poland today business review+ no. 019

No. 019 / 20th January 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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HEALTHCARE British firm McKinlay Development open their first Polish retail park page 11

MANUFACTURING & PROCESSING

Swiss alloy wheel maker Ronal Group launches EUR 114m plant in Wałbrzych page 2 VPK Packaging to invest EUR 35m in two new corrugated board sites page 2

BANKING & FINANCE

eCard and ING driving Polish pilot of Visa's V.me electric wallet page 4 MergerMarket names top legal and financial advisors to Poland's M&A sector in 2013 page 5

ENERGY & RESOURCES

Consolidation of EDF's Polish energy assets gathers pace page 7

PROPERTY & CONSTRUCTION Investors acquired EUR 3.4bn worth of Polish commercial properties last year page 7

GTC issues new shares to finance two retail projects in Warsaw page 9

SERVICES & BPO

Cinema City owners to roll merger proceeds into Park of Poland page 9 Hotel chain B&B opens in Wrocław, seeks new opportunities page 10 Lufthansa to create 250 jobs at Kraków shared services centre page 11

TRANSPORT & LOGISTICS

Warsaw's Chopin airport reports record traffic in 2013, adds more retail page 12

CONSUMER GOODS & RETAIL

Rossmann on track to have 1,000 drugstores in Poland by year-end page 13

POLITICS & ECONOMY

Consumer inflation tops 0.7% in December bringing 2013 average to 0.9% page 13

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

Vattenfall exited coal-dependent markets like Poland to focus on clean energy. Photo: Vattenfall

Vattenfall Vattenfall Vattenfall Vattenfall pulls out ofpulls out ofpulls out ofpulls out of Enea and PolandEnea and PolandEnea and PolandEnea and Poland Sweden's energy giant Vattenfall has sold its entire 18.7% stake in Polish power utility Enea thus sealing its exit from the Polish market that began with the 2011 sale of key assets in Warsaw and Silesia. The Swedes cashed in a mere PLN 1bn for the shares, which they acquired back in 2008 for PLN 1.67bn. page 6

WSE to merge with CEESEG in 2014WSE to merge with CEESEG in 2014WSE to merge with CEESEG in 2014WSE to merge with CEESEG in 2014???? The Warsaw Stock Exchange is hoping to conclude the merger with its Vienna-based rival CEESEG by the end of 2014, announces CEO Adam Maciejewski. page 4

weekly newsletter # 019 / 20th January 2014 / page 2


Swiss alloy wheel Swiss alloy wheel Swiss alloy wheel Swiss alloy wheel maker Ronal launches maker Ronal launches maker Ronal launches maker Ronal launches EUR 114mEUR 114mEUR 114mEUR 114m plantplantplantplant

Europe's top producer of light alloy wheels, the Swiss Ronal Group, has launched its third Polish produc-tion unit in Poland and a second one in the southwest-ern city of Wałbrzych. Developed at the cost of PLN 500m (EUR 114m), the site had been operational since mid-2013 but it reached full capacity of 2m wheels per annum at the beginning of 2014. "The site has 480 workers at the moment and we in-tend to maintain employment at that level," Ronal Polska's CEO Krzysztof Brosig tells Poland Today. "The new factory has the same profile as the existing ones in Wałbrzych and Jelcz-Laskowice, which have a combined workforce of 1,270. There were no signifi-cant problems with finding skilled workers. However, technical staff had to undergo professional trainings connected with this kind of production." With factories in Wałbrzych and Jelcz-Laskowice, a PLN 1bn turnover and net-earnings of PLN 65.8m in 2012, Ronal Polska came in at number 249 in the rank-ing of Poland's largest companies. Its clients include the world's top carmakers, such as Volkswagen, Mercedes, BMW, or Fiat. With an annual output of 3m light alloy wheels and a staff of 750, the Jelcz-Laskowice plant is Ronal's largest factory worldwide. Established in 1969, Ronal is the world's number two producer of light alloy wheels for cars and commercial vehicles. With a head office in Härkingen, Switzer-land, the company employs more than 5,500 staff globally. Besides Poland, it has production units in

Portugal, Spain Germany, Switzerland, Czech Repub-lic and Mexico.

In September 2013 Ronal teamed up with Australia's Carbon Revolution to bring carbon fiber wheels to the European market. According to CEO Krzysztof Brosig, the carbon wheels will not be manufactured in Poland in the immediate future. Photo: Ronal Ronal's latest project has boosted the total value of au-tomotive investments in the Wałbrzych special eco-nomic zone beyond PLN 4.5bn. Automotive industry firms, including Toyota, Mando, Faurecia, Quin, and NSK currently employ more than 8,000 staff in the zone. Last year the zone issued permits for three large projects representing the automotive sector: US all terrain vehicle maker Polaris with a PLN 95m pro-ject (see PT Busienss Review+ No. 005 page 2) as well as Japan's Nifco and Daicel with investments of PLN 60m and PLN 14m respectively.


VPK Packaging to VPK Packaging to VPK Packaging to VPK Packaging to invest EUR 35m in two invest EUR 35m in two invest EUR 35m in two invest EUR 35m in two new Polish sites new Polish sites new Polish sites new Polish sites

Belgium's VPK Packaging Group NV seeks to in-vest EUR 35m in two brand new manufacturing pro-jects in Poland that will create a minimum of 60 new jobs, according to Pawel Rogalka, managing director. VPK has three units in Poland at the moment, of which two operate under the Aquila brand and supply corrugated board in sheets, with a combined staff of 160 employees. The first Aquila factory was opened in Września near Poznań in 2005, and four years later the Belgians launched a second plant in Radomsko. The third VPK unit, which makes parallel wound cores for rolling up textiles and floor coverings under the Corex logo, is located in Świecie, in north of Po-land. "We are hoping to start both projects in Q2 of 2014 with ground works and construction of buildings," VPK's CEO Pierre Macharis tells Poland Today. The company has just obtained an investment permit from the Łódź special economic zone, under which VPK is to invest PLN 58.8m and create at least 30 new jobs by the end of June 2016. "With this investment we are extending our Aquila Radomsko corrugating plant with additional produc-tion space that will be dedicated to die-cut and classic corrugated packaging manufacturing. This investment had been triggered by the strategic need for improving the service to VPK Group European Customers and geographical coverage of VPK’s corrugated packaging


facilities," explains Pierre Macharis. "This project concerns production of corrugated packaging to sup-ply the Polish locations of European key accounts of the VPK Packaging Group under its Blue Box Partners association that covers the main European geographic markets. Blue Box Partners aim to supply corrugated packaging to pan European food, drinks and fast mov-ing consumer goods markets." Besides the Radomsko project, which is being imple-mented under the VPK Packaging brand, the Belgian investor seeks to build a third corrugating plant for the Polish sheet supply business. Located in Skarbimierz near Wrocław, it will increase the total capacity of VPK's Aquila-branded business in Poland by 35% and create at least 30 new positions. "It will be identical to the Aquila Radomsko plant, equipped with a 2.8m working width, double wall cor-rugator. The focus is to reduce the delivery distance and increase the service rate for the delivery of sheets to our customers. The Aquila business will continue to operate on an independent decentralized way," the CEO of VPK Packaging Group tells Poland Today. From a modest start with a single paper mill estab-lished in 1936 by the grandfather of the current CEO Pierre Macharis, VPK Packaging Group has grown in-to one of Europe's top makers of board and packaging, based on recovered fibers. With more than 25 sites all over Europe the group offers a wide product portfolio that includes customized protective packaging, transit packaging, consumer packaging, cores, displays and promotional packaging. Listed on Euronext Brussels, VPK Packaging Group is an integrated European packaging group with 33 companies and more than 3,000 employees spread across 12 European countries. Its 2012 turnover totaled EUR 683m (-2.5% y/) while its net result came in excess of EUR 22m (+17% y/y).


Japan's FuJapan's FuJapan's FuJapan's Funai to close nai to close nai to close nai to close down Polish TV plant, down Polish TV plant, down Polish TV plant, down Polish TV plant, sack 54 employees sack 54 employees sack 54 employees sack 54 employees

After Toshiba, which in October sold its Polish pro-duction unit to Taiwan's Compal, another Japanese television maker Funai is pulling out of the country. The Osaka-based electronics company has decided to close down its only European factory in Nowa Sól, 102km northwest of Wrocław, resulting in 54 redun-dancies. Production in Nowa Sól is to be wound up by the end of January and the entire site, including build-ings, will be put up for sale.

Funai is hoping its 21,000 sq.m production unit in Nowa Sól will attract another manufacturer. Photo: PM Group

Funai launched the plant back in 2007 at the cost of tens of millions of PLN, and by 2008 it had 320 full-time employees. Problems began with the global fi-nancial crisis, forcing the Japanese manufacturer to carry out a first wave of group layoffs. Since 2009 em-ployee numbers at the Nowa Sól plant have gone down

to 54. The company said that despite the introduction of new products and a cost cutting program, it was un-able to make the business profitable in the face of the global slowdown on the television market. Established in 1961 by Tetsuro Funai, the company makes LCD and LED TVs, HDD recorders, Blu-ray and DVD players. The Polish unit was Funai's only production site in Europe. According to Takashi Takeda, CEO of Funai Electric Europe Sp. z o.o., the redundancies at Nowa Sól will be carried out in ac-cordance with Poland's labor regulations and the plant's closure will have no impact on the company's sales operations in Poland and Europe. Two months ago (see PT Business Review+ No. 010 page 2), Japan's Toshiba Corporation agreed to sell its Polish manufacturing plant in Kobierzyce near Wrocław to Taiwan's Compal Electronics Inc., the world's No. 2 contract notebook maker. The deal to acquire 100% ownership of Toshiba Television Cen-tral Europe will cost Compal USD 25m and is expected to be completed in Q1 2014. Toshiba opened the factory back in 2007 at the cost of approximately PLN 136m. With a staff of 700 employ-ees the plant makes LCD TV sets for the European and Russian markets. The move is part of Toshiba's global restructuring program, triggered by unsatisfactory performance of the company's TV-manufacturing di-vision, which posted a USD 166m net loss in 2012. The Japanese electronics giant has recently decided to lay off a half of the estimated 6,000 employees who work for its TV arm.


BANKING & FINANCE

WSE boss hoping to WSE boss hoping to WSE boss hoping to WSE boss hoping to seal CEESEG merger seal CEESEG merger seal CEESEG merger seal CEESEG merger by end of 2014by end of 2014by end of 2014by end of 2014

The Warsaw Stock Exchange (WSE) will consider partnerships and investments with other bourses as part of its long-term vision to turn Warsaw into Cen-tral Europe's financial hub, CEO Adam Maciejewski announced last week , presenting the bourse's growth strategy for 2014-2020. "The chief strategic goal of the Warsaw Stock Ex-change for 2014-2020 is to achieve a dominating role in the Central and Eastern Europe region and a signifi-cant role in Europe either independently or via part-ner alliance or merger with a large industry entity," WSE said. The crucial part of this plan is a merger with CEE Stock Exchange Group (CEESEG), which consists of the four stock exchanges: the Vienna bourse and smaller exchanges in Budapest, Ljubljana and Prague. The two entities have been in talks for nine months now but so far little firm progress has been made. However, according to Mr. Maciejewski, their merger may take place by the end of this year, creating Central and Eastern Europe’s largest single exchange. "I would wish that this transaction is completed this year," Maciejewski told reporters. "I do not know if this will be the case, because it is not a decision of the management." The possible merger with CEESEG could be accompa-nied by a share issue by the WSE, whereas other in-vestment projects the Warsaw bourse is considering at

the moment could be financed from own means, the CEO also said. Among the moves it made last year was the purchase of a 30% stake in Aquis Exchange, a new London-based new share trading venue. The WSE's strategy for the remainder of the decade is based large-ly on further pressing current growth drivers and deepening the "diversification and internationalization of revenues." In addition to the potential merger with CEESEG, the Warsaw exchange will seek is to establish strong co-operation with external partners including, for exam-ple, other exchange operators and software providers, as well as develop the equities market, commodities and derivatives. “We currently have 11 potential initiatives on the table, some in Poland and some international and I believe the majority of these will be completed,” Mr. Maciejewski told reporters..

BANKING & FINANCE

eCard eCard eCard eCard andandandand ING drivING drivING drivING drivinginginging Polish pilot of Visa's Polish pilot of Visa's Polish pilot of Visa's Polish pilot of Visa's V.me electric walletV.me electric walletV.me electric walletV.me electric wallet

Poland has been among the first four markets in Eu-rope to see the launch of V.me by Visa, the first pan-European digital wallet service to be offered by banks and financial institutions. Offering simple, secure online payments, V.me by Visa is designed to increase consumer confidence in online shopping and reduce the proportion of sales that are abandoned during the checkout process. Visa's partners on the pilot in Po-land are the payment processor eCard and ING Bank Śląski as well as e-retailers such as Merlin.pl and Prażynka.pl, mobile top-up service

Doładowywacz.pl as well as the country's top chari-ty Polska Akcja Humanitarna. "eCard seeks to make V.me available to all of its e-commerce customers in Poland, which include ap-proximately 3,000 online stores, by the end of the year," Jakub Kiwior, head of Visa Europe in Poland, tells Poland Today. "There is a lot of interest in the service from payment processors and e-tailers and we are in talks with all payment clearance companies to broaden the V.me acceptance network as fast as possi-ble. ING Bank Śląski was the first issuer to partner up with us in Poland and they have been working on a pi-lot implementation with ING employees since No-vember."

V.me by Visa is designed to deliver an improved and streamlined online shopping experience. Photo: Visa Europe V.me will be available to ING Bank Śląski customers by the end of Q1 2014 and Visa is hoping other issuers will gradually join the initiative. Besides Poland, the service is currently live in the UK, France, and Spain. An estimated 4,000 merchants across Europe are now accepting V.me by Visa thanks to strategic partner-ships with main services suppliers in the payment in-


dustry. eCard expects a few dozen Polish online retail-ers to join V.me over the coming weeks. The phased launch will see further retailers and issuers coming on board over the next few months ahead of the full commercial launch and consumer marketing cam-paign in late 2014. "The service will be made available through Visa Eu-rope’s issuing members and consumers will be able to put any card from a major scheme into the wallet, re-gardless of the card issuer or payment scheme. Fol-lowing the launch of V.me by ING Bank Śląski we are expecting further implementations to follow this year. We are working with a large group of banks in order to make the V.me available to approximately a half of all Visa card holders in Poland by the end of the year," says Jakub Kiwior. V.me by Visa is a pan-European digital wallet service developed by Visa Europe. According to the company, the service makes online shopping simple and secure by removing the need for consumers to enter their card numbers, expiry dates and other personal details every time they make a purchase with an online retail-er. The V.me by Visa digital wallet can be accessed through the internet browser on a PC, laptop, tablet or smartphone. Visa Europe is a payments technology business owned and operated by member banks and other payment service providers from 37 countries across Europe. There are 470m Visa cards in Europe while EUR 1 in every EUR6.75 spent in Europe is on a Visa card. Al-most 80% of Visa Europe's business is on debit cards and, in the year to December 2012, over EUR 1 trillion was spent on Visa debit cards. Annual online spending on Visa cards in Europe topped EUR 212bn in this pe-riod and now accounts for more than 20% of Visa Eu-rope’s processed business.

BANKING & FINANCE

MergerMarket MergerMarket MergerMarket MergerMarket namenamenamenames s s s top legal and financial top legal and financial top legal and financial top legal and financial advisorsadvisorsadvisorsadvisors totototo Poland's Poland's Poland's Poland's M&A sectorM&A sectorM&A sectorM&A sector in 2013in 2013in 2013in 2013

According to brand new reports by Poland Today's partner MergerMarket, the top legal advisors in Po-land's mergers and acquisitions sector last year were US law firms Greenberg Traurig and Weil, Gotshal & Manges. Greenberg Traurig offered advice in rela-tion to the largest M&A transactions in Poland. Their aggregate value was USD 6.7bn.

League table of legal advisors to M&A

by value: Poland 2013

Rank Company Value

(USDm) Deal Count

1 Greenberg Traurig 6,700 11

2 Weil Gotshal & Manges 1,268 16

3 K&L Gates 1,203 5

4 Slaughter & May 911 3

=5 Delphi 903 2

=5 Gernandt & Danielsson 903 2

7 Linklaters 704 5

8 Dentons 686 4

9 Clifford Chance 628 9

10 CMS 626 15

11 Allen & Overy 370 7

12 Burnet Duckworth & Palmer 333 2

13 Locke Lord 327 1

14 Noerr 251 4

15 McCarthy Tetrault 224 1

Source: Mergermarket

In terms of the value of M&A transactions handled in Poland, Weil, Gotshal & Manges came second and K&L Gates third. In terms of the number of transac-tions itself, the league was topped by Weil, Gotshal & Manges with 16 deals, followed by CMS (15), and Greenberg Traurig (11). Greenberg Traurig offered advice on some of the larg-est M&A deals in 2013 that included, among others, the takeover of Polkomel by Cyfrowy Polsat, the acquisition of BGŻ by BNP Paribas, Bank PKO BP's takeover of Nordea Bank, the takeover of the Canadian TriOil company by PKN Orlen, the sale of Wirtualna Polska portal by TP S.A., the sale of eService by Bank PKO BP, and also the takeover of Zelmer by Bosch und Siemens. "The MergerMarket League Tables confirm our un-challenged position on the M&A market in Poland, but also show the growing importance of the Polish econ-omy in Central Eastern Europe. Apart from Russia and Turkey, only Poland is present in the annual report," said Jarosław Grzesiak, Greenberg Traurig Warsaw Office Managing Partner. In the whole of the Central and Eastern Europe re-gion, which also includes Russia and Turkey, Green-berg Traurig rose to the 8th spot in terms of the value of transactions and 15th place in terms of the number of deals. The top financial advisors in Poland's M&A sector last year were Trigon Group, which offered advice on six deals with a combined value of USD 5.3bm, EY (4 transactions; USD 5bn) and Bank Zachodni WBK, part of Spain's Grupo Santander (4 deals & USD 1.1bn). Similar to Trigon, Italy's UniCredito partici-pated in six transactions, but their combined value came to merely USD 324m.


League table of financial advisors to

M&A by value: Poland 2013

Rank Company Value

(USDm)

Deal

Count

1 Trigon Group 5,310 6

2 EY 5,008 4

3 Bank Zachodni WBK 1,067 4

4 JPMorgan 698 1

5 Rothschild 604 3

6 Citi 440 2

7 UniCredit Group 324 6

8 Morgan Stanley 292 2

9 Societe Generale 275 2

10 Credit Agricole 264 1

=11 Dundee Capital Markets 224 1

=11 GMP Securities 224 1

=11 Peters & Co 224 1

14 Bank of America Merrill Lynch 173 2

15 Raiffeisen Centrobank 160 2

Source: Mergermarket

MergerMarket is one of the largest and most im-portant intelligence and news services reporting M&A transactions on a global scale. It is owned by the Fi-nancial Times Group. Poland Today was the media sponsor of MergerMarket's Central & Eastern Europe-an M&A and Private Equity Forum 2013, which last autumn brought together in Warsaw the region's cor-porate finance and private equity community.

ENERGY & RESORUCES

Vattenfall completeVattenfall completeVattenfall completeVattenfall completessss Poland exit, sells Enea Poland exit, sells Enea Poland exit, sells Enea Poland exit, sells Enea stake for PLN 1bnstake for PLN 1bnstake for PLN 1bnstake for PLN 1bn

Swedish energy giant Vattenfall has sold its entire stake in Poland's fourth-biggest power utility Enea for slightly more than PLN 1bn, causing the company's shares price to plung on the news. The entire stake of 82.4m shares, equivalent to 18.67% of Enea's share capital, was sold by way of an accelerated placement, for PLN 12.50 per share, Vattenfall said. The transac-tion concludes Vattenfall's exit from the Polish mar-ket, commenced with the sale of its energy assets in 2011. "The decision to sell our shares stems from a collective evaluation of the current market conditions and what we think of the development in the future," Mikael Petrovic Wågmark Head of Media and Public Rela-tions at Vattenfall Sweden, tells Poland Today. Once a key foreign player in Poland's energy industry, Vattenfall acquired the Enea stake in November 2008, at PLN 20.14 a share, or approximately SEK 4.6bn in total, hoping to one day get majority control of the business. It sold the shares last week for approximate-ly SEK 2.2bn, banking a considerable loss. "We can confirm that we have, over the years, already written down the shares in our books by SEK 2.4bn SEK in total," says Mikael Petrovic Wågmark. "We are still active in trading in Poland and we still have an IT support unit of 185 people. There are no plans to close down those units," he adds.

The reasons behind Vattenfall's exit from Poland were mainly political in nature. In 2010 the company bowed down to domestic pressure to abandon coal-dependent markets like Poland and Denmark to focus on core markets of Sweden, Germany and the Netherlands as well as the UK and France for sustainable energy. The following year, Vattenfall Heat Poland, the leading heat and electricity producer in Warsaw, was acquired by Polish gas and oil giant PGNiG, whereas the other key Vattenfall business in Poland, the Silesian power distributor Górnośląski Zakład Elektro-energetyczny (GZE), went to the listed Polish ener-gy producer and supplier Tauron. The Swedes cashed in PLN 7.59bn from the two transactions, but it took them another three years to divest the Enea shares.

Enea Group key financial figures

0

3

6

9

12

2009 2010 2011 2012

0

200

400

600

800

Turnover in PLNbn, left axis

Net pro fit in PLNm, right axis

Source: Enea

The Polish government, which holds a 52% stake in Enea, has twice abandoned efforts to find a strategic investor for the utility, after holding talks with Ger-many's RWE in 2009 and France's EDF in 2011. The fact that Vattenfall chose to exit via an accelerated book building "suggests the government’s plans to find


a strategic buyer for the company remain on hold, so there is no takeover story on the horizon," Bram Buring, a Prague-based analyst at Wood & Co., said in a note.

Enea's key asset is the Kozienice power station, the largest hard coal-fired plant in Poland. Photo: OT Logistics Enea shares dropped 14% last year, compared with a 7.1% decline in the WIG20 index of the country’s larg-est and most liquid stocks, according to data compiled by Bloomberg. The Poznań-based company turned over PLN 10.1bn in 2012 and posted a net profit of PLN 712m. Its Q1-Q3 2013 revenues came to PLN 6.8bn, marking an 8.6% decline y/y, but its net earnings in-creased 9.4% y/y and totaled PLN 667m. In October last year Enea announced PLN 20bn investment pro-gram for the years 2014-2020, over which period the group intends to increase its production capacity with-in electricity by 1,875 MWe (including: 1,075 MWe in power plants, ca. 500 MWe from renewable energy sources, ca. 300 MWe in cogeneration projects) and within heat energy to 1,500 MWt.

ENERGY & RESOURCES

Consolidation of Consolidation of Consolidation of Consolidation of EDFEDFEDFEDF's's's's Polish Polish Polish Polish energy energy energy energy assetsassetsassetsassets gathersgathersgathersgathers pacepacepacepace

EDF has completed a second stage of asset consolida-tion in Poland, a program through which the French energy giant seeks to make its local organization more consistent, and its brand – more easily recognizable to Polish consumers. Since the beginning of January, EDF's subsidiaries EDF Wybrzeże (owner of the co-generation plants in Gdańsk and Gdynia with a com-bined capacity of 333 MW electric and 1,199 MW thermal) and the trading unit EDF Energia have been incorporated into the main company EDF Polska. In May last year, EDF finalized the initial phase of the operation by merging its remaining key assets in Po-land into a single, newly-established entity EDF Polska, which incorporated EDF Rybnik (a 1,775MW coal-fired power station in Rybnik, Silesia), EDF Kraków (heat & power plant in Kraków with a capaci-ty of 460MW electric and 11,118MW thermal), shared services centre EDF Polska CUW, and management unit EDF Polska Centrala. A number of key assets still remain outside EDF Polska, most notably the Warsaw-listed Kogeneracja, which operates three heat & power plants in the Wrocław area (363 MWe & 1,083 MWt), as well as co-generation firms in Zielona Góra and Toruń. EDF has been operating in Poland for 15 years. The EDF Group in Poland has a 10% share of the electricity market and a 15% share of the network heat market, and employs 3,400 employees. The EDF Group is a major foreign investor in Poland's power sector and

the largest heat and electricity co-generator in the country, supplying both electricity and heat to Kraków, Rybnik, Gdańsk, Gdynia, Wrocław, Zielona Góra and Toruń. As far as electricity generation is con-cerned, EDF operates a 1,775 MW power plant in Ryb-nik. The company consumes almost 7m tons per year, making it the second most important buyer of coal in the country. EDF is currently implementing a number of large-scale modernization projects at its power generation assets, seeking to upgrade them to EU-approved levels in terms of emissions and efficiency as well as extend their life cycle beyond 2030. In October 2013 EDF Polska awarded large contracts to Finnish Fortum Power and Heat Oy, Polish Instal Kraków, and French Alstom Power, regarding engineering, pro-curement, delivery, erection and commissioning of NOx capturing solutions at EDF's units in Wrocław, Krakow, and Gdańsk/Gdynia. Overall, the company has earmarked some EUR 550m on these investments ahead of the introduction of the EU's Industrial Emis-sions Directive in 2016.

PROPERTY & CONSTRUCTION

Investors acquired Investors acquired Investors acquired Investors acquired EUR 3.4bn worth of EUR 3.4bn worth of EUR 3.4bn worth of EUR 3.4bn worth of Polish commercial Polish commercial Polish commercial Polish commercial properties last yearproperties last yearproperties last yearproperties last year

The volume of transactions concluded on Poland's commercial real estate market in 2013 increased by 26% last year and came in excess of EUR 3.4bn, mak-ing it the best result since 2006 when total investment volume amounted to over EUR 5bn, reported the property consultancy Jones Lang LaSalle. A similar


report, published by CBRE, places the 2013 transac-tion volume at EUR 2.97bn, with a y/y growth of 9%. Clearly the two competitors must have booked some key transactions differently, but the overall conclusion of their reports is the same: the 2013 was one of the strongest years the region's property investment mar-ket has seen in a long time. JLL provided a detailed breakdown of investment by market segments that showed retail transactions amount to approximately EUR 1.32bn, office – approx. EUR 1.06bn, industrial – approx. EUR 656m, mixed use projects and multi-segment portfolio deals - over EUR 280m, and hotel -more than EUR 113m. The dom-inant position of retail transactions (Silesia City Cen-ter, Charter Hall portfolio, Wola Park, Galeria Kazimierz and Galeria Dominikańska) is a noticeable change compared to 2012, when the sector was out-performed, albeit slightly, by offices.

Poland property investment volume 2013 data by market segment in EUR bn

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

hotels

mixed-use

industrial

office

retail

Source: JLL

The largest 2013 transaction across all commercial real estate market segments was the EUR 400m sale of the

Silesia City Center. The largest transactions in the of-fice market were the sale of Warsaw's New City com-plex for EUR 127mand CA Immo's acquisition of Axa Immoselect's remaining 49% stake in former Europolis office portfolio (Bitwy Warszawskiej, Saski Crescent, Saski Point, Sienna Center, Warsaw Tow-ers). In the industrial segment, the largest transaction was the purchase of 50% of the SEGRO industrial platform by PSP Investments. Foreign investors accounted for ca. 94% of total vol-ume in 2013. The majority of them were global inves-tors (e.g. Blackstone, Atrium, and Allianz-led con-sortium that purchased Silesia City Center), followed by German investors (RREEF, Union Investment, Invesco, IVG, Allianz), British investors (LCP, Tris-tan Capital Partners, SEGRO) and US capital (WP Carey, Hines, Kulczyk Silverstein Properties and Lone Star). Polish investors were responsible for 6% of last year's property investments. According to JLL, Poland's relatively solid economic condition, especially vis-à-vis some of its European peers, was one of the drivers of investors’ sustained in-terest in the country's commercial real estate. Other factors that encouraged investor activity include the increased availability of bank financing, especially when compared to 12-24 months ago, as well as price increases on the Western real estate markets, making Poland an attractive and affordable investment alter-native. "During the past year, Poland enjoyed great popularity among foreign investors. This translates into excellent results recorded in the retail and industrial segments as well as increased activity on the hotel market. Un-surprisingly, in the office market, schemes located in Warsaw attracted the most attention. On the other hand, an interesting trend was the increased activity on major regional markets, which is exemplified by transactions in Wrocław, Gdańsk and Kraków," com-

mented Tomasz Puch, Head of Office & Industrial In-vestment, Jones Lang LaSalle. "The retail sector in 2013 was dominated by prime, large volume shopping centre transactions. In the in-dustrial sector, investors’ attention was drawn to A-class facilities in major logistics locations as well as lo-cations in the proximity to the largest agglomerations with excellent access to road infrastructure. It should be noted that in 2013, a significant number of portfolio deals and real-estate based corporate transactions was recorded. A good illustration are the sales of PointPark Properties (P3) portfolio, 50% of SEGRO industrial platform, 49% stake in the Europolis port-folio and 27.75% stake in GTC."

CEE Property investment volume 2013 data by country in EURm

Market 2012 2013

Bulgaria 9 23

Croatia 43 67

Czech Republic 605 1,015

Hungary 121 225

Poland 2,720 2,970

Romania 185 229

Russia 3,723 5,201

Slovakia 16 250

Ukraine 249 41

CEE Total 7,671 10,021

Source: CBRE

JLL expects prime office yields to remain stable at around 6.25% with retail yields for best in class prod-ucts at 5.75%. For truly prime warehouse assets, yields are expected at below 7.75%. While prime retail yields show stable outlook, prime office and warehouse yields might see some further compression during 2014. "Taking into account transactions already in progress, we expect that this year’s transaction volume on the


Polish commercial real estate market can be close to last year’s result and reach around EUR 3bn”, Tomasz Puch added. According to CBRE data, the CEE property investment volume rose by nearly a third last year reaching EUR 10bn, with Russia and Poland having generated close to 82% of the total figure.

PROPERTY & CONSTRUCTION

GTCGTCGTCGTC issues new shares issues new shares issues new shares issues new shares to finance two retail to finance two retail to finance two retail to finance two retail projects in Warsaw projects in Warsaw projects in Warsaw projects in Warsaw

Following the EUR 90m sale of its stake in the Kraków shopping Centre Galeria Kazimierz at the end of last year (see PT Business Review+ No. 017 page 10), the Warsaw-listed property developer Globe Trade Center (GTC) has successfully carried out a secondary public offering that generated PLN 224m worth of proceeds. The share issue was conducted through an accelerated book building and was 250% oversubscribed, GTC said in a communiqué. The price of new shares was set at PLN 7, without any discount to the closing price on the preceding day. The book building took place on 10 January 2014, and resulted in over 79m subscriptions for 32m shares which proves strong interest in the company from both Polish and international investors, including cur-rent investors as well as new investors. Existing inves-tors subscribed for more than their pro-rata shares, which were preferentially allocated do them in line with the resolution of Extraordinary Shareholders Meeting, the company said.

"The results of the book building are very encouraging. Undoubtedly, GTC remains attractive to investors. The recent change of the company’s main shareholder has enhanced the trust of the market, and shows that the company may be better positioned to realize its strategy," commented explained Alain Ickovics, Presi-dent of GTC Management Board.

Galeria Wilanów is to open on 2016. Image: GTC

A few weeks ago (see PT Business Review+ No. 012 page 5), Israeli Kardan NV, a company linked to GTC's original founders, sold its 27.75% stake in the company to Lone Star Real Estate Fund III for EUR 160m. Kardan booked GTC Poland at a value of EUR 194m at the end of June 2013. GTC, which developed one of Warsaw's most popular shopping centers Galeria Mokotów, is currently pool-ing together resources to finance two major retail pro-jects: Galeria Wilanów and Galeria Północna shopping malls in Warsaw, Poland. GTC estimates that phase one of Galeria Północna will open its doors in 2015 with a GLA of 64,000 sq.m, whereas Galeria Wilanów is to welcome its first customers in 2016 with an initial GLA of 61,000 sq.m.

Established in 1994 in Warsaw, GTC currently oper-ates in Poland, Hungary, the Czech Republic, Roma-nia, Serbia, Croatia, Slovakia, Bulgaria, Russia and Ukraine. The company develops new projects and manages completed properties in three key sectors of real estate: office buildings and parks, retail and enter-tainment centers and residential. To date, GTC has developed approximately 950,000 sq.m of net com-mercial space and 300,000 sq.m of residential units. The company currently manages a combined 602,000 net sq.m of completed and operational commercial space and holds a large portfolio of investment pro-jects at various stages of development that will enable it to develop of 1.1m sq.m of commercial space and 615,000 sq.m of residential space. GTC's total assets exceed EUR 1.9bn.

SERVICES & BPO

Cinema City owners to Cinema City owners to Cinema City owners to Cinema City owners to roll merger proceeds roll merger proceeds roll merger proceeds roll merger proceeds into Park of Poland into Park of Poland into Park of Poland into Park of Poland

The Greidinger family, who recently decided to merge their Warsaw-listed movie theater chain Cinema City International (CCI) with UK-based giant Cineworld (see PT Business Review+ No. 018 page 12) will invest the proceeds from the transaction in other projects, most importantly an amusement park devel-opment Park of Poland. "The first concrete project is Park of Poland. We hope to be able to present our plans regarding the first stage of this investment by mid-year," CCI CFO Nisan Co-hen said last week. According to earlier reports, phase one of Park of Poland will cost EUR 0.5bn to build and the project is expected to create 2,000 jobs. The in-vestment will be carried out by Global Parks Po-


land, a company the Greidinger Group registered a few years ago. Headed by Moshe (Mooky) Greidinger, the Greidinger Group has extensive experience in the entertainment and real estate industry as the investors behind Cinema City International and property devel-oper Ronson Development, both of which are listed on the Warsaw Stock Exchange. Under the plan, Park of Poland would be situated on the area of 250 hectares in the village of Wręcza near Mszczonów, some 45km south from Warsaw. De-signed by Forrec, a major player in the global theme park industry, it will comprise an amusement park, water park and roller coasters. Later on the develop-ment would be extended by new facilities to eventual-ly become the second biggest theme park in Europe af-ter France's Disneyland, creating 3,000-3,500 jobs in total. The investor is counting on 4m visitors a year. "In the future we might also consider involvement in other entertainment and real estate projects which could bring value to our shareholders," Cohen also said. CCI sold its cinema business in Central Europe and Is-rael in a cash and equity deal valuing the enterprise at some GBP 503m. As payment, CCI is to receive GBP 272m in cash (decreased by the value of CCI's all debts estimated at GBP 169m) and a 24.9% stake in Cineworld's increased share capital, the companies said. Following the deal's completion CCI will addi-tionally receive EUR 14.5m in cash and, depending on the timing of the deal's completion, an earnings con-sideration of EUR 25.9-28.9m. The amusement park industry in Poland does not have the best press, following a number of spectacular flops. Arguably the biggest one was Adventure Park War-saw, the brainchild of a little known Dutch entrepre-neur Peter Mulder, who sought to develop a 240-hectare theme park and resort with hotels, restaurants

and 25 attractions as well as a whole range of accom-panying renewable energy facilities, including a waste incinerator, water purification installations, biogas plant etc. Conceived as the first large-scale adventure park in Central Europe, the project were to emerge in the Warsaw satellite town of Grodzisk Mazowiecki and attract millions of visitors annually. Mulder's company Las Palm awarded contracts with a combined value of nearly EUR 760m to Dutch infra-structure giant Imtech. The latter announced in 2012 that the Polish deal was its largest order ever, only to realize a few months later that Adventure Park War-saw would never see the light of day due to lack of fi-nancing. The group of wealthy global investors, whose identity Mulder did not reveal and who were supposed to back Adventure Park Warsaw, faield to materialize, causing Imtech to write down more than EUR 100m on the project. The company's shares fell as much as 50% when the news broke in February last year, the biggest intraday decline since at least October 1989, reducing Imtech's value to less than EUR 1bn.

SERVICES & BPO

HotelHotelHotelHotel chain B&B opens chain B&B opens chain B&B opens chain B&B opens in in in in Wrocław, seeks new Wrocław, seeks new Wrocław, seeks new Wrocław, seeks new opportunitiesopportunitiesopportunitiesopportunities

Following the recent launch of its third location in Po-land, near the Wrocław Old Town, the French budget hospitality operator B&B Hotels is gearing up for fur-ther investments in the country. "At the moment we own three hotels with 387 rooms as well as two investment sites in Poland. The con-struction of our fourth hotel should begin shortly. Come spring, we should be able to disclose more de-

tails on this and other future B&B projects in Poland," Beatrice Bouchet, CEO of B&B Hotels Polska tells Po-land Today. "We are actively seeking further suitable locations for new hotels in Poland." Back in 2011, B&B representatives said they wanted to develop 10 hotels in Poland in 3-4 years at the cost of PLN 300m, mentioning Gdańsk, Kraków, Łódź, Poznań and Katowice as their next target locations. So far, the company has been building its own properties, but it seems like their strategy is shifting towards the operator model.

B&B Wrocław Centrum opened in November near Wrocław's Old Town. Image: B&B

"We are working on a number of projects in Poland's largest cities whereby B&B would become the opera-tor of leased properties. This is currently the preferred expansion formula for our brand," says Ms. Bouchet. "We consider the pace of our growth in Poland as sat-isfactory and it matches the assumptions we had made with regard to this market. Our strategy prioritizes city centre locations, such as B&B Toruń and B&B Wrocław Centrum. In Warsaw, where the market is unlike in other Polish cities, we chose a site in close proximity to the Chopin airport."


The chain's latest project in Wrocław, which opened merely a few weeks ago, includes 140 air-conditioned rooms, 40 parking spaces and a conference room. The first B&B hotel in Poland was opened in Toruń, near the historic Old Town. Next, the company launched its B&B Hotel Warszawa-Okęcie, located a 10-minute drive from Warsaw's Chopin Airport. It was built in a record time of ten months, as the developer was de-termined to complete the project before arrival of football fans for the UEFA Euro soccer championships in June 2012. Opened in January 2012, the hotel's 154 rooms target also business travelers visiting the giant office parks in the area (Marynarska Office Park and Okęcie Business Park to name just a few) as well as motorized tourists arriving in Warsaw from Kraków, Wroclaw, or Katowice. Capital expenditures associat-ed with this project came to some PLN 30m and over the first two years it welcomed close to 76,000 guests. "The results achieved by the Polish B&B hotels last year were in line with our expectations and budget. The occupancy ratio in Toruń and Warsaw increased by 15% from the prior year and we are very pleased with this outcome," comments Beatrice Bouchet. Established in 1990, Groupe B&B Hotels owns more than 290 hotels in Germany and France, 14 in Italy, as well as a handful of properties in Poland, Portugal, Morocco and the Czech Republic. Its formula relies on affordable, standardized rooms, with bathrooms, satel-lite TV and Wi-Fi internet, targeting primarily short-term business travelers. In 2010 the business was ac-quired by US private equity giant Carlyle Group for EUR 480m.

SERVICES & BPO

Lufthansa to create Lufthansa to create Lufthansa to create Lufthansa to create 250 jobs at Kraków 250 jobs at Kraków 250 jobs at Kraków 250 jobs at Kraków shared services centreshared services centreshared services centreshared services centre

Lufthansa Global Business Services, the shared services arm of Germany's top airline, is moving its Kraków unit to new offices and seeks to boost its staff numbers to 800 over the coming years, in addition to taking on increasingly complex and sophisticated pro-cesses. According to Lufthansa's plans, Kraków is to remain Lufthansa's largest business services unit out-side of Germany. Formerly operating as Airline Accounting Center (AAC), the Lufthansa facility in Kraków was one of the pioneers of Poland's business process outsourcing in-dustry. Opened in 2003, the center currently employs some 550 workers, who provide finance, revenue ac-counting, human resources and procurement services for the whole Lufthansa group. The regional center LGBS Krakow is the near-shore center for Europe and Africa. Its lead is double-headed since it is also the overall lead for the centers in Bangkok and Mexico City. In order to accommodate its rapidly expanding per-sonnel, Lufthansa has rented nearly an entire office building in Kraków's Bonarka 4 Business complex, de-veloped by Hungary's TriGranit. The centre has taken up 8,000 sq.m of net-office space distributed over six floors. The recently completed phase one of Bonarka 4 Business consists of four individually standalone A class office buildings offering approx. 35,000 sq.m of leasable space in total.

"In 2013 we celebrated the 10th anniversary of Lufthansa's AAC in Kraków – a story of success and continuous growth. The expansion and move to this brand new office building is a visible sign towards fur-ther expansion and a significant transformation pro-cess that we are about to undertake now to generate higher value for the entire Lufthansa Group," com-mented Marc Ammelung, Managing Director of Lufthansa’s AAC.

Lufthansa GBS Kraków has taken up one of the four initial buildings of Bonarka 4 Business. Photo: TriGranit Lufthansa Global Business Services operates globally, with a parent company in Germany (LGBS GmbH), as well as regionally responsible centers in Mexico City (Americas), Krakow (EMEA) and Bangkok (APAC). Besides the operational execution of the processes, its goal is to increase the efficiency of these processes via standardization and harmonization to grant cost sav-ings across the Lufthansa Group.


TRANSPORT & LOGISTICS

Warsaw's Chopin Warsaw's Chopin Warsaw's Chopin Warsaw's Chopin aaaairport reports record irport reports record irport reports record irport reports record traffic in 2013, expands traffic in 2013, expands traffic in 2013, expands traffic in 2013, expands retail offeringretail offeringretail offeringretail offering

Warsaw's Chopin airport served a record 10.6m pas-sengers in 2013, marking an 11.4% improvement on the prior year, despite earlier projections for a slight de-cline. This year is to bring a minor drop in traffic at the Chopin airport, however. "There are several reasons for this: Ryanair, which handled about 1m passengers in 2013, does not operate from Chopin Airport anymore. Polish LOT has scaled down its operations due to an ongoing restructuring program. However, the network of direct routes from Warsaw has been growing steadily and the offer for passengers is now getting even more attractive,” commented Michał Marzec, director of the Chopin Airport. The unexpectedly robust result last year was chiefly due to the prolonging closure of the Modlin airport, which forced low cost carriers Ryanair and WizzAir to operate from the Chopin airport for a greater part of 2013. Although Modlin reopened in the autumn, only Ryanair chose to return there, with its Hungarian rival choosing to stay at Warsaw's main airport, which is conveniently located very close to the city centre. The Chopin airport said that it was expecting the in-troduction of at least 11 new routes in 2014. In Janu-ary, Eurolot is starting a new seasonal service to Salz-burg, Austria and in April other seasonal routes to Du-brovnik, Split and Zadar in Croatia, as well as

Herringsdorf in Germany. Norwegian will start fly-ing to Malaga, Spain in February, and to Barcelona in June. The Norwegian budget carrier has also an-nounced it would start a new service to Madrid as well. Lufthansa's low cost unit Germanwings will open a connection to Cologne at the end of March (as well as take over the Dusseldorf and Stuttgart services, now run by Lufthansa), whereas Slovenian air carrier, Adria Airways will launch a new route to Ljubljana early in April. Also in April, Spanish Vueling plans to operate its first flight from Warsaw to Barcelona.

Passengers at Warsaw's Chopin Airport (in m)

6

7

8

9

10

11

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Warsaw Chopin Airport

Besides the above routes, which have been officially announced and confirmed, there are likely to be more new connections, by Air Serbia (to Belgrade), Alitalia (to Milan) as well as Polish charter airline Bingo Airways, which seeks to start its first schedule ser-vice. Last but not least, Wizz Air announced plans to expand their base in Warsaw to include another, fourth aircraft, which is likely to translate into new services as well. Meanwhile, work is well underway on the old section of the airport's Terminal A, which was closed for re-

development shortly after the Euro 2012 soccer tour-nament. The terminal will be opened in 1H 2015 fol-lowing a thorough makeover and full integration with the rest of the airport. As part of the investment, a di-rect underground walkway will be built, connecting the terminal with the airport's railway station. At the moment, passengers have to exit the terminal in order to access the station, which makes it inconvenient for many travelers. The Polish airports company PP Porty Lotnicze has obtained a PLN 51m EU grant for the project, which carries a total price tag of PLN 350-360m.

15 new outlets will be opened next year at Warsaw's Chopin Airport's Terminal A following the redevel-opment of its oldest section. Photo: M.Adamski, Chopin Airport

The airport's spokesperson, Przemysław Przybylski, has just announced that an operator has been chosen for the 15 retail outlets that will take up an estimated 3,000 sq.m of the area that is currently being modern-ized. The contract was awarded to HDS Polska, part of French duty free and travel retail giant Lagardère Services. The new outlets will include two Aelia Du-ty Free shops, a number of luxury fashion boutiques (with brands such as Victoria's Secret, Ermenegildo Zegna, Emporio Armani, Salvatore Ferragamo and


Ralph Lauren), Jubitom watches & jewelry store, Sam-sung showroom, and others. Some 2,000 sq.m has been designated for cafés and restaurants, including a food court with Polish, Italian, and fast food outlets (McDonald's).

CONSUMER GOODS & RETAIL

Rossmann on track to Rossmann on track to Rossmann on track to Rossmann on track to have 1,000 drugstores have 1,000 drugstores have 1,000 drugstores have 1,000 drugstores in Poland in Poland in Poland in Poland by yearby yearby yearby year----endendendend

German drugstore giant Rossmann opened 150 new outlets in last year, bringing its total network size in Poland to 850 stores, including more than 80 in War-saw alone. With a further 150 openings (of which some 20 in Warsaw) in their 2014 pipeline, it looks like the Germans are well on track to reach 1,000 locations next year. The first Rossmann drugstore in Poland was opened in 1993 in Łódź. In 2012 the Polish unit boosted its sales by nearly 17%, passing the PLN 5bn mark, which means that over the prior four years its turnover quad-rupled, despite a rather poor sentiment on the market during the post-crisis period. In 2013 Rossmann's rev-enues totaled PLN 5.67bn, representing a y/y growth of 13%, and according to CEO Marek Maruszak the re-tailer intends to maintain a similar pace of expansion (10-13%) in 2015. The company estimates that its share in the Polish drugstore market increased from 18.7% as of end of 2012 up to some 22% a year later. In a move to support its rapid expansion in Poland, Rossmann is building its second Polish distribution centre in Pyskowice, 30km north-west of Katowice, which will supply the southern part of the country. The PLN 70m investment is to launch in August next

year, initially creating an estimated 100 jobs, and their number is expected to grow significantly over time. Currently, Rossmann's logistics in Poland is being handled by its distribution hub in Grudziądz. The German chain has approximately 12,000 staff in Po-land and according to Mr. Maruszak another 2,000 are likely to join Rossmann in 2014.

One of Rossmann,'s recent openings on Sopot's main shopping street. Photo: Rossmann

Poland is Rossmann's second largest market after Germany, where the chain operates more than 1,850 outlets. In November 2013 Rossmann opened its 3,000th store in Hannover. Globally, its store numbers tripled since 2004 and its rapid growth over the past year. Rossmann saw its global sales revenues grow 16.1% y/y in 2012 and total EUR 5.95bn. The compa-ny's founder Dirk Rossmann maintains a majority stake (60%) in the business, with the remaining 40% being held by the A.S. Watson Group, owned by Hong-Kong billionaire Li Ka-shing.

POLITICS & ECONOMY

December inflation December inflation December inflation December inflation tops 0.7% bringing tops 0.7% bringing tops 0.7% bringing tops 0.7% bringing 2013 average to 0.9% 2013 average to 0.9% 2013 average to 0.9% 2013 average to 0.9%

Poland's consumer prices increased 0.7% y/y and 0.1% m/m in December, the Central Statistical Office (GUS) said, matching average projections. The average infla-tion came to 0.9% last year - the lowest result in a dec-ade. In 2012 the figure topped 3.7%. Food prices rose 2.2% in 2013, compared to a growth of 4.3% in the prior year. Housing costs and utility bills went up by 2%, but in one category – solid waste re-moval – the growth amounted to 30% on the back of new municipal recycling regulations. Transportation costs dropped 1.8% last year, compared to a 7% in-crease in 2012, mainly due to lower gasoline prices. Telecommunications bills shrank by 8.3%, following an 0.8% growth in the preceding year. Prices of cloth-ing and footwear were down by 5% and 4.6% respec-tively.

CPI inflation in Poland (y/y)

0%

1%

2%

3%

4%

5%

Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13

Source: GUS


According to analysts, the key factor affecting con-sumer prices in the first months of 2014 will be the 15% excise hike on spirits. Following more than half a year of very low inflation rates, food prices are likely to increase a bit faster in the near future, with Decem-ber's 1.7% growth being seen as the first indication of that trend. Overall, however, economists report no immediate inflationary pressures with central bank in-terest rates expected to remain at the current, record low level, until mid-2014. Starting from March 2014, GUS will start reporting CPI figures using an extended system of weights, the statistical office said last week. In February, GUS will report January data according to the old system of weights, whereas in March it will release February figures and revised January data prepared under the new methodology. Revised figures for previous years will be published in Q1 2014.

POLITICS & ECONOMY

Government Government Government Government seeks seeks seeks seeks to to to to reducereducereducereduce unemployment unemployment unemployment unemployment andandandand tackle tackle tackle tackle """"junkjunkjunkjunk" " " " job job job job contractscontractscontractscontracts in 2014in 2014in 2014in 2014

The government will seek to improve social and finan-cial security of Polish families in 2014, Prime Minister Donald Tusk told a press conference on government's priorities for 2014. One of the key objectives will be to reduce the country's registered unemployment rate to below 13% at end-2014, Prime Minister said during a press conference on government's priorities for 2014. Poland's 2014 budget plan of 13.8% unemployment at end-2014 is "a very cautious forecast," Mr. Tusk added.

At the end of 2013 the figure stood at approximately 13.4% at the end of 2013 according to estimates of the Labor Ministry, below the budgeted 13.8%. The ministers will also seek ways to eliminate short-term employment agreements, often referred to as "junk" contracts this year. Junk contracts require smaller contributions toward social security, pensions and taxes than regular contracts. The PM pledged to increase social security fees on such contracts, initially by imposing social security premiums at least match-ing the level of premiums on minimum wage contracts and introducing social security premiums on remu-neration for supervisory board members. The govern-ment Poland will also look for "legal, procedural and control" solutions to make companies applying regular employment contracts more competitive in public procurements, the PM declared. Tusk also said that the government plans to raise min-imum wage in 2014 and make moves towards the in-troduction of a minimum hourly rate. Starting in Jan-uary 2014 monthly minimum wage has been increased by PLN 80 to PLN 1,680 gross.

POLITICS & ECONOMY

Poland moves up Poland moves up Poland moves up Poland moves up to to to to 50th place 50th place 50th place 50th place in Economic in Economic in Economic in Economic Freedom IndexFreedom IndexFreedom IndexFreedom Index

Poland has moved up seven places to 50th position in the annual Economic Freedom Index compiled by the US's Heritage Foundation and the Wall Street Journal. "Over the 20-year history of the Index, Poland's eco-nomic freedom score has advanced by about 16 points, a top-20 improvement,” the Heritage Foundation

summed up on its official web site. "With increases in nine of the 10 economic freedoms and no declines, Po-land has risen since 2002 to the rank of 'moderately free," the foundation added.

The ranking, which covers 186 states and special ad-ministrative regions (the latter including perennial winner Hong Kong), examines the extent to which in-dividuals in a given society "are free to work, produce, consume, and invest in any way they please."

Of the ten factors considered in the 2014 index, Poland performed best in Trade Freedom, a category which concerns the absence of tariff and non-tariff barriers relating to imports and exports of goods and services. Another strong sphere for Poland was Monetary Free-dom, which pertains to price stability and price con-trols. Among structural reforms Poland has imple-mented since the beginning of the century, Heritage Foundation mentions trade liberalization, privatiza-tion, implementation of a competitively low corporate tax rate, and modernization of the regulatory envi-ronment.

Overall, Poland scored 67 points. Winner Hong Kong managed 90.1, followed by Singapore (89.4), Australia (82), Switzerland (81.6) and New Zealand (81.2). Of Poland's neighbors in Central and Eastern Europe, Es-tonia was the highest placed in 11th position (75.9 points). Other strong performers included Lithuania in 21st place (73 points) and the Czech Republic in 26th (72.2 points). Poland came ahead of Slovakia, Bulgaria, Romania and Slovenia, among others.


KEY STATISTICS

Consumer PriceConsumer PriceConsumer PriceConsumer Pricessss

Data in (%) Sep '13 Oct '13 Nov '13 Dec '13

Sector y/y m/m y/y m/m y/y m/m y/y m/m

Food & bev +2.6 0.0 +1.9 -0.1 +1.9 +0.3 +1.5 +0.7

Alcohol, tobacco +3.7 +0.2 +3.6 +0.1 +3.6 +0.1 +3.7 0.0

Clothing, shoes -4.7 +0.7 -4.8 +3.5 -4.9 -0.2 -4.9 -0.6

Housing +1.8 +0.1 +1.8 +0.2 +1.8 +0.1 +1.8 0.0

Transport -1.4 +0.8 -2.3 -1.0 -2.3 -1.2 -0.9 0.4

Communications -9.7 0.0 -7.2 +2.8 -11.7 -4.9 -11.6 0.0

Gross CPI +1.0 +0.1 +0.8 +0.2 +0.6 -0.2 +0.7 +0.1

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

5%

De

c 1

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b 1

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Ap

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Au

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Ap

r 13

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g 1

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t 13

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3

y/y m/m

Retail Retail Retail Retail TurnoverTurnoverTurnoverTurnover

Month Jul '13 Aug '13 Sep '13 Oct '13 Nov '13

m/m (%) +3.8 -0.7 -0.9 +3.6 -5.8

y/y (%) +4.3 +3.4 +3.9 +3.2 +3.8

Year 2008 2009 2010 2011 2012

Turnover in PLNbn 564.7 582.8 593.0 646.1 676.0

y/y (%) +13.3 +4.3 +5.5 +11.6 +5.6

Residential ConstructionResidential ConstructionResidential ConstructionResidential Construction

Dwellings

(in '000 units)

2008 2009 2010 2011 2012 Jan-Dec

2013

y/y

(%)

Permits 230.1 178.8 174.9 184.1 165.1 138.7 -16.0

Commenced 174.7 142.9 158.1 162.2 141.8 127.4 -10.2

U. construction 687.4 670.3 692.7 723.0 713.1 704.1 -2.8

Completed 165.2 160.0 135.7 131.7 152.5 146.1 -4.4

Source: Central Statistical Office (GUS)

GGGGross Domestic Productross Domestic Productross Domestic Productross Domestic Product

Period Growth y/y unadjusted

GDP in PLN bn current prices

Current account def. in % of GDP

Q3 2013 +1.9% 404,310 -1.9%

Q2 2013 +0.8% 395,657 -2.3%

Q1 2013 +0.5% 377,815 -3.1%

Q4 2012 +0.7% 442,231 -3.5%

2012 +1.9% 1,522,736 -3.5%

2011 +4.5% 1,462,734 -4.9%

2010 +3.9% 1,416,585 -5.1%

2009 +1.6% 1,344,384 -3.9%

Key Economic Data & ProjectionsKey Economic Data & ProjectionsKey Economic Data & ProjectionsKey Economic Data & Projections

Indicator *2010 *2011 *2012 2013 2014

GDP change +3.9% +4.5% +1.9% +1.5% +3.1%

Consumer inflation +2.6% +4.3% +3.7% +0.9% +1.4%

Producer inflation +2.1% +7.6% +3.4% -1.3% +0.7%

CA balance, % of GDP -5.1% -5.0% -3.7% -1.3% -0.2%

Nominal gross wage +3.9% +5.2% +3.7% +3.3% +4.9%

Unemployment** 12.4% 12.5% 13.4% 13.5% 12.7%

EUR/PLN 3.99 4.12 4.19 4.20 4.06

Sources: NBP, BZ WBK, GUS *) actual figures **) year-end

GGGGross Wagesross Wagesross Wagesross Wages A: avg monthly wages in PLN B: indexed avg wages, 100=2005

Sector Q4 2012 Q1 2013 Q2 2013 Q3 2013

A B A B A B A B

Coal mining 8,427 192 6,060 138 6,290 143 6,061 138

Manufacturing 3,522 154 3,491 152 3,560 155 3,625 158

Energy 6,535 198 6,196 188 5,828 177 6,021 183

Construction 3,829 163 3,556 152 3,693 157 3,766 160

Retail & repairs 3,365 143 3,432 146 3,421 146 3,408 145

Transportation 3,816 135 3,439 122 3,547 125 3,589 127

IT, telecoms 6,379 166 6,685 174 6,707 174 6,654 173

Financial sector 6,044 136 6,356 143 6,702 151 6,109 137

National average 3,878 154 3,741 149 3,613 144 3,652 145

Source: Central Statistical Office (GUS)

Construction OutputConstruction OutputConstruction OutputConstruction Output

Month May '13 Jun '13 Jul '13 Aug '13 Sep '13 Oct '13 Nov '13

m/m (%) +16.1 +19.1 +7.8 -0.8 +9.4 +14.3 -2.9

y/y (%) -27.5 -18.3 -5.2 -11.1 -4.8 -3.2 -8.9

Year 2006 2007 2008 2009 2010 2011 2012

y/y (%) +18.1 +15.5 +12.1 +5.1 +4.6 +11.8 -0.6

Source: The Central Statistical Office of Poland, GUS

Sentiment IndicatorsSentiment IndicatorsSentiment IndicatorsSentiment Indicators

Economic sentiment and consumer confidence indicators

-40

-20

0

20

Mar

11

Jun

11

Se

p 1

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120 Co nsumer confid ence (left axis)

Economic sentiment (right axis)

The economic sentiment (1990-2010 average = 100) is a composite made up of 5 sectoral confidence indicators, which are arithmetic means of seasonally adjusted balances of answers to a selection of questions closely related to the reference variable. Source: Eurostat

Producer PriceProducer PriceProducer PriceProducer Pricessss

Month May'13 Jun '13 Jul'13 Aug'13 Sep'13 Oct'13 Nov'13

m/m (%) +0.1 +0.7 +0.2 -0.3 +0.1 -0.7 -0.3

y/y (%) -2.5 -1.3 -0.8 -1.1 -1.4 -1.4 -1.5

Year 2006 2007 2008 2009 2010 2011 2012

y/y (%) +2.0 +2.0 +2.2 +3.4 +2.1 +7.6 +3.3

Construction PriceConstruction PriceConstruction PriceConstruction Pricessss

Month May'13 Jun '13 Jul'13 Aug'13 Sep'13 Oct'13 Nov'13

m/m (%) -0.2 -0.1 -0.1 -0.2 -0.1 -0.1 -0.2

y/y (%) -2.0 -2.0 -1.9 -1.9 -1.8 -1.8 -1.8

Year 2006 2007 2008 2009 2010 2011 2012

y/y (%) +3.2 +7.4 +4.8 +0.2 -0.1 +1.0 +0.2

Industrial OIndustrial OIndustrial OIndustrial Outpututpututpututput

Month May '13 Jun '13 Jul '13 Aug '13 Sep '13 Oct '13 Nov '13

m/m (%) -0.7 +2.6 +1.5 -4.5 +9.6 +6.0 -6.2

y/y (%) -1.8 +2.8 +6.3 +2.2 +6.2 +4.4 +2.9

Year 2006 2007 2008 2009 2010 2011 2012

y/y (%) +11.6 +10.7 +3.6 -3.5 +9.8 +7.7 +1.0


TTTTraderaderaderade

Poland exports and imports according to commodity groups, according to SITC classification

EXPORTS in PLN bn IMPORTS in PLN bn

Jan-Oct 2013

y/y (%)

share (%)

2012 share (%)

Jan-Oct 2013

y/y (%)

share (%)

2012 share (%)

Food and live animals 56,746 +9.4 10.7 61,694 10.3 38,800 +4.3 7.2 44,287 6.9

Beverages and tobacco 7,170 +6.0 1.4 7,967 1.3 3,338 +1.0 0.6 3,989 0.6

Crude materials except fuels 13,343 +10.5 2.5 14,024 2.4 18,009 -6.4 3.4 22,053 3.5

Fuels etc 24,776 +0.6 4.7 29,389 4.9 63,364 -10.0 11.8 85,280 13.4

Animal and vegetable oils 1,484 +36.0 0.3 1,342 0.2 2,213 -9.0 0.4 2,887 0.5

Chemical products 49,367 +6.8 9.3 54,295 9.1 78,196 +2.5 14.6 89,140 14.0

Manufactured goods by material 109,878 +1.3 20.6 126,161 21.1 94,121 -2.1 17.5 110,773 17.4

Machinery, transport equip. 200,458 +5.4 37.6 223,646 37.5 177,909 +3.1 33.1 203,718 31.9

Other manufactured articles 68,214 +5.9 12.8 75,925 12.7 48,271 -3.4 9.0 57,646 9.0

Not classified 1,380 n/a 0.1 2,653 0.5 13,347 n/a 2.4 18,515 2.8

TOTAL 532,816 +4.9 100 597,096 100 537,568 -0.9 100 638,288 100

Poland's ten largest trading partners, ranked according to 2012

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan- Oct 2013

share *2012 Share No Country Jan- Oct 2013

share *2012 Share

1 Germany 133,127 25.0% 150,046 25.1% 1 Germany 115,531 21.5% 134,933 21.1%

2 UK 34,789 6.5% 40,184 6.7% 2 Russia 66,670 12.4% 91,033 14.3%

3 Czech Rep. 32,706 6.1% 37,475 6.3% 3 China 50,619 9.4% 57,235 9.0%

4 France 30,127 5.7% 34,862 5.8% 4 Italy 27,799 5.2% 32,782 5.1%

5 Russia 28,841 5.4% 32,290 5.4% 5 France 20,573 3.8% 25,303 4.0%

6 Italy 22,997 4.3% 29,067 4.9% 6 Netherlands 20,271 3.8% 24,543 3.8%

7 Netherlands 20,950 3.9% 26,678 4.5% 7 Czech Rep. 19,660 3.7% 23,327 3.7%

8 Ukraine 15,017 2.8% 17,213 2.9% 8 USA 14,579 2.7% 16,436 2.6%

9 Sweden 14,666 2.7% 15,811 2.6% 9 UK 14,208 2.6% 15,509 2.4%

10 Slovakia 13,939 2.6% 15,288 2.6% 10 South Korea n/a n/a 14,619 2.3%

Source: Central Statistical Office (GUS) *) preliminary estimates, full year

CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 17 January 2014

100 USD 305.96 ↓

100 EUR 416.01 ↓

100 GBP 503.13 ↓

100 CHF 337.45 ↓

100 DKK 55.75 ↓

100 SEK 47.01 ↑

100 NOK 49.43 ↓

10,000 JPY 293.06 ↑

100 CZK 15.13 ↓

10,000 HUF 138.53 ↓

100 USD/EUR against PLN

300

350

400

450

31 Jan 13

10 A

pr 13

20 Jun 13

28 A

ug 13

5 N

ov 13

17 Jan 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Aug '13 Sep '13 Oct '13 Nov '13

Monetary base 153,867 166,620 154,967 153,672

M1 531,124 540,873 536,237 538,837

- Currency outside banks 114,083 113,223 113,174 113,718

M2 928,359 931,042 935,095 934,713

- Time deposits 412,407 405,703 414,941 412,469

M3 949,988 947,228 955,419 953,446

- Net foreign assets 154,035 147,978 150,517 148,702 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

CCCCreditreditreditredit

The financial sector's net lending in PLN bn,

loan stock at the end of period

Type of loan Jul '13 Aug '13 Sep '13 Nov '13

Loans to customers 901,863 908,106 901,288 906,298

- to private companies 263,491 262,963 559,965 262,396

- to households 556,027 560,608 260,585 563,157

Total assets of banks 1,627,182 1,626,489 1,612,836 1,627,119

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Jun '13 Jul '13 Aug '13 Sep '13 Oct '13 Nov '13

PLN (up to 1 year) 5.0% 4.7% 4.6% 4.5% 4.5% 4.5%

PLN (up to 5 y ) 5.4% 5.1% 5.1% 4.9% 4.9% 4.9%

PLN (over 5 y) 5.3% 4.9% 4.9% 4.8% 4.8% 4.8%

PLN (total) 5.3% 5.0% 4.9% 4.8% 4.8% 4.8%

EUR (up to 1m EUR) 1.9% 2.3% 1.9% 1.8% 2.0% 1.9%

EUR (over 1m EUR) 2.9% 3.5% 3.5% 3.2% 2.5% 3.0%

Warsaw Inter Bank Offered Rate (WIBOR) as of 17 Jan 2014

Overnight 1 week 1 month 3 months 6 months

2.59%% 2.58% 2.61% 2.70% 2.72%

Central Bank (NBP) Base Rates

Reference Lombard NBP deposit Rediscount

2.50% 4.00% 1.00% 2.75%

Stock ExchangeStock ExchangeStock ExchangeStock Exchange

Warsaw Stock Exchange, rates in PLN

WIG-20 stocks in alphabetical

order

Price 17 Jan '14

Change 10 Jan '14

Change end of '12

↓ Asseco Pol. 44.75 -2% -1%

↑ Bogdanka 125.1 +3% -8%

↑ BZ WBK 380.5 +2% +57%

↓ Eurocash 40.3 -11% -8%

↑ Grupa Lotos 35.5 +3% -14%

↑ GTC 7.42 +3% -25%

↑ Handlowy 103.9 +6% +6%

↑ JSW 50 +1% -46%

↑ Kernel 40.51 -4% -39%

↑ KGHM 113.8 +2% -40%

↑ mBank 495.1 +3% +52%

↑ Orange Pol. 10.12 +3% -17%

↑ Pekao 180 +2% +7%

↑ PGE 16.55 +5% -9%

↑ PGNiG 5.01 +3% -4%

→ PKN Orlen 42.1 0% -15%

↑ PKO BP 40.16 +5% +9%

↑ PZU 428.2 +1% -2%

↑ Synthos 5.46 +5% +1%

↑ Tauron 4.22 +1% -11%

Source: Warsaw Stock Exchange

Key indices

as of 17 January 2014

WIG Total index

50505050,,,,925925925925....12121212 Change 1 week +2% ↑

Change end of '12 +7% ↑

WIG-20 blue chip index

2,2,2,2,333376767676....28282828 Change 1 week +2% ↑

Change end of '12 -8% ↓

WIG Total closing index

last three months

48,000

50,000

52,000

54,000

56,000

9 O

ct 13

31 Oct 13

26 N

ov 13

18 D

ec 13

17 Jan 14


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New Business Consultant

Tomasz Andryszczyk

RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Nov 2013 *

Monthly wages (PLN)

Jan-Nov 2013 **

Unemploy-ment

Nov 2013

New dwellings Jan-Nov 2013

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 99.9 94.7 4,237 4,031 150.9 13.0 15,174 113.2

Kujawsko-Pomorskie (Bydgoszcz) 102.4 105.9 3,337 3,297 146.7 17.8 5,808 105.1

Lubelskie (Lublin) 102.6 96.3 3,673 3,031 129.9 14.0 5,636 89.7

Lubuskie (Zielona Góra) 96.6 91.0 3,373 2,983 58.2 15.3 3,026 104.7

Łódzkie (Łódź) 104.1 90.8 3,667 3,061 149.8 13.9 5,644 79.0

Małopolskie (Kraków) 97.2 90.8 3,749 3,361 161.5 11.4 13,544 101.9

Mazowieckie (Warszawa) 106.8 78.6 4,466 4,785 280.9 11.0 25,962 93.1

Opolskie (Opole) 97.9 94.9 3,487 3,199 50.5 14.0 1,558 101.2

Podkarpackie (Rzeszów) 108.7 97.4 3,257 3,088 149.7 16.0 5,329 95.8

Podlaskie (Białystok) 105.8 97.0 3,179 3,767 69.5 14.9 3,592 87.8

Pomorskie (Gdańsk-Gdynia) 102.8 94.7 3,875 3,494 112.0 13.1 11,037 90.0

Śląskie (Katowice) 97.7 90.7 4,516 3,552 206.7 11.1 9,540 108.2

Świętokrzyskie (Kielce) 101.5 88.5 3,378 3,191 87.9 16.1 2,385 87.1

Warmińsko-Mazurskie (Olsztyn) 98.8 84.0 3,171 3,074 112.2 21.1 4,020 86.3

Wielkopolskie (Poznań) 104.8 91.1 3,669 3,624 142.5 9.5 12,345 93.7

Zachodniopomorskie (Szczecin) 112.1 86.7 3,417 3,274 107.1 17.4 4,988 76.4

National average 101.8 88.0 3,906 3,707 2,116.0 13.2 129,588 113.2

Index 100 = same period of the previous year. ** without social taxes

Sources: Central Statistical Office GUS, NBP, C&W

Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)

Quarter Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13

in Poland 1,861 1,381 2,886 175 -3,020 -1,794

Polish DI 310 -550 -1,203 957 2,588 -1,529

Year 2007 2008 2009 2010 2011 2012

in Poland 17,242 10,128 9,343 10,507 14,832 4,716

Polish DI -4,020 -3,072 -3,335 5,484 -5,276 375

Current Account (EUR m)Current Account (EUR m)Current Account (EUR m)Current Account (EUR m)

Period 2010 2011 2012 Q1 '13 Q2 '13 Q3 '13

Trade balance -8,893 -10,059 -5,313 -139 1,203 1,017

Services, net 2,334 4,048 4,816 1,274 1,686 1,047

CA balance -18,129 -17,977 -13,332 -2,313 486 -2,027

CA balance vs GDP -5.1% -5.0% -3.7% -3.1% -2.3% -2.0%

Source: NBP, BZ WBK

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1800

2000

2200

2400

2600

Q3

10

Q1

11

Q3

11

Q1

12

Q3

12

Q1

13

Q3

13

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, 1H 2013

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 2,728,000 41,000 15.9%

3.5–5.0

Warsaw suburbs 1.9–3.2

Central Poland 1,021,000 8,000 16.5% 1.9–3.1

Poznań 1,041,000 50,000 3.6% 2.3–2.9

Upper Silesia 1,478,000 33,000 5.8% 2.5–3.1

Wrocław 795,000 84,000 5.5% 2.4–3.0

Gdańsk 192,000 n/a 9.6% 3.2–4.0

Kraków 149,000 n/a 7.6% 4.0-4.1

CommercialCommercialCommercialCommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 1H'13 Retail rents**1H'13

Q2 '13

PLN/sq.m

Change

y/y

Rents** Vacancy Retail

centres

High

streets

Warsaw 8,081 -0.5% 11.5-25.5 10.5% 85 85

Kraków 6,026 -15.0% 13-15 2.71% 41 78

Katowice 5,817 +8.7% 13-14 8.29% 48 56

Poznań 6,341 -8.0% 14-16 14.66% 44 55

Łódź 4,811 -2.8% 12-14 14.97% 31 26

Wrocław 5,970 -7.7% 13-16 12.37% 38 41

Gdańsk 6,403 +0.7% 13-15 11.24% 39 31

*avg, offer-based ** EUR/sq.m/month; Retail units 100-150 sq.m

Country Credit RatingsCountry Credit RatingsCountry Credit RatingsCountry Credit Ratings

Agency rating outlook

Fitch Ratings A- stable

Standard & Poor's A- stable

Moody's A2 stable

Source: Rating agencies

Real EarningsReal EarningsReal EarningsReal Earnings

Average gross wage vs inflation.

100

120

140

160

180

Nov09

Jul10

Mar11

Nov11

Jul12

Mar13

Nov13

Wage CPI

Index 100 = Jan 2005. Source: GUS

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