poland today business review+ no. 045

No. 045 / 28th July 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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MANUFACTURING & PROCESSING

Industry loses steam in June, production data show page 2

ENERGY & RESOURCES PKN Orlen posts PLN 5.2bn Q2 loss on Lithuania fiasco page 6 EIB lends PLN 300m to Tauron for network improve-ments and renewable energy investments page 7 Finnish AC drives firm Vacon acquires sales unit in Warsaw page 8 3 Legs Resources CEO says breakthrough in Polish shale is around the corner page 8

PROPERTY & CONSTRUCTION

Raiffeisen takes 19,500 sq.m of offices at Golub GetHouse's new tower in a record lease deal page 9 Office boom continues in Poland's property sector, JLL reports page 10

TRANSPORT & LOGISTICS

Polish train maker PESA to establish joint venture in Russia page 11 Prologis acquires two logistics centers from Invesco page 12

RETAIL

Polish drugstore chain Dayli speeds up expansion eyeing Western Europe page 12 Inter IKEA Centre starts work on Wola Park extension page 14

Rank Progress breaks ground on Krosno retail park page 15

Fabryka Wołomin to open next year with Carrefour as anchor tenant page 15

POLITICS & ECONOMY

June sees weak retail sales but good unemployment data pages 16-17

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 18-20

Following the merger, the company will initially focus on building wind farms. Photo: Eclipse.sx

Kulczyk creates top private Kulczyk creates top private Kulczyk creates top private Kulczyk creates top private energy firmenergy firmenergy firmenergy firm Strengthened by a generous cash injection for the China-backed fund CEE Equity Partners, Polish billionaire Jan Kulczyk is merging his Polish energy assets PEP and Polenergia into the country's largest privately-owned utility. page 3

BASF launches EUR 90m catalysts plantBASF launches EUR 90m catalysts plantBASF launches EUR 90m catalysts plantBASF launches EUR 90m catalysts plant German industrial giant BASF has launched production at its largest European automotive catalysts plant in Środa Śląska. Once fully operational, the site will create 400 jobs. page 2

weekly newsletter # 045 / 28th July 2014 / page 2


BASF launches EUR BASF launches EUR BASF launches EUR BASF launches EUR 90m catalysts plant in 90m catalysts plant in 90m catalysts plant in 90m catalysts plant in ŚŚŚŚroda Śląskaroda Śląskaroda Śląskaroda Śląska German chemical giant BASF has opened a new mo-bile emissions catalysts production plant in Środa Śląska near Wrocław. The 40,000 sq.m facility - BASF's largest emissions catalysts plant in Europe – is part of a EUR 150m investment that will create 400 jobs at the site over the coming two years. Work on the plant commenced in late 2012 with an in-itial investment of EUR 90m and production trials be-gan in April this year. Last month, BASF started two emissions catalysts manufacturing lines with an initial workforce of 100. The company plans to carry out ad-ditional expansions, raising the total investment to around EUR 150m. The planned ten light-duty and heavy-duty catalysts production lines at the Środa Ślaska site are expected to reach full capacity by 2016 and employ more than 400 people. "The launch of this new production plant provides a vital addition to our global manufacturing network for innovative automotive emissions control technolo-gies," said Kenneth Lane, President of BASF’s Cata-lysts division. "Tightening emissions regulations will be a key growth driver for our business. Our invest-ment in Środa Ślaskawill provide the capacity we need to meet increased customer demand in the most effi-cient way possible." The emissions catalysts produced in Środa Ślaska will be used by manufacturers of light duty gasoline vehi-cles and light and heavy duty diesel vehicles to meet more stringent Euro 6/VI emissions regulations. The

facility will manufacture selective catalytic reduction (SCR) systems, SCR on filter (SCRoF) solutions and PremAir-branded ozone destruction catalysts for the automotive industry. The plant in Środa Śląska will house a regional sample laboratory. "Due to its attractive location and its positive econom-ic development, Poland is an attractive place for BASF to invest. This new facility strengthens our position as a supplier of innovative solutions to the markets of central Europe," BASF central Europe business centre head Joachim Meyer.

The facility launched in July is part of BASF's EUR 150m investment in Środa Śląska. Image: BASF

"As a supplier for the automotive industry, we want to be close to our customers. Many of them already have their manufacturing sites in Central Europe or plan to settle down there," Wojciech Krzywicki, PR & gov-ernment relations manager at BASF Polska, told Po-land Today. "With our new plant in Poland, our manu-facturing capacity in Europe will double. As far as the sample laboratory is concerned, we expect its staff numbers to reach a low double digit figure," said Krzywicki. In addition to its country headquarters in Warsaw and the newly opened catalysts unit in Środa Śląska, BASF

operates two sites in Poland: a concrete additives plant in Myślenice near Kraków and polyurethane systems factory in Śrem, near Poznań, which is also home to the company's Polish logistics and distribution center for construction chemicals. BASF's Polish product range includes chemicals, performance products, plas-tics, crop protection products as well as care chemi-cals, construction chemicals and automotive coatings. In 2012 BASF acquired the TDI (toluene diisocyanate) business of Polish chemical firm Ciech for EUR 43m. The transaction included the TDI sales and marketing activities as well as TDI research and development functions of Ciech, but no production assets. TDI is a key component for the polyurethanes industry. To a large extent it is used in the furniture segment (e.g. flexible foams for mattresses, cushions or wood coat-ing) as well as in the automotive industry (e.g. seating cushions and interior applications). Currently, BASF employs approximately 430 in Po-land, and its sales in 2013 amounted to EUR 722m. Globally, the Frankfurt, London and Zurich-listed gi-ant turned over EUR 74bn last year with a workforce of more than 112,000 employees.


Manufacturing sector Manufacturing sector Manufacturing sector Manufacturing sector loses steam in June, loses steam in June, loses steam in June, loses steam in June, production daproduction daproduction daproduction data showta showta showta show June's industrial output growth of 1.7% y/y came as an unpleasant surprise to economists, who had been ex-pecting the figure to go up by 4%. The construction sector, one the other hand, maintained a robust mo-mentum with an 8% increase in production against June 2013.


"Consequently, the average growth of industrial out-put in last three months was lower by 1 percentage point than in Q1. On the other hand, results of the con-struction sector improved somewhat in Q2," said ana-lysts at BZ WBK. "It seems that Q2 will show a slightly lower GDP growth, but in our view it will stay above 3%." According to the statistical office GUS, the June slow-down may have been related to weaker exports, and the poor result of the manufacturing industry (+2.1% y/y – the worst outcome in more than a year) provides some evidence to support their view. To some extent the June decline was driven by coke plants and refin-eries, which reported a 6.9% drop in production, but even without this sector, the growth in manufacturing amounted to a mere 3% y/y.

Industrial output & producer prices

-12%

-8%

-4%

0%

4%

8%

Oct12

Dec12

Feb13

Apr13

Jun13

Aug13

Oct13

Dec13

Feb14

Apr14

Jun14

Industry output, y/y change

Producer Price Index, y/y change

Source: GUS, the central statistical office

The seasonally adjusted industrial production in-creased by 2.1%, GUS said, which is a bit lower than in the previous month (2.7%). The average growth of production in Q2 was slightly below 4% (with down-ward tendency month by month), which was around 1pp below the average result in the first three months of the year.

On the plus side, construction companies stayed busy in Q2, seeing a y/y improvement by nearly 10%, which was slightly better than in the first quarter. In June, just like in the prior month, rapid production growth was recorded in was recorded in entities specializing in civil engineering (+24.7% y/y) and in entities deal-ing mainly with specialized construction activities (+14.2% y/y), whereas companies whose basic type of activity is construction of buildings suffered a clear decline (-12.1% y/y). Producer prices (PPI) dropped 1.7% y/y in June and remained flat from the previous month. According to BZ WBK, PPI inflation will remain below zero at least until the end of the year.

ENERGY & RESOURCES

Jan Jan Jan Jan Kulczyk Kulczyk Kulczyk Kulczyk and CEE and CEE and CEE and CEE Equity Partners createEquity Partners createEquity Partners createEquity Partners create Poland's largest Poland's largest Poland's largest Poland's largest private private private private utilityutilityutilityutility With financial support from a China-backed fund CEE Equity Partners, Polish billionaire Jan Kulczyk will create the country's largest privately-owned utility by combining his energy assets Polish Energy Partners (PEP) and Polenergia, both of which are controlled by Kulczyk Investments. As part of the transaction PEP is to take over Polenergia, with CEE Equity Part-ners acquiring a 16% stake in the new entity at PLN 240m. The Polenergia deal is the Chinese fund's first investment in Poland, the one we hinted at in the lat-est issue of BR+. The two transactions value PEP's shares at PLN 33.03 each, putting the future Polenergia's market cap at PLN 1.5bn, or three times the market value of PEP.

PEP will change its name to Polenergia and expand its renewable energy production with energy produced from coal. It will also add a gas-fired unit producing electricity and heat, and gas and electricity distribu-tion. Kulczyk will add his other energy assets to PEP in return for shares, raising his stake from to around 65% of the enlarged Polenergia group from 60%. At the turn of the year, the newly formed Polenergia is targeting a further issue of new shares, without pre-emptive rights, in order to obtain the remaining capital necessary to realize its growth strategy to achieve long term stable returns and cash flows, the company said.

POLENERGIA'S INVESTMENT PROGRAM FOR YEARS 2014-2022

Stage 1 -2014-2016: • additional 380MW of on shore wind farms to be put

into operation, of which 67MW is already under con-

struction, 37MW will commence construction in July

2014, and 147MW has commenced the financing pro-

cess; and

• securing of Grid Connection Agreement (August

2014) as well as the Environmental Decision for

1,200MW of offshore wind farms and full development

of the gas transmission pipeline between Germany

and Poland for up to 5bcm/annum.

Stage 2 - 2017-2022: • further 500MW of on shore wind farms to be put in-

to operations;

• construction of 600MW of off shore wind farms as

well as development until a ready-to-build stage of a

further 600MW;

• construction of the gas transmission pipeline be-

tween Poland and Germany for up to 5bcm/annum.

Source: Kulczyk Investments


CEE Equity Partners was founded and capitalized by The Export-Import Bank of China at the beginning of 2014. The fund plans to invest USD 500m in the next 2-3 years in the most attractive energy, telecom-munication and infrastructure projects in Central and Eastern Europe. Once it spends 60% of its initial capi-tal, the fund will receive a new tranche of funding to the tune of USD 1.5bn, CEE Equity Partners CEO Rafał Andrzejewski told Poland Today. The fund's remit is to focus on opportunities in infrastructure, energy, tel-ecom and specialized production. It will operate for 10 years, with the option of a two-year extension. It will invest USD 20-70m per project in equity alone. "Polenergia is the only independent Polish power company which is well diversified and active in the most attractive segments of the market. In our analysis of the potential investment opportunities in Poland we targeted exactly this kind of investment profile. The other key parameters of our investment case is the support of Kulczyk Investments as well as the strong and experienced management team. In our opinion this is the best guarantee for us to effectively deploy our capital and secure dynamic growth. If Polenergia continues to deliver on its growth strategy successfully we do not exclude the possibility of increasing our stake in the business," Mr. Andrzejewski says. "The investment by CEE Equity Partners into the Polenergia business project confirms the true value of the company and the exciting potential for value ac-cretion in the next years. Taking into consideration the financial potential of the fund we see concrete pos-sibilities for co-operation in new potential projects in the future," commented PEP CEO.Zbigniew Prokopowicz, "We have a very precise growth plan which will secure stable and foreseeable investment returns. The funds acquired will be chiefly allocated to the construction of wind farms. In total, by 2016 we expect to hold an onshore wind farm portfolio with an installed capacity of 461MW. The next key element of

our strategy is the completion by 2018 of the 5bn cb.m gas pipeline connecting Poland with the European gas transmission system. This project is of strategic im-portance for Poland in terms of ensuring energy inde-pendence," he added.

Poland Today talks to: Rafał Andrzejewski, investment director and member of management board of CEE Equity Partners

• PT: Your website says that the China-CEE Fund was established by China Exim Bank "in partnership with other institutional investors from the CEE re-gion." Who are those investors and how much have they contributed? Rafał Andrzejewski: It's mostly an initiative of China Exim Bank, but it has invited other local entities from the region to participate in the fund as well. The Hun-garian Export-Import Bank and the Romanian Export-Import Bank have expressed interest, and the Hungar-ian Exim Bank has invested some money. It is a minute amount compared to what the Chinese have invested. Nevertheless, they wanted to make sure that a chunk of the cash that is flowing out of China will be invested in Hungary. The same with the Romanians. However in Poland we have been directed and re-directed to various entities. We received indications that BGK [Bank Gospodarstwa Krajowego, the bank that supports the government’s economic programs] would not be receptive. So we were directed to PIR

[Polskie Inwestycje Rozwojowy, a government-established investment vehicle], with whom we have been negotiating for a year now, with no end in sight. So I don’t know if any Polish entity will join us in the fund, but in any case we are fully funded right now. We don’t have any pressure to invest with Chinese companies, or those using Chinese technology, or any-thing like that. • PT: What kind of investments are you looking for? RA: We’ve got clear instructions to just invest in the region to the best of our ability in four sectors – ener-gy, infrastructure, telecoms and specialized produc-tion. But at the same time, those sectors are not chis-eled in stone. If there is a project that’s not in those sectors but it is really interesting, then we have the ability to invest in such a project as well. Nevertheless, the general idea is that we want to invest in things that are solid: not web pages or distribution systems or sales systems. Basically we are interested in things such as waste-to-energy plants, energy wind-mills, solar power parks and fiber-optic cable compa-nies, just to mention a few examples.. • PT: What’s attractive about the CEE market to the Chinese? Does the fact that they set up a separate CEE-oriented fund mean that they regard the region as clearly different from the rest of Europe? RA: Yes. The Chinese think that the region of Central and Eastern Europe is much more open and friendly to Chinese business than Western Europe. Western Eu-ropean markets are much more geared toward export-ing to China and if not, then blocking China from en-tering. The Chinese have a very cordial relationship with Germany, France, the UK, etc. But they think the best potential is here because there is more to do here in terms of infrastructure: not only road infrastructure,


but also telecom infrastructure, energy infrastructure. There is a big variety of things that can be done. Po-land is still a work in progress as opposed to Western Europe. The Chinese would rather have this fund to show their good will, rather than forcing their compa-nies in here. So you could say that we are a beachhead for potential future development. • PT: Your list of target countries spans Poland and other CEE EU member states but also the likes of Al-bania and Serbia. That’s a real mixed bag, wouldn’t you say? RA: Yes and no. These countries form a kind of band from north to south. The group excludes Turkey, Bela-rus, Ukraine and Russia. The Chinese made the deci-sion that countries of the former Yugoslavia should be included because they have done business in Serbia before, and in Croatia, and they were quite pleased with the response they received. They saw that while those countries are not in the European Union, they fit nicely into Central and Eastern Europe, more so than Turkey and more so than Ukraine. • PT: How much of the fund’s total equity has been designated for Poland? RA: Right now we have USD 500m, and most likely we will spend half of that – so USD 250m – on Poland. The rest will go to other countries, with a clear prefer-ence for Hungary and Romania, because those coun-tries are participating in the fund. • PT: Other than taking long-term, minority stakes, how do you see the deals being structured? RA: The fund itself has been created for 10 years, with the option of an extension of an additional two years. We cannot re-invest the money, so our goal is to invest for the longer term. Rather than investing for three to five years as the typical private equity funds usually do, we want to invest for seven, eight, nine, even 10 years if possible. That, combined with the low internal rate of return expectation that we have, makes us an

interesting partner for discussion with a lot of poten-tial targets. In terms of equity we can invest in any given project from USD 20m-70m. That combined with debt, which can more than double that amount, gives us quite a bit of flexibility as to what we can invest. • PT: Do you believe there are interesting targets in the sectors you’re focusing on? RA: Definitely. Especially when it comes to Poland we have quite a robust pipeline of projects. We have tens of projects related to wind power, fiber optic infra-structure, the 3G, 4G and GSM infrastructure, the re-cycling plants, the waste-to-energy plants. The thing is that really if you want to look at larger, diversified en-tities, most of the big power companies are state-owned. So it is a challenge to find entities that don’t specialize on only in one kind of energy, for example. And it’s difficult not only in Poland, but really across the region. We are flexible though, because we do not have to have a controlling stake, we are open to being a minor-ity shareholder provided that the partner or partners in a consortium are reliable, and people with feasible business plans. So from that standpoint I think that we have a little bit more flexibility than your typical pri-vate equity fund that always wants to have either a hundred percent or a definite majority. • PT: What else is different about your approach compared to other players in the private equity mar-ket? RA: There are a number of differentiation points, but when target companies come to us, they tell us about several things that attract them. Number one is that we are one of the few funds that deal with infrastruc-ture. Another important point is that we have a rela-tively simple decision-making environment. Our in-vestment committee meets every week in Warsaw, so

we are constantly making decisions. Other factors in-clude the length of the investments, the reasonable re-turn expectations and the possibility of investing as a minority shareholder. And also, I feel like we are less investment bankers and more like family investors. We don’t shy away from investments in big companies or publicly listed com-panies. But we also sit down with small business own-ers and we speak their language. • PT: In the energy sector, there are a number of es-tablished players that are snapping up independent projects and paying good money. What’s the role of CEE Equity Partners in the sector? RA: Fortunately there are enough projects to go around. We are already in discussions with a couple of larger entities to become a minority shareholder, at first perhaps really a minority with just 15% or some-thing like that, just to see how that flies, and then per-haps increase our stake. But we don’t shy away from looking at independent operators that fall within the size of our target acquisitions, and we are also not afraid to invest in larger, companies that are not state owned. • PT: Have you explored investing in public-private partnership (PPP) projects? RA: We have had a number of meetings regarding PPP projects, especially from people that come from medi-um-sized cities who want to revitalize their combined heating and power (CHP) plants. We also talked with the City of Warsaw about the public garages that they want to build around the city. The only thing is that we cannot participate directly. We can be a party that fi-nances the participant, but we cannot participate as an entity that is going to build this stuff, because we don’t build, we only finance. So it will be up to the people who win the bidding to approach us and see if we can help – and we are willing to help.


• PT: Your focus is mainly on projects that require good cooperation with the public sector. The creation of CEE Equity Partners came about as the result of inter-governmental talks between China and Poland. Does this government connection make your life any easier? RA: When it comes to the Polish government we have no connection whatsoever. The China Exim Bank is a state-owned bank, so you could say that the Chinese government has an influence on what we do. But we don’t feel like that is the case because they have given us a completely free hand when it comes to what and how to invest. When you look at our investment com-mittee, it’s three guys here and a Chinese guy that calls in. It’s not like they decide what we’re going to do, in-stead we decide what we are going to do, with their blessing, of course. And this model has been working for us. There has been a lot of talk about difficulty that funds have in finding the right investment. We don’t see it that way. We have, I think, an overflow of poten-tial deals.

Interview by Andrew Kureth

ENERGY & RESOURCES

PKN Orlen posts PKN Orlen posts PKN Orlen posts PKN Orlen posts PLN PLN PLN PLN 5.2bn 5.2bn 5.2bn 5.2bn Q2 Q2 Q2 Q2 loss on loss on loss on loss on Lithuania Lithuania Lithuania Lithuania fiascofiascofiascofiasco Poland's top oil refiner PKN Orlen, has posted a rec-ord quarterly loss last week after writing down the value of its operations in Lithuania and the Czech Re-public. Orlen shares dropped more than 4% on the news, falling the most in six weeks and bringing the company's capitalization down to PLN 17.7bn. Orlen's Q2 2014 net loss widened to PLN 5.2bn from PLN 207m in Q1 2014. The Warsaw-listed company

wrote down PLN 4.2bn from the value of its unprofit-able Lithuanian unit Orlen Lietuva and cut the value of its Czech subsidiary Unipetrol by PLN 711m, the Polish state-controlled refiner said in a regulatory statement. The loss and its size came as a huge sur-prise as analysts interviewed by Bloomberg had been expecting PKN Orlen to post a PLN 368m profit. PKN Orlen said the write down won't affect covenants in its credit deals with banks.

PKN Orlen Group's key financials

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011 2012 2013

-3

-2

-1

0

1

2

3

Revenues in PLN bn, left axis

N et result in PLNbn, right axis

Source: PKN Orlen

The Lithuanian unit, which Orlen bought for USD 2.8bn in 2006 from Russia's Yukos, posted losses after refining margins fell to a 10-year low in 2013 and sales to the US its main market, slumped on a shale boom in North America. The Polish state-controlled refiner now values its Lithuanian operations at a mere USD 163m and said it is ready to suspend refining there if global market conditions deteriorate. The Lietuva re-finery, also known as Mazeikiu, exports more than 50% of its output by sea. Lietuva faces a temporary shutdown in late 2014 or early 2015 and the length of the shutdown will depend on refining margins, the Polish company said. Orlen

estimates the cost of Lietuva’s shutdown and restart at less than USD 20m, Chief Financial Officer Sławomir Jędrzejczyk said on a conference call with analysts. The company would also incur costs of about USD 5m a month during the shutdown. "If the macroeconomic situation is worsening, the next move will be a full shutdown," Jedrzejczyk said. "It’s very rare that a refinery is completely closed. It’s very often converted to a storage or logistics facility." Despite recent rumors about Orlen engaging in talks with Kazakhstan's KazMunaiGaz as a potential buyer for the Lithunian refinery, CEO Krawiec told report-ers the company had had no buyers for Lietuva and will speak to the Lithuanian government about the country buying its refinery. PKN Orlen's Lithuanian operations have never reached their targeted profitability because of the plant's inconvenient location, high costs, and a global narrowing in refining margins. Soon after PKN Orlen bought the refiner, outbidding Russian rivals, it faced problems with the supply of Russian crude as well as transportation issues of finished products, which hurt its profitability. Facing new global reality In a separate filing, Orlen said it had cut its forecast for average annual EBIDTA to PLN 5.1bn in 2014-2017 from PLN 6.3bn. "Given the present market situation, we believe the re-cent developments in our industry are becoming the new reality,” Chief Executive Officer Jacek Krawiec said in the statement. “We have decided to revise our strategic assumptions and bring them in line with market conditions.” According to an early July report by Fitch, European refining margins "are likely to remain weak for at least the next one to two years due to overcapacity, demand


and supply imbalances and competition from over-seas." Recently figures from the International Energy Agency showed that since 2008 oil refineries with to-tal capacity of 1.8m barrels per day have been closed in Europe. Orlen's investment efforts have been focused in recent months on securing access to crude production and reducing its dependence on Russian oil. The Polish company acquired Canada’s TriOil Resources for CAD 183.7m (PLN 508m) last year and Birchill Explo-ration for CAD 255.6m (PLN 708m) in 2014.

Declining margins on global markets have been a se-rious pain for PKN Orlen's foreign refinery assets. Image: PKN Orlen

PKN Orlen turned over PLN 114bn last year, some 5% less than in 2012. Its EBIDTA dropped 42% y/ to reach PLN 2.5bn, while its net earnings plunged by 96% and topped a mere PLN 90m. A leading producer and re-tailer of fuel in the CEE region, PKN Orlen operates three refineries (in Poland, Lithuania and Czech Re-public) with a combined maximum capacity of 32.4m tons a year. Last year the three sites processed 28.2m tons of oil, 90% of which was Russian Export Blend Crude Oil (REBCO). Besides investments in the up-stream segment, PKN Orlen has made inroads into the

power generation sector with a PLN 1.4bn combined cycle gas turbine plant (463MWe) in Włocławek and plans for a similar project in Płock.

ENERGY & RESOURCES

EIB lends PLN 300m to EIB lends PLN 300m to EIB lends PLN 300m to EIB lends PLN 300m to Tauron for neTauron for neTauron for neTauron for network twork twork twork improvements and RES improvements and RES improvements and RES improvements and RES investmentsinvestmentsinvestmentsinvestments The European Investment Bank has granted a PLN 295m loan to Tauron Polska Energia to help Po-land's second largest energy producer develop its dis-tribution network and invest in renewable energy, the EIB said last week. Including the new agreement, Tauron has obtained four loans totaling PLN 1.7bn from the EIB to-date. "We welcome this agreement with Tauron, as the pro-ject will ensure a secure supply to new customers through the expansion of the company’s electricity network and the roll-out of a smart metering pilot program in line with EU requirements to support the development of smart grids. Together with other pro-jects previously financed by the Bank in Poland, this also marks an important step towards increasing ener-gy generation from renewables in Europe," said László Baranyay, EIB Vice-President responsible for lending in Poland. With the support of the EIB, The Polish energy group will expand its electricity distribution networks by adding an estimated 11,000 new connections and up-grade the existing equipment, which will predomi-nantly serve to connect new customers to the distribu-tion grid. The company will also roll out a smart me-

tering pilot program, which should be particularly beneficial to residential, commercial and public au-thority customers, as the program’s aim is to verify the technology, facilitate data management and provide better information flow between customers and sup-pliers. The EIB will also support the modernization and refurbishment of several of Tauron Group’s hy-dropower plants, which will increase their efficiency and generating capacity.

The government of Prime Minister Donald Tusk sup-port's Tauron's investment strategy that includes the development of a PLN 4.4bn coal-fired unit in Jaworzno. Image: Tauron

In recent months Tauron broke ground on a PLN 618m heat & power project in Tychy (see BR+ No. 029 page 4), and signed a long-awaited PLN 4.4bn contract with the consortium of engineering firm Rafako and builder Mostostal Warszawa for the construction of a 910 MW power block at the Jaworzno power plant (see BR+ No. 032-33 page 8). With a total capex of PLN 5.4bn, the new coal-fired unit will replace older, much less efficient facilities at Jaworzno, bringing the site up to date with stricter EU emissions limits.


Tauron is the second largest energy producer in Po-land as well as the largest distributor of electricity. In 2013, the company made several investments includ-ing a modern power unit using cogeneration at its plant in Bielsko-Biała and two wind parks in Wicko and Marszewo with a combined power output of 122 MW. A 450 MW power unit is also currently being constructed in Stalowa Wola as well as a 413 MW unit in Łagisza. The latter is a PLN 1.5bn investment, of which up to PLN 750m may be contributed by Polskie Inwestycje Rozwojowe (PIR), a state investment vehi-cle (see BR+ No. 027 page 6).

Tauron Group's key financials

0

5

10

15

20

25

2007 2008 2009 2010 2011 201 2 2013

0.0

0.3

0 .6

0.9

1.2

1.5

Revenues in PLN bn, left axis

N et result in PLNbn, right axis

Source: Tauron

Despite its ambitions investment pipeline, Tauron re-ported an 11% drop in net profit in 2013, with expecta-tions of even weaker results in 2014 due to the state-controlled utility's struggle with falling energy prices and weak demand caused by the sluggish Polish econ-omy. The group posted a PLN 1.3bn profit on PLN 19.1bn turnover last year.

ENERGY & RESOURCES

Finnish AC drives firm Finnish AC drives firm Finnish AC drives firm Finnish AC drives firm Vacon acquires sales Vacon acquires sales Vacon acquires sales Vacon acquires sales unit in Warsawunit in Warsawunit in Warsawunit in Warsaw Finnish AC drives manufacturer Vacon has taken es-tablished its own sales unit in Warsaw by taking over the AC drives unit of its long-term distributor Telko-Poland, the Polish subsidiary of Finland-based Kaukomarkkinat Oy. The business operations and the personnel will be consolidated into the Vacon Group. Vacon and Telko-Poland have been partnering in Poland for approximately twenty years since 1994. "Poland is a strongly developing and stable market, and this acquisition of business operations further strengthens our presence in the country. It also allows us to offer even more comprehensive services to our local and global OEM and brand-label customers," Jari Perkiömäki, Corporate Communications Manager at Vacon tells Poland Today. "Vacon is bringing over nine persons from Telko-Poland's AC drives business, and there will probably be additions later on." "The sales trend in Poland has been stable during the recent years, and Vacon's target is to grow significant-ly faster than the market. At the moment, the most im-portant customer segments for Vacon in Poland are general industry and building automation. However, the biggest opportunities in Poland can be seen in the marine and mining industries. Also, we aim for an in-creased sales channel coverage," says Jari Perkiömäki. Asked whether Vacon has any plans for production or R&D-related investments in Poland, Mr. Perkiömäki replies: "No, not at the moment. We are focusing on

sales, marketing and service operations in Poland for the time being." Vacon is a global manufacturer of variable-speed AC drives for adjustable control of electric motors, and in-verters for producing energy from renewable sources. The Helsinki-listed has production and R&D facilities in Europe, Asia and North America, and sales offices in 30 countries. With a global workforce of 1,600 people, Vacon turned over EUR 403m in 2013. The company does not disclose its sales in individual countries.

ENERGY & RESOURCES

3 Legs Resources CEO 3 Legs Resources CEO 3 Legs Resources CEO 3 Legs Resources CEO says breakthrough in says breakthrough in says breakthrough in says breakthrough in Polish shale is around Polish shale is around Polish shale is around Polish shale is around the cornerthe cornerthe cornerthe corner In partnership with Shale Gas Eu-rope (www.shalegas-europe.eu), BR+ brings you a commentary on the Polish shale gas sector by Kamlesh Parmar, CEO of 3Legs Resources Rising tensions and recent headlines throughout the Middle East and Europe have presented a perfect case for greater energy security in the region. Having come to Poland seven years ago and witnessed the changes it has undergone since, I see few other examples of a country that could benefit more from reducing de-pendence on its neighbors and exploiting its shale gas resources. And despite concerns over the changing levels of investment in Poland’s shale gas over the years, we are embarking on what could now be a very real breakthrough after years of hard work.


Driven by the impetus of developing resources of its own, the Polish government has been broadly support-ive of the industry and has gone as far as to call for the creation of a European energy union to strengthen Eu-rope’s negotiating power against the likes of Russia, from which Poland imported 60 per cent of its natural gas in 2013. But as important as a supportive government is to the success of our industry, results from exploring and testing our geology – for 3Legs, that means the north-ern Baltic Basin – is what will guide our future. Thus far, 3Legs has flowed gas to surface and flared from all 4 test wells on our 3 western concessions and from both formations – a testament to the experience of our US-based technical team and the prospectivity of our acreage. There have been around 60 wells drilled to date across three different basins in Poland. To put that into per-spective, it takes approximately that many wells to de-velop only a single basin in the US thanks primarily to fewer regulatory hurdles and more supplier options than what is found in Eastern Europe. A more amena-ble regulatory regime made it easier for small opera-tors to take the lead on shale development in the US – quickly acquiring acreage and drilling permits in a manner that would take a significant amount of addi-tional time, money and effort to complete in Poland. That’s why in Poland we saw an influx of larger opera-tors, who are more able to weather the longer time-lines, enter the Polish market -- and unfortunately cre-ate more interest on exit. But it should be noted that while some international operators chose to forgo their Polish licenses, other majors, like our co-venture partner ConocoPhillips, decided in 2012 to stay – further supporting the idea that our acreage has the potential to be a success. If we are indeed able to generate further positive news

from our acreage, we could very well see many opera-tors return to Poland. 3Legs have drilled a further long lateral well in its core acreage and the beginning of the completion and test-ing phase is about to commence - the culmination of our 2013/2014 work programme agreed to with Cono-coPhillips. We believe we hold some of the best acre-age in the Polish Baltic Basin and are confident that greater signs of future commerciality - and opportuni-ty for a more energy stable Poland - could be proven shortly. Kamlesh Parmar is the CEO of 3Legs Resources, a leading independ-

ent exploration and production company focused on Polish uncon-

ventional oil and gas resources. He also serves as the president of

the OPPPW, the representative body of onshore operators in Poland.


Raiffeisen takes 19Raiffeisen takes 19Raiffeisen takes 19Raiffeisen takes 19,500 ,500 ,500 ,500 sq.m sq.m sq.m sq.m of offices of offices of offices of offices at Golub at Golub at Golub at Golub GetHouse's new tower GetHouse's new tower GetHouse's new tower GetHouse's new tower in a record in a record in a record in a record lease lease lease lease deal deal deal deal Merely three months after the Warsaw-based property company Golub GetHouse had named the general contractor for its flagship development Prime Corpo-rate Center in downtown Warsaw, the company has found a single tenant to occupy more than 90% of the building. In this year's largest office space lease trans-action on the Polish market, the Austrian-owned Raiffeisen Polbank has secured 19,500 sq.m of office space with an additional retail-services space in Golub GetHouse's newest scheme. The tenant will move into the building in the first half of 2016.

"The new bank headquarters will partly be an opening of a new stage in Raiffeisen Group’s history in Poland. Employees so far scattered in a few Warsaw locations will move to an office building perfectly adjusted to our needs, which will allow our organization to gener-ate significant financial savings and at the same time operate more effectively. Naturally, the new headquar-ters will be suited to our clients’ needs, where model branches will await our individual as well as corporate customers," said Piotr Czarnecki, Chairman of the Board at Raiffeisen Polbank.

Prime Corporate Center (lower right hand corner) was designed by Chicago's Solomon Cordwell Buenz architectural studio. Image: Golub GetHouse

Prime Corporate Center is an A class office building developed at 78 Grzybowska Street – in the heart of Warsaw’s rapidly expanding business district of Wola and in close proximity to the 2nd metro line, which is set to launch by the end of this year. A total of 21,000 sq.m of modern office space will be located on 23 floors of the 83-metre tall tower. The investment is be-ing delivered in line with "very good" BREEAM eco-logical certificate standards.


Prime Corporate Center was originally a brainchild of Irish developer Irlandzka Grupa Developerska (IGD), which got into financial difficulties and sold the site to the current owner, Golub GetHouse in 2012. Just re-cently, Golub GetHouse, a joint venture of US Golub & Company and Warsaw-based GetHouse Devel-oper obtained EUR 50m financing for Prime Corpo-rate Center from a consortium of mBank and mBank Hipoteczny, the highly successful Polish units of Germany's Commerzbank. Czarek Jarząbek, man-agement board president at Golub GetHouse, told Po-land Today that the total capex on the project would come to EUR 75m. In April the investor awarded a PLN 115m contract for the construction of Prime Cor-porate Center to Warbud, the Polish arm of France's Vinci Group.

Warsaw office market Key indicators as of end of 2013

Office zones Stock

sq.m

Vacan-

cy

Central locations 1,247,000 9.9%

CBD-Central Business District 473000 12.2%

CCF-City Centre Fringe 774,000 9.6%

Non-central locations 2,866,000 12.2%

E-East (Praga) 172,000 9.4%

LS-Lower South (Puławska) 176,000 10.2%

N-North (Żoliborz & Bemowo) 143,000 13.8%

SE-South East (Wilanów & Sadyba) 193,000 5.0%

SW-South West (Jerozolimskie & Okęcie) 712,000 14.4%

US-Upper South (Mokotów) 1,152,000 12.4%

W-West (Wola) 315,000 13.2%

Total 4,113,000 11.7%

Source: CBRE Q42013 Warsaw Office MarketView

Golub GetHouse continues to look for land for new of-fice and residential schemes in Warsaw. In December 2013 it signed a joint-venture agreement with Mennica Polska regarding a 1ha site on 21 Pereca Street, on the corner of Żelazna and Prosta Streets.

The communist-era office buildings at the site have since been demolished. "We intend to build two class A-office buildings at the site, a 130m-tall tower with a GLA of 51,000 sq.m and a smaller building with 14,000 sq.m of office space," Czarek Jarząbek told Poland Today. Golub & Company has been present in the region since the early 90s and has completed a number of office schemes including the Warsaw Financial Centre (75,000 sq.m GLA), International Business Center (58,000 sq.m), and Warsaw Corporate Center (10,000 sq.m) as well as some residential projects (Point 48, Platinum Plaza, Oligo Park) in Warsaw and its vicinity.


Office boom continues Office boom continues Office boom continues Office boom continues in Poland's property in Poland's property in Poland's property in Poland's property sector, JLL reportssector, JLL reportssector, JLL reportssector, JLL reports More than 1.1m sq.m of office space is currently under construction in Poland, with Warsaw, Kraków, Wrocław and Tri-City being the busiest markets, ac-cording to a brand new report by the property consul-tancy JLL. "Construction activity in Warsaw remains high. Cur-rently, approximately 579,000 sq.m is under active construction, and an additional 62,000 sq.m is under refurbishment. Remodeled and renovated buildings account for around 10% of the space under develop-ment in Poland’s capital city. We think that the trend of older buildings being refurbished and tailored to market needs and expectations will continue," said Mateusz Polkowski, Associate Director, Research and Consultancy, JLL.

"In 2014, a total of ca 350,000 sq.m of new offices will be completed, including the above- mentioned refur-bishments. The Warsaw market will roughly maintain its current pace in 2015 and 2016 with ca 300,000 sq.m of new supply being completed for each of these two years. The volume of new office projects will be re-flected in the continued upward pressure on the va-cancy rates. We expect that in 2016 the total office stock in Warsaw will hit 5m sq.m."

Poland's office property market in 2014

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

Łódż

Szczecin

Lublin

Poznań

Tri-City

Katowice

Wrocław

Kraków

Warsaw

Completions H1

Pipeline H2

Source: JLL

In H1, tenant demand in Warsaw stood at 258,900 sq.m, with Mokotów representing 37% (95,900 sq.m) of total take-up during that period. New deals ac-counted for 50% of all office space leased in 1H, with renewals representing a further 35%, according to JLL. In H1, 190,300 sq.m of office space was commis-


sioned in Warsaw. In Q2 alone, approximately 106,000 sq m was delivered to the market, with the largest of-fice building completions being Eurocentrum Office Complex I (38,700 sq.m), GreenWings (10,800 sq.m) and Gdański Business Center 1-A (29,600 sq.m). Non-central stock exceeded 3m sq.m of existing modern of-fice space. The vacancy rate in Warsaw went up slightly compar-ing to the end of 2013 when it stood at 11,8%. At the moment 13.4% (574,400 sq.m) of Warsaw's modern of-fice stock remains vacant (13.6% in central Warsaw, 13.3% in non-central locations). Prime headline rents in Warsaw City Centre range between EUR 22 and EUR 24/sq.m /month, whereas in the top non-central locations they stand at EUR 14.50 to EUR 14.75/sq.m /month.

"We expect that the vast majori-ty of office mar-kets in Poland will remain fa-vorable to ten-ants," says Mateusz Polkowski. As-sociate Direc-tor, Research and Consultan-cy at JLL.

In regional cities, the January-June take-up came to 189,000 sq.m, with Łódź showing the most impressive y/y improvement at 14,200 sq.m. As the gross take-up in Łódź over the last two years has hovered around an average of 5,800 sq m per quarter, this means that H1 2014 demand has already hit 85% of 2013's total. In Q2 the most active market in terms of tenant demand was Katowice (22,000 sq.m of leased space).

H1 2014 brought 123,100 sq.m of new office space to the market outside Warsaw. The leading cities were Katowice (which accounted for 24% of all comple-tions), Tri-City and Kraków (each with 20%). In Q2, major new deliveries included Olivia Four in Gdańsk (12,500 sq m), Alma Tower in Kraków (10,400 sq.m) and GPP Business Park II in Katowice (7,500 sq m). Łódź was the only city with no new completions. Currently, 531,400 sq.m of office space is under active construction in Poland’s major regional cities. Kraków, Wrocław and the Tri-City account for 67% of all pro-jects. Kraków is taking a clear lead in this respect, with 136,500 sq.m of office space under construction, 64% of which will be delivered by the end of 2014. Moreo-ver, almost 44% of all space under construction in Kraków is secured by pre-let agreements, outperform-ing other major cities, where between 18.5% and 25.5% is pre-let (the exception being Szczecin, with 8.5%). Quarterly vacancy rates were stable at the end of H1 2014 in major cities outside Warsaw. The lowest va-cancy rate is still found in Kraków (4.5%) and the highest in Szczecin (24.4%). The largest decrease compared to the end of 2013 was recorded in Łódź (from 13.4% to 9.2%). Prime headline rents in the major cities outside War-saw currently range from EUR 11 to EUR 12/sq.m/month in Lublin to EUR 14 to EUR 15/sq.m/month in Wrocław and Poznań. Average headline rents remain highest in Kraków (EUR 13.7 to EUR 14/sq.m/month) and Katowice (EUR 12.5 to EUR 13.75/ sq.m/month), lowest in Lublin (EUR 10/sq.m/month). "We expect that the vast majority of office markets in Poland will remain favorable to tenants. The situation will be more balanced in markets that are character-ized by stable demand for office space and relatively low vacancy rates," concluded Mateusz Polkowski.


Polish train makerPolish train makerPolish train makerPolish train maker PESA to establish joint PESA to establish joint PESA to establish joint PESA to establish joint venture in Russiaventure in Russiaventure in Russiaventure in Russia Polish train manufacturer PESA and Russian indus-trial giant UralVagonZavod (UVZ) have inked a let-ter of intent regarding the creation of a joint venture in Russia. The deal was inked by PESA's CEO Tomasz Żaboklicki and Oleg Sienko, his counterpart at UVZ, at the InnoProm 2014 industrial fair in Yekaterinburg. "The agreement paves the way for the creation of as-sembly and service centers in the Russian Federation as well as establishment of a joint company producing trams, locomotives, rail cars and other electric vehi-cles," said PESA's spokesperson Michał Żurowski. In the coming weeks the two partners are to register a company in Russia and begin acquiring orders, in line with an agreed business plan. Founded in mid-1930s, UVZ is a Russian machine building company located in Nizhny Tagil, Russia. It is one of the largest scientific and industrial complexes in Russia and the largest main battle tank manufactur-er in the world. The company's main products include railway cars, tanks, road-building vehicles, agricultural vehicles, metallurgical products, tools and consumer goods. In recent years civilian production amounted to some 2/3 of UVZ's total output. The privately-owned PESA has emerged in recent years as one of Poland's most successful exporters of transportation equipment. In June 2013 the company signed a contract with UralTransMash for the deliv-ery of 120 trams to the city of Moscow. The first vehi-cles from that order were introduced to the Moscow


municipal transportation system in June. By the end of the year PESA is to deliver a total of 70 and the entire contract is to be fulfilled by March 2015.

PESA's biggest achievement to-date has been the EUR 1.2bn contract for the delivery of up to 470 trains to Germany's Deutsche Bahn. Image: DB

PESA's most prestigious contract so far was the EUR 1.2bn framework deal with Deutsche Bahn for the supply of up to 470 new diesel-multiple units. The trains are to be delivered in batches by the end of 2018. The PESA deal is Deutsche Bahn's first ever order to a non-German manufacturer. A few months ago PESA secured another order in Germany on the delivery of nine new LINK-type DMUs to NEB (Niederbarniemer Eisenbahn). Besides DB and NEB, PESA's German customers include private carrier Netinera. On the domestic market, one of PESA's largest orders in recent months was the PLN 1.3bn contract for the supply of 20 electric multiple units to PKP Intercity. Signed in May, the contract covers the vehicles them-selves (approx. PLN 1bn) as well as 15-years of maintenance services (PLN 312m). PESA supplies locomotives for the Italian, Ukrainian and Lithuanian railways as well as trams for munici-palities in Poland, Hungary, and Romania. The com-pany employs a work-force of 2,800, at factories in

Bydgoszcz and Mińsk Mazowiecki, just east of War-saw. In 2012 PESA turned over PLN 1.55bn and net-earned PLN 137m. The company belongs to a number of Polish investors, including its top management.


Prologis acquires two Prologis acquires two Prologis acquires two Prologis acquires two logistics logistics logistics logistics centerscenterscenterscenters from from from from InvescoInvescoInvescoInvesco US industrial property giant Prologis, Inc., has ex-panded its CEE portfolio with the acquisition of two high-quality logistics facilities in Poland and Hungary from Invesco Real Estate. The transaction, which includes 94,200 sq.m of GLA fully leased to major re-tailers, was carried out via Prologis European Proper-ties Fund II ("PEPF II"), one of four European co-investment vehicles managed by Prologis. In Poland, Prologis has purchased a 56,700 sq.m build-ing in Gliwice, in upper Silesia. The facility, renamed Prologis Park Gliwice, is located in the centre of the Silesian agglomeration and one of Poland's core mar-kets – next to the crossroads of two trans-European networks the A1 and A4. Its sole tenant is the British-owned retailer Tesco. In Hungary, Prologis bought an Auchan-occupied 37,500-sq.m property near Buda-pest. "These two properties leased to premium customers are exciting additions to the Prologis portfolio in Po-land and Hungary. Both are in key locations on major commercial routes that are growing in importance due to an increase in intra-regional trade in Central & Eastern Europe," said Ben Bannatyne, regional head for Prologis Central & Eastern Europe.

PEPF II, which was established in August 2007, owned 253 properties, for a total of 5.9m sq.m with a net market value of EUR 3,595.4m as of March 31, 2014. Globally, Prologis owned or had investments in, properties and development projects expected to total approximately 53.3m sq.m in 21 countries including 3.7 sq.m in Central and Eastern Europe as of end of Q1 2014.The company leases modern distribution facili-ties to more than 4,700 customers, including manufac-turers, retailers, transportation companies, third-party logistics providers and other enterprises. Last year alone, the company leased 1.15m sq.m of industrial dis-tribution space in Central and Eastern Europe, includ-ing 595,000 sq.m in renewals and 363,000 sq.m in new leases. Prologis’ occupancy in the CEE was 89.5% as of December 31, 2013. In recent months Prologis broke ground on two specu-lative projects (27,000 sq.m and 28,240 sq.m) in the Wrocław area. Other ongoing projects from Prologis in Poland include a 11,200 sq.m BTS scheme for Dan-ish forwarder Prime Cargo in Prologis Park Szczecin as well as a 27,000 sq.m speculative development in Prologis Park Wrocław V.

RETAIL CHAINS

Polish drugstore cPolish drugstore cPolish drugstore cPolish drugstore chain hain hain hain Dayli speeds up Dayli speeds up Dayli speeds up Dayli speeds up expansion eyeing expansion eyeing expansion eyeing expansion eyeing Western EuropeWestern EuropeWestern EuropeWestern Europe

Polish drugstore & convenience chain Dayli, which currently operates some 170 locations across Poland, seeks to reach the 300 mark by the end of next year, company representatives said in June. The leading


drugstore chain on the Polish market, Germany's Rossmann, has recently hit the 900 stores mark. Dayli was created on the basis of the bankrupt German chain Schlecker, parts of which were acquired two years ago by Austrian private equity company TAP 09, whose boss Rudolf Haberleitner at the time de-scribed the new concept to Poland Today's Lech Kaczanowski as follows:

Dayli outlets are a cross between a drugstore and convenience store. Image: Dayli

"We are moving away from a simple drugstore, which was essentially Schlecker's specialty, towards what we call a 'local supply store.' We believe that retailers have abandoned their customers, expecting them to drive to out of town to huge shopping centers, which is costly, inefficient, and troublesome, for instance for old people. Dayli seeks to bring shopping back to where consumers live." "It will be much more than a simple convenience store, however. The basic bread and butter conven-ience food products, of which we plan to carry some 400 items, will represent only some 8-10% of turnover,

and only one of five pillars of the business. Besides drugstore products, which will con-tinue to yield the highest margins, Dayli will include also the so-called "brand corners," with basic brand-name fashion prod-ucts and house-hold items, as well as a selection of services, such as copying, dry cleaning, postal, insur-ance etc, as well as in-store home shopping," he said. In Poland, TAP 09 teamed up with the listed producer of personal care goods Hygienika, which initially bought a 50% stake in the Polish Schlecker business for EUR 3m. The Polish partner got so involved in the project that it has since bought out the Austrians and announced plans to sell its production plant near War-saw, which makes diapers and other hygiene products, in order to focus fully on expansion of the retail busi-ness in Poland and abroad. A few weeks ago Hygienika's CEO and main shareholder Kamil Kliniewski said he was negotiating acquisition of the former Schlecker business (now Dayli) in Luxembourg with Germany also being a potential target. In November last year Hygienika struck a deal with the private equity fund Innova Capital, regarding joint investments in the drugstore segment. Their joint venture agreement were to be sealed later this year, with Hygienika bringing the Dayli business to the ta-ble and Innova contributing another, unnamed Polish drugstore operator. The two partners said their goal is to create a retail business with a PLN 1bn turnover in a few years. When we spoke to Rudolf Haberleitner back in the au-tumn of 2012, he said the chain could grow to 1,000 lo-cations in Poland in a few years' time and identified the east of the country, due to its relative underdevel-opment, as a true land of opportunity for Dayli. Under Hygienika, the chain is to open some 25 new Dayli stores in 2014, reaching 200 locations, before its ex-pansion truly picks up pace next year. In 2011 the

Polish Schlecker business turned over PLN 200m and net-earned PLN 8m. Last year the Hygienika group saw its turnover reach PLN 177m, up from PLN 49.4m in 2012, while its net earnings from continued operations rose from PLN 1.2m in 2012 to PLN 6m in 2013. The surge in turnover was mainly due to the acquisition of the Dayli chain, whose results have been part of Hygienika's consoli-dated financials since March 2012. Poland Today talks to: Kamil Kliniewski, CEO of Dayli Pol-ska & Hygienika SA • PT: TAP 09 and Hygienika took over approx. 170 Schlecker outlets in Poland. After 1 ½ years their number remains more or less unchanged. How many outlets have you opened since? Kamil Kliniewski: The Dayli chain is growing rapidly. You need to remember that we first focused on a thor-ough rebranding of the Schlecker outlets, at the same time opening new stores. In 2013 we launched 13 new locations, also in large cities such as Warsaw, Kraków, or Toruń. A further nine have been opened since the beginning of the year and we are planning more open-ings in the autumn. • PT: According to initial plans, Dayli were to blend drugstore, convenience store, service outlet, and e-commerce pickup point. What has remained of that initial concept? KK: We have always maintained the core drugstore concept, but looking at market trends and customer preferences, we decided to expand our product range to include also convenience products. We communi-cate the Dayli concept as 'Drugstore Plus' by which we mean a drugstore that offers also grocery products, postal services, lottery tickets and newspapers. Our convenience component is similar to other chains, but what differentiates Dayli from them is the double


drugstore-convenience format. As far as online sales are concerned, we are currently in the process of building an e-commerce platform, so it's just a matter of time before we implement it in our drugstores. • PT: What share of your inventory are drugstore products and what – convenience items and the rest? KK: We are first and foremost a drugstore chain and this is how we advertise the business. As a principle, we expect that customers will visit Dayli in search of drugstore products of which we have the widest varie-ty. Additionally, they can find an extended selection of convenience products, such as drinks, snacks, other foodstuffs as well as ready-made meals. By introducing the convenience format we are opening up the chain to a broader target group that includes also men and young people. We hope our broad inventory will en-courage customers to visit the Dayli stores more fre-quently. • PT: What are your preferences with respect to store locations? KK: We are looking for retail units in large towns and cities, located by main streets and in residential neigh-borhoods. Our focus is on street level units, 3m high and ranging from 180 to 250 sq.m in size. • PT: Last year there was some talk about a joint pro-ject with Innova Capital. What's become of that ini-tiative? KK: The idea behind that project for Innova Capital to find and subsequently acquire a retail chain in Poland that it would later contribute to Dayli as a new asset via an equity boost. This, in effect, were to boost Dayli's sales revenues and store numbers and support long-term growth of the entire business, which would operate under the Dayli brand, as stipulated in the Let-ter of Intent. However, so far we have not been able to find a suitable candidate in Poland and that's why we are looking at Western European markets where we see better prospects for growth.

RETAIL PROPERTIES

Inter IKEA Centre Inter IKEA Centre Inter IKEA Centre Inter IKEA Centre starts work on Wola starts work on Wola starts work on Wola starts work on Wola Park extensionPark extensionPark extensionPark extension Inter IKEA Centre Polska (IICG), the retail property development arm of Sweden's Inter IKEA Group, has launched preparatory work on the 17,500 sq. extension of Warsaw's Wola Park retail centre, which the com-pany acquired last year. The project will boost the cen-ter's GLA to 77,500 sq.m, making it the city's second largest shopping mall, following its completion sched-uled for the autumn of 2015. The new extension will be added to the eastern wing of the centre, with the existing food court that is cur-rently located in this area to be relocated one floor up and expanded. As the new section will occupy what is now a parking lot, an additional 454 parking spaces will be built in the back of the centre, in order to main-tain their total number at the current level of 3,000. Wola Park is IICG first acquisition in Poland and also the only IICG project in the country that is not an-chored by an IKEA store. The key tenant in the new section of Wola Park will be the British home improvement retailer Castorama, with a 10,000 sq.m store. Besides the DIY outlet, Wola Park will get 20 new fashion units, expanding its total store numbers in excess of 200. As part of the project, the existing part of Wola Park is to receive a makeo-ver, Mikael Andersson, Managing Director of Inter IKEA Centre Polska told Poland Today. As part of the IKEA group, IICG Poland is responsible for preparation, implementation and management of commercial property projects. In Poland, the group

owns eight shopping centers, which are situated in Gdańsk, Łódź, Poznań, Wrocław, Katowice and War-saw (three centers: Janki, Targówek and Wola Park). Their biggest investment last year was the expansion of the Franowo retail park in Poznań, which opened in September 2013. The company added 14,000 sq.m of retail space to the park, expanding its total area to 80,000 sq.m.

The planned extension will make Wola Park War-saw's 2nd largest shopping centre. Image: IICG

In recent weeks, IICG has acquired has acquired a 25.7ha site in Zabrze, where the company plans to build an enclosed shopping centre with an integrated IKEA store. It also owns development sites in Opole and Bydgoszcz. This year the company is hoping to break ground on a two-story retail cluster in Lublin with some 80,000 sq.m of GLA, that will encompass an IKEA store, shopping gallery (49,000 sq.m), hyper-market (11,000 sq.m), food court, and 3,000 parking spaces. The project is yet to get underway due to de-laying bureaucratic procedures. "We have just started construction works of the exten-sion of Bielany Shopping Park in Wroclaw," Mikael Andersson tells Poland Today. "After completion, the building will accommodate around 200 tenants and its GLA will amount to 145,000 sq.m, up from the current


80,000 sq.m. Thanks to cooperation with the Helios multiplex operator, the first up-to-date cinema with eight projection rooms will be launched in the south-ern part of Wroclaw." Last year, tenants at Inter IKEA Centre's eight Polish retail parks reported a 4% y/y increase in sales, while footfall grew by 3%. As for the IKEA Retail unit, which operates eight furniture and home goods stores in Po-land, it achieved sales revenues of PLN 2bn in fiscal year 2013 [September 2012 – August 2013; ed.], mark-ing a 9% increase y/y.

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Rank Progress breaks Rank Progress breaks Rank Progress breaks Rank Progress breaks ground on Krosno ground on Krosno ground on Krosno ground on Krosno retail parkretail parkretail parkretail park Construction work is underway on a new retail park in Krosno by Warsaw-listed property developer Rank Progress. Located next to an existing OBI home im-provement store in the Krosno suburb of Miejsce Piastowe, the project is to reach completion by the end of the year with a GLA of 4,700 sq.m and 240 parking places. The general contractor is AMB Group Polska. "We are seeking tenants for the few remaining retail units at the centre, which will house, among others, a Biedronka grocery, Media Expert electronics store and Martes Sport sports goods outlet," says Łukasz Gruszczyński, marketing director at Rank Progress. In mid-May the developer launched a 7,700 sq.m shopping centre Centrum Pogodne in OIeśnica and it is currently working on a much larger project in Piła, in cooperation with Austria's Immofinanz, which

agreed to acquire the property and cover all costs as-sociated with its development until the opening. With a GLA of 23,800 sq.m the Piła project is to reach com-pletion in Q4 2014.

The Krosno retail park is one of several projects in Rank Progress' short-term pipeline. Image: Rank Progress

Based in Legnica, Rank Progress had long specialized in development of shopping centers for international retail chains, such as Tesco, Carrefour, Castorama, Leroy Merlin, or Jeronimo Martins. The company also carried out a number of highly-profitable short-term projects that typically encompassed site acquisition, permitting, and design, and eventually sale to re-nowned domestic and foreign buyers. However, in the past couple of years their key focus have been large shopping centers and retail parks in medium-sized cit-ies. Since 2001 Rank Progress has completed 25 pro-prietary investments, including nine shopping centers, located in Legnica, Jelenia Góra, Świdnica, Zgorzelec, Kłodzko, Zamość, Kalisz (the latter three were sold to Blackstone Real Estate), as well as Grudziądz (Pasaż Wiślany) and Chojnice (Brama Pomorza), which opened last year. Unlike most of its other projects, Brama Pomorza is a regional shopping center with a 34,000 sq.m GLA and 50 retail units.

Back in mid-2011 Rank Progress has announced plans to build 16 new retail centers at the cost of PLN 2.2bn over the 2011-14 period. In addition to the Krosno and Piła projects, its future pipe-line includes also schemes in Mielec, Olsztyn, Kołobrzeg, Kielce, Duchnów near Warsaw, Kielce and Wejherowo. "The preparations in Mielec are quite advanced. We have obtained permission to redevelop the road net-work in the area as well as other infrastructure that collides with the project," Łukasz Gruszczyński told Poland Today back in May. Rank Progress posted a PLN 11m net loss on continued operations last year against a PLN 23.7m profit in 2012. As of end of December its total assets were worth close to PLN 1.02bn, up from PLN 859m a year earlier.

RETAIL PROPERTIES

Fabryka Wołomin to Fabryka Wołomin to Fabryka Wołomin to Fabryka Wołomin to open next year with open next year with open next year with open next year with Carrefour as anchor Carrefour as anchor Carrefour as anchor Carrefour as anchor tenanttenanttenanttenant Fabryka Wołomin, a large new shopping center that is scheduled to open next year in Warsaw's satellite town of Wołomin, has just signed its key tenant - France's Carrefour. The retailer has booked 5,500 sq.m at Galeria Wołomin where it will launch a new hypermarket with a sales area of some 4,000 sq.m. With a catchment area of 250,000 people, Fabryka Wołomin will be the first modern retail and leisure complex in Wołomin, a town located some 20km north east of Warsaw. The scheme will be comprised


of a shopping center (23,500 sq.m GLA) and retail park (6,500 sq.m) separated by a parking lot with 830 spac-es. Fabryka Wołomin is to launch in Q2 2015 with ap-proximately 80 retail units. Besides Carrefour, other tenants at the project will include drugstore Hebe and footwear store CCC. The investor behind Fabryka Wołomin, a special pur-pose entry Park Handlowy Wołomin, has obtained all the necessary permits required to launch the project. The construction of Fabryka Wołomin is to begin in September, and property consultancy CBRE is the ex-clusive leasing agent for the project.

Fabryka Wołomin will be comprised of a shoppiung centre and retail park with a combined GLA of 30,000 sq.m.. Image: CBRE

As for France's Carrefour, it has nearly halted its ex-pansion in the hypermarket segment, in which it cur-rently operates 97 outlets. Besides Wołomin, the com-pany plans to launch new hypermarkets in Poznań (at Posnania shopping center in 2016) and Piła (Galeria Piła; Q4 2014). Other major players in Poland's hy-permarket segment include Germany's Kaufland (177 outlets), France's Auchan (78 locations including 49 Real stores) and E.Leclerc (43) and Britain's Tesco (85 hypermarkets).

In total, an estimated 650 stores throughout Poland operate under the Carrefour logo at the moment, in-cluding hypermarkets, supermarkets and neighbor-hood stores. The latter category, which Carrefour is being expanded on a franchise basis, has been growing the fastest in recent years. Carrefour's Polish stores occupy more than 300,000 sq.m of rented space, but the company manages a further 220,000 sq.m at its 20 proprietary centers in the country.

CONSUMER GOODS & RETAIL

June retail sales data June retail sales data June retail sales data June retail sales data weakest since May '13weakest since May '13weakest since May '13weakest since May '13 Polish retail sales increased by a mere 1.2% y/y in June, vs. May figure of 3.8% and consensus projec-tions for a 4% growth, marking the weakest result since May 2013, said Poland statistical office GUS. In real terms, Polish retail sales were up by 1.8% y/y in June after a 4.3% y/y increase in May, GUS added. In monthly terms, retail sales declined across all cate-gories except motor vehicles (+0.6%), with the strong-est fall (by 3.3%) recorded in household appliances. As regards y/y terms, the most significant fall was record-ed in car sales. In the whole of Q2 increased by 5.1% in real terms, down from 5.5% y/y in Q1. The slowdown in Q2 would have been even more pronounced had it not been for good results in April, caused mainly by the one-off effect of the Easter holidays. "The downward tendency of sales in Q2, visible every month, is more worrying. Especially since the same trend could be seen in industrial and construction output," BZ WBK analysts said in their commentary to the GUS figures. "June data on retail sales was be-low expectations, just like industrial output and wages

in corporate sector. Despite these disappointing re-leases, it is worth noticing that consumer confidence index is at a relatively high level and – what is more important – the situation in the labor market is im-proving with strong growth in real disposable in-come," they commented. "The data on retail sales and industrial output suggest the growth in Q2 is likely to be weaker than 3.4% in Q1, which is generally in line with our view. However, what strikes us is the continued strong performance of the labor market that seems inconsistent with a sce-nario of more serious slowdown," Citibank analysts added.

Retail sales in Poland (y/y)

-5%

0%

5%

10%

15%

Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14

Source: GUS

GUS will release its flash Q2 GDP growth estimate on August 14, and the detailed breakdown of its compo-nents are to be made public some two weeks later. Ac-cording to BZ WBK, the first monthly figures from Q3 will be more important for outlook assessment and monetary policy decisions than historical data from Q2. Although the Central Bank has so far refrained from offering hope for policy easing, the recent string


of disappointing macroeconomic readings may prompt the policy makers to cut the cost of borrowing in the second half of the year. "With weaker than expected data the Monetary Policy Council will be under pressure to consider a possibil-ity of rate cuts. However, since we look for at least 3% growth in Q2 and we expect the GDP data breakdown to show strong contribution of domestic demand we believe the MPC will prefer to postpone discussion about rate cuts until October or November, when new inflation projection is available. By then the signs of growth rebound should be more visible and therefore we expect the MPC to keep rates on hold in 2014. A potential trigger for cuts could be deeper than ex-pected slowdown in GDP and domestic demand or significant zloty appreciation," said Piotr Kalisz, Head of CEE Economics at Citi Research.

POLITICS & ECONOMY

June jobless rate June jobless rate June jobless rate June jobless rate reduction reduction reduction reduction beats earlier beats earlier beats earlier beats earlier projectionsprojectionsprojectionsprojections Poland's registered unemployment rate decreased to 12.0% in June from the prior-month level of 12.5%, ac-cording to Central Statistical Office (GUS) figures re-leased last week. The figure, which marked a y/y im-provement by 1.2 percentage points, was slightly better than earlier projections of officials and economists. The number of registered jobless at end-June meas-ured 1.913 million, down by 9.3% y/y. June brought 159,700 new registrations, down from 166,700 in the prior month and down from 177,700 in the prior-year period. At the same time, 233,800 people were re-moved from the register.

Employers posted 85,300 new job offers for the month, down from 95,900 in May and up from 76,100 in June 2013, with the end-month -offer at 72,700. At the same time, 256 enterprises declared plans to lay off 21,400 staff in the near future.

Registered unemployment in Poland

11%

12%

13%

14%

15%

Apr 13 Jun 13 Aug 13 Oct 13 Dec 13 Feb 14 Apr 14 Jun 14

Source: GUS

"Although the unemployment data was a positive sur-prise, June's numbers confirmed the tendency ob-served in the previous months, i.e. that the pace of im-provement is slowing," commented BZ WBK bank analysts. "While the number of newly registered un-employed declined at a two-digit rate (-10.1% y/y vs. -5.4% in May), the numbers of unemployed removed from rolls due to taking up job is deteriorating (-4.5% y/y versus +1.4% y/y in May). This means that enter-prises reduce the pace of creating new vacancies but they do not shed existing jobs. We expect further de-cline of unemployment rate in seasonally adjusted terms but in the nearest future it should stabilize near 12%," they added.

IN BRIEF: Polish consumer price inflation edged up to 0.3% y/y in June from 0.2% y/y from the previous month, a notch

above the consensus forecast for a 0.2% annual gain,

according to a report from the Central Statistics Office

(GUS). Consumer prices were flat month on month. The

annual CPI reading was mainly affected by growth of

dwelling costs by 1.6% as well as hikes of prices of alco-

holic beverages and tobacco products by 4%, GUS said.

Polish government's debt dropped to 49.5% of GDP at end-Q1 from 57.1% of GDP at end-2013, according to the

ESA'95 methodology, Eurostat said in a report last

week. Nominally, the figure stood at PLN 819bn.The

debt reduction resulted from the recent overhaul of the

country's pension system reform, which saw pension

funds transferring over PLN 150bn in assets to the state.

Poland's average corporate gross wage measured PLN 3,943,01 in June, an increase of 3.5% y/y or 1,7% m/m,

the Central Statistical Office (GUS) said. Poland's cor-porate employment measured 5.5261m persons in June, as it rose 0.7% y/y and rose by 0.2% m/m.


KEY STATISTICS

Consumer PriceConsumer PriceConsumer PriceConsumer Pricessss

Data in (%) Mar '14 Apr '14 May '14 Jun '14

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

Food & bev +1.2 -0.3 +0.3 -0.5 -0.8 -0.4 -0.9 -0.3

Alcohol, tobacco +3.7 +0.7 +3.9 +0.3 +3.9 +0.2 +4.0 +0.1

Clothing, shoes -4.3 +0.8 -4.4 +2.8 -4.6 -0.1 -4.7 -0.8

Housing +1.8 -0.1 +1.7 0.0 +1.6 0.0 +1.6 -0.1

Transport -2.7 +0.1 -2.1 -0.1 -0.1 -0.4 -0.6 -0.2

Communications -0.3 +0.6 -1.7 -1.5 -1.1 -0.1 +1.3 +2.4

Gross CPI +0.7 +0.1 +0.3 0.0 +0.2 -0.1 +0.3 0.0

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

5%

Ju

n 1

2

Au

g 1

2

Oc

t 12

De

c 1

2

Fe

b 1

3

Ap

r 13

Ju

n 1

3

Au

g 1

3

Oc

t 13

De

c 1

3

Fe

b 1

4

Ap

r 14

Ju

n 1

4

y/y m/m

Retail Retail Retail Retail TurnoverTurnoverTurnoverTurnover

Month Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) -0.6 +12.5 +2.3 -2.7 -1.1

y/y (%) +7.0 +3.1 +8.4 +3.8 +1.2

Year 2009 2010 2011 2012 2013

Turnover in PLNbn 582.8 593.0 646.1 676.0 n/a

y/y (%) +4.3 +5.5 +11.6 +5.6 +2.3

Residential ConstructionResidential ConstructionResidential ConstructionResidential Construction

Dwellings

(in '000 units)

2009 2010 2011 2012 2013 Jan-Jun

2014

y/y

(%)

Permits 178.8 174.9 184.1 165.1 138.7 76.5 +12.8

Commenced 142.9 158.1 162.2 141.8 127.4 72.3 +22.5

U. construction 670.3 692.7 723.0 713.1 694.0 700.9 -0.4

Completed 160.0 135.7 131.7 152.5 146.1 66.3 -2.4

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

Q1 2014 +3.4% 397,429 -1.1%

Q4 2013 +2.7% 455,528 -1.3%

Q3 2013 +2.0% 405,554 -1.9%

Q2 2013 +0.8% 296,314 -2.3%

2013 +1.6% 1,635,746 -1.3%

2012 +1.9% 1,596,379 -3.7%

2011 +4.5% 1,528,127 -5.0%

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

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% +1.6% +3.5%

Consumer inflation +2.6% +4.3% +3.7% +0.9% +0.3%

Producer inflation +2.1% +7.6% +3.4% -1.3% -1.4%

CA balance, % of GDP -5.1% -5.0% -3.7% -1.3% -0.6%

Nominal gross wage +3.9% +5.2% +3.7% +3.4% +4.3%

Unemployment** 12.4% 12.5% 13.4% 13.4% 12.2%

EUR/PLN 3.99 4.12 4.19 4.20 4.12

Sources: NBP, BZ WBK, PKO BP, GUS *) projections **) year-end

GrosGrosGrosGross Wagess Wagess Wagess Wages A: avg monthly wages in PLN B: indexed avg wages, 100=2005

Sector Q2 2013 Q3 2013 Q4 2013 Q1 2014

A B A B A B A B

Coal mining 6,290 143 6,061 138 8,615 196 6,333 144

Manufacturing 3,560 155 3,625 158 3,690 161 3,663 160

Energy 5,828 177 6,021 183 6,736 205 6,358 193

Construction 3,693 157 3,766 160 3,895 166 3,706 158

Retail & repairs 3,421 146 3,408 145 3,456 147 3,544 151

Transportation 3,547 125 3,589 127 3,913 138 3,666 130

IT, telecoms 6,707 174 6,654 173 6,695 174 6,986 181

Financial sector 6,702 151 6,109 137 6,602 148 6,749 152

National average 3,613 144 3,652 145 3,823 152 3,895 155

Source: Central Statistical Office (GUS)

Construction OutputConstruction OutputConstruction OutputConstruction Output

Month Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) +21.5 -64.0 +18.7 +24.2 +3.2 +14.0 +16.9

y/y (%) +5.8 -3.9 +14.4 +17.4 +12.2 +10.0 +8.0

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +15.5 +12.1 +5.1 +4.6 +11.8 -0.6 -12.0

Source: The Central Statistical Office of Poland, GUS

Sentiment IndicatorsSentiment IndicatorsSentiment IndicatorsSentiment Indicators

Economic sentiment and consumer confidence indicators

-40

-20

0

20

Se

p 1

1

De

c 1

1

Ma

r 12

Ju

n 1

2

Se

p 1

2

De

c 1

2

Mar

13

Ju

n 1

3

Se

p 1

3

De

c 1

3

Ma

r 14

Ju

n 1

4

60

80

100

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 Dec'13 Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14

m/m (%) -0.1 0.0 -0.1 -0.2 -0.2 -0.2 0.0

y/y (%) -1.0 -1.0 -1.4 -1.3 -0.7 -1.0 -1.7

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +2.0 +2.2 +3.4 +2.1 +7.6 +3.3 -1.3

Construction PriceConstruction PriceConstruction PriceConstruction Pricessss

Month Dec'13 Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14

m/m (%) -0.1 -0.2 -0.2 -0.1 -0.1 0.0 0.0

y/y (%) -1.7 -1.7 -1.6 -1.5 -1.5 -1.4 -1.3

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +7.4 +4.8 +0.2 -0.1 +1.0 +0.2 -1.8

Industrial OutputIndustrial OutputIndustrial OutputIndustrial Output

Month Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) -9.7 +2.9 -1.8 +9.4 -2.3 -1.7 -0.1

y/y (%) +6.6 +4.1 +5.3 +5.4 +5.4 +4.4 +1.7

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +10.7 +3.6 -3.5 +9.8 +7.7 +1.0 +2.2


TTTTraderaderaderade

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

EXPORTS in PLN bn IMPORTS in PLN bn

Jan-May

2014 y/y (%)

share (%)

2013 share (%)

Jan-May 2014

y/y (%)

share (%)

2013 share (%)

Food and live animals 30,403 +10.6 10.9 69,304 10.9 20,794 +5.7 7.5 47,906 7.4

Beverages and tobacco 3,667 +10.9 1.3 8,624 1.4 1,612 +1.0 0.6 4,150 0.6

Crude materials except fuels 7,057 +3.4 2.5 15,744 2.5 9,065 -1.0 3.3 21,585 3.3

Fuels etc 11,896 -2.0 4.3 30,013 4.7 31,333 +6.0 11.2 75,539 11.7

Animal and vegetable oils 811 +33.7 0.3 1,864 0.2 1,071 +1.0 0.4 2,646 0.4

Chemical products 25,517 +5.5 9.1 59,103 9.3 41,641 +8.2 15.1 92,917 14.3

Manufactured goods by material 55,193 +3.5 19.8 129,915 20.3 49,473 +8.4 17.7 112,392 17.3

Machinery, transport equip. 107,483 +10.9 38.5 239,434 37.5 91,562 +5.1 32.8 216,608 33.4

Other manufactured articles 36,803 +13.3 13.2 82,816 13.0 26,343 +15.3 9.5 58,210 9.0

Not classified 320 n/a 0.1 1,782 0.2 5,977 n/a 1.9 16,242 2.6

TOTAL 279,150 +8.3 100 638,599 100 278,871 +6.1 100 648,195 100

Poland's ten largest trading partners, ranked according to 2013

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-May

2014 share *2013 share No Country

Jan-May 2014

share *2013 share

1 Germany 72,954 26.1% 159,622 25.0% 1 Germany 60,238 21.6% 139,334 21.5%

2 UK 17,615 6.3% 41,503 6.5% 2 Russia 32,634 11.7% 79,601 12.3%

3 Czech Rep. 16,771 6.0% 39,421 6.2% 3 China 27,284 9.8% 60,914 9.4%

4 France 16,100 5.8% 35,745 5.6% 4 Italy 14,420 5.2% 33,703 5.2%

5 Russia 12,068 4.3% 34,058 5.3% 5 Netherlands 10,418 3.7% 25,005 3.9%

6 Italy 12,888 4.6% 27,450 4.3% 6 France 11,021 4.0% 24,533 3.8%

7 Netherlands 11,123 4.0% 25,292 4.0% 7 Czech Rep. 9,420 3.4% 23,778 3.7%

8 Ukraine n/a n/a 18,037 2.8% 8 USA 6,645 2.4% 17,350 2.7%

9 Sweden 7,950 2.8% 17,498 2.7% 9 UK 7,243 2.6% 16,861 2.6%

10 Slovakia n/a n/a 16,795 2.6% 10 Belgium 6,915 2.5% 14,913 2.3%

Source: Central Statistical Office (GUS) *) preliminary estimates

CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 25 July 2014

100 USD 308.31 ↑

100 EUR 414.59 ↑

100 GBP 523.27 ↑

100 CHF 341.14 ↑

100 DKK 55.60 ↑

100 SEK 45.24 ↑

100 NOK 49.72 ↑

10,000 JPY 302.53 ↑

100 CZK 15.09 →

10,000 HUF 134.45 ↑

100 USD/EUR against PLN

300

350

400

450

9 A

ug 13

17 O

ct 13

30 D

ec 13

10 M

ar 14

19 M

ay 14

25 Jul 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Mar '14 Apr '14 May '14 Jun '14

Monetary base 173,213 168,511 162,246 173,096

M1 558,954 548,394 557,651 572,376

- Currency outside banks 116,657 119,261 119,649 120,828

M2 964,624 969,754 975,001 980,090

- Time deposits 422,990 439,137 435,386 426,351

M3 980,377 986,142 991,120 996,171

- Net foreign assets 132,849 126,943 142,260 144,033 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 Mar' 14 Apr' 14 May' 14 Jun' 14

Loans to customers 923,709 928,450 930,652 940,703

- to private companies 267,553 270,886 273,360 276,709

- to households 569,334 573,332 574,800 578,639

Total assets of banks 1,628,519 1,639,359 1,660,583 1,667,783

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14

PLN (up to 1 year) 4.3% 4.2% 4.5% 4.5% 4.4% 4.4%

PLN (up to 5 y ) 4.9% 4.9% 4.8% 4.9% 4.8% 4.8%

PLN (over 5 y) 4.7% 4.8% 4.7% 4.7% 4.7% 4.7%

PLN (total) 4.7% 4.8% 4.7% 4.7% 4.7% 4.7%

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

EUR (over 1m EUR) 2.9% 3.6% 3.4% 3.3% 3.0% 2.7%

Warsaw Inter Bank Offered Rate (WIBOR) as of 25 July 2014

Overnight 1 week 1 month 3 months 6 months

2.60%% 2.60% 2.60% 2.67% 2.69%

Central Bank (NBP) Base Rates

Reference Lombard NBP deposit Rediscount

2.59% 4.00% 1.00% 2.75%

Stock ExchangeStock ExchangeStock ExchangeStock Exchange

Warsaw Stock Exchange, rates in PLN

WIG-20 stocks in alphabetical

order

Price 25 July

'14

Change 11 July

'14

Change end of

'13

↑ Alior Bank 80.79 +2% -1%

→ Asseco Pol. 40.41 0% -12%

↑ Bogdanka 114 +1% -9%

↑ BZ WBK 359 +3% -7%

↑ Eurocash 42 +6% -12%

→ Grupa Lotos 37 0% +4%

→ JSW 43.3 0% -19%

↓ Kernel 29.9 -4% -21%

↑ KGHM 130.9 +3% +11%

↑ LPP 8080 +1% -10%

→ mBank 488.85 0% -2%

↑ Orange Pol. 9.91 +3% +1%

↑ Pekao 177 +1% -1%

↑ PGE 21.1 +3% +30%

↑ PGNiG 5.23 +2% +2%

↓ PKN Orlen 38.88 -7% -5%

→ PKO BP 38.3 0% -3%

↑ PZU 451.9 +5% +1%

↑ Synthos 4.59 +2% -16%

↓ Tauron 5.05 -1% +16%

Source: Warsaw Stock Exchange

Key indices

as of 25 July 2014

WIG Total index

55551111,,,,608608608608....77779999 Change 1 week +1% ↑

Change end of '13 +1% ↑

WIG-20 blue chip index

2,2,2,2,406406406406....32323232 Change 1 week +1% ↑

Change end of '13 0% →

WIG Total closing index

last three months

50,000

51,000

52,000

53,000

54,000

9 A

pr 14

19 M

ay 14

10 Jun 14

3 Jul 14

25 Jul 14


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RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Jun 2014 *

Monthly wages (PLN)

Jan-Jun 2014**

Unemploy-ment

Jun 2014

New dwellings Jan-Jun 2014

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 101.5 117.2 4,379 4,173 134.5 11.7 6,561 81.1

Kujawsko-Pomorskie (Bydgoszcz) 106.6 120.7 3,432 3,239 132.1 16.2 2,956 91.3

Lubelskie (Lublin) 105.0 83.8 3,734 3,035 118.8 13.0 2,350 81.1

Lubuskie (Zielona Góra) 115.8 110.0 3,454 3,055 50.5 13.5 1,415 90.9

Łódzkie (Łódź) 100.3 119.1 3,702 3,267 137.3 12.8 3,054 102.6

Małopolskie (Kraków) 99.4 107.8 3,822 3,345 145.4 10.4 7,591 94.6

Mazowieckie (Warszawa) 103.5 112.0 4,628 5,084 261.7 10.2 14,266 109.3

Opolskie (Opole) 106.7 127.4 3,635 3,496 45.3 12.7 896 120.8

Podkarpackie (Rzeszów) 105.5 116.6 3,421 3,086 136.6 14.7 2,943 99.8

Podlaskie (Białystok) 106.6 120.0 3,310 3,768 62.9 13.6 1,950 133.5

Pomorskie (Gdańsk-Gdynia) 110.5 123.6 4,021 3,427 100.3 11.8 4,592 86.4

Śląskie (Katowice) 101.1 110.8 4,588 3,533 189.0 10.2 5,199 100.0

Świętokrzyskie (Kielce) 112.0 104.1 3,414 3,264 79.5 14.8 1,355 119.3

Warmińsko-Mazurskie (Olsztyn) 105.3 104.2 3,292 3,101 98.7 19.0 1,976 92.9

Wielkopolskie (Poznań) 106.9 111.9 3,765 3,662 124.5 8.3 6,709 102.7

Zachodniopomorskie (Szczecin) 102.2 100.5 3,533 3,423 95.2 15.7 2,514 93.9

National average 104.3 112.1 4,009 3,795 1,912.6 12.0 66,327 97.6

*) 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 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

in Poland 2,886 175 -3,020 1,885 -2,899 2,771

Polish DI -1,203 957 2,588 -1,449 1,575 562

Year 2008 2009 2010 2011 2012 2013

in Poland 10,128 9,343 10,507 14,896 4,763 -4,574

Polish DI -3,072 -3,335 5,484 -5,935 -607 3,684

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

Period 2011 2012 2013 Q3 '13 Q4 '13 Q1 '14

Trade balance -10,059 -5,175 2,309 1,094 151 1,159

Services, net 4,048 4,642 5,249 1,032 1,257 1,245

CA balance -18,519 -14,191 -4,984 -2,086 -1,415 -766

CA balance vs GDP -5.0% -3.7% -1.3% -1.9% -1.3% -1.1%

Source: NBP, BZ WBK, PKO BP

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1,800

2,000

2,200

2,400

2,600

Q2

11

Q4

11

Q2

12

Q4

12

Q2

13

Q4

13

Q2

14

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, Q4 2013

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 563,000 17,000

22.3% 3.6–5.1

Warsaw suburbs 2,063,000 12.5% 2.1–2.8

Central Poland 1,021,000 80,000 15.2% 2.1–3.3

Poznań 1,023,000 215,000 4.4% 2.5–3.15

Upper Silesia 1,431,000 37,000 9.3% 2.4–3.3

Wrocław 780,000 259,000 11.7% 2.6–3.1

Tri-city 184,000 46,000 9.2% 2.8–3.3

Kraków 141,000 0 4.0% 3.3-4.0

CommercialCommercialCommercialCommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 2H'13 Retail rents**2H'13

Q1 '14

PLN/sq.m

Change

y/y

Headline

rents**

Vacancy

ratio

Retail

centres

High

streets

Warsaw 8,005 -0.1% 11.5-25.5 11.75% 80-90 85

Kraków 6,419 +1.8% 13-15 4.90% 35-45 78

Katowice 5,531 0.0% 13-14 7.30% 35-45 56

Poznań 6,666 +4.0% 14-16 14.20% 35-45 55

Łódź 4,808 -1.8% 12-14 14.40% 35-45 25

Wrocław 5,928 -0.2% 13-15.5 11.75% 35-45 40

Gdańsk 6,031 -5.7% 13-15 11.20% 35-45 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

Jun10

Feb11

Oct11

Jun12

Feb13

Oct13

Jun14

Wage CPI

Index 100 = Jan 2005. Source: GUS

poland today business review+ no. 045

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