Poland Today Business Review+ No. 002

No. 002 / 9th September 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

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MANUFACTURING & PROCESSING Manufacturing PMI reaches two-year high in August, beats expectations page 2 Unilever completes EUR 32m expansion of Bydgoszcz factory page 2

BANKING & FINANCE

Parliament passes bill to cut interchange fees, card issuers are not pleased page 4

ENERGY & RESOURCES AmeriGas to double revenues in Poland with the acquisition of BP's LPG business page 4

PROPERTY & CONSTRUCTION

Atrium completes EUR 152m takeover of Wrocław's leading retail centre page 5 Capital Park breaks ground on new Warsaw office project Royal Wilanów page 6

Warsaw's modern office stock reaches 4m sq.m, reports consultancy CBRE page 7

SERVICES & BPO

Finnish chemical firm Kemira relocates back office operations to Gdańsk page 8

TRANSPORT & LOGISTICS

Rail firm PKP Intercity embarks on PLN 5.5bn shopping spree page 9

Rail freight giant PKP Cargo gets trade union blessing to hit the bourse in Q4 page 11

FOOD & AGRICULTURE Private equity funds to merge Polish biscuit manufacturers Delicpol and Cuprod page 13

IT & TELECOM Deutsche Telecom mulling Netia takeover page 13

POLITICS & ECONOMY

Gov't sees smaller deficit for next fiscal year page 15

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 17-19

Polish retailer Czerwona Torebka is working on two new nationwide chains. Photo: Małpka Express

Biedronka founders are back in retailBiedronka founders are back in retailBiedronka founders are back in retailBiedronka founders are back in retail The founders of Poland's two most successful retail formats: Biedronka discount groceries and Żabka convenience stores are throwing down the gauntlet at their former creations. The plan is to flood the country with thousands of new shops. page 12

PPPPension overhaul to curb public debtension overhaul to curb public debtension overhaul to curb public debtension overhaul to curb public debt Poland will take over and redeem bonds held by its privately managed pension funds as part of a drastic pension system revamp, announces Prime Minister Donald Tusk. page 14

Join a senior-level audience from the corporate finance and private equity communities in the CEE region and contribute to in-depth discussions examining the current CEE M&A market and the opportunities for outbound cross-border activity. Expert speakers will also provide insight into the deal trends that are likely to be seen over the next year.

Key discussion topics for 2013

• What is driving CEE domiciled firms to look for international growth opportunities?

• What impact will external financing, such as China’s $10 billion credit line, have on the region?

• What are 2013’s prospects? Will deal rationale shift?

• Outlining an overview of the changing private equity landscape

• Will we see a revival in CEE IPO markets?

For more details about the event and to download the agenda, please visit http://mergermarketgroup.com/event/CEE2013 For any additional enquiries, please email [email protected]

Register your place today for £795Please enter the registration code CEEPT when booking

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CEEMEA

24 SEPTEMBER 2013 THE WESTIN, WARSAW

CEE M&A AND PRIVATE EQUITY FORUM 2013

Part of the Financial Times Group

Confirmed Speakers include:

• Keynote speaker: Artur Tomala, Managing Director, Warsaw, Goldman Sachs

• Wojciech Mroczynski, Chief Strategy Officer, Amrest

• Nikola Jekic, Deputy Director of Function, NIS Gazprom

• George Kikvadze, Managing Director, Terra Food

• Adrzej Kondracki, Director for Strategy, M&A and Investor Relations, Netia

• Roland Haidner, Director M&A, Telekom Austria

• Chris Mruck, Managing Partner, Advent International

• Gierdius Pukas, Managing Partner, Quadro Capital Partners

• Grzegorz Czapski, Head of M&A, Corporate Development, GTS Central Europe

CEE Poland Today ad_V2_VC.indd 1 11/09/2013 16:37:22

weekly newsletter # 002 / 9th September 2013 / page 2

MANUFACTURING & PROCESSING

August PMI reaches August PMI reaches August PMI reaches August PMI reaches twotwotwotwo----year high, beats year high, beats year high, beats year high, beats expectationsexpectationsexpectationsexpectations

Following the heartwarming batch of Polish macroe-conomic figures we covered in the last issue, the Au-gust reading of Markit and HSBC's Purchasing Man-agers' (PMI) Index provided further indication that the country's recovery is indeed gaining traction. The headline manufacturing PMI reading came in at 52.6 for August, a big improvement from July's 51.1 score and a full point better than consensus projec-tions (51.6). August was the second consecutive month Poland's manufacturing PMI recorded an above-50 score, which indicates economic upturn.

Purchasing Managers' Index (PMI) The 50 mark separates growth from contraction

45

46

47

48

49

50

51

52

53

Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13

Source: Markit & HSBC

The result "signaled the first continuous improvement in business conditions in the manufacturing sector since October 2011, and to the greatest extent since Ju-

ly 2011. The three main components of the PMI – new orders, output and employment – all exerted positive contributions in August," Markit and HSBC said in a comment. According to the report, demand improved both in terms of domestic orders as well as foreign orders. New order growth expanded at the fastest rate since March 2011, and new export business increased at the fastest pace since April 2011. This has prompted pro-ducers to start hiring again with employment in the sector going up for the first time in a year. "The improvement in Polish growth outlook could be traced in hard economic data as well such as strong sold industrial output and retail sales in July," com-mented Murat Ulgen, Chief Economist, Central & Eastern Europe and sub-Saharan Africa at HSBC. "Meanwhile consumer confidence in August also rose to its highest level in more than a year. While it is early to say whether this momentum could be sustained, there are reasons to be hopeful with the eurozone be-ing out of its long recession as of the second quarter and Poland’s resilience to a global liquidity shock giv-en its low current account deficit and low inflation," added the HSBC expert.

MANUFACTURING & PROCESSING

Unilever completes Unilever completes Unilever completes Unilever completes EUR 32m expansion of EUR 32m expansion of EUR 32m expansion of EUR 32m expansion of Bydgoszcz factoryBydgoszcz factoryBydgoszcz factoryBydgoszcz factory

Consumer products giant Unilever has finalized the largest investment to-date at its of body and hair care products plant in Bydgoszcz. At the cost of EUR 32m the company has extended the plant by 12,608 sq.m

and installed new machinery, creating 122 new jobs at the site. As a result of the expansion, the plant's output is set to double over the coming year. Unilever representatives said the expansion cost more than what the company paid for the Pollena plant in Bydgoszcz, when the investor acquired it from the state in 1991. With a total staff of 640 employees, the factory produces a range of well-known brands, in-cluding Dove, Timotei, Clear, Vaseline, Simple and VO5. It exports close to 90% of its output to 29 global markets. It is the fastest growing factory of body and hair care products in the Unilever group and the 7th largest worldwide.

Unilever arrived in Bydgoszcz more than two dec-ades ago. Photo: Unilever Besides the Bydgoszcz project, Unilever has recently completed a number of other investments at its Polish locations. Most have been efficiency and environmen-tal protection improvements, for instance a EUR 2m wastewater treatment plant at the Unilever ice cream factory in Banino. Over the past few years the compa-ny has significantly reduced the amount of waste gen-erated by its production facilities and cut down water usage.


Unilever is a British–Dutch multinational consumer goods company with a global turnover of EUR 51.3bn in 2012. Its products include foods, beverages, cleaning agents and personal care products. It is the world's third-largest consumer goods company measured by revenues (after Procter & Gamble and Nestlé) and the world's largest maker of ice cream. Its top brands in-clude Knorr, Lipton, Algida, Rama, Domestos, Axe, Dove, Timotei and Signal. In Poland Unilever currently employs more than 3,500 staff. Its four Polish factories: Banino near Gdańsk (ice cream), Katowice (margarine & tea), Bydgoszcz (cleaning agents), and Poznan (culinary products & condiments) export approximately a fifth of their out-put. Unilever Polska turned over more than PLN 3.2bn in 2012 while its net earnings came in excess of PLN 59.2m.

BANKING & FINANCE

Parliament passes bill Parliament passes bill Parliament passes bill Parliament passes bill to cut interchange feesto cut interchange feesto cut interchange feesto cut interchange fees

Poland's lower house of parliament, or Sejm, has ap-proved a bill to slash credit card interchange fees to a maximum of 0.5% from 1.3% currently. All 439 MPs participating in the vote supported the bill. New regu-lations are to enter into force as of January 2014 with transition period lasting no longer than until mid-2014, the amendment assumes. Interchange fees are paid by merchants and shop owners who utilize terminals that allow their custom-ers to pay with a credit or debit card. For many years, their rates in Poland have been EU's highest, which is the key reason why many small shops in Poland refuse to install POS (point-of-sale) terminals and the market

has been growing at a snail pace, with only a couple of thousand new locations being added to the network each year. The fact that an average Pole pays with plastic three times less frequently than an average Eu-ropean is also a major problem for the state budget, as the more cash changes hands, the easier it is for the shadow economy to thrive.

Topping the wrong ranking

Interchange fees for VISA card transactions in selected countries

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

Finland

Sweden

Hungary

Denmark

Latvia

EU average

Lithuania

Estonia

Spain

Germany

Poland

Source: NBP report 2012

Following years of lobbying on the part of retailer or-ganizations, last year Poland's central bank NBP finally took a closer look at the issue. In a 2012 report, the bank concluded that on average, shopkeepers and business owners were being charged 1.6% of the grand total per single Visa transaction. In Europe, the figure stood at 0.7% and in some countries (for instance in Hungary) it was eight times lower than in Poland. The Poles have an estimated 31m payment cards in their

wallets and Polish banks cash in an estimated PLN 1.4-PLN 1.6bn annually from interchange fees. Subsequently, Poland called on card payment clearing houses to come up with a way to put interchange pay-ments down to the EU average by 2016, warning that it would take that regulatory action on its own if that call was not heard. Poland's central bank came up with its own compromise proposal, but that attempt failed through mid-2012 after negotiations between the NBP, banks and credit card operators Visa Inc and Mas-terCard fell through without an agreement. Despite the fiasco, afraid of administrative retaliation, payment clearing companies have since lowered the fees down to their current level of 1.2-1.3%.

Lagging behind the rest of Europe No. of POS terminals per 1,000 inhabitants

0 10 20 30 40

Poland

Bulgaria

EU average

UK

Denmark

France

Sweden

Spain

Finland

Source: NBP, Rzeczpospolita

In defense of their pricing policy, car issuers have been arguing that a cut to interchange fees would force them to start charging card holders. The NBP wanted financial institutions to voluntarily pledge that


they are not going to impose any new types of fees on retailers to compensate for the less revenue from in-terchange fees. In Australia and the US, where the fees were lowered via administrative decision, the banks were quick to introduce new fees for individual cus-tomers. In the US case, the attempt by some of the na-tion's leading banks to tack on new debit card fees led to the social media driven Bank Transfer Day, which saw hundreds of thousands of disgruntled consumers abandon major banks for community banks or credit unions, which are known for having fewer and/or lower banking fees. "Visa Europe is and has always been against regulation as a top-down imposition of arbitrary arrangements upon the market. It is to be regretted that the sector’s self-regulation, based on a compromise program of the National Bank of Poland, could not materialize back in 2012," Jakub Kiwior, Country Manager at Visa Poland, tells Poland Today. "The much steeper reduction that has now been passed - and which is to be made by a single stroke rather than spread over four years - comes down to the abrupt loss of a large portion of bank revenue from interchange, thus restricting the banking sector’s potential to invest in the development of innovative payment products, such as contactless cards and mobile payments."

BANKING & FINANCE

Portugal's BCP to keep Portugal's BCP to keep Portugal's BCP to keep Portugal's BCP to keep Bank MillenniumBank MillenniumBank MillenniumBank Millennium

Although a number of banks, including reportedly also Poland's leading lender PKO BP, had been hoping to get their hands on Bank Millennium in the past few years, as the latter's owner, Banco Comercial Português, was seeking ways to stay afloat, a European

Commission-approved restructuring plan for the Por-tuguese giant has put an end to their dreams. Under the plan, BCP is to sell its Romanian operation and Greek assets while retaining its Polish arm Bank Millennium, which remains profitable with more than EUR 110m in last year's net earnings. The Portuguese lender was forced to sell assets and cut costs in ex-change for EUR 3bn in convertible bonds drawn last year from a recapitalization line in Portugal's EUR 78bn bailout by the EU and IMF. Portugal's largest listed bank is expected to continue its deleveraging efforts by reducing non-core assets, with the aim of achieving a minimum return on equity of 10% from 2016 and a 25% reduction in staff-related costs in the 2012 to 2015 period. BCP said that the agreement shows that its business is viable without the need for continued state support. It listed Poland's Bank Millennium among its core assets, alongside op-erations in Angola and Mozambique. "There is no commitment to sell it unless the amount of convertible bonds to be paid [by BCP] in December 2016 exceeds EUR 700m," the bank said. "It was the best possible deal for all parties involved, allowing the bank to keep its core assets and continue to undertake its activity in its main lines of business, with lower ex-ecution risk, commented CEO Nuno Amado. BCP posted a EUR 1.2bn net loss last year following a EUR 850m loss in 2011. The bank was badly hit by its exposure to Greece and Portugal's own economic woes, which affected BCP's ratings and hiked up its fi-nancing costs. When faced with very similar challeng-es, Ireland's AIB had to sell its highly profitable Polish unit BZ WBK to Spain's Santander, making the latter one of top three players in Poland's banking sector. Earlier this year Polish daily Rzeczpospolita reported that the Portuguese bank was again looking to divest

its 66% holding in Bank Millennium, worth some EUR 1-1.5bn, after failing to find a buyer in 2011. Zbigniew Jagiełło, CEO of Poland's largest bank PKO BP openly admitted then that Bank Millennium would make a nice addition to his group, but in the end PKO chose to acquire the Polish business of Sweden's Nordea Bank. It seems that following a few years of rumors of its potential sale, Bank Millennium will remain part of BCP after all and should the Portuguese ever decide to offload the Polish business, they will be in a much bet-ter position to do so.

ENERGY & RESOURCES

AmeriGas AmeriGas AmeriGas AmeriGas finalizesfinalizesfinalizesfinalizes acquisition of BP's LPG acquisition of BP's LPG acquisition of BP's LPG acquisition of BP's LPG business in Polandbusiness in Polandbusiness in Polandbusiness in Poland

Nearly three years after acquiring Shell's propane business in Poland, US AmeriGas has completed a se-cond major acquisition on the Polish market. The Americans took over British BP's liquefied petroleum gas (LPG) distribution business in Poland, which trad-ed over 150m gallons of LPG in 2012, serving the resi-dential, commercial, autogas, and wholesale segments. Formally, the transaction was completed by Flaga GmbH, the Austria-based European subsidiary of the NYSE-listed UGI Corporation, which controls AmeriGas. Terms of the transaction were not dis-closed. BP has three LPG filling plants in Swarzędz, Sąpólno, and Przytoczno as well as a transshipment terminal in Sławków, one of Poland's key logistics nodes where the broad gauge tracks from Russia connect with the standard European railroad. Distribution is being car-ried out via a network of authorized distributors, pet-rol stations, and directly to retail clients.


Following the transaction, AmeriGas becomes one of two leading players in Poland's LPG market (alongside the Dutch-owned Gaspol) with a 23% share in the bulk & canisters segment and 13% of the autogas seg-ment. As a result, its turnover is to leap from PLN 593m to PLN 1.244bn in 2014, making AmeriGas one of Poland's top 300 largest corporations. After the merger, the company will have six LPG filling plants, six regional distribution centers (separate from the plants) and two transshipment terminals for LPG, all with a combined workforce of 350 employees. "We are pleased to have closed this important transac-tion which will combine two high-quality LPG busi-nesses in Poland, one of the largest LPG markets in Europe. The acquisition represents a further step in our international growth strategy and reaffirms our commitment to add value for our shareholders through profitable growth in Europe. We expect the transaction to be modestly accretive to EPS in fiscal 2014," commented John L. Walsh, chief executive of-ficer of UGI. UGI Corporation is a distributor and marketer of en-ergy products and services. The company owns 26% of the NYSE-listed AmeriGas Partners, the largest retail marketer of propane in the US, which serves over 2m customers in all 50 states. Through its wholly owned subsidiaries, Antargaz (France & Benelux), Flaga (Aus-tria, Scandinavia and Central Europe) and Avantigas (UK), UGI Corporation distributes LPG in 16 Europe-an countries. UGI also distributes LPG in the Nantong region of China. In the fiscal year 2012 UGI turned over USD 6.5bn (with its international propane divi-sion representing more than USD 1.9bn of the total amount) and posted a net income of USD 187m. Europe's 2nd largest LPG market Bulk LPG (tanks) and canisters represent roughly a quarter of the entire LPG market in Poland, the rest (73.4%) being autogas. With annual LPG sales of 2.2m

tons, Poland is Europe's number two market after Italy (3.2m tons), particularly due to the popularity of LPG-powered vehicles. Last year Poland's 2.6m LPG-powered cars consumed 1.6m tons of the fuel, more than in any other European country. There are an es-timated 82,600 residential LPG tanks currently in-stalled throughout the country and growth on this market segment is expected to continue.

Autogas dominates LPG market Poland's LPG market in 2012

Bulk (tanks)

12.2%

Autogas

73.4%

Cylinders

14.4%

Source: POGP

Besides AmeriGas, the key players in the Polish LPG market include Dutch SHV (owner of Polish Gaspol, which acquired PKN Orlen's propane unit earlier last year), France's Total (importer of LPG to Poland from the Leuna and Schwedt refineries in Germany), Polish Petrolinvest (owner of an LPG terminal in Gdynia as well as a network of autogas and canister filling sta-tions throughout the country), and Russia's Novatek, which entered the market two years ago with the ac-quisition of Intergaz-System, a distributor from south east of Poland. As part of the latter transaction, the Russians got hold of a transshipment terminal with access to the wide-gauge railroad from the East. What they are said to be lacking, however, are filling and storage facilities as well as broader market footprint.

"We believe that LPG will play an important part in a balanced structure of fuel consumption and its envi-ronmental benefits will be recognized by the EU and Poland. Promotion of LPG is in line with the country's energy security as well as environmental goals. It gives customers a choice that is both effective and environ-mentally friendly," Piotr Maślakiewicz, business de-velopment director at AmeriGas Polska told Poland Today's Lech Kaczanowski.


Atrium completes Atrium completes Atrium completes Atrium completes EUR 152m acquisition EUR 152m acquisition EUR 152m acquisition EUR 152m acquisition of Wrocław mallof Wrocław mallof Wrocław mallof Wrocław mall

Property group Atrium European Real Estate has completed the EUR 151.7m acquisition of Wrocław's Galeria Dominikańska shopping centre from the Otto Family and Deutsche EuroShop AG. The transac-tion, financed from the group's existing cash re-sources, has boosted the share of Polish properties in Atrium's total shopping center portfolio from 47% to 50.4% by market value. The Amsterdam & Vienna-listed company said the ac-quisition is in line with its strategy of acquiring prime, income producing shopping centers in the major cities of Poland, Czech Republic and Slovakia, which have the strongest economies in the CEE region. In addi-tion, Atrium’s exposure to markets in the region with an investment grade rating of A- and above now stands at 75.1%, up from 73.4% as at 30 June 2013. "Galeria Dominikańska is a very good example of the type of assets we want to purchase and the completion of this acquisition strengthens our portfolio through the addition of a prime, fully let shopping centre


which is well located within a tier one city in our re-gion," commented Rachel Lavine, CEO of Atrium. Opened in 2011, Galeria Dominikańska is a fully occu-pied, Grade A shopping centre which comprises ap-proximately 32,900 sq.m of gross lettable area spread over three levels and across 102 units, and some 1,250 sq.m of office space. The shopping centre is anchored by a Carrefour supermarket and a Media Markt elec-tronics outlet and houses a wide range of international and domestic retail brands including Van Graaf, Zara, Pull & Bear, Bershka, Benetton, Douglas, Sephora, Mango, Max Mara, New Yorker and Reserved, togeth-er with a strong food and hospitality offering. Accord-ing to Atrium's communiqué, the average duration of all lease contracts is over six years. In addition, the centre includes more than 900 parking spaces.

Galeria Dominikańska boasts a wider catchment area of some 1m potential consumers, of whom circa 580,000 live within 15 minutes travel time. Photo: Atrium Galeria Dominikańska is one of Wrocław's top shop-ping destinations. It is situated in a prime location at the heart of the city, right next to the historic Old Town, and on the inner city ring road. Despite the change of ownership, Germany's ECE will continue to

manage the shopping centre, working closely along-side Atrium’s in-house team of retail experts. With a population of some 630,000 inhabitants Wrocław is Poland’s fourth largest city and a dynamically develop-ing capital of the Lower Silesia region. Atrium is a real estate company focused on shopping centre investment, management and development in Central and Eastern Europe. As at 30 June 2013 (and not including Galeria Dominikańska), the group owned 156 retail properties, with a market value of EUR 2.20bn, diversified across seven countries with a total gross lettable area of 1.245m sq.m. In 2012, the Jersey-based company generated a gross rental in-come of EUR 193.5m.


Capital Park breaks Capital Park breaks Capital Park breaks Capital Park breaks ground on office ground on office ground on office ground on office project Royal Wilanów project Royal Wilanów project Royal Wilanów project Royal Wilanów

Warsaw-based property developer Capital Park Group has broken ground on its latest office project in Warsaw – Royal Wilanów. Located at the corner of Klimczaka and Przyczółkowa streets in Warsaw's up-scale suburb of Wilanów, the five-storey building will offer close to 30,000 sq.m of office space as well as some 7,000 sq.m of retail space, accommodating res-taurants, bars, cafes, shops and service units, all much needed in this largely residential neighborhood. The first tenant in the office section of the project will be Polish construction company Erbud, which is also the project's general contractor. Tenants and visitors will have access to an underground parking lot with 931 spaces. Similar to Capital Park's flagship Warsaw development Eurocentrum, Royal Wilanów has un-

dergone BREEAM precertification to ensure the pro-ject is energy efficient and environmentally friendly. Warsaw's JEMS Architekci provided the design, while BOIG and Colliers International are responsi-ble for leasing. The Capital Park Group has actively operated in the real estate market in Poland since 2003, investing jointly with the EUR 2.5bn London-based private eq-uity fund Patron Capital Partners. Since its estab-lishment, Capital Park has built an investment portfo-lio of 76 assets with a total gross floor area of approx. 250,000 sq.m in both completed and planned projects, 80% of which are located in Warsaw.

Royal Wilanów is one of Capital Park's three major office projects in Warsaw. Photo: Capital Park By mid-2014 Capital Park is to complete its flagship Eurocentrum scheme on Jerozolimskie avenue in Warsaw's Ochota district. The investor, which ac-quired the site back in 2007, awarded the PLN 337m contract for the construction of Eurocentrum to Polish Erbud. Eurocentrum will be a 15-floor building hous-ing more that 67,500 sq.m of office and more than 2,400 sq.m of retail-service space as well as more than 770 parking spaces. According to the developer it will be the largest LEED CS Gold-certified office scheme


in Poland, employing a whole range of energy-efficient solutions. Their other project that has already attracted a great deal of media attention is the artNorblin development in Wola district, on the edge of Warsaw's central busi-ness district, a stone's throw from the ONZ rounda-bout and its iconic Rondo 1 building. ArtNorblin will incorporate the pre-war Norblin factory buildings, striving to create a trendy mixture of industrial archi-tecture, class A office and shops. The investor is to de-velop 22,000 sq.m of retail, service, and cultural space, 39,000 sq.m of offices as well as parking lots for some 700 vehicles. The Warsaw City Hall, which has grant-ed a planning permission for the site, asked the inves-tor to keep 11 existing historic buildings and 44 ma-chinery units and create a museum as part of the pro-ject.

Poland's office property market Key indicators as of end of 2012

Stock sq.m

Rents

(EUR/sq.m/

month)

Vacancy

Warsaw (central) 1,283,300 22-26.5 8.82%

Warsaw (non-central) 2,575,700 12-16.5 9.09%

Warsaw (total) 3,859,000 12-26.5 9.00%

Kraków 602,350 13-15 3.95%

Wrocław 468,700 13-16 8.01%

Tricity 359,800 13-15 9.445

Poznań 284,800 14-16 14.35%

Łódź 281,300 12-14 11.99%

Katowice 278,900 13-14 6.85%

Source: Cushman & Wakefield Valuation & Advisory, Jan 2o13 Although the company does not communicate finan-cial details of its undertakings, the combined capex for the three projects is likely to come in excess of PLN 1bn. Besides large office buildings, Capital Park devel-ops and manages retail properties (Vis à Vis shopping

plazas) as well as residential projects. Their overall in-vestment approach is to acquire properties with signif-icant value creation potential, be it through changes to land use decisions, obtaining building permits, con-struction of new facilities or alteration of existing ones and improved management of existing buildings.


Warsaw has more than Warsaw has more than Warsaw has more than Warsaw has more than 4m sq.m of modern 4m sq.m of modern 4m sq.m of modern 4m sq.m of modern offices, says CBREoffices, says CBREoffices, says CBREoffices, says CBRE

With five new buildings (76,000 sq.m) completed in Q2 2013, Warsaw's modern office stock passed the 4m sq.m mark at the end of June, according to a recent report by property consultancy CBRE. The largest schemes completed in H1 2013 included Konstruktorska Business Centre (48,000 sq.m) by Slo-vakia's HB Reavis, followed by T-Mobile Office Park (36,000 sq.m) from Flemish Ghelamco. Most of the new developments are located in the non-central are-as, mostly in SW or US zones (see chart). Since the be-ginning of 2013 only one project was delivered in the City Centre – Plac Bankowy 1 (4,000 sq.m). That should change in the second part of the year with such schemes as Skanska's Atrium 1 (16,000 sq.m) to be completed in downtown Warsaw. Although banks remain iffy about financing real estate developments, an grant loans only for pre-leased pro-jects, the amount of office space under construction remains high, says CBRE. Amid robust demand from tenants, developers often launch their investments on a speculative basis, securing pre-let agreements during the construction works. In the end of Q2 there was 562,000 sq.m of office space under construction in

Warsaw with 154,000 sq.m scheduled for delivery be-fore the end of the year. According to CBRE's projec-tions, Warsaw's office market is expected to grow by almost a fifth by the end of 2015. That being said, the market remains highly concentrated as five biggest schemes comprise almost 50% of the total GLA under construction.

Warsaw office market Key indicators as of end of 1H 2013

Office zones Stock

sq.m

Vacan-

cy

Central locations 1,287,000 9.9%

CBD-Central Business District 501,000 11.4%

CCF-City Centre Fringe 786,000 8.9%

Non-central locations 2,724,000 10.8%

E-East (Praga) 172,000 9.8%

LS-Lower South (Puławska) 176,000 13.0%

N-North (Żoliborz) 135,000 9.0%

SE-South East (Wilanów & Sadyba) 188,000 2.2%

SW-South West (Jerozolimskie & Okęcie) 660,000 15.6%

US-Upper South (Mokotów) 1,105,000 10.5%

W-West (Wola) 288,000 6.4%

Total 4,011,000 10.5%

Source: CBRE H1 2013 Warsaw Office MarketView Although of the total newly developed office space in Warsaw merely a third has been pre-leased, vacancy rates in the best new schemes remain extremely low. This also translates into a high level of market absorp-tion that reached over 70,000 sq.m in the H1 2013. It is expected that the total absorption in 2013 should ex-ceed the 2012 level, driven mostly high tenant activity. CBRE points out that occupiers are very well aware of the growing competition among developers and take advantage of the tenant market to get significantly bet-ter terms in the same or new locations. There is also an increasing migration of tenants from core central loca-tions to offices located further away from the central business district.


The total take-up in H1 2013 amounted to 334,000 sq.m, representing a robust, 12% increase in compari-son to the corresponding period last year. It is ex-pected that the whole of 2013 might bring another record in terms of the amount of office leasing activity in Warsaw. In H1 2013, as much as 46% of the leased space was newly occupied, with renegotiations repre-senting 31% of the total take-up and pre-lets the re-maining 16%.

In the longer term, a handful of brand new high rises are to emerge in the City Centre, mostly in its west-

ern part, including the Warsaw Spire (100,000 sq.m)

under construction by Ghelamco, to be delivered in

2014/2015 and Q22 (52,000 sq.m) by Echo Invest-

ment, to be commenced in the next months at the

site of the former Mercure hotel, across the street from the Westin. Photo: CBRE

The overall Warsaw office vacancy rate surged to 10.5% at the end of H1 2013 and CBRE analysts expect the figure to go up gradually throughout the next 18-24 months, as the number of speculative projects in-creases. The majority of vacant space can be found in Mokotow (US) and Jerozolimskie (SW).

Since the beginning of the year prime headline rents have declined slightly and are currently estimated at EUR 25–26/sq.m/month in the CBD. In non-central locations, headline rents for the best projects amount to EUR 14 – 15/sq.m/month. The overall average office rent in Warsaw oscillates around EUR 17/sq.m/month. Due to a number of new deliveries and a growing va-cancy rate the rental level is currently under down-ward pressure, particularly in areas with the highest number of competing projects. Typical offers include a rent-free period, up to 1.5 months for each year of the lease as well as a landlords’ contribution to fit-out and other capital costs.

OUTSOURCING & BPO

Finnish Kemira Finnish Kemira Finnish Kemira Finnish Kemira relocatesrelocatesrelocatesrelocates back office back office back office back office operations to Gdańoperations to Gdańoperations to Gdańoperations to Gdańsksksksk

Finnish chemicals giant Kemira has joined the rapidly growing group of Nordic investors that discover Po-land's offshoring potential. The company has set up a shared services centre in Gdańsk, which over the com-ing two years is to create some 200 jobs in bookkeep-ing, customer service, purchasing, HR & payroll, and IT. Once fully implemented, the annual cost savings target for the planned support functions reorganiza-tion in EMEA is expected to be close to EUR 10m. "We have so far recruited 30 employees and starting from October 1st we will add another 20. Our year-end goal is 100 staff," Maja Paradecka, HR, Kemira Busi-ness Center EMEA, tells Poland Today. Kemira is a global chemicals company serving custom-ers in water-intensive industries, such as pulp & paper, oil & gas, mining and water treatment. Last year

Kemira turned over EUR 2.2bn and their financial tar-gets for 2016 are EUR 2.6 - 2.7bn in revenue with an EBITDA margin of 15%. Its global workforce totals 4,900 employees. Besides the Gdańsk center Kemira's Polish workforce totals some 130 employees including 70 at the Kemipol units in Police near Szczecin and Wrocław, 50 at the Kemira plant in Świecie as well as a small team in Ostrołęka "Kemira's support functions in EMEA today are scat-tered across several locations and are expected to ben-efit from process optimization, centralization, and im-proved cross-functional collaboration. The functions in scope of the planned Business Service Center cur-rently operate out of six hubs and several other small-er locations in Europe. The planned service center will support Kemira's targets of cost effectiveness, enable us to serve all our customers in EMEA in a unified way, and form a scalable base for profitable growth in the future", said Antti Salminen, EVP, Supply Chain Management.

Tri-City office market Key indicators as of end of 1H 2013

H1 2013 y/y

12

month

outlook

Gross take-up* (sq.m) 22,400 -24,300 →

Net take-up (sq.m) 16,000 -30,700 →

Vacancy (sq.m) 56,000 +22,400 ↑

Vacancy rate (%) 13.1 +4.0 ↑

Completions (sq.m) 52,000 +31,800 ↑

Under construction (sq.m) 71,200 -16,100 →

Prime headline rent (EUR/sq.m/month) 12-14 0 →

Source: Jones Lang LaSalle The plan to establish a Business Service Center im-pacts up to 210 current positions in the EMEA region, of which up to 80 are in Finland, Kemira said.


Due to its location on Poland's Baltic coast and the re-sulting cultural proximity to Scandinavia, the Gdańsk region offers a larger pool of employees with Nordic language skills than other Polish cities. This is one of the reasons why other Nordic companies (Finnish Metsa Group, Danish Flugger, Danish-Swedish Arla Foods, to name just a few) have chosen the Tricity region for their offshoring projects. Moreover, alt-hough Gdańsk is no stranger to Business Process Out-sourcing, the local labor market is not as competitive as in other Polish outsourcing hubs, most notably Warsaw, Kraków, and Wrocław, and the cost level remains competitive. "The Tri-City market offers a very rich and diverse pool of candidates and the competition between BPO employers is not yet as tough as in Wrocław or Kraków," says Ms. Paradecka. "One of the challenges we face is finding candidates who represent an opti-mal mix of all the desired factors: personality, attitude to work, language skills, and experience, but this is a universal issue. This is why our recruitment efforts are multifaceted, focusing both on the local market as well as other regions of Poland and abroad. For instance, our team includes Dutch, Spanish and Finnish nation-als, and we are targeting also Poles living abroad, whom we encourage to return to Poland and grow to-gether with Kemira." Kemira is currently in talks with landlords regarding the final location of the centre. Since Gdańsk has seen a stable supply of quality office space, finding the right building should not pose much of a problem. Besides skilled employees and competitive wages, availability of modern office space is one of the key factors for BPO/SSC investors. "According to our analyses, office sector developer ac-tivity remains high with 71,200 sq.m under construc-tion within the agglomeration. Gdańsk, where 75% of Tri-City's office sector construction is located, is a

leader in this respect. Despite high-level developer ac-tivity, the vacancy index remains stable, which con-firms that both companies seeking to expand their op-erations as well as new market players continue to show interest in the region," commented Magdalena Reńska, Head of Tri-City Office, Jones Lang LaSalle.

DATA BOX: TRI-CITY OFFICE MARKET IN 1H 2013

• With a total supply of 430,250 sq.m, Tri-City is the

fourth largest office market in Poland, behind Warsaw,

Krakow and Wrocław. In H1, new completions added

52,700 sq.m to the region's office stock, including two

buildings within the Olivia Business Centre: Olivia

Tower (14,240 sq.m and Olivia Point (9,600 sq.m.),

BPH Office Park A&B (9,150 sq m), the G-330 building

(6,350 sq.m.), Oliva Business Park – Alfa (5,000 sq.m),

and Port Gdynia office building (4,800 sq.m).

• At the moment, there is 71,200 sq.m of office space

under construction in Tri-City, the majority of which –

54,200 sq.m – is being developed in Gdańsk. Almost

23,100 sq.m will be delivered to the market by the end

of 2013.

• Supply: In H1 2013, companies leased a total volume

of 22,400 sq m of modern office space. New

contracts, pre-let agreements and relocations (net

demand) accounted for 71% of the leased space.

• Vacancy rate: At the end of Q2, more than 56,000 sq

m (13,1%) of Tri-City office space remained vacant. The

vacancy rate is stable.

• Rents: At the end of Q2 headline rents remained

stable at the level of €12-14. However, effective rents

are lower because of incentives offered by the

landlords.

OUTSOURCING & BPO

Avallon fund acquires Avallon fund acquires Avallon fund acquires Avallon fund acquires eeee----procurement firm procurement firm procurement firm procurement firm from Orange Polskafrom Orange Polskafrom Orange Polskafrom Orange Polska

As part of its efforts to focus on core operations in Po-land, the France Telecom-controlled mobile tele-communications firm Orange Polska has sold 100% of shares in its business process outsourcing (BPO) subsidiary Otwarty Rynek Elektroniczny (ORE) to the Łódz-based management buyout specialists Avallon MBO Fund. ORE specializes in e-procurement solutions. Its key product and best-known brand is the MarketPlanet purchasing platform, which covers purchase planning, supplier selection, eRFX-electronic invoicing, elec-tronic auctions, contracts management, reporting and a range of additional administrative functions. A part of MarketPlanet's popularity lies in the fact that the platform can be easily tailored to the needs of individ-ual companies. Avallon MBO Fund representatives said they would actively support ORE's expansion plans, including co-operation with top global suppliers of IT solutions, foreign expansion, and dynamic development of the MarketPlanet portal. Established in 2011, ORE has a status of OJS eSender which enables the company to participate in European public tenders. Since 2012 the company has been a partner of a leading European suppliers of spend management software – Ivalua. "This has been our second transaction since we set up the second fund - Avallon MBO Fund, dedicated to supporting management buyouts. Otwarty Rynek Elektroniczny has a solid basis for value creation: it


operates in a growing market segment – outsourcing, boasts a precise growth strategy for the coming years and has a very good, dedicated and united manage-ment team who have been building this company to-gether for over seven years," says Michał Zawisza, Partner of Avallon. "The restructuring of large hold-ings through sale of non-core subsidiaries is one of the key sources of buy-out transactions. We hope to be able to close a further 2-3 transactions in this area," he adds. Avallon is one of the pioneers in management buy-outs in Poland and has been operating in this area since 2001. The fund's investors include international finan-cial institutions, for example: European Bank for Re-construction and Development as well as funds man-aged by a Swiss company Akina Partners. Avallon in-vests in various businesses, mainly in companies with turnover from PLN 50 to 250m.


Rail firm Rail firm Rail firm Rail firm PKP PKP PKP PKP Intercity Intercity Intercity Intercity embarks on embarks on embarks on embarks on PLN 5.5bn PLN 5.5bn PLN 5.5bn PLN 5.5bn shopping spreeshopping spreeshopping spreeshopping spree

Polish state-owned rail carrier PKP Intercity has awarded a PLN 1.62bn (CHF 350m) contract for the delivery of 20 long-distance passenger trains to a con-sortium of Swiss Stadler Rail and Polish Newag. The result of the tender is good news for the estimated 700 staff at Stadler's Polish factory in Siedlce (90km east of Warsaw), which together with Newag plants will be responsible for production of the trains, as well as passengers, who had to endure travels on its dated fleet for way too long.

The new trains will be an advanced version of Stadler's flagship eight-carriage FLIRT model, which can already be found on a number of routes in Poland. They will be fitted with a high-quality interior, spa-cious seating arrangements, buffet cars and toilets to ensure comfortable journeys across long distances. In first class, the seats will be installed in a 2 + 1 configu-ration (three seats across the width of the carriage. The trains operate with 3 kV direct current and are equipped with the modern European train control sys-tem ETCS Level 2. So far, Stadler is the only company that supplies trains with this high-quality train control system in Poland. The trains can reach speeds of up to 160 km/h and PKP Intercity seeks to introduce them on a number of key long-distance routes (Warsaw-Bydgoszcz, Olsztyn-Warsaw-Kielce-Kraków, Gdynia-Łódź-Bydgoszcz-Katowice, and Kraków-Łódź-Kutno-Poznań-Szczecin). As far as the division of responsibilities within the consortium is concerned, Stadler is to deliver the two end vehicles along with the entire drive system as well as supply the bogies and the aluminum bodies for all cars. This lightweight aluminum technology allows the trains to accelerate faster, thus significantly reduc-ing energy consumption and operating costs in com-parison to conventional vehicles. Newag, one of Poland's leading rail stock production and maintenance firms, is responsible for planning the interior fittings and will take care of the final assembly of all intermediate cars. Newag will also be in charge of the composition of the trains (joining the two end vehicles with the intermediate cars) and the entire commissioning process. Newag employs some 1,300 across two factories, in Nowy Sącz and Gliwice. Although the trains themselves are to be made in Po-land by Stadler and Newag, certain parts, such as the bogies and the drive components, will be produced in Stadler's Swiss factories. All EMUs (electric multiple

units) are to be delivered by the end of 2015. In addi-tion, Stadler will ensure the technical maintenance of the trains for 15 years.

PKP Intercity is to put its 40 new trains into service on key routes by 2015. Photo: PKP Intercity More tenders on the way The order of 20 EMUs from Stadler & Newag deal is part of a larger PLN 5.5bn, EU-supported investment program aimed at improving quality of services and making the carrier more competitive ahead of its fu-ture privatization. At the end of August PKP Intercity launched a tender for a further 20 MTUs that by the end of 2015 will be introduced on the Jelenia Góra-Wrocław-Łódź-Warszawa-Białystok/Lublin and Białystok/Lublin-Warszawa-Koluszki-Częstochowa-Katowice-Bielsko Biała routes. Another tender, for the supply of 10 double-decker trains for the Warsaw-Łódź service, was announced in the first week of Sep-


tember. In both tenders, interested parties can place their offers by the end of the month. To-date, Stadler has sold more than 930 trains of the FLIRT family to 14 countries. The company has been operating in Poland since 2007. A number of railway sector analysts have praised PKP Intercity's decision to choose a model that has already proven its worth on Polish tracks, unlike Alstom's high-speed train Pendolino, which the company ordered back in 2011.

The first Pendolino train ordered by PKP Intercity from France's Alstom arrived at Wrocław's central station in August. Photo: PKP Intercity PKP Intercity ordered 20 of the seven-car Pendolino EMUs at a cost of EUR 400m, and the trains will be maintained by the manufacturer under a 17-year deal worth a further EUR 265m, which includes the con-struction of dedicated maintenance facilities for the fleet. The Polish company faced a great deal of criti-cism for having chosen a non-tilting version of the Pendolino, thus abandoning one of its key features, due to limitations of the Polish railway infrastructure. According to some observers, the carrier should have purchased more regular EMUs of the FLIRT class, in-stead of splurging on pricey equipment the full bene-fits of which they simply won't be able to enjoy.

The first Pendolino set for PKP Intercity was present-ed to the public and the media in Wrocław in mid-August, while en route from Alstom's Savigliano plant in Italy to the test centre at Żmigród, Poland. Follow-ing the completion testing at Żmigród, mainline trials will begin on the Central Main Line (CMK) between Warsaw and Zawiercie in Silesia. The 250km/h trains will enter service on Warsaw – Gdańsk, Warsaw – Wrocław and Warsaw – Kraków/Katowice EIC Pre-mium services in December 2014. These routes are currently being modernized to allow the new trains to operate at higher speeds. Following the completion of the CMK upgrade in 2015, which includes the installa-tion of ERTMS Level 2, it is likely the trains will be able to operate at up to 230km/h on this route.


PKP Cargo to hit the PKP Cargo to hit the PKP Cargo to hit the PKP Cargo to hit the bourse in Q4 with a bourse in Q4 with a bourse in Q4 with a bourse in Q4 with a trade union blessingtrade union blessingtrade union blessingtrade union blessing

Poland's largest rail freight operator PKP Cargo has moved a step closer to its long-planned floatation after reaching an agreement with trade unions at the end of August on the proposed sale of 50% plus one share in the company on the Warsaw Stock Exchange. Sched-uled to take place in Q4, PKP Cargo's IPO is likely to be this year's largest on the Warsaw bourse as it may reach an estimated PLN 2bn. PKP Cargo submitted a prospectus to the Polish Financial Supervision Au-thority (KNF) on July 25. In a statement, PKP Cargo said union negotiators had accepted its offer of PLN 165m in staff bonuses, which will be paid in shares, together with a four-year em-ployment guarantee for all staff, and a more favorable employee benefit package. The unions will also have

the right to designate one member of the management board and three members of the supervisory board of PKP Cargo, and 15% of the proceeds from the initial public offering (IPO) will go into an employee owner-ship fund. PKP Cargo employs some 24,000 staff. PKP Cargo, fully owned by Polish railways PKP, has around half the local market, Europe's second biggest after Germany. The number two player is Deutsche Bahn's DB Schenker with around 20%, but on a Eu-ropean scale the latter is three times PKP Cargo's size. The sale of PKP Cargo is to help the ailing state-owned giant PKP reduce its mountain of debt. The freight unit has almost no debt and hence it does not intend to issue new shares as part of the IPO. Last year PKP Cargo carried around 116m tons of freight and gener-ated net profits of PLN 267m on PLN 5.2bn worth of revenues, down from its record net result of PLN 400m in 2011.

Poland's top rail freight operators 2012 market shares based on freight volume

Other, 13.8%

PKP LHS,

4.5%

Lotos Kolej,

4.5%

CTL Group,

6.5%

DB

Schenker,

20.2%

PKP Cargo,

50.5%

Source: Rail Market Regulator UTK

Although in terms of freight volume, PKP Cargo cur-rently ranks as number two in Europe, only 2% of its revenue comes from outside Poland. CEO Łukasz Boroń told reporters earlier this year that his company might be interested in selective acquisitions of smaller


carriers in the region, particularly in countries where PKP Cargo already operates – Czech Republic, Slo-vakia, Hungary, Austria, Germany and Belgium. "I would like PKP Cargo to become a central European champion in a few years, with a strong position in the region," PKP Cargo CEO told Reuters. "We want the income from freight business beyond Poland to be a significant part of our revenue." This seems like a natural move as due to its dominant position on the Polish market, regulators are unlikely to approve any attempts by PKP Cargo at taking over other local competitors. Besides PKP Cargo and DB Schenker, the Polish rail freight market is divided among several dozen smaller players, including carri-ers owned by oil refiners PKN Orlen and Grupa Lotos as well as copper giant KGHM.

CONSUMER GOODS & RETAIL

Biedronka founders to Biedronka founders to Biedronka founders to Biedronka founders to challenge retail majors challenge retail majors challenge retail majors challenge retail majors with new formatswith new formatswith new formatswith new formats

Less than half a year after the takeover of Poland's leading online book and multimedia store Merlin.pl, retail and property group Czerwona Torebka has acquired a rapidly expanding convenience store chain Małpka Express and announced plans for a new re-tail concept to be unveiled by the end of the year. A brainchild of Mariusz Świtalski, the creator of Po-land's most successful retail concepts (Biedronka dis-count groceries, Żabka convenience stores, and Eurocash wholesale warehouses), Czerwona Torebka started up as a developer of neighborhood shopping plazas, focusing mainly on high traffic areas in small

and medium-sized towns, where competition has been weak and existing retail properties – outdated or non-existent. A typical Czerwona Torebka project includes a handful of prefab, standard-sized 60-sq.m retail units which generate natural customer traffic due to loca-tion, available parking, and a smart tenant mix, com-bining all the essentials: a bakery, pharmacy, butchers, bank, post office, hairdresser, and the like. To-date, the company has launched some 80 strip malls and its original plan was to reach 1,900 locations by 2021, with the capex on the entire pipeline seen at some PLN 4.5bn.

The era of hypermarkets is ending as more and more Poles choose the convenience of neighborhood gro-ceries and discount supermarkets. Photo: Małpka Express However, in August 2013 the company officially shift-ed its focus from shopping centre development to re-tail, with the acquisition of Małpka Express being merely the first step, to be followed by the launch of a

new discount supermarket chain by the end of the year. "We have nearly two decades of experience in building and running retail chains, both on the property devel-opment side as well as in operational management," Przemysław Schmidt, Member of Czerwona Torebka's Supervisory Board tells Poland Today. "With Czerwona Torebka we initially set off to build neigh-borhood shopping plazas but since the banks are not very keen on financing real estate at the moment, we changed our business model from asset-heavy to asset-light. This is a natural reaction to market conditions and since we have expertise in both fields, we can fo-cus on the one that generates better returns for share-holders at a given moment." Małpka Express was established by Świtalski's son Mateusz, who will receive 21.8m new shares in Czerwona Torebka in return for his business, with the value of the entire transaction being estimated at PLN 281.5m (subject to possible corrections based on the chain's financial performance). Małpka's network of 135 outlets is to be expanded to 200 locations by the end of the year. In 2014 a further 200 stores are to be launched and starting from 2015 the company is plan-ning 300 openings per annum. Ready to challenge the leaders "We probably won’t be able to catch up with Żabka, but we are certainly ready to give them a good chase as a strong vice-leader. The same goes for the new dis-count grocery chain, which we plan to launch by the end of the year. Here too, we are envisaging 300 open-ings per annum once the business reaches a momen-tum in a year or so. Our people know this business like no-one else and we are confident there is plenty of space on the market for another discount chain. The retail segment remains largely fragmented. Should the top player, Biedronka, be afraid? Let me just say that


we intend to be a worthy rival and keep growing at least as fast as them." Competitors should certainly pay attention to what the Świtalskis are up to, as their earlier creations Biedronka and Żabka have proven more effective on the Polish market than any foreign chain. Their re-newed focus on convenience stores and discount su-permarkets clearly looks like an attempt to repeat those previous successes.

Our people know this business like no-one else and we are confident there is plenty of space on the market for another discount chain. "Portugal's Jeronimo Martins, which acquired Biedronka and Eurocash from us years ago, have since implemented a lot of the procedures and solutions we developed in Poland at their Portuguese outlets. I'd say our secret lies in a careful mix of solid corporate procedures, which are more or less the same globally, with top local expertise. Moreover, one needs a well-functioning local HQ to drive a large-scale store rollout and our Poznań office is exactly this type of a well-oiled retail machine. The one mistake many for-eign newcomers make is that they try to grow shop by shop, lacking an actual corporate organization on the ground. At Czerwona Torebka, we joke that our peo-ple have Google maps in their heads, because they know every corner of this country so well. And our head office, on its part, is capable of reacting quickly to any new opportunity they identify."

With the recent acquisition of Merlin.pl, Czerwona Torebka has added a multimedia retailer and e-commerce expert to its growing empire that will soon include strip malls, convenience stores, discount su-permarkets, and online shops. "We all agree that e-commerce is the way of the future but true synergies can be achieved in conjunction with a well developed brick and mortar business. For in-stance, our convenience stores make perfect locations for customers to pick up their online purchases. Moreover, using the joint purchasing power of all our businesses, we can get even better deals from produc-ers. We continue to look for acquisition opportunities, interesting formats that could be added to our portfo-lio, generating even more synergies. Our operations managers have enough experience to look at a busi-ness and assess whether with some simple tweaks its EBITDA can be improved. As for Merlin.pl, merely four months after we bought it, the business is clearly gaining traction." Based in Poznań, Czerwona Torebka employs some 200 staff at the head office. In 2012 the company turned over PLN 75.8m and net-earned PLN 30.1m (31.8m gross). In 1H 2013 the revenues came to PLN 52m (+37% y/y), while the net result was a PLN 15m loss, reflecting investment costs. Czerwona Torebka debuted on the Warsaw Stock Exchange on 28 De-cember last year, raising merely 19m instead of the PLN 280m it had been hoping to get. Despite the dis-appointing IPO, the business attracted a strong minor-ity shareholder in the shape of private equity fund Pinebridge. "Our founders say Czerwona Torebka is not for sale, as they treat is a family business, but being listed on the WSE has its perks. For one, it gives Pinebridge a natu-ral way to exit the investment once their goals have been met. Secondly, it enables us to easily seal acquisi-tions via share swaps, and, last but not least, the stock

market is of course a source of cheap capital, should we ever need more of it. For now, however, we have sufficient resources and credit lines to finance our medium-term expansion goals," Mr. Schmidt tells Po-land Today.

FOOD & AGRICULTURE

Private equity funds Private equity funds Private equity funds Private equity funds to to to to merge Polish biscuit merge Polish biscuit merge Polish biscuit merge Polish biscuit manufacturersmanufacturersmanufacturersmanufacturers

Backed by its shareholders, AXA Private Equity and Resource Partners, Polish biscuit maker Delicpol has acquired a local competitor Cuprod, strengthen-ing its position as one of the key players in Central and Eastern Europe's confectionery market. Completed exactly a year after the two financial investors entered Delicpol, the merger marks a further step in consolida-tion of this sector. "Consolidating this fragmented market is an important part of our investment strategy. We are open to further acquisitions in Poland or the entire CEE region," commented Ryszard Wojtkowski, Managing Partner of Resource Partners. "The transaction will significantly strengthen the mar-ket position of the merged companies and enable the sharing of best practices to generate significant reve-nue synergies, broaden product offerings and further improve customer service. We look forward to sup-porting the company as it continues to grow," added Dominique Gaillard, Member of the Executive Board Managing Director of AXA Private Equity. Established in 1992, Delicpol is one of Poland's top biscuit makers. Since its inception, the company has grown from a small business to a significant regional


player with over 700 employees. Its product range spans biscuits, jaffa cakes, cookies, wafers and ginger-bread. The company markets this range of products under its own brand as well as the private labels of leading retail chains in Poland and Europe. Estab-lished in 1988, Cuprod is one of the leading Polish manufacturers of biscuits with jelly and chocolate. The company has recently initiated a large-scale in-vestment program to introduce innovative products such as gluten free cakes and dark jelly biscuits. The merged companies will be managed by the current CEO of Delicpol, Mr. Tomasz Grzybowski. Founders and board members of Cuprod will remain as manag-ers in the group.

Jaffa cakes are Delicpol's key specialty..Photo: Delicpol Resource Partners specializes in growth financing of consumer goods and services companies in Central and Eastern Europe. The private equity company manages funds provided by leading international fi-nancial institutions such as: AXA Group, European Bank for Reconstruction and Development, European Investment Fund and Rabobank. Besides Delicpol, its portfolio includes rice waffle maker GoodFood, pro-ducer and distributor of groats, rice, cereals and flour Melvit, food distributor and retailer SPS Handel and healthcare provider Mavit. In 2010 Resource Partners formed a strategic partnership with AXA Private Equi-ty, one of Europe's top diversified private equity play-ers. With offices in Beijing, Frankfurt, Jersey, London,

Luxembourg, Milan, New York, Paris, Singapore, and Zurich, AXA Private Equity has USD 32bn in assets managed or advised in Europe, North America and Asia.

IT & TELECOM

Deutsche Telecom Deutsche Telecom Deutsche Telecom Deutsche Telecom may may may may acquire Polish Netiaacquire Polish Netiaacquire Polish Netiaacquire Polish Netia

Germany's Deutsche Telekom is considering an overhaul of its activities in Central and Eastern Eu-rope, which may lead to acquisition of fixed-line oper-ators in Poland, reported The Wall Street Journal, cit-ing unnamed sources. The company's management and supervisory boards met in Poland last week to dis-cuss strategy and Deutsche Telekom's potential in-vestment in Polish Netia or GTS Central Europe, may have been among the topics covered. As the German giant gears up to streamline its CEE business, one of the key questions is said to be whether Deutsche Telekom should exit markets in which it has mobile-only operations or acquire fixed-line and broadband assets to shore up its position, WSJ said. This applies chiefly to the Czech Republic, where the Germans may choose to sell their 61% stake in the lo-cal T-Mobile unit, as competition on the market inten-sifies and the regulator is pushing for newcomers to grab an LTE spectrum capacity at an auction expected later this year. Deutsche Telekom valued its stake in T-Mobile Czech at EUR 1.75bn at the end of last year. In Poland, Deutsche Telekom is likely to bundle up its fully-owned subsidiary PTC (T-Mobile), one of the country's top three mobile operators, with a fixed-line operator. GTS Central Europe and Netia are said to be the strongest candidates.

GTS Europe has operations in Poland, the Czech Re-public as well as Romania and Hungary and according to reports it may be worth up to EUR 0.5bn. The War-saw-listed Netia focuses solely on the Polish market. Two of Netia's key shareholders, financial investors Third Avenue Management LLP and Sisu Capital Ltd., together holding some 25% of shares in the oper-ator, have recently hired Morgan Stanley to sound out interest from potential buyers for Netia. Netia's revenues came to PLN 968m in 1H 2013 and the company posted a net profit of PLN 21.7m, up from PLN 11.2m in the corresponding period of 2012. It cus-tomer numbers declined from 2.65m RGU (revenue generating units) in December last year to 2.59m in June and according to the company's most recent forecast the figure will go down to 2.52m by the end of this year. Full-year turnover is to shrink from PLN 1.925bn in 2012 to 1.9bn this year, with net earnings expected to reach PLN 100m. Earlier this year, Vodafone Group offered about 7.7bn to take control of Germany's largest cable opera-tor, Kabel Deutschland Holding AG, enabling it to offer bundled telecommunications and use the cable-operator's network to cope with the increasing data traffic. Deutsche Telekom's strategy for Eastern Eu-rope is likely to follow a similar path.

POLITICS & ECONOMY

Government outlines Government outlines Government outlines Government outlines details of Poland's details of Poland's details of Poland's details of Poland's pension overhaulpension overhaulpension overhaulpension overhaul

In a much awaited announcement, Polish Prime Min-ister Donald Tusk has unveiled details of a plan to overhaul the country's pensions system, which over


the past decade has become too heavy a burden for Po-land's state coffers. The government has decided to nationalize an estimated PLN 120bn in sovereign bonds held by 14 privately managed local pension funds (OFE) by transferring them to the state social security institution (ZUS), thus cutting public debt by about eight percentage points from its current 55% of GDP. By lowering its debt -to-GDP ratio Poland is hoping to significantly cut borrowing costs. As a result, accord-ing to ministers, government deficit is expected to fall by about 1% of GDP to just under 3%.

Debt & deficit-to-GDP ratios Official figures according to Eurostat methodology

2009 2010 2011 2012

GDP (PLN bn) 1,345 1,417 1,528 1,595

General gov't defi-

cit in % of GDP -7.4% -7.9% -5.0% -3.9%

Public sector debt

in % of GDP 50.9% 54.8% 56.2% 55.6%

Source: GUS, the central statistical office

Although long-anticipated, the news sent shockwaves across the financial markets. The Warsaw Stock Ex-change's blue-chip WIG20 index closed 2.5% lower on the day the announcement was made before losing a further 4.6% the following day. Although the funds will keep the PLN 111bn that they invested in stocks and will be encouraged to increase their exposure to equities as the current caps are lifted, many investors fear pension funds managers may eventually reduce their stakes in Warsaw-listed companies. The yield on 10-year bonds rose above 4.8% on from some 4.55% before the plan was made public. Poland, with one of Europe's fastest aging populations, reformed its pension system in 1999, following a World Bank and USAID-backed campaign which

promised the Poles a happy and wealthy retirement under palm trees. Moving away from a classic pay-as-you-go system (PAYG), where today’s workers pay for the pensions of today’s retirees, the new pension scheme was designed as a three-pillar-defined contri-bution system. The first pillar, managed by ZUS, was PAYG and the other two (open pension funds and oc-cupational pension schemes) were fully funded. The PAYG component as well as open pension funds were mandatory, and occupational pension schemes (which have never really taken off) were voluntary. Shortly after the new system was introduced, the gov-ernment found itself in a pickle, forced to finance pay-outs for pensioners covered by the old system at the same time contributing to OFE accounts for would-be pensioners belonging to the new system. The resulting gap was to be covered from privatization proceeds, but the latter have proven to be gravely insufficient, thus boosting the country's debt. According to Professor Leokadia Oręziak of the Warsaw School of Economics, between 1999 and 2010, the OFEs generated some PLN 270bn worth of liabilities, representing roughly 43% of Poland's public debt. The annual debt servicing costs associated with the OFE alone totaled some PLN 13bn or 1.1% of the GDP in 2011 and kept growing.

The privately run pension system rests, in part, on expanding debt and that has proven very costly. Noble prize winner and Columbia University profes-sor Joseph Stiglitz predicted the problem back in 2005, commenting on plans by the Bush administra-tion to privatize the US social security system: "Privat-ization would not protect retirees against the social

security system's insolvency; it would merely add enormously to today's fiscal deficit, because partial privatization entails diverting money to private funds that would have been used to close the gap between government expenditures and revenue," he wrote in The Guardian back in 2005. In short, Poland has been borrowing heavily on the fi-nancial markets only to transfer the money to the OFEs which in turn invested it into government bonds and (to a much smaller degree) stocks that were to generate returns for future retirees. The gains have been rather mediocre, while the country's debt started spiraling out of control, particularly in the wake of the global financial crisis. Other countries with similar systems (for instance Estonia) have since frozen pay-ments to private funds, while Hungary scrapped its scheme. Meanwhile, the deepening economic slow-down has forced the Polish government last month to widen the budget deficit by PLN 16bn and suspend thresholds limiting increases in public debt (see No. 001 page 15). "The privately run pension system rests, in part, on expanding debt and that has proven very costly," Mr. Tusk said in a press conference. "The system's impact on public debt is crushing and has effectively prevent-ed us from making another civilizational leap." Dissolving private pension funds Besides redeeming all of the government bonds that pension funds held as of September 3rd, the govern-ment has also made membership in the private pen-sion fund scheme (now reduced to equities only) vol-untary. Those wishing to keep their pensions in the private funds will have to explicitly say so, as the de-fault course of action will be to transfer all pensioners back to the state-run system. Data from Hungary show that a vast majority of people end up opting for state-guaranteed stability.


The Economic Chamber of Insurance Companies, which lobbies on behalf of the pension funds, said it was "deeply disappointed" and that the government's plan raises "serious legal concerns" and violates the constitution, which protects private property. The three largest private pension funds are companies are the local subsidiaries of ING Bank NV, Aviva Interna-tional Insurance Ltd, and Polish PZU SA, servicing a total of nearly 8m future pensioners. "Those who believe the customer should be brought into the store in handcuffs don't have a lot of faith in the quality of services they offer," commented finance minister Jacek Rostowski, admitting if less than 15% of current participants of the system choose to stay in the private funds, that segment of the system is bound to wind down.

Finance Minister Jacek Rostowski and Prime Minister Donald Tusk explaining details of the pension system revamp at the Economic Forum in Krynica. Photo: KPRM Although the reform, to be introduced in January 2014, should improve Poland's debt position in the long run, it makes Poland's more susceptible to shifts in global sentiments (as the share of bonds held by for-eign investors increases) and raises questions about the future growth of the Warsaw Stock Exchange, where the OFE have been some of the key players.

PT EDITOR COMMENT:

It will take a lot of guts for the liberal-minded members of the Polish middle class to come to terms with the realization that the OFEs may have been nothing but an empty promise. Facing up to the truth that the retirement income one can hope for a few decades from now will almost certainly prove insufficient, regardless of who pays it out, may be too much for some people to stomach. Hence some (albeit surprisingly weak) protests in defense of the existing pension system. The argument is that Poland should first cut public expenditures and privatize the remaining state-owned enterprises. Indeed, this is something the government is yet to tackle, but unfortunately we have not seen any credible studies proving that whatever austerity measures the country implements, would suffice to close the OFE-related gap. Poland simply cannot afford to keep borrowing money to buy its own T-bonds, paying hefty commissions to financial giants somewhere along the way. There are no free lunches in economics, but some lunches simply cost way too much.

POLITICS & ECONOMY

Budget dBudget dBudget dBudget deficit to dropeficit to dropeficit to dropeficit to drop slightly next yearslightly next yearslightly next yearslightly next year

Poland's government has adopted provisions for the country's 2014 budget which envisages the deficit nar-rowing after a revamp of the country’s privately man-aged pension funds. The Parliament and President Bronislaw Komorowski still need to approve the draft, which means that some cosmetic changes are still like-ly to be implemented. The gap is to shrink to PLN 47.7bn from PLN 51.6bn estimated for this year, Finance Minister Jacek Rostowski announced Friday after a two-day govern-

ment meeting. Revenue will reach PLN 276.bn, while spending will be PLN 324.2bn. The centrist government of Prime Minister Donald Tusk, which trails in polls before 2015 elections, wants to spur recovery in Poland with this year’s growth forecast at the weakest pace since at least 1997. "It’s a cautious budget," Tusk told reporters. "Hence we will avoid any negative surprises and maintain our reputation with financial markets." Tusk said that his Cabinet will have to seek new sources of income, after it had to raise the 2013 deficit by 45% (PLN 24bn) this year. This means a that Po-land's promise to reduce its Value Added Tax rate back to 22% is unlikely to materialize anytime soon. Moreover, excise duty on alcohol and tobacco are to be increased next year. The Polish VAT rate was raised by one percentage point to 23% in 2011 on the back of the worsening eco-nomic conditions in Europe. Whilst Poland was one of the few countries to avoid a technical recession, its government finances did suffer considerably. Poland's ambition to join the single currency pushed the gov-ernment to raising VAT temporarily to ensure it com-plied with the 3% government deficit target for euro entry. The government is still hoping for an improve-ment in its finances, but a drop in the VAT rate may not come before 2016. The Premier has said that Q1 2014 growth is expected at 3%, compared to just over one percent for all of this year. Next year's draft budget assumes economic growth will recover to 2.5%. To trim public debt and allow higher spending, the government said last week that it will assume control of 51.5% of pension-fund assets, including bonds, stop-ping short of fully nationalizing the system.


KEY STATISTICS

Consumer PriceConsumer PriceConsumer PriceConsumer Pricessss

Data in (%) Apr '13 May '13 Jun '13 Jul '13

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

Food & bev +1.7 +0.4 +1.6 +0.7 +0.7 -0.3 2.5 -0.3

Alcohol, tobacco +3.6 +0.1 +3.5 +0.2 +3.7 +0.2 +3.6 +0.1

Clothing, shoes -5.1 +3.3 -4.8 +0.1 -4.7 -0.8 -5.0 -2.7

Housing +1.1 +0.1 +1.1 +0.1 +0.9 0.0 +2.0 +1.2

Transport -2.2 -0.6 -4.2 -2.3 -3.5 +0.4 -1.2 +1.1

Communications -7.3 10.0 -9.7 -2.6 -9.7 0.0 -9.7 0.0

Gross CPI +0.8 +0.4 +0.5 -0.1 +0.2 0.0 +1.1 +0.3

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

5%

Ju

l 11

Se

p 1

1

No

v 1

1

Ja

n 1

2

Ma

r 12

Ma

y 1

2

Ju

l 12

Se

p 1

2

No

v 1

2

Ja

n 1

3

Ma

r 13

Ma

y 1

3

Ju

l 13

y/y m/m

Retail Retail Retail Retail TurnoverTurnoverTurnoverTurnover

Month Mar '13 Apr '13 May '13 Jun '13 Jul '13

m/m (%) +16.8 -2.7 +1.6 +1.5 +3.8

y/y (%) +0.1 -0.2 +0.5 +1.8 +4.3

Year 2008 2009 2010 2011 2012

Turnover in PLNbn 564.7 582.8 593.0 646.1 n/a

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-Jul

2013

y/y

(%)

Permits 230.1 178.8 174.9 184.1 165.1 79.7 -22.3

Commenced 174.7 142.9 158.1 162.2 141.8 71.9 -21.8

U. construction 687.4 670.3 692.7 723.0 713.1 703.5 -4.4

Completed 165.2 160.0 135.7 131.7 152.5 81.1 +1.7

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

Q2 2013 +0.8% 395,507 n/a

Q1 2013 +0.5% 377,815 -2.8%

Q4 2012 +0.7% 442,231 -3.5%

Q3 2012 +1.3% 393,792 -4.1%

2012 +1.9% 1,595,264 -3.5%

2011 +4.5% 1,528,127 -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% +1.0% +2.5%

Consumer inflation +2.6% +4.3% +3.7% +1.0% +1.9%

Producer inflation +2.1% +7.6% +3.4% -1.4% 1.0%

CA balance, % of GDP -5.1% -4.9% -3.5% -1.0% -0.1%

Nominal gross wage +3.9% +5.2% +3.7% +2.6% +4.0%

Unemployment** 12.4% 12.5% 13.4% 13.9% 13.5%

EUR/PLN 3.99 4.12 4.19 4.22 4.06

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

Gross WagesGross WagesGross WagesGross Wages A: avg monthly wages in PLN B: indexed avg wages, 100=2005

Sector Q3 2012 Q4 2012 Q1 2013 Q2 2013

A B A B A B A B

Coal mining 5,920 135 8,427 192 6,060 138 6,290 143

Manufacturing 3,463 151 3,522 154 3,491 152 3,560 155

Energy 5,790 176 6,535 198 6,196 188 5,828 177

Construction 3,709 158 3,829 163 3,556 152 3,693 157

Retail & repairs 3,322 142 3,365 143 3,432 146 3,421 146

Transportation 3,543 125 3,816 135 3,439 122 3,547 125

IT, telecoms 6,493 169 6,379 166 6,685 174 6,707 174

Financial sector 5,875 132 6,044 136 6,356 143 6,712 151

National average 3,690 147 3,878 154 3,741 149 3,613 144

Source: Central Statistical Office (GUS)

Construction OutputConstruction OutputConstruction OutputConstruction Output

Month Jan '13 Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13

m/m (%) -60.3 -0.3 +20.9 +7.9 +16.1 +19.1 +7.8

y/y (%) -26.1 -11.4 -18.5 -23.1 -27.5 -18.3 -5.2

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

Oct

10

Jan

11

Ap

r 11

Ju

l 11

Oc

t 11

Ja

n 1

2

Ap

r 12

Ju

l 12

Oc

t 12

Jan

13

Ap

r 13

Jul

13

60

80

100

120 Cons umer confidence (left axis)

E conomic s entiment (rig ht 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 Jan '13 Feb '13 Mar '13 Apr '13 May'13 Jun '13 Jul'13

m/m (%) 0.0 +0.3 -0.3 -0.7% +0.1 +0.7 +0.2

y/y (%) -1.2 -0.4 -0.7 -2.1% -2.5 -1.3 -0.8

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 Jan '13 Feb '13 Mar '13 Apr '13 May'13 Jun '13 Jul'13

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

y/y (%) -1.4 -1.6 -1.8 -1.9 -2.0 -2.0 -1.9

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 OutputIndustrial OutputIndustrial OutputIndustrial Output

Month Jan '13 Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13

m/m (%) +5.4 +0.3 -0.2 -2.3 -0.7 +2.6 +1.5

y/y (%) +0.3 -2.7 -0.6 +2.7 -1.8 +2.8 +6.3

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-Jun 2013

y/y (%)

share (%)

2012 share (%)

Jan-Jun 2013

y/y (%)

share (%)

2012 share (%)

Food and live animals 32,226 +9.7 10.5 61,694 10.3 22,938 +3.1 7.4 44,287 6.9

Beverages and tobacco 4,077 +5.7 1.3 7,967 1.3 1,911 -0.7 0.6 3,989 0.6

Crude materials except fuels 7,842 +5.4 2.6 14,024 2.4 10,539 -8.7 3.4 22,053 3.5

Fuels etc 14,708 +1.4 4.8 29,389 4.9 35,257 -16.4 11.4 85,280 13.4

Animal and vegetable oils 739 +54 0.2 1,342 0.2 1,247 -12.2 0.4 2,887 0.5

Chemical products 28,890 +5.5 9.4 54,295 9.1 45,247 -11.1 14.6 89,140 14.0

Manufactured goods by material 63,359 -1.4 20.6 126,161 21.1 54,120 -7.1 17.5 110,773 17.4

Machinery, transport equip. 115,762 +2.7 37.7 223,646 37.5 102,109 -0.9 33.0 203,718 31.9

Other manufactured articles 38,694 +2.8 12.6 75,925 12.7 26,749 -10.0 8.7 57,646 9.0

Not classified 739 n/a 0.3 2,653 0.5 8,973 n/a 3.0 18,515 2.8

TOTAL 307,036 +2.8 100 597,096 100 309,090 -5.3 100 638,288 100

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

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-Jun 2013

share *2012 Share No Country Jan-Jun 2013

share *2012 Share

1 Germany 76,679 25.0% 150,046 25.1% 1 Germany 65,564 21.2% 134,933 21.1%

2 UK 19,554 6.4% 40,184 6.7% 2 Russia 39,181 12.7% 91,033 14.3%

3 Czech Rep. 18,684 6.1% 37,475 6.3% 3 China 27,937 9.3% 57,235 9.0%

4 France 17,858 5.8% 34,862 5.8% 4 Italy 15,804 5.1% 32,782 5.1%

5 Russia 16,328 5.3% 32,290 5.4% 5 France 12,035 3.9% 25,303 4.0%

6 Italy 13,878 4.5% 29,067 4.9% 6 Netherlands 11,885 3.8% 24,543 3.8%

7 Netherlands 11,940 3.9% 26,678 4.5% 7 Czech Rep. 11,479 3.7% 23,327 3.7%

8 Ukraine 8,321 2.7% 17,213 2.9% 8 USA 8,785 2.8% 16,436 2.6%

9 Sweden 8,446 2.8% 15,811 2.6% 9 UK 7,851 2.5% 15,509 2.4%

10 Slovakia 7,955 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 6 September 2013

100 USD 327.32 ↑

100 EUR 429.75 ↑

100 GBP 509.70 ↑

100 CHF 346.73 ↑

100 DKK 57.62 ↑

100 SEK 49.27 ↑

100 NOK 53.73 ↑

10,000 JPY 328.33 ↓

100 CZK 16.68 ↑

10,000 HUF 142.67 ↑

100 USD/EUR against PLN

300

350

400

450

500

24 Sep 12

30 N

ov 12

11 Feb 13

19 A

pr 13

1 Jul 13

6 Sep 13

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Apr '13 May '13 Jun '13 Jul '13

Monetary base 150,295 150,475 144,260 155,767

M1 493,721 508,299 523,783 530,666

- Currency outside banks 107,468 109,312 112,815 112,565

M2 914,732 920,112 927,345 921,662

- Time deposits 433,840 425,740 418,252 405,900

M3 935,231 941,791 946,586 945,077

- Net foreign assets 161,880 176,278 160,267 159,749 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 Apr '13 May '13 Jun'13 Jul '13

Loans to customers 880,213 887,960 900,999 896,635

- to private companies 257,956 259,593 263,453 261,000

- to households 542,130 549,117 553,055 552,503

Total assets of banks 1,588,750 1,622,666 1,634,587 1,616,221

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13

PLN (up to 1 year) 5.9% 5.6% 5.4% 5.3% 5.0% 4.7%

PLN (up to 5 y ) 6.4% 6.2% 5.9% 5.7% 5.4% 5.1%

PLN (over 5 y) 6.3% 6.0% 5.7% 5.6% 5.3% 5.3%

PLN (total) 6.3% 6.0% 5.8% 5.6% 5.3% 4.9%

EUR (up to 1m EUR) 2.1% 2.3% 2.1% 2.3% 1.9% 2.3%

EUR (over 1m EUR) 2.8% 3.6% 2.9% 3.2% 2.9% 3.5%

Warsaw Inter Bank Offered Rate (WIBOR) as of 6 Sep 2013

Overnight 1 week 1 month 3 months 6 months

2.56%% 2.59% 2.61% 2.70% 2.73%

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 6 Sep '13

Change 30 Aug

'13

Change end of '12

↓ Asseco Pol. 45.00 -2% -1%

↓ Bogdanka 108.7 -4% -20%

↓ BRE 417.65 -6% 28%

↓ BZ WBK 304 -3% 26%

↓ Eurocash 45.49 -12% +4%

↓ GTC 6.75 -12% -32%

↓ Handlowy 100 -2% 2%

↓ JSW 66.2 -3% -28%

→ Kernel 47.2 0% -29%

↓ KGHM 120 -2% -37%

↓ Lotos 36 -5% -13%

↓ Pekao 163.5 -6% -2%

↓ PGE 16.04 -6% -12%

↓ PGNiG 5.72 -7% +10%

↓ PKN Orlen 41.2 -8% -17%

↓ PKO BP 35.22 -8% -5%

↓ PZU 399.9 -9% -8%

↓ Synthos 4.4 -1% -19%

↓ Tauron 4.22 -1% -11%

↓TP SA 7.28 -5% -40%

Source: Warsaw Stock Exchange

Key indices

as of 6 September 2013

WIG Total index

44446666,,,,717717717717....04040404 Change 1 week -4% ↓

Change end of '12 -2% ↓

WIG-20 blue chip index

2,2,2,2,238238238238....98989898 Change 1 week -6% ↓

Change end of '12 -13% ↓

WIG Total closing index

last three months

42000

44000

46000

48000

50000

52000

7 Jun 13

1 Jul 13

23 Jul 13

14 A

ug 13

6 Sep 13


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RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Jul 2013 *

Monthly wages (PLN)

Jan-Jul 2013 **

Unemploy-ment

Jul 2013

New dwellings Jan-Jul 2013

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 98.7 84.1 4,177 3,910 151.1 13.0 9,219 117.5

Kujawsko-Pomorskie (Bydgoszcz) 101.0 94.6 3,313 3,207 143.8 17.4 3,683 112.4

Lubelskie (Lublin) 98.7 98.2 3,626 2,974 128.4 13.8 3,284 83.6

Lubuskie (Zielona Góra) 95.1 83.1 3,336 2,940 57.9 15.1 1,830 97.0

Łódzkie (Łódź) 103.9 88.2 3,588 2,980 150.7 13.9 3,724 98.4

Małopolskie (Kraków) 97.4 93.6 3,738 3,265 159.6 11.4 9,087 114.0

Mazowieckie (Warszawa) 106.9 74.5 4,494 4,741 281.8 11.1 16,014 97.5

Opolskie (Opole) 96.4 93.4 3,464 3,112 49.6 13.6 916 106.0

Podkarpackie (Rzeszów) 107.8 98.2 3,228 3,012 146.2 15.5 3,379 95.1

Podlaskie (Białystok) 106.1 89.1 3,171 3,690 68.1 14.5 1,954 88.0

Pomorskie (Gdańsk-Gdynia) 101.0 88.7 3,871 3,444 110.9 13.0 6,665 101.1

Śląskie (Katowice) 96.0 86.3 4,501 3,471 206.2 11.1 6,235 122.5

Świętokrzyskie (Kielce) 97.9 84.9 3,313 3,140 85.0 15.5 1,397 86.8

Warmińsko-Mazurskie (Olsztyn) 97.0 86.7 3,163 3,037 107.3 20.2 2,397 97.0

Wielkopolskie (Poznań) 101.5 85.8 3,633 3,580 143.5 9.6 7,960 101.4

Zachodniopomorskie (Szczecin) 110.7 90.7 3,389 3,222 103.1 16.8 3,337 76.6

National average 100.5 84.0 3,882 3,641 2,093.1 13.1 81,081 101.7

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 '11 Q1'12 Q2 '12 Q3 '12 Q4 '12 Q1 '13

in Poland 2,917 -1,808 1,131 1,084 2,048 360

Polish DI -929 1,090 883 -401 -1,197 329

Year 2007 2008 2009 2010 2011 2012

in Poland 17,242 10,128 9,343 10,507 13,646 2,455

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 Q3 '12 Q4 '12 Q1 '13

Trade balance -8,893 -10,059 -5,313 -445 -1,113 -139

Services, net 2,334 4,048 4,816 1,122 1,073 1,239

CA balance -18,129 -17,977 -13,332 -3,285 -3,329 -2,055

CA balance vs GDP -5.1% -4.9% -3.5% -4.1% -3.5% -3.0%

Source: NBP, BZ WBK

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1800

2000

2200

2400

2600

Q2 10

Q4 10

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, 2H 2012

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 2,710,000 44,000 15.2%

3.9–5.0

Warsaw suburbs 1.9–3.2

Central Poland 1,000,000 15,000 12.2% 1.9–3.1

Poznań 1,027,000 30,000 5.0% 2.3–2.9

Upper Silesia 1,470,000 22,000 4.2% 2.6–3.1

Wrocław 730,000 56,000 7.6% 2.4–3.0

Gdańsk 178,000 14,000 16.0% 3.2–4.0

Kraków 143,000 n/a 8.7% 4.0-4.1

CommercialCommercialCommercialCommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 2H'12 Retail rents** '12

Q1 '13

PLN/sq.m

Change

y/y

Rents** Vacancy Retail

centres

High

streets

Warsaw 8,076 -5.9% 12-26.5 9.0% 85 83

Kraków 6,305 -12.1% 13-15 3.95% 41 78

Katowice 5,526 -5.0% 13-14 6.85% 48 56

Poznań 6,412 -13.3% 14-16 14.35% 44 55

Łódź 4,898 -9.2% 12-14 11.99% 31 26

Wrocław 6,031 -13.5% 13-16 8.01% 38 41

Tricity 6,453 -8.1% 13-15 9.44% 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

Jul09

Mar10

Nov10

Jul11

Mar12

Nov12

Jul13

Wage CPI

Index 100 = Jan 2005. Source: GUS

Documents

Poland Today Business Review+ No. 002