REVENUES

FINANCIAL MARKET

Derivatives

In September 2013, WSE started to calculate and publish the indices WIG30 (price index) and WIG30TR (total return index, including dividend and subscription rights income) with portfolios comprised of the 30 biggest and most liquid stocks listed on WSE. WIG30 was originally expected to eventually replace WIG20. In September 2014, the WSE Management Board decided to focus on the development of instruments based on WIG20. Consequently, work on the introduction of derivatives based on WIG30 was discontinued.

On 23 September 2013, WSE introduced into trading WIG20 futures with a multiplier of PLN 20 to replace futures with a multiplier of PLN 10. The migration to the new contracts was completed on 20 June 2014 when the last series of futures with a multiplier of PLN 10 (FW20M14) expired. Consequently, Q3 2014 was the first quarter when only WIG20 futures with a multiplier of PLN 20 were in trading. WSE expected that the volume of trading in WIG20 futures would be lower in the initial period after the migration. Following a review of available data, internal analyses and industry consultations involving among others the WSE Derivatives Market Committee, WSE decided to continue listing WIG20 futures with a multiplier of PLN 20.

Changes to WSE indices

In September 2014, WSE announced that WIG20, the price index which groups the 20 most liquid stocks on WSE, would remain the main stock exchange index. The publication of mWIG40 continued and the publication of sWIG80 was resumed as of the beginning of 2015.

At the same time, WSE will continue to publish WIG30. Its derivatives, WIG30short and WIG30lev, as well as WIG50 and WIG250, are no longer published as of January 2015.

The decisions impact the derivatives market. WSE will focus on the development of the derivatives market and on promotion of instruments based on WIG20. Derivatives on WIG30 and WIG50 will not be introduced to trading.

NewConnect

Ten companies transferred from NewConnect to the WSE Main Market in 2014. As measured by value, NewConnect was an important source of new listings for the Main Market in 2014: the value of IPOs on the Main Market was PLN 1.3 billion while the value of transfers from NewConnect was PLN 2.6 billion in 2014. Seven companies with a total capitalisation of PLN 1.0 billion transferred from NewConnect to the Main Market in 2013. What makes the Main Market more attractive than NewConnect is the opportunity to attract open-ended pension funds as shareholders.

Catalyst

Pursuant to Article 23 of the Act of 6 December 2013 amending certain Acts in connection with the determination of the terms of payment of pensions from resources of open-ended pension funds, open-ended pension funds transferred PLN 153.2 billion of assets to the Social Security Institution (ZUS) on 3 February 2014. PLN 130.2 billion of that amount were Treasury securities marked for cancellation, which reduced the value of Treasury issues on Catalyst in February 2014. In the following months, the total value of Treasury securities issues gradually increased. The value of Treasury securities issues listed on Catalyst decreased from PLN 560.2 billion as at 31 December 2013 to PLN 480.5 billion as at 31 December 2014.

Debt instruments

The local bond market in 2014 was impacted by global capital flows triggered by the activity of the biggest central banks working to stimulate economic activity and mitigate the effect of deflation. These measures affected bond yields and prices on the base markets, which in turn impacted yields and prices on the local market. The yields and prices of Polish bonds were also largely impacted by expectations followed by actual interest rate decisions of the Monetary Policy Council. In the latter half of the year, the Ministry of Finance largely reduced its activity as an issuer on the primary market, which had an adverse effect on the value of trading on the secondary market.

Thanks to the expansion of the product offer, TBSP market participants could close conditional tri-party repo transactions as of Q4 2014. The main objective of the implementation of tri-party repo transactions is to provide mechanisms of support for long-term repo transactions. The introduction of tri-repo transactions is related to the operation of a comprehensive collateral system for repo transactions by KDPW acting as tri-party agent.

COMMODITY MARKET

Gas

The increase in the volume of trading in gas in 2014 was mainly driven by compliance with the obligation to sell energy on the public market by the Polish Oil and Gas Company (POGC). In addition, in the period under review, PolPX opened trade on a new market, the Intra-Day Market in gas, and launched new instruments on the Day-Ahead Market in gas and the Commodity Forward Instruments Market. The new products made the gas markets even more attractive and boosted trading.

PolPX’s offer in the natural gas segment addresses market demand following the amendment of the energy law of 26 July 2013 (effective as of 11 September 2013), imposing the obligation to sell a percentage of natural gas supplied to the transmission grid within the year on a commodity exchange or a market organised by an entity operating a regulated market in the Republic of Poland. The obligation is binding on energy companies which trade in gas fuels and amounts to 40% in 2014 and 55% in 2015 and beyond.

OPERATING EXPENSES

Salaries and other employee costs

Salaries and other employee costs in the period under review were mainly driven by the following factors:

• One-off events:
  - reorganisation severance pay to reduced employees of WSE (PLN 0.7 million). Workforce reorganisation affected 10 employees in 2014;changes on the WSE Management Board and the related no-compete clause (PLN 0.7 million) and holiday pay (PLN 0.5 million);
  - additional provisions set up against retirement benefits in WSE (PLN 0.3 million);
  - salaries and other employee costs of BondSpot decreased by PLN 0.5 million due to released provisions against disputes with the former Management Board.
  
  
• Costs related to the growth of WSE Group:
  - increase of the headcount of PolPX by 15 persons and WCCH by 6 persons in 2014 due to the dynamic growth of the companies (increase by PLN 1.6 million);
  - discretionary bonuses for 2014 paid in PolPX Group (PLN 0.9 million);
  - increase of salaries and other employee costs by PLN 0.7 million related to the activity of the companies Institute of Analysis and Rating and WSE Services;

Fees and charges

Fees and charges in 2014 were driven by WSE’s VAT adjustment for previous years which reduced fees and charges by PLN 1.3 million.

External service charges

The increase of external service charges in 2014 was driven by the following factors:

• increase of the cost of promotion, education and market development by PLN 2.9 million due to higher promotion costs of PolPX (by PLN 1.6 million) following the movement of the cost of advertising from other operating expenses to external service charges (PLN 1.1 million) as well as APEX conference costs (PLN 0.5 million), higher promotion costs of WSE (by PLN 1.1 million) due to the organised celebrations of the 25^th anniversary of free Poland, and higher costs of promotion of BondSpot (by PLN 0.1 million);
• increase of the cost of advisory by PLN 2.3 million due to higher costs of advisory of WSE (by PLN 1.6 million) related to projects implemented in 2014 by WSE (including negotiations with the Vienna Stock Exchange, investment in the Aquis trading platform) and higher costs of advisory of PolPX (by PLN 0.6 million) due to implemented development projects;
• increase of the maintenance cost of plant, property and equipment as well as intangible assets related, among others, to the refurbishment and modernisation of PolPX offices (PLN 0.8 million);
• increase of the maintenance cost of the TBSP market (by PLN 0.3 million).

At the same time, the cost of legal services decreased by PLN 0.6 million and the cost of software modifications decreased by PLN 0.5 million in 2014.

STATEMENT OF FINANCIAL POSITION

Intangible assets

The WSE Management Board decided to recognise impairment losses of PLN 1.3 million on goodwill from the acquisition of an organised part of the enterprise of ELBIS Sp. z o.o. known as the Electricity Trade Platform (poee) by WSEInfoEngine S.A. The impairment losses were recognised under other operating expenses in the statement of comprehensive income. The assets and liabilities of the company were stated at fair value less cost of sale at PLN 1.5 million as at 31 December 2014.

The impairment losses were due to negative financial results in the 2013-2014 period and lack of prospects of profits that would justify the carrying value of the stake. The WSE Management Board has an intention to concentrate commodity market assets in the PolPX Group and sale of all/part of the shares of the subsidiary WSEInfoEngine S.A. (WSEIE) to a PolPX subsidiary is being considered. The Exchange Management Board expects that the stake will be sold in the first half of 2015. WSE believes that PolPX will be in a position to unlock the potential of the company with a focus on the OTC commodity market.

Assets held for sale

The Exchange Management Board consider sale of WSE’s subsidiary Instytut Rynku Kapitałowego – WSE Research S.A. (IRK) and the sale is expected in the first half of 2015. As a result, IRK as a cash generating unit was presented in the consolidated financial statements as a group of assets and liabilities held for sale. The fair value less the cost of sale is PLN 537 thousand, which is less than the carrying value of the assets and liabilities, therefore impairment losses were recognised at PLN 366 thousand. The impairment losses were recognised in other operating expenses of the Group.

Share of profit of associates

WSE and Aquis Exchange Limited with its registered office in the UK signed an agreement concerning acquisition of new issue shares in Q3 2013. WSE acquired 153,609 Aquis Exchange Ltd shares for GBP 2.0 million in August 2013. Another 230,416 shares were acquired for GBP 3.0 million in February 2014 following approval of UK’s Financial Conduct Authority (FCA) for Aquis Exchange to operate as a multilateral trading facility (MTF) and following FCA’s approval for WSE to increase its stake in Aquis Exchange capital. The total price of 384,025 shares of Aquis Exchange to WSE was GBP 5.0 million (PLN 25.3 million).

As at the date of preparation of this Report, WSE holds 384,025 shares of Aquis Exchange representing 36.23% of the total number of shares and giving 30.00% of economic and voting rights in Aquis. The stake decreased to the target level after new and existing shareholders took up additional stakes. The shares of Aquis Exchange Limited as an associate of the WSE Group are recognised using equity accounting as at 31 December 2014.

The business model of Aquis is based on subscription fees charged for generated traffic rather than on the value of trade as on other trading platforms. The company launched its operation on 26 November 2013 and is still posting losses. While the company and its management succeeded in launching the operation, attracting the first members and quickly growing the trading turnover, the operation of Aquis and the success of its business model depend mainly on (1) increasing capital, planned by mid-2015, to ensure that it continues to meet the regulatory capital requirements, and eventually (2) attracting a sufficient number of members and subscription fees to reach break-even.

Investments in associates

In June 2014, WSE had set up the company Instytut Analiz i Ratingu S.A. (IAiR). The company was created to fill a gap in the domestic rating offer in the segment of small and medium-sized companies. IAiR’s financial results are consolidated using full consolidation method since second half of 2014.