees on the railway market and a distributed structure, which allows it to provide uniform services throughout Poland.

PKPBudownictwo

Mirosław GilarskiPresident of the Management Board

Until the merger, PKP Budownictwo provided

fiberoptic line and telecommunication

systems building services, ICT imple

mentation services as well as operation,

maintenance and remediation of such

equipment and systems. This activity will be

continued in the merged entity.

The Company’s services were provided

primarily to large entities in the rail, tele

communications, construction industries

and the public sector.

Management Board


Mirosław Gilarski

Chairwoman

Jan Tereszczuk

Alicja Wierzchowska

Jolanta Dębiak

Janusz Woźniak


Artur Gocel


Jerzy Szmit

Supervisory Board

104 105

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10.3 Finance In 2017, PKP Budownictwo posted the net

result of PLN –21.6 million, compared to

the net result of PLN –4.9 million in 2016.

The lower result was caused mainly

by the recognition of impairment charges

in other operating activities. The Company

additionally recognized a write–off

of deferred tax assets, which adversely

affected the difference between net profit

and profit before tax. These operations

were associated with the preparation of the

Company to a merger with PKP Utrzymanie.

At the operating level, the sales result fell

by PLN 2.9 million due to the fact that costs

increased faster than revenues. As was the

case in 2016, the profit (loss) on financial

activities had no significant effect on the

Company’s final result.


Operating expenses in 2017 amounted

to PLN 43.4 million, which was

PLN 8.9 million more than in 2016.

The higher expenses included costs

of materials and energy consumption,

external services, social insurance as well

as depreciation and payroll. On the other

hand, lower costs were recorded

in the item of goods and material sold,

other costs by kind and taxes and charges.

Higher expenses were caused, among

others, by an increase in the scale

of business and recognition of the costs

of the provision for employee benefits.

The costs of the provision resulted from

the acquisition of PKP Budownictwo’s

business by PKP Utrzymanie, which created

the need for employees of the acquired

entity to be covered by the Collective

Bargaining Agreement of the surviving

company.


2017–2016 %

Sales revenues 26.5 32.5 6.0 22.6%

Operating expenses 34.5 43.4 8.9 25.8%

Gross sales profit –8.0 –10.9 –2.9 –

Gross sales profit margin –30.2% –33.5% –3.3 p.p. –



Profit (loss) on other operating activities 0.0 –6.5 –6.5 –

EBIT –8.0 –17.4 –9.4 –

EBITDA –6.7 –16.0 –9.3 –

EBITDA Margin –25.3% –49.2% –23.9 p.p. –

Finance income 0.0 0.0 0.0 –

Finance costs 0.2 0.2 0.0 0.0%


Profit (loss) before tax –8.2 –17.6 –9.4 –

Income tax –3.3 4.0 7.3 –

Net profit (loss) –4.9 –21.6 –16.7 –

Net profitability –18.5% –66.5% –48.0 p.p. –


2017–2016 %

Net sales revenues and equivalents, including: 26.5 32.5 6.0 22.6%

Construction contracts 9.5 7.3 –2.2 –23.2%

Maintenance activities 17.0 25.2 8.2 48.2%

Sales revenues in 2016–2017 (in million PLN)

Sales revenues in 2017 amounted

to PLN 32.5 million, which was PLN 6.09

million more than in 2016. The increase in

revenues was caused by an increase in the

maintenance activity by PLN 8.2 million,

which in turn was driven by acquisition of

new contracts. At the same time, revenues

on construction contracts fell PLN 2.2 million.

The lower revenues on the construction

activity resulted from the protruding solu

tions in respect to tenders as well as an effect

of phases in construction projects, where the

design phase is conducted first. We should

expect the construction contracts acquired to

date to be positively reflected in PKP Telkol’s

result on construction activity in 2018.


2017–2016 %

Total operating expenses 34.5 43.4 8.9 25.8%





Payroll 11.7 11.8 0.1 0.9%





The result on other operating activities

in 2017 was PLN 6.56 million lower than

in 2016, as a result of the recognition

of new provisions and impairment

charges. The one–off events described

above were aimed at sorting out the

Company before the planned acquisition.

Additionally, at the income tax level,

the Company recognized a revaluation

charge for deferred tax assets.

At the level of financial activities,

the Company incurred costs of interest

on its financial liabilities.

107

10.5 Investments

In 2017, the Company made capital expendi

tures of PLN 0.08 million, or PLN 0.07 million

less than in 2016. The main item

of the completed investment tasks included

purchases of other fixed assets. In 2017,

capital expenditures were associated mainly

with the equipment of construction crews

and they were financed with own funds.

On the other hand, in 2016 the Company

incurred capital expenditures

of PLN 0.15 million and they entailed

purchases of other fixed assets, machinery

and equipment as well as intangible

assets. The capital expenditures were made

for the replacement of assets.

10.4 Assets At the end of 2017 the property, plant

and equipment was worth PLN 4.0 million,

which accounted for 76.9% of the Company’s

non–current assets.

Even though their value fell

by PLN 0.6 million y/y, technical equipment

and machinery remained the largest item in

the structure of property, plant and equip

ment. Means of transport were another

important asset category. Its value also

decreased due to depreciation charges.

The decrease in long–term prepayments

and accruals was caused by the change

in the balance of deferred tax assets.

Item 31.12.2016 31.12.2017Change

2017–2016 %

Non–current assets 9.3 5.2 –4.1 –44.1%




a. Land 0.0 0.0 0.0 –


0.0 0.0 0.0 –




2. Fixed assets under construction 0.0 0.0 0.0 –


III. Non–current receivables 0.1 0.9 0.8 800.0%

IV. Non–current investments 0.0 0.0 0.0 –



2017–2016 %


Investment construction activity 0.00 0.00 0.00 –

Other investments, including: 0.15 0.08 –0.07 –46.7%


Other fixed asset purchases 0.11 0.06 –0.05 –45.5%

Intangible assets 0.01 0.01 0.00 0.0%

Non–current assets in 2016–2017 (in million PLN)


PKP

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108

PKP

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April

May

June

X Signing of an agreement with PLK to provide lease services of telecommunication connections and access

to telecommunication network elements and provision of maintenance services for specialist telecommunications

equipment related to railway traffic management.

X From May to December 2017, a document entitled “Operational strategy of PKP TELKOL sp. z o.o. for 2018–2022”

with the strategy’s financial model for the years 2018–2022.

X Performance of provisions of the agreement with TK Telekom. (annex signed to the maintenance agreement with

TK Telekom). Under this agreement, PKP Budownictwo provides maintenance services for the access network,

telecommunication services and ensures a certain scope of installation work). X Signing of an agreement with PLK to maintain ratio equipment (Maintenance agreement signed with PKP PLK

for 3 years; under the agreement, the company provides maintenance services for railway radio communication

devices used by PKP PLK, including portable, mobile, fixed–line radiotelephones and dispatching systems)

X Participation in the 12th International Railway Fair TRAKO 2017 and a strong announcement of a debut

of PKP TELKOL. Because of an advanced merger process of PKP Budownictwo with PKP Utrzymanie, the advertising

message was forward–looking. Advertising and acquisition was focused on PKP TELKOL, the new brand under which

the company combining both railway telecommunications companies was operating from January 2018, During

the fair, the PKP TELKOL brand was accompanied with the „WE CONNECT THE RAILWAY”, was very well received

by those visiting the company’s booth.

10.6 Employment

10.7 Major events

On 31 December 2017, the Company

employed 187 people, which was 8 less than

at the end of 2016. As a result, the average

headcount in FTEs also fell by 9 FTEs.

The lower employment level resulted

from the conducted adaptation processes

and a decrease in revenues in the area

of construction contracts.

Employees above 55 years of age consti

tuted the largest group in the Company

and accounted for 41.2% of total employ

ment at the end of 2017. The second

largest group was employees in the 46–55

age group, which accounted for 37.9%

of total employment. Young workers up to

35 years of age constituted just 8.6% of all

employees.


2017–2016 %

<25 1 0 –1 –

26–35 15 16 1 6.7%

36–45 28 23 –5 –17.9%

46–55 83 71 –12 –14.5%

>55 68 77 9 13.2%

Total employment 195 187 –8 –4.1%


Average employment in PKP Budownictwo in 2016–2017

Item


2016 2017 2017-2016 %

Total employment 201 192 –9 –4,5%

Employment structure by age at the end of 2016 and 2017 (%)

2017

46-55 years37.9%

> 55 years41.2%

< 25 years0.0%

26-35 years8.6%

36-45 years12.3%

2016

46-55 years42.5%

> 55 years34.9%

< 25 years0.5%

26-35 years7.7%

36-45 years14.4%

September

109

* * *

In the second half of 2017, the merger process of PKP Utrzymanie Sp. z o.o. and PKP Budownictwo Sp. z o.o. was

successfully completed.

Additionally, salaries were adjusted, as part of which 96.5% of employees received salary raises.

110 111

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the

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Corporate Social Responsibility (CSR) in the PKP Group

112 113

PKP

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Pro publico bono

Social activities undertaken by PKP Group companies are a suitable addition to the mission of the railway, which remains an important part of the national economy and a means of transport that signi-ficantly increases mobility of the Polish society. All the activities undertaken by the PKP Group companies contribute to the policy of creating a strong state offering its residents high quality of public services and incrasing efficiency of its economy.

Corporate Social Responsibility (CSR) in the PKP Group

Social aspects of the business activity

are becoming an increasingly important

element of modern management. The key

initiatives undertaken in the PKP Group

support its business objectives and help

promote appropriate image of Polish

railways. Highlighted: Social activities

undertaken by PKP Group companies

are a suitable addition to the mission

of the railway, which remains an important

part of the national economy and a means

of transport that significantly increases

mobility of the Polish society. All the activities

undertaken by the PKP Group companies

contribute to the policy of creating a

strong state offering its residents high

quality of public services and incrasing

efficiency of its economy. The railway

companies also act to reduce differences

between large cities and smaller urban

centers and between various areas

of Poland that so far were marginalized.

Corporate social responsibility activities

undertaken by the PKP Group and effects

of those activities confirm that the railway

currently consists of modern organizations

focused on sustainable growth.

The social approach of PKP Group

Companies to their activity is visible

among others in how the investments

are realized. The rolling stock that is

purchased and upgraded has high energy

efficiency and is not invasive in respect

to the natural environment. Also, modernized

and new railway station buildings

are more energy efficient. In the case

of construction investments involving

the modernization of railway stations

and buildings, platforms and footpaths,

the priority is to adapt the facilities

to the needs of all the passenger groups,

in particular those with limited mobility.

In addition to the technical adaptation

of buildings and other infrastructure

facilities to the needs of limited mobility

passengers, which include for example:

installation of lifts and escalators, pathways

for the blind and visually impaired, adap

tation of toilets, installation of induction

loops, tactile maps or appropriate sign

posting, travellers will be able to use the

assistance of employees and tools that

enable them to plan their journey more

easily at every stage. Investment projects

implemented by PLK are very important

for the area of railway safety. Under these

projects, some level crossings are replaced

with collision–free crossings, i.e. viaducts

and tunnels.

The importance of CSR for the railway

is shown by the fact that the Group’s

structure includes the PKP Group Foun

dation, which conducts socially–benefi

cial and charitable activities. The main

goal of the Foundation is to resolve

social issues efficiently and PKP Group

Companies regularly contribute a portion

of their income on the Foundation’s

projects. The mission of the Foundation

is to promote knowledge and aware

ness of how to use rail transport safely,

promote new technologies and inno

vative solutions, protect railway assets

of historical and artistic value, and support

for communities connected to the railway.

Activities of the Foundation focus on six

areas: safe railways, education of children

and youth on safety and the environment,

support for the implementation of inno

vative projects on the railway, change

of attitudes towards the natural environ

ment, care for traditions of the railway,

provision of support to associations

operating on the railway and employee

volunteerism. In 2017, the PKP Group Foun

dation carried out 17 different projects

related, among others, to the activization

of the elderly or prevention of social

exclusion of people with disabilities.

The Foundation also supported selected

natural and legal persons that submitted

their requests directly to the Foundation

or through PKP Group companies. Dona

tions were given mainly to support people

with health problems, to co–finance

activities promoting railway traditions

and to help those affected by the storms

that passed over Poland and caused

suffering to several thousand families,

including railwaymen and their relatives.

Charitable initiatives are undertaken also

by the employees of railway companies.

Participation of PKP S.A. employees

in the charitable Company Run is a

good example. 70 people participated

in 2017, which was more than 400%

more than in 2016. Proceeds from the

campaign were given to children with

disabilities supported by the Everest

Foundation. In May 2017, the representa

tion of a railway company took part in

the challenging Runmaggedon race and

participated in the European Bicycle

in which they took the 2nd place from

among companies located in Krakow.

In September, employees of, among

others, PKP S.A. and PKP CARGO, took part

in the charitable Poland Business Run

organized in eight Polish cities. For several

years now, the national cargo operator

has been implementing the “Run–Friendly

Company” project based on two pillars:

sports and assistance.

In 2017, for the third time, PKP S.A.

was distinguished in the Report entitled

“Responsible Business in Poland 2016.

Best Practices”, which is the largest

review of corporate social responsibility

activities in Poland. On 30 March 2017,

the 15th anniversary edition of the report

was announced, which presented the best

CSR activities from 180 companies,

including PKP CARGO.

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With future generations in mind

In 2017, the PKP Group Foundation

launched a project named “Railway

Education”, in which competitions will be

organized to select the most outstanding

representative from among pupils,

teaching staff and students, and to

promote technically and logistically inno

vative solutions for the railway industry.

The project was introduced on the

Career Day during the International

Railway Fair TRAKO in Gdańsk, which

is one of the largest industry events

in Europe. The launch of the project

was accompanied by a debate on the

generation gap on Polish railways,

attended by representatives of PKP Group

Companies: PKP Intercity, PKP S.A., PLK,

PKP CARGO, PKP Group Foundation and

the Office of Rail Transport. The debate

focused on the basic principles

of the “Railway Education” campaign. It was

aimed at presenting the railway as a place

for innovation and its young creators.

The speakers also presented an offer

of internships and scholarships, which can

be taken up by both students of railway

technical secondary schools (technika

kolejowe) and universities. The meeting

was also attended by students of railway

schools, who then visited the companies’

booths and took part in educational

workshops.

The cooperation with educational

institutions was also conducted

by the individual PKP Group Companies,

including PKP Intercity. In 2017,

as in previous years, the Company

continued cooperation with technical

secondary schools as part of the broadly

defined “employer branding”, which

included activities that promoted

railway professions and revived

education in faculties related to railway.

The Company concluded six new

cooperation agreements with secondary

schools, increasing the total to 14

such agreements. Last year, the carrier

launched a scholarship program, awarding

scholarships to 23 students. The program

is open to secondary technical school

students with top achievements who

are interested in working subsequently

for PKP Intercity. The program pays

out monthly scholarships to students,

supporting them in the education process.

In 2017, PKP Intercity also started working

with schools on the dual system of

education, defining the curriculum and

implementing practical vocational training.

In this respect, the company signed letters

of intent with three schools. Dual training

will involve mainly PKP Intercity co–

organizing practical vocational training for

selected secondary school students.

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Safe railways

Travel safety is one of the top priorities

of the PKP Group. Trained personnel

of PKP Group Companies is constantly

acting to ensure that passengers

travel in comfort and safety. At every

stage of the journey, they can count

on the professional help of conductor

crews, personnel of ticket offices and

information points and station security

staff. This assistance also includes situ

ations in which life or health are at risk.

Every security guard serving at a PKP S.A.

railway station has had first aid training.

Appropriate training workshops for their

employees in this area are also organized

by PKP Intercity and SOK. The workshops

are conducted in a theoretical and

practical form. The topics include, among

others, evaluation of the injured person’s

condition, assistance in case of injuries,

fractures, burns or fainting. The security

staff also learns the resuscitation proce

dure and how to operate a defibrillator

properly. PKP Intercity conductor crews

have also been trained in first aid during

the courses delivered by medical rescue

personnel. The number of station build

ings equipped with professional defibrilla

tors is increasing.

The PKP Group devotes a great deal

of attention to safety at level crossings.

In 2017, another edition of the “Safe

Crossing” social campaign was held

un under the slogan “A barrier to risk!”

(before that, the “Safe Crossing” campaign

used the “Stop and Live!” slogan).

The campaign was initiated and coordi

nated by PLK and other PKP Group compa

nies and many other transport industry

companies join in. The social campaign

aims to make road users (drivers, pedes

trians, cyclists), including primary and

junior high school students, aware how

important it is to remain careful when

crossing railway tracks. In 2017 the 13th

edition of the “Safe Travel” campaign

was held under the honorary patronage

of the Ministry of Infrastructure.

In 2017, the PKP Group Foundation

represented Poland in the 9th edition

of the International Level Crossing Aware

ness Day, organized by the International

Union of Railways (Union Internationale

des Chemins) and the Railway Association

of Canada. An important topic discussed

during the conference was inattention,

which is deemed to be one of the main

causes of collisions at railway and road

crossings.

On the International Children’s Day,

the PKP Group Foundation conducted

lessons for children on the basics

of railway traffic programming,

with an emphasis on traffic at level

crossings. Road safety affects both

pedestrians and drivers, children and

adults, and the Foundation believes

that we should raise awareness of how

to behave correctly on the road from

an early age. The first event, organized

together with the Office of Electronic

Communications and the Museum

Station, featured a game for hearing–

impaired children. The participants

learned the basics of Scratch, an intuitive

programming language, and were able

to visit the collections of the Museum

Station. The second event was held

at the headquarters of the PKP Group

Foundation, where programming

workshops were prepared with the use

of „Smart City”, an interactive railway and

road model. During the game, the children

learned the secrets of programming, could

observe a proper operation of

a level crossing and program its automatic

closing before an oncoming train.

Educational activities for children were

also conducted by PKP SKM. The project

named “PKP SKM for the youngest” was

addressed to children attending kinder

gartens and primary schools. The goal

of the project was for children to teach

them railway safety principles and to

develop positive conduct and habits

of future railway transport users.

Another example of an educational

campaign was the “Safe Holidays”

campaign organized in six Polish cities

by PKP S.A. and the State Fire Service,

in which participants were trained in first

aid and the use of automatic defibrillator

(AED) at railway stations. Each visitor

to the booths was able to obtain informa

tion on safe conduct in various situa

tions. The campaign was accompanied

by numerous attractions for children.

The crowning achievement of the PKP

Group Foundation in the area of education

of children and the youth on railway safety

was the distinction awarded by the

President of the Office of Rail Transport

in the 2nd edition of the “Safety Culture

in Rail Transport” competition. Thanks

to the Foundation’s activities, during

meetings, visits at railway facilities and

during train travel, nearly 3.5 thousand

students were able to learn hands–on

about the rules of safe conduct.

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We protect the environment

Proud of tradition

Rail is safe and environmentally friendly,

and its development is perfectly in sync

with the idea of sustainable transport.

The investments conducted by PKP Group

companies are aimed at implementing

energy–saving solutions (construction and

development of railway vehicles), as well as

reducing emissions of pollution and noise.

Such solutions benefit local communities,

offering them a better quality of life. It is

important to promote railways as an envi

ronmentally–friendly means of transport

and a good alternative to cars. For this

reason, the PKP Group companies have

joined in the celebration of the European

Sustainable Mobility Week, with the most

recognizable part being the “Car Free Day”.

An interesting initiative is a program

of environmental activities conducted

by PKP LHS, which focuses on minimizing

the impact of the use of the railway line

on nature in the Roztocze National Park.

Activities undertaken together with the Park

Management are aimed at conducting

scientific research and spreading envi

ronmental awareness among the local

residents. As part of the project, a report

was developed describing the pilot studies

of traffic noise in the Roztocze National

Park focused on the impact exerted

on avifauna. The study and publica

tion was co–funded by PKP LHS as part

of the “Active Roztocze” environmental

educational project. The other initiative

was the cleaning of the Roztocze National

Park as part of the Company’s employee

volunteering movement.

Polskie Koleje Państwowe, and there

fore also the companies comprising

the PKP Group today, is an organization

with more than 90 years of tradition.

Railwaymen have always been involved

in matters important to Poland: they took

up arms in wars and uprisings, fought

against the occupiers, supported military

formations and the civilian population.

But most of all, they remained at the service

of the society and the national economy.

The history of the railway in Poland dates

back to the 19th century and the ethos

of railway work has been built since the

beginning of its existence, gaining particular

importance after the rebirth of the Polish

state. By remembering the tradition and

being inspired by the achievements of

previous generations, it is easier to create

a modern, competitive and well–managed

railway. Tradition is a responsibility and

today it is cultivated by employees from

various Companies and by the PKP Group

Foundation, which made protection of the

railway heritage one of its objectives.

In order to strengthen the work ethos

among the railwaymen and pass

on the good practices to the youngest

generations of PKP Group workers, in 2017

PKP S.A. organized an image campaign under

the name of “Passion for the Next Genera

tions”. 23 employees from ten companies

of the PKP Group took part in the campaign.

Each of them shared their interests and

talked about how he started his adventure

with the railway. The campaign focused

on representatives of various professions,

e.g. traffic orderly, train manager, track main

tainer, foreman, train dispatcher, locomotive

driver, stationmaster, commissioning officer

or dispatcher. They also included managers

and specialists, people of different ages

and with different work tenure, women

and men: all full of passion for work and

to make their dreams come true. The main

element of the campaign was a professional

photo session presenting the participants

at railway stations and buildings. Each

poster also contained brief information

about the employee: his/her profession,

daily duties and passions, often connected

with the railways.

PKP S.A. joined forces with the PKP

Group Foundation to co–finance the

operation of the Museum Station

(former Railway Museum) owned by

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the local government of the Mazowieckie

Voivodeship. The PKP Group participates

in the development of the Museum Station

by providing financial support (donations)

and assistance in substantive matters.

PKP CARGO also plays an important role

in the protection of technical monuments

on the railway. For more than ten years

now, it has maintained historic railway

fleet in the open–air museum in Chabówka

(which is the largest collection of historic

railway vehicles in Poland) and, together

with the Wielkopolska local government

units, co–finances the operation of the loco

motive depot in Wolsztyn, which is more

than 100 years old and which since 1 January

2017 has had the status of a cultural

institution. PKP CARGO, acting as a patron

of historic railway monuments, organizes,

among others: “Parowozjada”, an annual

event featuring active steam locomotives

attracting thousands of railway enthusiasts

from Poland and abroad, the “Summer

with Steam Locomotives” – an educational

program targeted at children and families,

which popularizes knowledge about old

and modern railway (it is carried out

in Chabówka, in the Museum Station and

in the steam engine depots in Wolsztyn,

Jarocin and Skierniewice). Together with

the local government of the Małopolska

Province, it also organizes retro train rides

on the Chabówka – Nowy Sącz route.

In 2017, they were used by 11 thousand

passengers. Some of the steam locomotives

in Chabówka are kept operational. They run

tourist trains along the most picturesque

routes of Małopolska. During the year,

about 22 thousand people rode on the retro

trains Operated by the Open–Air Museum,

and the facility itself was visited by about

30 thousand people.

In the seat of the Senate of the Republic

of Poland, PKP CARGO organized a nation

wide conference devoted to the protection

of railway monuments in Poland and the

possibilities to adapt them to new functions,

postulating the creation of the National

Railway Museum. The Company actively

participated in meetings of the Senate’s

Railway Monuments Team, which served

the purpose of developing appropriate

legislative solutions for the development

of museum railways and tourist railways.

Another noteworthy initiative is PKP CARGO’s

restoration of historical colors to selected

locomotives operating every day under

the carrier’s name.

PLK also takes measures to protect technical

monuments by handing over unused

railway equipment to various institu

tions. The objects become the attractions

of exhibitions and a pretext for education

on the history of technology. Thanks to PLK’s

cooperation with local governments, schools

and institutions of culture and education,

the worn–out rolling stock and railway

infrastructure components receive a second

life. In 2017, the historic devices were

handed over to organizations from Chojnice,

Braniewo, Zielona Góra and Lubaczów,

among others.

In 2017, the PKP Group Foundation also

carried out activities related to the protec

tion of railway heritage for future gener

ations, supporting the communities that

have both competence and experience

in the field of railway tradition, history

and culture. For example, at the request

of the Social Reconstruction Committee,

the Foundation supported the recon

struction of a portion of the monument

on the Railwaymen’s Grave in Gozdów.

The upper and lower parts of the monument

were covered with granite, a commemorative

plaque was installed, and a granite slab with

a plaque bearing the name and surname

was placed on each grave. Employees of

PKP Group companies also took part in

an employee campaign organized by the

Foundation, involving the cleaning of rail

waymen graves at the cemetery in Żukowo

near Milanówek. The cemetary contains

graves of several dozen residents of the Old

Railwaymen’s Home.

On 1 August 2017, PKP S.A. became an official

partner of the celebration of the Warsaw

Uprising anniversary and the PKP Group

Foundation launched a cooperation

program with the Warsaw Uprising Museum.

Polskie Koleje Państwowe paid tribute to

the insurgents fighting for Warsaw, including

a large number of railwaymen fighting,

among others, in the “Parasol” Battalion.

Later, in September, the railwaymen paid

homage to the fallen heroes, taking part in

the ceremony of reburial of the exhumed

soldiers of the September 1939 campaign,

including two railway workers. The ceremony

took place on the 78th anniversary of the

Battle of Dobrzykow. After nine months of

efforts in completing formal approvals, the

work at the cemetery began in July this year

and resulted in exhumation of 13 bodies

found, including 11 soldiers and two PKP

employees (clearly identified by navy blue

uniforms, characteristic caps and buttons).

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objective of the social campaign accom

panying the project was to reach a wide

audience and sensitize them to the situa

tion of people with disabilities and to show

that they can be fully–fledged employees.

This goal was also connected with the next

stage of the Foundation’s project, which

was addressed to the management

of the PKP Group Companies. During

the training, the managers learned how

to improve the system to offer even

better working conditions for people

with disabilities. The second stage

of the campaign was aimed at increasing

the employment of people with disabilities

in the PKP Group Companies. From July

to December 2017, artistic happenings were

held at selected railway stations, through

which the Foundation’s employees and

volunteers reached thousands of people,

talking directly to them and discussing the

problem of low employment among people

with disabilities. During the meetings,

travelers could also talk to people with

disabilities, who presented their situation

and explained the challenges they face

on a daily basis.

The PKP Group Foundation also supported

the centre in Łąck, which houses rehabili

tation holidays for disabled children from

poor railway families and social welfare

homes. Every year, about one hundred

children come there during the summer

holidays. They spend most of their lives

in hospitals, which is why it is so impor

tant to allow them to rest in nature and

in a different climate. The Foundation

inspires PKP Group employees to help

with repairs in the center and donors help

supply the necessary resources and mate

rials. Support for the Łąck site has also

been provided by PKP LHS.

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Promotion of health

Against exclusion

Railwaymen are eager to engage

in honorary blood donations. In 2017,

in addition to the dynamic activity

of the company’s honorary blood donor

clubs, there was also an action “It’s Your

Turn – Save a Life!”, in which, in front of

10 selected railway stations, individuals

could donate blood or register as potential

bone marrow donors. The campaign was

aimed not only at promoting honorary

blood donation and bone marrow

donation, but also at raising awareness

in health care. The events were organized

at railway stations: Warszawa Zachodnia,

Wrocław Główny, Szczecin Główny, Kraków

Główny, Gdańsk Główny, Bydgoszcz Główna,

Opole Główny, Rzeszów Główny, Łódź

Fabryczna and Gdynia Główna. “Blood

buses”, in which blood could be donated,

were parked outside of railway station

buildings. At separate stands, DKMS volun

teers registered potential bone marrow

donors. The activities were accompanied

by a special promotional campaign. Special

advertising spots were shown on PKP Inter

city trains and on monitors at ticket offices.

Posters were posted and leaflets given

away at the stations to provide information

and encourage participation in the event.

Nearly 69 litres of blood were collected and

95 potential bone marrow donors were also

registered. The campaign was organized

by the PKP Group Foundation, PKP Group

companies, DKMS Foundation, National

Blood Center, Poltransplant Center, Inde

pendent Students’ Association, PKS Polonus

and Railwaymens’ Blood Service.

The campaign was carried out under

the patronage of the Ministry of Infrastruc

ture and the Ministry of Health.

In 2017, the railway companies together

with the PKP Group Foundation joined

the campaign organized by the DKMS Foun

dation of registering potential bone marrow

and stem cell donors. The campaign under

the slogan “Time for journey for health and

life” was planned at seven largest railway

stations in Poland.

One of the goals of the PKP Group

is to combat exclusion and create good

traveling conditions for all passenger

groups. Access barriers to the railway

are removed primarily through the invest

ment programs carried out by railway

companies, but other measures are taken

to create equal opportunities for everyone.

In 2017, PKP Intercity published on its

website a search engine adapted

to the needs of passengers with disabilities

and developed a tab with the necessary

information for this group of passengers:

from reporting their intention to travel,

organization of individual or group travel,

scope of assistance, to the description

of the rolling stock.

Working together with the Integration Foun

dation, the national carrier also prepared

a publication on savoir–vivre towards

people with disabilities. The brochure

is a collection of illustrations showing,

among others, scenes of people with

various disabilities that can happen when

traveling by train. The guide contains

suggestions and advice on how to behave

when dealing with blind passengers

or people in wheelchairs. The publica

tion was also posted on the Company’s

website and in its Customer Service Centers

throughout Poland. Also, slides displayed

on LCD screens in trains and at ticket

offices promote the universal principles

of good manners.

The activities undertaken by the PKP Group

Foundation are also a response to the need

to support people with various types

of disabilities. Launched in 2017, the project

entitled “Visible and Able” (Widzialni.

Pełnosprawni.) carried out in partnership

with the National Rehabilitation Fund

for the Disabled is based on a compre

hensive approach to the issue of their

activation. The undertaking included,

among others, training for employers,

volunteers and for people with disabilities.

In the future they will be able to find

a job in PKP Group companies. The main

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Research as element of quality management

Importance of individual aspects of satisfaction with travel among TLK and IC passengers, compared with the rankings in the previous research wave

Age of TLK and IC passengers compared with the previous research wave

Goals of TLK and IC passengers compared with the previous research wave

16-24 years

25-34 years

35-44 years

45-54 years

55-64 years

65-80 years

32%

30%

29%

31%

17%

20%

9%

10%

8%

7%

5%

3%

8th wave, N=800

9th wave, N=837

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

travel to work or school

business trip

tourist trip

private trip

other response

23%

26%

22%

19%

8%

8%

43%

41%

5%

6%

8th wave, N=800

9th wave, N=837

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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trav

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safe

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1%

3%

1%

2%

18%

16%

13%

8%

11%

8% 8%

6%

4%

2%

5%

15%

24%25

%

16%

13%

8th waveN=800

9th waveN=837

In recent years, regular customer satisfac

tion surveys have been the most important

element of social studies in the PKP Group.

These surveys follow a constant

methodological standard and cover

a broad range of activities conducted by

Group companies. These studies are not

conducted just among the key customers

of the PKP Group, that is PKP Intercity

passengers and PKP S.A. raiway station

users, but also among employees

of selected companies.

In addition to surveys conducted

in trains, the PKP Group also conducts

research projects on its own, using

its own competence, methodological

standards and available tools. This saves

a lot of time in the research process

and mainly dramatically reduces the cost

of acquiring data. Good example of such

processes in 2017 was the research to help

optimize the web pages of PKP Intercity

and the satisfaction survey focused

on the “Traveling with PKP Intercity”

on–board magazine.

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Methodological standard of PKP Group’s satisfaction surveys

Customer surveys as a feedback technique

In the methodological standard used

by the PKP Group to conduct satisfaction

surveys, the key stage is to identify points

of contact with the surveyed group, which

are satisfaction drivers. At the survey

execution stage, these factors constitute

the core of research tools corresponding to

the CSAT (Customer Satisfaction)

methodology. During the field execution

stage, respondends describe the level

of their satisfaction with the individual

factors, and at the analytical stage the

level of satisfaction with the individual

factors is used to determine general

satisfaction. Such analytical procedure not

only allows the researchers to examine

the level of satisfaction in various aspects

of the services provided (drivers) but also to

establish their importance indicating which

ones have the greatest impact on the overall

satisfaction of the surveyed group.

At the last stage of the analysis, it is also

possible to compare the diagnosed

satisfaction levels with their relative

contribution to the overall satisfaction. This

way, it is possible to identify those aspects

of the customer experience that require

intervention first.

The best example of a research project

utilizing the standard mentioned above

is the „Survey of satisfaction with

travel in PKP Intercity trains”. In 2017,

TLK and IC passengers were subjects

of particular interest in this research

process, because it is critical to ensure

predicable basic standards of services.

Compared to the previous wave of surveys,

a considerable change was observed in the

ranking of relative importance of individual

satisfaction drivers. In the previous study,

the time of travel was the most important

satisfaction driver, while in the next edition

it was mainly punctuality. This means that

customer satisfaction after a train trip

is influenced mainly by the punctuality

of departure from and arrival at the station.

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Assessment of factors driving motivation of PKP S.A. employees in their daily work (on a 7–degree scale)

Ladies and Gentlemen,

SummaryThe performance of railwaymen in PKP Group

companies can be evaluated by using differing

criteria. The simplest form of describing

performance is the financial result presented

in the annual report. The PKP Group closed

the year 2017 with a profit of PLN 652 million.

In 2016, its consolidated profit was

PLN 170 million. The growing competitiveness

of the PKP Group and consolidation of its

position is also evidenced by the transport

numbers achieved by passenger and cargo

rail carriers. Compared to 2016, transport

revenues of passenger operators increased

by more than PLN 161 million. PKP Intercity

was the main contributor to this improvement

– in 2017 the number of passengers that used

its services increased by 11.2% from the year

before. Good performance was also recorded

by companies offering freight transport

services. In 2017, PKP CARGO and PKP LHS

achieved higher weight of transported goods,

which caused a direct increase in transport

revenues by PLN 874.1 million i aggregate.

I can say with full conviction that the railway

has played and continues to play a very

important role. It is vital for the national

and European economy and is an impor

tant element of the social infrastructure,

increasing mobility of millions of Poles who

use its services every year. Today when we

increasingly talk about sustainable transport,

freight transport is also very important. Polish

cargo operators make an excellent use of the

suitable location of our country on the cross

road of important trade routes connecting

the West with the East and the North with

the South. The PKP Group, by developing

international cooperation with many entities

such as railway managers and logistics

operators, the PKP Group takes an active part

in developing the New Silk Road. It should be

noted here that the activities of the PKP Group

are also aimed at improving the throughput

of railway lines, stations and cargo terminals,

in particular near–border areas and routes

to and from seaports. Through PKP Group’s

investments, Poland becomes increasingly

important as a transit area. An important

matter that is taken into consideration

in the capital expenditures process is to create

a unified railway network by removing

the effects of the many years of neglect in the

development of infrastructure in some areas

of the country, among others in Eastern

Poland.

Over the entire year 2017, PKP S.A. continued

the work on the Railway Station Building

Investment Program (RSBIP), which covers

about 200 facilities and the value of which

is estimated at PLN 1.5 billion. Investment

processes have been started for more than

160 station buildings. In 2017, we intro

duced the „Traveler’s Package”, an offer

allowing our passengers to travel on trains

of key Polish carriers on a single ticket. This

solution is without a doubt vary conven

ient for the passengers and an important

step towards implementation of the idea

of a common railway ticket.

In addition to investment programs

carried out on an unprecedented scale,

other factors contributing to PKP Group’s

growth also included better coordination

of activities within the structure, savings

or building a strong position on interna

tional markets. This is supported by the

consolidation changes, which have been

commenced to create a holding struc

ture. In 2017 the first decisions were made

concerning, among others, a merger of PKP

Utrzymanie and PKP Budownictwo, which

resulted in the establishment of a new

company PKP Telkol. Consolidation processes

among large entities of key importance

for the national economy can be observed

in the fuel or energy industries, while in other

developed Western European countries they

also occur on the railway.

All the activities undertaken by the PKP Group

companies contribute to the policy of creating

a strong state offering its residents high

quality of public services and incrasing

efficiency of its economy. It is worth noting

that we also act to reduce differences between

large cities and smaller urban centers and

between various areas of Poland that so far

were marginalized. Ensuring the freedom

of movement for the residents of Poland and

using the railways as an environmentally–

friendly means of transport has an important

influence on the quality of life in Poland.

Through professionalism and considerable

involvement of thousands of PKP Group

employees, the Poles once again begin

to trust the railways, appreciating the benefits

offered by train travel and advantages

offered by choosing this means of transport.

The railways have also become a reliable

and worthy cooperation partner for business

clients: cargo shippers, logistics operators,

forwarding companies and real estate tenants.

2017 was a good year for the railways and its

surroundings, however we should emphasize

that the success would not be possible but for

the excellent cooperation between PKP Group

Companies and external partners, consistent

implementation of strategic assumptions

or finally the government’s transport policy,

which supports growth on the railways and

allows to fully use its inherent potential.

We are not forgetting about our history

and railway heritage. As we celebrate

the 100th anniversary of our independence,

we remember the deeds of our predecessors,

especially those who undertook the daunting

task of developing a modern and unified

railway system in the reborn Polish state.

We hope that reading the 2017 Annual

Report of the PKP Group was time well

spent. Thank you for your attention and

we hope that on the pages of this document

we managed to present the key achievements

of the PKP Group in an interesting and trans

parent form and to present the profile of our

activities.

Rese

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as

elem

ent o

f qua

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man

agem

ent

Employee survey as a tool to optimize processes in the company

“Survey of motivation and satisfac

tion among PKP S.A. employees” was

an example of a research process in

2017 focusing on employees. The process

was carried out using PKP S.A.’s own

tools and competence. Employee surveys

are very popular in the PKP Group, which

results in a good turnout in the surveys.

In 2017, more than 900 people partici

pated in the survey of PKP S.A. employees.

Respondents had the chance to express

their opinions both in quantitative ques

tions (e.g. stating their level of satisfaction

with various aspects of working conditions

or identifying factors that drive their moti

vation) as well as in qualitative questions,

where they could spontaneously describe

the greatest challenges in achieving long–

term goals in the Company and express

their expectations towards the employer.

It is encouraging that employees value

the armosphere and support that they can

count on in their working teams and they

have a distinct sense of importance of their

work for the society and consequently they

identify with the company’s mission.

Definitely not motivated

Not motivated

Rather not motivated

Neither motivated nor not motivated

Rather motivated

16.1%4.9% 33.2% 42.5%

16.7%6.8% 40.7% 33.7%

18.2%6.9% 37.5% 33.9%

22,8%19.1%5.6% 29.5% 17.4%

N=913

N=917

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Motivated

Definitely motivated

Ability to do the work that I like

High sense of personal effectiveness (I am able to perform my obligations effectively)

Awareness that I am doing important and necessary work

N=914

N=916

Social recognition of the profession

1.9%

1.1%

1.5%

3.5%

126

PKP

Grou

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