From the day PGNiG shares were first listed on the Warsaw Stock Exchange (23 September 2005), they have been among the most recognisable and credible listed securities. They have been included in the WIG20 index since 2005 and constitute an important component − from the perspective of the Polish market − of regional developing market indices such as the MSCI or FTSE, as well as the RESPECT Index, the only portfolio of socially responsible companies on the Warsaw Stock Exchange. PGNiG has been included in the RESPECT Index since its inception, with its CSR policies recognised once again in 2014, in the eighth edition of the Index.

In 2014, the price of shares in PGNiG was marked by significant volatility, greater than in the case of the WIG20 and WIG-Paliwa indices, where the Company is listed. Relative to the 2013 closing price, PGNiG shares moved within the range from -21% to +1%, while WIG20, whose valuation is generally more stable, fluctuated between -7% and +5%. The key reasons of this volatile performance included:

• fears over the conflict between Russia and Ukraine and its consequences for the energy sector,
• the deregulation of the Polish gas market,
• a sharp decline in crude oil prices beginning in August 2014.

In 2014, the price of shares in PGNiG ranged from PLN 4.17 to PLN 5.33. The beginning of the year saw a continuation of the downward trend that began in August 2013, when the shares hit an all-time high of PLN 6.55. Following the introduction of the obligation to sell gas through the power exchange with a very short vacatio legis, investors grew increasingly concerned about the deregulation of the gas market, a salient theme of research reports released at that time. This negative effect was exacerbated on 17 January 2014, when the PGNiG Group announced impairment losses on and provisions for its Libyan assets, which drove the costs reported in Q4 2013 up by over PLN 0.5bn. On 30 January 2014, PGNiG shares were quoted at PLN 4.57 – down 30% on the peak from six months earlier.

After a temporary hike to PLN 5.1 at the end of February, the price underwent a correction in March. The drop came with the military conflict between Russia and Ukraine, which brought on an overall decline of stocks from Central and Eastern Europe. Given the uncertainty surrounding Russian gas supplies through Ukrainian territory, gas companies were particularly hard hit. The negative market sentiment grew stronger as the PGNiG Group EBITDA forecast for 2014 turned out to be below analysts’ expectations. As a result, the PGNiG stock hit the year’s low of PLN 4.17 at the end of March.

In mid-April, shares in PGNiG began an upward climb, significantly outperforming the broad market. Encouraged by low trading multipliers (P/E – price/earnings, P/BV –price/book value), investors showed more appetite for PGNiG stock. The trend was fuelled by the positive reception of the performance figures for Q1 2014, which showed that the Group’s investments in the upstream business were effective, and that trading in natural gas on a regulated market may be profitable (positive margin of 3% on high-methane gas sales).

The trend collapsed in late July (with the price at PLN 5.33), as the global market saw the first signs of a slump in crude oil prices. Within several weeks, the industry’s WIG-Paliwa index shrank by more than 11%, as did the price of shares in PGNiG– to PLN 4.73. After remaining in a lateral trend for several months, the PGNiG shares reacted badly to OPEC’s decision of 27 November to maintain the crude oil production volumes. The price of Brent crude slid from approximately USD 80 per barrel in November to USD 55 at the end of December, bringing PGNiG’s stock down to PLN 4.45 per share as at 31 December.

The price was nearly 50% above the issue price of 2005 and 17% above the closing price on the first day of listing. Factoring in the dividend of PLN 1.08 per share paid in 2005–2014, investors who acquired PGNiG shares at the issue price and held them until the end of 2014 saw a profit of 86%.

Performance of the Warsaw Stock Exchange indices and PGNiG stock

Performance of WSE indices and PGNiG stock:

Rates of return on WSE indices vs PGNiG stock in 2014 and from PGNiG’s IPO

As at 31 December 2013, the share capital of PGNiG stood at PLN 5.9bn, and comprised 5,900,000,000 shares, with a nominal value of PLN 1 per share. The shares of all series, namely Series A, A1 and B, were ordinary bearer shares and each share conferred the right to one vote at the General Meeting.

The State Treasury remains PGNiG’s majority shareholder. On 26 June 2008, the Minister of the State Treasury disposed of one share in PGNiG in accordance with general rules, which − pursuant to the Commercialisation and Privatisation Act of 1996 − triggered the eligible employees’ rights to acquire up to 750,000,000 shares in PGNiG, free of charge. The start date for executing agreements on the acquisition of free Company shares was 6 April 2009. The eligible employees’ rights to acquire free PGNiG shares expired on 1 October 2010.

By 31 December 2014, nearly 60,000 eligible employees had acquired 728,282,000 shares, conferring the right to 12.34% of the total vote. Consequently, the State Treasury’s interest in PGNiG amounted to 72.40%. The free Company shares acquired by eligible employees were locked up until 1 July 2010, while trading in free shares acquired by members of the Company’s Management Board was restricted until 1 July 2011.

Shareholding structure at the end of 2014

As at the dividend record date (14 August 2014), the ten largest institutional investors in PGNiG, apart from the State Treasury, included Polish pension funds. Its major foreign investors included sovereign wealth funds, pension funds and investment funds, mainly exchange-traded funds. The objective of exchange-traded funds is to automatically track their reference stock index, e.g. the Polish market index or that of developing countries. PGNiG’s institutional shareholder base comprises investors from 45 countries.

Substantial holdings of PGNiG shares are included in the portfolios of open-end pension funds. As at the end of 2014, these long-term investors held more than 11% of PGNiG’s equity, valued at just under PLN 3bn. This means that the number of PGNiG shares held by these funds rose by 14% in 2013. The funds with the largest equity interests in PGNiG were those managing the largest portfolios of future pensions, namely ING, PZU Złota Jesień and Aviva. The share of open-end pension funds in the PGNiG shareholder base has risen significantly since the IPO in 2005, when it accounted for 3.5% of the share capital (valued at PLN 711m). Pension funds are typically long-term investors whose equity portfolios are characterised by low turnover, especially with respect to large dividend-paying companies, such as PGNiG. They have a stabilising effect on the Company’s shareholding structure, while limiting its free float, which can translate into lower trading volumes. The average daily trading in PGNiG shares in 2014 was PLN 18.8m, which is a solid result considering the low free float.

Investor relations is an area of business activity that is constantly gaining in importance, reflecting the rapid growth of the Polish capital market, seen in the growing NAV of investment funds and the rising number of publicly-traded companies, which is now in excess of 470. There are almost 1.5m investment accounts registered in Poland, including a dynamic group of retail investors who invest their capital through the Warsaw Stock Exchange. The importance of investor relations also follows from increasing legal and regulatory requirements, imposed by such bodies as the Polish Financial Supervision Authority and resulting from the transposition of EU law into the Polish legal framework.

In 2014, PGNiG’s website was reconstructed, which included an update and refurbishment of the Investor Relations section containing all the Company’s current and periodic reports, information on dividend payments and shareholding structure, current prices of shares in PGNiG, and brokers’ recommendations. The section also features PGNiG’s investor presentation, which outlines the PGNiG Group’s equity story in a concise and accessible manner, and includes the telephone and email contact details of the PGNiG Investor Relations Division.

In 2014, representatives of the Company held close to 150 meetings with investors and stock analysts. We also continued our involvement in the ‘Shareholder Democracy’ (Akcjonariat Obywatelski) project, initiated in 2012. PGNiG is taking an active part in its 2014/2015 edition by attending meetings with retail investors and providing financial support for the project.