Letter from the President of the Management Board

Dear Shareholders and Investors,

I am proud to present you the Integrated Annual Report of the GPW Group prepared for the first time 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. This is the first time we undertook this ambitious challenge to create integrated annual report.

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.

The year 2018 brought many economic developments which impacted the Warsaw Stock Exchange and the capital market in Poland. It was a time of major decisions which will now be implemented by GPW.

May I start on a personal note. In late April 2018, the GPW Extraordinary General Meeting appointed me President of the Exchange Management Board for a new term of four years. I accepted the position in full knowledge that the credit of confidence was linked to challenges faced by the Warsaw Stock Exchange. I am certain that the strategy #GPW2022, updated in June 2018, and its growth initiatives provide a strong launchpad for this mission.

We closed the year 2018 at a consolidated net profit of PLN 183.7 million (+15.7% year on year compared to the record-breaking 2017) and sales revenues of PLN 346.8 million (down by 1.5% year on year). The operating profit was PLN 170.2 million in 2018 compared to PLN 186.5 million in 2017. EBITDA was PLN 202.0 million in 2018, a decrease of 6% year in year. The GPW Group’s financial results were driven among others by financial gains on the sale of interest in the associate Aquis Exchange. We always look for potential business synergies to deliver high returns. We will follow the same criteria in the coming years as we focus on technological development and diversification of sources of revenue.

In 2018, we paid PLN 92.338 million in dividends from the consolidated net profit of 2017 (adjusted for the share of profit of associates). The aggregate dividends paid to the shareholders in the last eight years are more than PLN 660 million. It is the objective of the GPW Management Board to maintain the dividend policy in the coming years and to meet the shareholder’s expectations of dividend yield.

Towarowa Giełda Energii (TGE), a member of the GPW Group, reported historically high turnover in electricity and gas in 2018. The volume of trading in electricity was 226 TWh, an increase of 102.5% year on year, representing TGE’s historical record on the spot and forward markets. The total volume of trading in natural gas was 143.3 TWh in 2018 (up by 3.4% year on year), another record on the commodity exchange.

I want investors and issuers to remember 2018 as a year of milestones and records on GPW. Early in the year, WIG hit an all-time high of 67,933 points on 23 January. The daily value of trading in equities was historically high at PLN 5.4 billion in September.

The successes included a key economic milestone in years as Poland was promoted to Developed Markets by the index agency FTSE Russell, putting us on a par with the world’s 24 developed economies including the USA, the UK, Germany, France, Japan and Australia. The promotion came in appreciation of the development of the Polish economy and capital market.

Speaking of development of the exchange, it relies on strategic initiatives including GPW Growth, SLB (Securities Lending and Borrowing), Derivatives Development, GPW Private Market, BondSpot Development, development of benchmarks for the financial market and provision of rating services. We focus on diversification because we want to be effective by improving our products and investing in new business lines.

We see great potential in the corporate bond market BondSpot, which we will continue to support and develop. In February 2018, we created an efficient market of rated prime bonds with a market maker supporting liquidity. We believe that development must be bolstered by state-of-the-art technology, including integration of the order book or requests for quotation. The plan involves Polish Rating Agency, established in partnership with Polski Fundusz Rozwoju and Biuro Informacji Kredytowej on the basis of Instytut Analiz i Ratingu set up by GPW, which will support the development of the bond market and is likely to issue its first ratings later this year.

We will launch a Private Market for start-ups. This is our response to technological progress including blockchain. And it is not our last word. We will present new ideas, initiatives and technologies. We are planning to launch GPW Ventures, a fund investing in venture capital funds which can divest on the exchange. We look forward to introducing GPW Growth, a training programme for companies preparing them for floatation.

In December 2018, we started to calculate and publish three indices: WIG20dvp, mWIG40dvp and sWIG80dvp (based on cash dividends paid by stocks participating in the underlying indices WIG20, mWIG40, sWIG80). We are planning to introduce more indices and related ETFs, including indices based on mWIG40, a regional index, etc.

At the same time, we focus on our core business, which is well-developed but could always improve. We have more than PLN 566 million in free cash on the Capital Group level, which makes us optimistic about potential strategic projects and opens much space for growth.

I do believe that 2019 will be good for the exchange, not least due to the PPK Act. The market of Employee Capital Plans (PPK) should get its first capital injections this year. The government’s Capital Market Development Strategy is a good prognostic.

I wish to thank all our shareholders, investors and issuers for the last year.

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