Letter from the President of the Management Board

Dear Sir or Madam,
Dear Shareholder or Investor,

I am proud to present you the integrated annual report of the GPW Group prepared according to the International Integrated Reporting Framework standards developed by the International Integrated Reporting Council – IIRC. Focusing on key issues related to the GPW Group's activity including resources, business model, strategy and achievements, viewed from the perspective of the external environment and anticipated macroeconomic trends, this report aims to reveal how the value for our stakeholders has been created.

I believe that our report will meet your expectations in terms of reliable, useful and user friendly information, and the experience gained while developing the report will allow us, as the largest stock exchange in the region and the strong player in Europe, to shape our own approach to integrated reporting.

Let me start with the success of our subsidiary, the Polish Power Exchange (Towarowa Giełda Energii, TGE), which had a very good year in 2019. The volume of trade in electricity was record-high and stood at 228.9 TWh, representing an increase of 1.3 percent year on year. The total volume of trade in gas was record-high at 146.1 TWh (up by 2.0 percent year on year).

The success is especially important given that 2019 was not an easy year for the GPW Group on the financial market, among others due to low company valuations and the sell-off of shares by pension funds. Exchanges reported falling trade. The decrease reported by GPW was the least acute in Europe at 7.1 percent year on year (EUR 44.9 billion) compared to -12 percent on CEESEG Vienna, -12.6 percent on Deutsche Boerse, -16.7 on LSE (according to FESE data).

Our fundamentals remain strong. We generated strong results for another year in a row. The consolidated net profit was PLN 119.3 million as at 31 December 2019 v. PLN 183.7 million in 2018, and the sales revenue was PLN 336.1 million (down 3.1 percent year on year). The net operating profit was PLN 156.3 million in 2019 vs. PLN 170.2 million in 2018. EBITDA stood at PLN 193.2 million, a decrease of 4.3 percent year on year. The revenue from information services grew steadily (by 7 percent year on year) and contributed 14.3 percent of the total revenue. Further single-digit annual growth in revenue will be possible thanks to expansion of the customer base and revenue from index and benchmark licences. I should add that demand for GPW and GPW Benchmark data is mainly generated by foreign customers, which boosts the revenue potential of such products.

In 2019, we paid PLN 133.5 million in dividends from the 2018 consolidated net profit (adjusted for the share of profit of associates). The total dividends paid out in the past nine years have reached close to PLN 794 million. The GPW Management Board has decided that the dividend will increase by no less than PLN 0.1 per share annually from 2019 to 2022, coupled with consistent implementation of strategic initiatives.

We are almost half-way through the implementation of the strategy #GPW2022. This is a good time to take stock of where we are as a group and where we are headed. We have made great strides since the publication of the updated strategy, as demonstrated by 22 active strategic projects. In 2019, we raised close to PLN 40 million from the National Centre for Research and Development (NCBR) for the implementation of three initiatives (Agricultural Market, GPW Data, Trading System). We launched some of the published initiatives in 2019.

We are focusing on business diversification of the GPW Group by entering new business and product segments. We want to make sure that the strategic projects create value for our clients and shareholders in the coming years.

First, new technology. We have taken steps to address and set global trends. We believe that the exchange equals innovation thanks to technology implementations. Commercialisation of new technology for the capital market is a responsibility of GPW Tech (TCA Tools – innovative tools for transaction cost identification and analysis). We are developing GPW’s proprietary trading system tailored to the needs of smaller and medium-sized exchanges in full compliance with global quality standards. For that purpose, we have established a research and development centre in Łódź.

We are developing GPW Data, a data system based on artificial intelligence, which will facilitate companies’ reporting. The system is expected to roll out in the latter half of 2021.

We have opened a business incubator dedicated to start-ups. On the one hand, we leverage the potential and experience of GPW Group companies to offer mentoring to innovators; on the other hand, we help them raise capital for project development. Business incubation is supported by the Idea Global Accelerator. Innovators can get co-financing up to PLN 200 thousand as well as financial support for legal and expert consulting. We have completed the first acceleration round and initiated next rounds in support of innovations including big data, AI, and robotisation.

Our initiatives focusing on technology development and alignment with EU regulatory standards lay the foundation for further improvement of revenue from information services.

Second, new business lines. This theme includes many projects. We are nearing completion in preparation for the launch of a securities lending platform, GPW Private Market, and a pilot electronic Waste Platform pending legal amendments. GPW Ventures has established a company operating as a private/passive investor in venture capital funds, a financing vehicle which will enable market development, add innovation and bring more IPOs to GPW.

In 2019, we launched the GPW Partner Firm Programme – Crowdfunding Programme which attracts investors to start-ups, enabling them to buy shares and then divest on NewConnect. The first company under the programme was newly listed on NewConnect in January. Seven companies were newly listed on the Main Market in 2019 (including five transfers from NewConnect) and 15 companies were newly listed on NewConnect, including mainly game developers which have become particularly successful on NewConnect in the past years. 

I cannot fail to mention the pilot food exchange project which opened in Q1 2020 with wheat as the first traded commodity. We are planning to introduce more food and agricultural products, followed by financial products on such commodities. The agricultural market project supports the development of Poland’s agriculture.

Third, new investment products. This includes a range of initiatives. In 2019, we attracted two foreign issuers of structured products, introduced three FTEs under Polish law, and launched new index categories: four macrosector indices which are the underlying of futures, including the most popular index WIG-Games. We started to calculate indices of new technology stocks (WIGtech) and ESG stocks (WIG-ESG). In partnership with six Central European exchanges, we launched CEEplus, an index which covers the most liquid stocks on those exchanges. Late in the year, with a view to alignment with new regulatory requirements, GPW Benchmark took over as the competence centre responsible for management of exchange indices. GPW Benchmark applied for authorisation as the administrator of the reference rates WIBID and WIBOR.

The launch of WIG-ESG is one more step drawing the attention of investors to non-financial factors: environmental, social, governance. A new paradigm is emerging in capital market investments. Companies listed on the capital market which fail to follow the trend risk being marginalised. GPW wants to embrace the change as an active participant of the global trend by taking measures necessary to help issuers face the new challenges and by offering new ESG investment products.

The beginning of 2020 brought many challenges in view of the global COVID-10 pandemic. We are facing those challenges in daily work. Both Exchange Members and the Exchange have passed the test under these new circumstances. The Exchange has completed additional testing to confirm its business continuity and safety of trading under the remote work regime. Thanks to the determination of the GPW Group staff and the participants of our markets, investors enjoy uninterrupted access to trading.

I wish to thank all employees of our Group for their commitment, sense of responsibility, and engagement under the new circumstances of our work. I want to assure everyone that we will make best efforts in 2020 to continue the development of our Group in line with the defined directions. I hope that despite the new difficult challenges, we will continue to grow and meet your expectations. I am optimistic because I know that the GPW Group will creatively turn the experience of this difficult time into a future success.

I wish to thank the GPW shareholders, investors, issuers, the GPW Management Board and Supervisory Board, and all employees of the GPW Group for their efforts in 2019. Have every success in 2020!

Yours sincerely,
Marek Dietl, President of the Management Board of GPW