|Łukasz Boroń, CEO of PKP Cargo|
Courtesy of PKP Cargo
Jacek Ciesnowski: The initial plans to privatize PKP Cargo date back to 2000. Why did it take you 13 years to finally make it happen?
Łukasz Boroń: The first idea was to split PKP into several smaller companies, divide all the assets between them and sell them later to investors, which would result in dissolving PKP altogether. We all know that did not happen. PKP is still here, and PKP Cargo will be its first subsidiary to be privatized through a public offering.
On top of that, after the Polish freight sector opened up to competitors, we have had problems keeping up with them. We lost our strong position in the sector, and as a result PKP Cargo got into financial trouble.
We had to act fast, and we did. The previous management started a restructuring process. The average employment was reduced from 43,772 employees in 2008 to 26,493 in the first half of 2013.
We made changes in the company’s structure, hired fresh blood and it worked, resulting in the company gaining ground and earning money. That’s why in 2009-2010 PKP could start thinking about privatizing the company again.
So why is the company being privatized three years later?
At first, the company was supposed to be sold to a strategic investor, which because of the nature of our industry, could only be a national carrier from another country, such as Germany, Russia etc. We all know that such an idea would never get any political support in the current climate, so the process was postponed again.
About a year ago we decided to sell a minority stake on the stock exchange. It took us nine months to prepare the offer.
When it comes to privatizing companies, especially profitable ones, there are often politicians who argue it’s in the state’s best interest to keep profit-making assets. Why privatize at all?
There are many state-controlled companies that have other investors, and they are doing just fine. They continue to be profitable. And I think that being publicly floated and having other investors involved will only stimulate the company to perform better.
And the Treasury will still be getting profits, for example, from dividends which the company may pay out in the future.
Recently, Law and Justice leader Jarosław Kaczyński said that in his opinion, the value of the IPO is too small compared to the value of the company and the profit it brings. What do you think?
It’s a political opinion and I don’t deal with politics.
All the revenue from the flotation will be used to pay off PKP’s debt, currently estimated at over zł.4 billion. If you’re not going to spend it on the company’s growth, where will you get the money for that?
When PKP as a whole was divided into smaller companies, like ours, the whole debt stayed with the main company. We all got a clean slate, and because we’ve managed to be profitable, we have an opportunity to cash in our profits and use it to pay off the debt of our parent company. It makes sense. PKP Cargo’s financial needs aren’t that big, so the question is what to do with our profits? Keep them in the bank?
The maintenance costs of our rolling stock are not very high. Our locomotives should be operational for another 24-32 years and our cars for another 36 years. If we need new locomotives, we don’t buy them, but rather lease them, which also helps to keep our costs at a minimum. If we need more locomotives, especially for our international routes which require modern machines, we can either lease them or buy them using loans. With our financial structure, getting credit should be easy.
Our current needs can be financed with what we have. If we end up needing significant funds for some kind of investment we could always finance it by issuing more shares or by selling bonds.
Judging from media reports, the bulk of the time during which the company was preparing its prospectus was spent on negotiations with the workers’ unions, which were opposed to the idea of floating the company on the WSE. Is that true?
To be fair, I don’t think that the process could have been much shorter. It took us nine months, but please remember that we are talking about a huge state-owned company, so the offer had to be prepared very carefully, and that takes time.
But speaking of unions: Yes, it was complicated, but we finally reached a compromise and this dispute is settled.
Recently some workers in one of your facilities even threatened to go on a hunger strike, claiming that they are afraid of losing their jobs. Aren’t you afraid that the unions’ actions can affect the company’s share prices?
I think that we, as the company’s management, are doing what we can to make our workers happy. Irresponsible actions by union representatives can happen and it can affect our stock price. But so far everyone is working together for the company’s future and I hope it will stay that way.
The company is present in other European markets. Are there any plans for further expansion?
When it comes to international expansion we’re concentrating on organic growth. Our plan is to become a significant regional player within the next few years.
We’re already the second- biggest freight operator in the EU (behind DB Schenker) in terms of freight turnover in 2012, but most of our operations are in Poland. We want to change that.
By expanding our presence in other countries we can diversify our sources of income. Currently most of our revenue comes from operations within Poland, and since the situation in our sector is heavily connected to the economy of the country we’re operating in, it’s in our best interest not to concentrate on just one market. We believe we have everything we need to become a strong player in the CEE region.
Are you planning any acquisitions?
Not currently, but that would be logical in the future to take over some smaller, local companies. That way we could acquire their know-how, their experience, contacts and assets which would help us gain a foothold on other markets. Still, it’s not in our current, short-term plan. Such an aggressive expansion would be too risky right now, so we are concentrating on organic growth.
Recently you inaugurated a cargo connection with China.
Yes, that is a very interesting project for us, although I don’t expect the transport to that country to be a major part of our operations – at least not in the near future. There is still lots to be done in Europe.
I think that rail freight transport is the future. It’s eco-friendly, cheaper and more reliable than other ways of freight transport. You can’t transport products by trucks every day. In the EU, international road transport is very often banned on the weekends, while trains don’t have such limitations, that’s why I think the sector has clear advantages.
Are you happy with the stock price being set at zł.68 per share?
From our point of view, we did what we could. The whole IPO process was transparent and conducted by many international banks. We attended meetings with investors, that in my opinion went very well. I’m happy with how the process has gone so far.
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