Strategy

Strategy of the Torpol Capital Group and Torpol S.A. for the years 2019-2023 will focus on the following areas of activity in Poland

Key areas of the Development Strategy of TORPOL Capital Group and TORPOL S.A. for 2019-2023

TORPOL S.A.’s previous activities (Company) allowed the Company to achieve a strong position as one of the leading entities on the railway construction market in Poland, where the Group’s average market share is estimated at approx. 14-15%. This share is calculated on the basis of the Group’s net revenues from sales to PKP Polskie Linie Kolejowe S.A. (PKP PLK) and the value of realized capital expenditures presented in PKP PLK annual reports. Taking into account the time horizon of the Strategy document and governmental programs, i.e. KPK [National Railway Program] and Maintenance Program until 2023 and the Company’s record-high order backlog for PKP PLK, the Group will continue to focus primarily on the railway market in Poland. However, with each subsequent year, as this market declines, the Group’s sales revenues will gradually decrease in this area.

The awareness of the limitation of funds for Poland to modernize its railway infrastructure after accounting for the current EU budget perspective leads to the expansion of other areas of activity and diversification of the industry and geography. Currently, under the draft EU budget perspective for 2021-2027, Poland would receive around EUR 64 billion, which is around 20% less than in the current perspective. There is also a question mark over the maintenance of the n+3 rule (the possibility of using funds from a given perspective for the next three years) and the maintenance of the current level of advance payments (up to 80%) – the European Commission proposes that the respective rules of n+2 and up to 70% should apply in the new perspective.

In view of the above, the Company must take appropriate steps to systematically diversify its activities and increase revenues from sources not related to the modernization of railway lines. The analysis of the construction market and development opportunities in the Company’s main market and related markets, the strategic alignment and the competences held have led to the definition of the strategic development options presented in the document.

Strategy of the Torpol Capital Group and Torpol S.A. for the years 2019-2023 will focus on the following areas of activity in Poland:

• railway market (including modernization and revitalization of railway lines, maintenance of railway network and private railroads),
• the market for large-size construction industry (including construction of public buildings and revitalization of railway stations),
• civil engineering facilities market (including road infrastructure),
• tramway market,
• oil and gas construction market,
• investments supporting strategic development directions,
• the sustainable development strategy (CSR).

The Group plans to achieve cumulated net sales revenues at the level of over PLN 8.8 billion under the Strategy for 2019-2023, assuming that the average gross margin on sales is slightly above 5%:

• over PLN 7.5 billion will come from the execution of the currently held order portfolio and from newly acquired modernization and revitalization projects under the National Railway Program;
• about PLN 0.5 billion will come from the large-size construction market – including specialist construction industry, public buildings, revitalization of railway stations;
• over PLN 0.25 billion will be implemented by the Company’s subsidiary – TOG;
• ponad 0,15 mld zł będzie pochodziło z realizacji projektów tramwajowych;
• over PLN 0.1 billion net will come from the implementation of railway maintenance projects carried out under the Maintenance Programme by PKP PLK, provided that this market is made available to a wide range of contractors currently operating on the market for the modernization and revitalization of railway lines;
• over PLN 0.1 billion will come from the implementation of railway projects for the benefit of entities other than PKP PLK;
• other revenues (up to PLN 0.1 billion net) will relate to the execution of the civil engineering facilities on the road infrastructure.

Despite the expected diversification, the Company intends to maintain the market share in the modernisation and revitalisation of Polish railways at 15-16%.

In the long term, the Company plans to maintain its order backlog allowing for optimal use of its technical and executive potential at the level of about PLN 2 billion of consolidated sales per year.

The Issuer points out that given the remote time perspective and the possibility of a number of external factors as well as the resulting unpredictability of risk factors, the figures presented above cannot be treated as forecasts for the duration of the strategy but only as an estimation of expected revenue levels in particular business areas to be achieved by TORPOL Capital Group.

The Group wants to be a reliable, socially responsible partner for all its stakeholders in every sphere of activity, operating in accordance with the principles of law and ethics and sustainable development. The Company’s mission is to provide its customers with professional services of the expected quality and stable, sustainable development of the company, which translates into increased shareholder value.

As part of its corporate social responsibility, the Group intends to place emphasis on implementing effective principles and taking appropriate action in the following areas:

• market, customer, product;
• working place;
• environment;
• society;
• innovation – research and development area.