Poland Today Business Review+ No. 035

No. 035 / 19th May 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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MANUFACTURING & PROCESSING

Denmark's IQ Metal to create 200 jobs in Szczecin page 2

Chemicals firm PCC Rokita hits the bourse to finance ex-pansion page 2

Specialty chemicals firm Clariant opens new plant near Łódź page 3

BANKING & FINANCE DNB completes sale of Monetia chain page 3

ENERGY & RESOURCES

Poland-Lithuania power link receives more EU funding as construction begins page 4

PROPERTY & CONSTRUCTION

Poland's green office stock totals 730,000 sq.m page 5

SERVICES & BPO

Danish pharma firm Lundbeck to launch shared services centre in Kraków page 6

250 new jobs in Łódź and Kraków from leading ICT exporter Ericpol page 6

TRANSPORT & LOGISTICSRadom airport gets green light to launch regular operations page 8

State investment vehicle PIR to help private firms build and maintain regional roads under the PPP formula page 9

RETAIL CHAINS

Major electronics retailer Avans goes belly up with huge debt page 10

RETAIL PROPERTIES

Rank Progress opens new shopping center in Oleśnica page 10

POLITICS & ECONOMY

Inflation down to 0.3% in April, NBP may keep interest rates low for longer page 12

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 13-15

Alstom sets a high-speed record in Poland reaching 293 km/h while conducting tests on its Pendolino train in December last year. Image: Alstom Transport / A.Février

Alstom's Pendolino contract in troubleAlstom's Pendolino contract in troubleAlstom's Pendolino contract in troubleAlstom's Pendolino contract in trouble Poland's Deputy PM Janusz Piechociński said last week that the state-owned rail operator PKP Intercity may cancel its EUR 665m order for 20 Pendolino trains, as their manufacturer Alstom has failed to obtain proper certification on time. page 7

Economic recovery gains traction Economic recovery gains traction Economic recovery gains traction Economic recovery gains traction in Q1in Q1in Q1in Q1 Poland's GDP growth accelerated to the fastest pace in two years. The economy grew by 3.3% y/y in Q1 2014, according to a flash estimate published by the Statistical Office GUS. page 11

weekly newsletter # 035/ 19th May 2014 / page 2


Denmark's IQ Metal to Denmark's IQ Metal to Denmark's IQ Metal to Denmark's IQ Metal to create 200 jobs at new create 200 jobs at new create 200 jobs at new create 200 jobs at new Szczecin plantSzczecin plantSzczecin plantSzczecin plant

Denmark's IQ Metal, which supplies metal compo-nents, subassemblies and complete products to a range of industries, is gearing up for a major expansion of its Polish unit in Szczecin. The company has recently se-cured a flexible rental agreement for up to 14,000 sq.m of total shop floor space at building D of Szczecin's North-West Logistic Park, which provides the Danish firm with ample space for growth. Over the coming years IQ Metal seeks to create more than 200 new jobs at the site. "We started our Polish business in May 2010 in a very old building with seven employees and a 1,400 sq.m shop floor. Today we have two factories with a com-bined area of 5,000 sq.m, 140 employees and annual sales of PLN 28m and growing. In the medium-term we intend to expand our workforce to 250 employees, and in the long run our target is 350 staff," Bo Fischer Larsen, CEO of IQ Metal tells Poland Today. The new building is currently under construction and the relo-cation will take place early next year. IQ Metal was founded 49 years ago and operates from Aarhus in Denmark as well as from Szczecin in Poland with a total staff of 180 employees. Its total turnover is about EUR 16.5m and the company projects an annual growth rate of approximately 10 – 15 %. IQ Metal sup-plies industrial customers in Denmark, Germany and Poland with precision metal parts. Many of its clients represent the wind turbine industry.

"From the very start we sought to avoid the mistakes of other Danish companies that had chosen to out-source part of their operations to more cost- and pro-duction friendly environments. Since the majority of Danish firms that outsource production treat their newly-established operations as sub-activities or even second rank production sites, they don't assign full management and strategic attention to the project and thereby they fail to explore and utilize all strategic op-tions which the new company, for instance in Poland, should bring to the organization," argues Mr. Larsen.

IQ Metal will take up to 14,000 sq.m at building D of

Szczecin's North-West Logistic Park. Image: NWLP

"Furthermore and even worse, since it is most com-mon that all sales and orders are passed through the parent company only, if the parent company faces a drop in sales, the daughter company, which is fully dependent upon the parent organization, will suffer as well. Bearing all this in mind, it was IQ Metal's aim to create an independent Polish business unit, with do-mestic management and an entirely independent value chain and customer service." Asked about his thoughts on IQ Metal's first four years in Poland, Bo Fischer Larsen replies: "Growing the business from one that employed seven people in an old hen house into a professional organi-

zation with 140 employees in merely four years has been a very hard job. In a marketplace where we face global competition on a daily basis, the very best thing about our Polish activities has been that we gained the advantages of operating within a more cost efficient manufacturing environment, but at the same time we maintained a very easy access to our core market - Denmark." "We cannot compete on price with Asia, but taking in-to consideration the total cost of manufacturing, close presence to the Danish and German markets and the fact that we are operating in a much more developed market compared to low wage countries such as China or India, we have learnt that our current combined Danish-Polish set-up is very competitive. Moreover, within a very short time span IQ Metal Polska man-aged to establish a very loyal and motivated organiza-tion. Overall, our experiences have been very good, but introducing the necessary speed and flexibility into every business process remains a challenge. Once we succeed at implementing the highest level of quick re-sponse manufacturing, IQ Metal Polska will be a very competitive organization with huge prospects of growth."


Chemicals firm PCC Chemicals firm PCC Chemicals firm PCC Chemicals firm PCC Rokita Rokita Rokita Rokita hits the boursehits the boursehits the boursehits the bourse to finanto finanto finanto finance expansionce expansionce expansionce expansion

Polish chemical firm PCC Rokita is embarking on an IPO in Warsaw to support an ambitious investment program, which is to total PLN 400m in the years 2014-2016. The company's issue prospectus was ap-proved by the financial markets watchdog KNF last week and the listing is expected in June. New inves-


tors will be offered up to 15% of shares in PCC Rokita (including 7% in new shares and 8% in existing shares sold by the current owner PCC SE), corresponding to no more than 10% of votes at the company's AGM.

PCC Rokita is Poland's only producer of polyether

polyols, used in the production of polyurethane foams for the mattress, furniture, and automotive in-dustries. Image: PCC SE

Having reached sales of some EUR 262m and an oper-ating result (EBITDA) of EUR 30m in fiscal 2013, PCC Rokita SA is the main source of revenues and earnings for the PCC Group. The company's business activities include the production of chlorine and chlorine com-pounds as well as polyols and polyurethane systems. PCC Rokita will be the third company of the PCC Group to be listed in Warsaw, following the successful listings of its logistics unit PCC Intermodal in 2009, and PCC Exol SA, the surfactant producer from Brzeg Dolny, in 2012. Assuming the company ends up selling all the shares at the maximum price, its net proceeds from the new is-sue will come to PLN 56m, of which PLN 35m PCC Rokita seeks to spend on boosting its production ca-pacity in polyols and polyurethane systems (total capex: PLN 45m), PLN 16m on increasing its polyoxypropylene output (total capex: PLN 30m), and

PLN 5m on research & development (total capex: PLN 7m). At the moment, the sole owner of PCC Rokita is the Duisburg-based German company PCC SE, whose businesses, besides chemicals, include transportation, energy, coal & coke, plastics & metallurgy. With a total workforce of 2,800 people, the PCC group operates across 16 countries in Central and Eastern Europe. Be-sides PCC Rokita, its Polish assets include the Gdynia-based intermodal freight forwarder PCC Intermodal, which moved more than 125,000 TEU in 2013 between its inland terminals in Poland and seaports in Poland, Germany, and the Netherlands. In 2013 PCC SE turned over EUR 625m and posted net earnings of EUR 7.9m.


Specialty chemicals Specialty chemicals Specialty chemicals Specialty chemicals firm Clariant opefirm Clariant opefirm Clariant opefirm Clariant opens ns ns ns new plant near Łódźnew plant near Łódźnew plant near Łódźnew plant near Łódź

Swiss specialty chemicals company Clariant has launched a PLN 38m plant in Konstantynów Łódzki near Łódź. The new 6,800 sq.m site, which includes a new production site, laboratory, warehouse and Clariant offices, will enable the company to double the production capacity of color concentrates for its Busi-ness Unit Masterbatches. Clariant has recruited 140 employees at the plant so far, hoping to add a further 30 positions in the near future. According to Clariant executives, Central Europe is a very promising market for the company and Poland, as the region's largest and fastest growing country, is the natural place for further investments. Clariant's Konstantynów project is located in the Łódź special economic zone, which currently includes 44 subzones

in the Łódzkie, Mazowieckie, and Wielkopolskie voivodeships. By January 31, 2014, the zone had at-tracted PLN 10.5bn worth of investments that created nearly 27,000 jobs.

Clariant is to create up to 170 jobs at its newly com-

pleted masterbatches plant in Konstantynów Łódzki. Image: Clariant

Based in Muttenz near Basel/Switzerland, Clariant re-ports in four business areas: care chemicals, catalysis & energy, natural resources, and plastics & coatings. As of December 31, 2013 the company employed a total workforce of 18,099. In the financial year 2013, Clariant recorded sales of CHF 6.08bn (EUR 5bn) for its continuing businesses. Clariant Masterbatches, one of eleven business units of Clariant International Ltd., is a global leader in color and additive concentrates and innovative performance solutions for plastics. With approximately 3,100 employees staff more than 50 manufacturing plants on five continents, it generat-ed sales of CHF 1.1bn (EUR 0.9bn) in 2011.

BANKING & FINANCE

DNB completes sale of DNB completes sale of DNB completes sale of DNB completes sale of Monetia chainMonetia chainMonetia chainMonetia chain

The Norwegian-owned Bank DNB Polska has com-pleted another step in its ongoing shift from universal


to corporate banking with the recent sale of its bill payment chain Monetia. The chain of 550 banking agencies, which enable clients to pay their rent, utility and phone bills and provide a range of additional ser-vices, has been acquired for PLN 7m by Certis In-vestments. The latter is a special purpose vehicle where the shareholders are Capital Partners In-vestment (60%) and Monetia CEO Wojciech Jóźwiak (40%), who has led the business since 2008.

Bank DNB Polska

-12

-9

-6

-3

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3

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04

200

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*20

12

-80

-60

-40

-20

0

20

4 0

60

80

100

Total assets, in PLNb n, lef t axis

Net result in PLNm, right axis

Source: DNB

The agreement was signed back in December 2012 but Monetia needed permission to operate as an inde-pendent financial institution from the regulator KNF before it could be finalized. Serving some 500,000 cus-tomers every month, Monetia cooperates with more than 150 entities that receive large volumes of pay-ments: cable TV operators, utility firms, tax offices, and building communities. It serves also as an out-sourced retail branch network for DNB and Getin Noble Bank. "Our short-term goal is to strengthen our leading mar-ket position through consistent organic growth. We intend to acquire more partners among utility firms and municipalities. We have a lot of ideas on how to

expand our geographic footprint and service range. It is too early to speak of specifics as we are only begin-ning to operate under the new ownership structure," said Jóźwiak. In 2012 Bank DNB Polska sold its retail banking unit to Polish Getin Noble Group, following a strategic deci-sion by the bank's Norwegian owners to refocus the Polish business on corporate banking, targeting clients with annual turnover of PLN 80m and more, repre-senting the energy sector (especially renewables), TMT (technology, media, telecommunications), pharmaceuticals, as well as foodstuffs and public sec-tor. The bank closed the 2012 with a net loss of PLN 16.6m, reflecting mainly the costs of its restructuring. More recent data is not available.

ENERGY & RESOURCES

PolandPolandPolandPoland----LithuaniLithuaniLithuaniLithuaniaaaa power link receives power link receives power link receives power link receives more EU funding as more EU funding as more EU funding as more EU funding as construction construction construction construction beginsbeginsbeginsbegins

The European Commission last week approved an in-vestment of EUR 60m from the European Regional and Development Fund (ERDF) to complete the con-struction of the electrical grid between Poland and Lithuania. This undertaking forms part of the 'Poland-Lithuania power link project' as well as the Baltic En-ergy Market Interconnection Plan (BEMIP) which is designed to fully integrate the electrical energy mar-kets of the three Baltic States of Lithuania, Latvia and Estonia with the other electrical energy markets in Europe.

This particular project, worth EUR 193.7m of which EUR 60m will be contributed by the ERDF, will focus on the development of a power transmission line be-tween the city of Ełk and the Polish-Lithuanian border in the Polish regions Podlaskie and Warmińsko-Mazurskie. It is the fifth major project of the 'Poland-Lithuania power link' to guarantee the transmission of electricity from Poland to Lithuania, reducing the de-pendence of Poland and the Baltic States on external power suppliers and strengthening energy security in the region. "The issue of energy security and supply is vital for the European Union, and we know how keenly it is felt, in particularly in countries like Poland and the Baltics States at this time," commented EU Commissioner for Regional Policy Johannes Hahn, who signed this deci-sion, making a clear reference to the Ukraine-Russia crisis. "Projects like this address the question of the re-liance on external power exports and they are vital to ensure the fulfillment of the European single energy market. It is of great strategic importance to develop the connection between Poland and Lithuania," he added. The co-financing decision for this project falls under the programming period 2007-2013. Poland has been allocated approximately EUR 67bn in total cohesion policy funding from 2007-2013 and EUR 77.3bn (cur-rent prices) for 2014-2020. The construction of the power link between Poland and Lithuania, known as LitPol Link, officially launched on May 5, and the project is to be operational by the end of next year. LitPol Link consists of three key elements – transformer substations at both ends of the link, in Alytus and Ełk in Poland, a HVDC back-to-back converter station in Alytus and a 163 km high voltage overhead power line. Preparations for the in-vestment, which involved political negotiations, de-signing and coordination works, debates and obtaining


permission from landowners and residents to install power lines, have taken a decade. In 2000, European Commission and the EBRD made a decision to finance a feasibility study on the Poland–Lithuania transmission interconnection. The study was completed in September 2002. In 2006 Poland and Lithuania signed an agreement on connecting their power grids, and two years later a joint project company LitPol Link was established. In 2011 Polish power grid company PSE Operator signed a contract with the Polish construction company PBE Elbud Group for building a 400-kV overhead line between Ełk and Łomża and in early 2013 Lithuanian transmis-sion system operator Litgrid awarded ABB Group a USD 110m contract to supply and install the first HVDC converter station near Alytus, Lithuania.

LitPol Link interconnection scheme. Image: Litgrid

At the moment, the Lithuanian electricity system is connected only with the grids of Latvia, Estonia and other ex-Soviet countries to the east. The new link will also bolster the NordBalt HVDC connection with Sweden, currently under construction by ABB from Lithuania to Southern Sweden. "Two power links in different directions – one with Western Europe and the other with Scandinavia – will help Lithuania to establish itself as a full-fledged part-ner among European power suppliers and become an

electricity exchange hub between the East and the West. By taking part in the construction of this energy infrastructure and the implementation of one of the EU energy policy priorities we contribute to the crea-tion of a common European electricity market and the elimination of "energy islands." The biggest benefit that Lithuania may expect from LitPol Link is the se-curity and reliability of electricity supplies and the possibility of exchanging electricity with western Eu-ropean countries," Daivis Virbickas, Board Chairman and CEO of Litgrid, Lithuania's power grid operator, said at the groundbreaking ceremony on May 5.

PROPERTY & CONSTRUCTION

Poland's green office Poland's green office Poland's green office Poland's green office stockstockstockstock totals 730,000 totals 730,000 totals 730,000 totals 730,000 sq.m, JLL says sq.m, JLL says sq.m, JLL says sq.m, JLL says

Poland has more green office buildings than any of its Central and Eastern European peers, according to "Of-fices: Going Green in CEE," a recent report by proper-ty consultancy JLL. The country accounts for 730,000 sq.m (40%) of the total of 1.75m of certified office space currently existing in the region. Green building certification has been rapidly expand-ing in Central and Eastern Europe in recent years due to new regulations and green commitments from an increasing number of developers, investors, owners and tenants. On the one hand, by the year 2020, all new buildings in the European Union will have to be almost zero-energy buildings. On the other hand, cer-tified buildings feature higher occupancy rates as more and more companies have CSR policies. Gov-ernments in the CEE are slowly passing new legisla-tion providing for sustainable practices and still offer

little in the way of tax breaks and other incentives for green investors and developers. "In fact, it is largely property and asset managers, de-velopers and occupiers who are driving this process forward on their own initiative and because of the growing number of corporate social responsibility programs," the JLL report said.

Certified green office space in CEE By certification methodologies (volume/sq.m)

Other

5.4%

LEED

22.5%

BREEAM

71.5%

Source: JLL February 2014

The two most well-known and popular green certifica-tion systems are LEED and BREEAM. Over 71% of ex-isting certified office space in the CEE region was cer-tified under BREEAM certificate. Energy and water use, carbon emission as well as the application of eco-friendly solutions and materials are all analyzed in the certification process. At least 2.5m sq.m of office areas in existing projects and pipeline schemes in CEE is currently seeking green certification, with Poland accounting for ap-proximately 700,000 sq.m, the study said. According to JLL, the final volume of potential pipeline in Poland will be even higher, as many planned BREEAM pro-jects have not yet been registered.


SERVICES & BPO

Danish pharma firm Danish pharma firm Danish pharma firm Danish pharma firm Lundbeck to launch Lundbeck to launch Lundbeck to launch Lundbeck to launch shared services centre shared services centre shared services centre shared services centre in Kraków in Julyin Kraków in Julyin Kraków in Julyin Kraków in July

Danish pharmaceutical company Lundbeck, which specializes in treatment for brain diseases, will create some 130 positions at its newly established Business Service Centre (BSC) in Kraków, Poland. The centre will open in July at building C of Kraków's Quattro Business Park, developed by a local company Buma Group. Lundbeck representatives have confirmed to Poland Today that up 200 positions will be downsized across the company's European operations as part of its ongoing reorganization and this includes positions that are moved to BSC Krakow. "The Lundbeck BSC Kraków is Lundbeck's global cen-ter, providing operational support to our essential business functions such as finance, procurement, HR and IT," Zuzanna Jawor, head of the centre, tells Po-land Today. "The center will support all Lundbeck Eu-ropean locations and the main languages to be used are Danish, French, Italian, Spanish, German, Eng-lish." With a 2013 turnover of EUR 2bn, Lundbeck is a global pharmaceutical company, employing approximately 6,000 across 57 countries (including some 2,000 in Denmark). They have research centers in China, Denmark and the United States, and production facili-ties in China, Denmark, France, Italy and Mexico. Lundbeck develops, produces and distributes treat-ments for people living with brain diseases and its key areas of expertise are alcohol dependence, Alzheimer’s

disease, depression/anxiety, epilepsy, Huntington’s disease, Parkinson’s disease, schizophrenia and stroke. Its products are registered in more than 100 countries. "Our Polish unit, Lundbeck Poland Sp. z o.o. has been active on the Polish pharmaceutical market as inde-pendent company since 1999. We have 25 employees in sales, marketing and administration. Our main ac-tivities are promotion of Lundbeck’s products among Polish psychiatrists and neurologists. As a Central Nervous System innovative company we have a lot of educational meetings and actively participate in scien-tific congresses and symposia. We do perform clinical trials in Poland in order to secure new products entry to the world market."

Quattro Business

Park is located at

Generał Bor-

Komorowski Av.,

one of Kraków's

main arteries. The

building complex

will consist of five

office buildings,

with a total office

space of ca. 57,000

sq.m and 1,150 park-

ing places. Image: JLL

Choosing Kraków as a location for Lundbeck’s Busi-ness Service Centre further illustrates the city's lead-ing position on the global business services map. This strong position is further confirmed by international rankings and analyses. Kraków is ranked 9 in 2014 Tholons Top 100 Outsourcing Destinations. Factors that have brought Kraków to global prominence in-clude its diversified HR pool, investment climate, transport infrastructure, high quality of life and well-developed office market.

"We have chosen Krakow for several reasons that in-clude the city's very experienced, multi-lingual talent pool. It is an attractive city with good communications which has already attracted some 80 BPO/SSC com-panies with 30,000 employees. BSC have completed the first wave of recruitment and we are now in the process of staffing for next waves of migration pro-jects. We are currently 70 people and we expect to grow to headcount of 130 in 2015. We are looking for professionals in finance, procurement and HR. We value candidates that are ambitious, self-driven and team working," says Zuzanna Jawor "Kraków, with its office space stock of over 570,000 sq.m, is the second largest office market in Poland af-ter Warsaw. A further 130,000 sq.m is currently under construction. Such rapid development is generated mainly by companies from the business services sec-tor, occupying approximately 50% of modern office stock in the city," said Rafał Oprocha, Head of Kraków Office at JLL, the real estate consultancy that assisted the investor.

SERVICES & BPO

250 new jobs in Łódź 250 new jobs in Łódź 250 new jobs in Łódź 250 new jobs in Łódź and Kraków from and Kraków from and Kraków from and Kraków from leading ICT exporterleading ICT exporterleading ICT exporterleading ICT exporter

Ericpol, one of Poland's top exporters of ICT services, will create 250 new positions at its Łódź and Kraków units this year, in order to keep up with growing de-mand from public sector clients and speed up expan-sion in the DACH region (Germany, Austria, Switzer-land). The company is seeking both experienced staff as well as graduates – mainly software developers (C/C++, Java), testers and technical documentation specialists.


"Last year we created 130 new positions in Poland alone, and this year the figure will nearly double," Jan Malkiewicz, marketing and communication manager at Ericpol, tells Poland Today. "Competition among employers for the best talents is a normal thing. Ericpol is cooperating with universities and student organizations and we are well known among students and graduates. We are used to organizing recruitment campaigns every year, and we target not only Poles but also candidates from other EU countries. Our teams operate in an international environment and foreign employees only strengthen our potential." Ericpol, which exports some 90% of its output, achieved a record turnover of EUR 66.8m last year, against EUR 62.5m in 2012 and only EUR 30.7m in 2009. "Our fastest growing business areas are those related to 3G & 4G telecommunications technologies, services for banks, as well as Machine to Machine (M2M) communications which is now becoming known as the Internet of Things (IoT). We remain active in the pub-lic procurement area and continue looking for attrac-tive acquisition opportunities. Ericpol keeps expand-ing." says Jan Malkiewicz. The company was established back in 1991 in Łódź by Jan Smela, a former Ericsson project manager. The Swedish telecommunications technology giant has remained one of Ericpol's key clients to this day. As years went by, Ericpol expanded its service offering, which currently includes outsourcing and consulting services as well as dedicated solutions in telecommu-nications, M2M communications, healthcare, banking & finance, and business solutions area. The Ericpol Group has three units in Poland that employ some 1,600 qualified engineers, as well as three develop-ment centers in Ukraine (120), Belarus (150) and Swe-den (30). Asked whether the ongoing Russia-Ukraine

crisis is having any impact on Ericpol's business, Jan Malkiewicz replies:

Ericpol's six years of rapid growth

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Turnover in EURm , lef t axis

Emp loyment, r ig ht axis

Source: Ericpol

"The situation in Belarus and western Ukraine is calm, but problems persist in eastern Ukraine and Russia. Over the past three months the market has been look-ing at those areas differently, and we are receiving growing numbers of inquiries from Western compa-nies operating there, which are concerned about the ongoing developments and seek to diversify their sup-pliers." Ericpol is building a new office complex in Łódź, where some 800 of its employees, mostly engineers and software developers, will be relocated in the au-tumn. The investor had acquired a former swimming pool site on the corner of Sienkiewicza and Tymienieckiego streets, which it subsequently trans-formed into a modern four-story building with an un-derground car park. The PLN 60m project was includ-ed in the Łódź special economic zone, where the com-pany promised to create 100 jobs by 2017, aimed at IT, telecommunications, electronics, robotics, mathemat-ics and science graduates. Back in 2005 the investor bought a dilapidated building on Dowborczyków St.

which, a hundred years earlier, used to store woolen goods. The building was completely renovated in 2007, but its historical character has been preserved. The PLN 15m investment created office space for over 200 employees developing software for the telecom-munications industry. Unlike its competitors, which rent office space, Ericpol prefers to work out of owned premises. "This is company policy. We are not a corporation that pops in and out of a market depending on decisions made by the HQ. Our own real estate is an investment, but it offers lower rental costs in the future, independ-ent, custom-made infrastructure, and safety, which is crucial for us," Jan Malkiewicz, Marketing & Commu-nication Manager at Ericpol tells Poland Today.

TRANSPORT & LOGISTICS

Polish PKP Intercity Polish PKP Intercity Polish PKP Intercity Polish PKP Intercity may back out of high may back out of high may back out of high may back out of high speed train speed train speed train speed train dealdealdealdeal withwithwithwith Alstom, minister saysAlstom, minister saysAlstom, minister saysAlstom, minister says

Poland’s Deputy PM Janusz Piechociński said last week that the state-owned rail operator PKP may can-cel its agreement with French Alstom regarding the delivery of high-speed Pendolino trains, as the manu-facturer has failed to obtain proper certification from the Polish railway regulator UTK on time. Since Al-stom had not submitted the required paperwork by the agreed deadline of May 6, the Polish side said it would fine the producer close to EUR 0.5m a month for each undelivered trainset. According to Alstom, the Polish railway network is lacking the Level 2 ERTMS system that is required for


Pendolino to travel at high speeds and therefore the company cannot carry out the necessary testing that is required for certification. Therefore, Alstom wanted to deliver the Pendolino trains with certification allow-ing them to travel up to 160 km/h and not 250 km/h as originally planned. The additional documents and tests that would allow the trains to move faster would be provided at the later date. Government representa-tives reiterated that the French producer had been ful-ly aware of the condition of Poland's railway network when it accepted the order and therefore its excuses are groundless.

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. Piechociński admitted last week that Pendolino may not have been the best choice for Poland.

"It was not the best decision to make at the onset of the European crisis. We should have chosen trains that travel up to 160 km/h, like the ones made by Polish PESA or NEWAG, both of which have proven that they can make top quality product." 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. The 250km/h trains are to enter service on Warsaw – Gdańsk, Warsaw – Wrocław and Warsaw – Kraków/Katowice EIC Premium services in December 2014, but the ongoing certification spat is likely to cause additional delays. These routes are currently be-ing modernized to allow the new trains to operate at higher speeds. Following the completion of the CMK upgrade in 2015, which includes the installation of ERTMS Level 2, it is likely the trains will be able to operate at up to 230km/h on this route.


Radom airport gets Radom airport gets Radom airport gets Radom airport gets green light to launch green light to launch green light to launch green light to launch regular operationsregular operationsregular operationsregular operations

Poland's newest civilian airport in Radom, merely 100km south of Warsaw, has just received certification from the country's aviation watchdog ULC to operate as a regular passenger airport. The airport signed its first client - tour operator Alfa Star - in November last year. The travel firm plans to launch charter flights to Egypt from Radom in July 2014, depending, however, on sufficient interest in the destination from its customers. Local authorities in Radom say budget carriers may view the new destination as a second low-cost alternative to Warsaw's Chopin airport, be-

sides Warsaw-Modlin. However, both of the above have plenty of spare capacity and neither Radom nor Modlin can compete with the Chopin airport in terms of convenience.

Passenger traffic at Polish airports Millions of passengers

0 1 2 3 4 5 6 7 8 9 10 11

Zielona Góra

Lublin

Bydgoszcz

Modlin*

Łódź

Rzeszów

Poznań

Wrocław

Katowice

Gdańsk

Kraków

Warsaw*

2013

2012

2011

Source: ULC *) Chopin Airport

The former military airport in Radom was upgraded at the cost of PLN 25m. The airport acquired a second-hand passenger terminal from Łódź, which had been dismantled and reassembled in Radom. The terminal will be able to handle 380 passengers (two Boeing 737-80) at a time, maximum 1.5m a year. The municipality is already planning further investments at the airport, including a runway extension, additional aircraft park-ing space, and new lighting.


Time will tell, however, whether the project has any future. Despite the impressive growth of Poland's air travel sector in recent years, many industry insiders believe that only the country's three largest airports (Warsaw, Kraków, Gdańsk) attract enough passengers to stay profitable, with the rest having to partially rely on municipal or regional subsidies. The Lublin airport, opened in the end of 2012 at the cost of PLN 400m, were to welcome 300,000 passengers in 2013, but the figure came to merely 189,000. Close to a third of the financing for the project was provided by the EU un-der one of the latter's cohesion instruments. Recently the EU has struck down plans by the Gdynia munici-pality to establish its own international airport. The EU said the airport should not have received any pub-lic funding and demanded all aid must be repaid, which led to the collapse of the city-backed SPV be-hind the project. Meanwhile, the local authorities in Poland's north-eastern Mazury lake district are busy getting ready to build another regional airport, in Szymany near Szczytno (approx. 50km southeast of Olsztyn). The es-timated capex on the project is to reach PLN 200m, and with hopes for the EU to contribute up to 75% of the investment. The former military airport in Szymany had been in operation until 2004 and it is to be back in business, this time with civilian airplanes, in 2015, with a renovated runway and new terminal. Ac-cording to earlier estimates, the Szymany airport is to initially receive some 57,00 passengers per annum, which is less than enough to ensure its economic via-bility. The authorities believe that over two decades the figure is to reach 731,000 but many observers con-sider such estimates as a textbook case of wishful thinking. Although the project is unlikely to turn prof-itable in any foreseeable future, municipalities from the Szczytno area are hoping the new airport brings an influx of foreign tourists and investors to the Warmia and Mazury region, which despite its natural beauty suffers from high unemployment.

In 2013 Polish airports handled 25m passengers, 2.2% more than in the prior year and 15% more than in 2011, according to data from the aviation watchdog ULC. Warsaw's Chopin airport welcomed close to 10.7m passengers (+11.5% y/y, largely thanks to the tempo-rary closure of its immediate competitor Warsaw Modlin), followed by Kraków-Balice with 3.6m (+6.7% y/y), Gdańsk Lech Wałęsa airport with 2.8m (-1.2%), Katowice Pyrzowice with 2.5m (-0.5%) and and Wrocław-Strachowice with 1.9m (-3.5%). Next year the top five list may include Modlin, Ryanair's key hub in Poland, which was not in operation in 1H 2013.


State investment State investment State investment State investment vehicle PIR to help vehicle PIR to help vehicle PIR to help vehicle PIR to help private firms build and private firms build and private firms build and private firms build and maintain regional maintain regional maintain regional maintain regional roads under the PPP roads under the PPP roads under the PPP roads under the PPP formulaformulaformulaformula

Poland's state investment vehicle Polskie Inwestycje Rozwojowe (PIR) will support construction, recon-struction and maintenance of provincial roads in the Kujawsko-Pomorskie Voivodeship, according to an agreement the institution signed earlier this month with the region's authorities. The latter intend to carry out the investment under the Public-Private Partner-ship formula based on a long-term contract with a pri-vate partner. The contractor, to be selected in a competitive pro-cess, will build 12 km of new roads and modernize 77 km of existing provincial roads as well as manage a road network of 273 km for a period of 30 years. PIR's

role is to provide access to a significant portion of the investment's funding, which should make it far easier for the private partner to acquire loans from commer-cial institutions. Details of cooperation between PIR and the contractor are to be worked out during negoti-ations. The tender is currently underway, with nine companies having applied to take part in the proce-dure, of which five have been invited to negotiate in a competitive dialogue process. "This is a yet another project that we will carry out in cooperation with a local government authority using the PPP model, and the first one concerning road in-frastructure. The investment will improve quality of life for the region's residents by ensuring the highest standards of modernization and maintenance of roads while delivering the most effective cost model. It also means that the region will have better links with the national road network, which will stimulate the econ-omy, improve competitiveness and increase the attrac-tiveness of the voivodeship for investors," says Mariusz Grendowicz, President of PIR. The value of the investment amounts to approx. PLN 400m and PIR will be financially engaged for up to 20 years. It is a pilot project in respect of the planned main investment, under which the Marshal of the Kujawsko-Pomorskie Voivodeship plans to construct 96 km of roads, modernize 608 km and hand over 1732 km of roads to private management. The model of co-operation between PIR and the Voivodeship Marshal's Office is a solution available to other local government authorities. "The concept developed by the voivodeship's govern-ment, which assumes entrusting a private partner with tasks involving modernization, expansion and mainte-nance of a road network, is Poland's first of its kind. Similar systems are functioning well in other coun-tries, and our idea is already the subject of interest from many local government authorities. This form of


road management will facilitate the execution of in-vestments at the highest level. The first roads to be covered by this model are those in the Włocławek re-gion," says marshal Piotr Całbecki. Created last year as part of the government's "Polish Investments" program to stimulate economic recovery by investing future privatization proceeds into pro-jects of strategic importance, PIR has recently agreed to inject up to PLN 750m into a PLN 1.5bn cogenera-tion project in Silesia, developed by Tauron (see BR+ No. 027) as well as PLN 150m into a public-private heat & power plant project in Olsztyn (see BR+ No. 022 page 4). The fund's other projects included a PLN 120m in-vestment into a PLN 560m fiber optic joint venture with backbone network operator HAWE (see BR+ No. 018 page 12, PLN 563m investment in Lotos Petrobaltic's B8 exploration project in the Baltic Sea (see BR+ No. 007 page 5) and possible participation in a PLN 12bn petrochemical project by Polish refiner Grupa Lotos and chemical company Azoty (see BR+ No. 014 page 2). Led by Mariusz Grendowicz, the for-mer CEO of mBank, PIR mediates in the allocation of low-cost capital for strategic projects that have a hard time raising commercial financing.

RETAIL CHAINS

Major electronics Major electronics Major electronics Major electronics retailer retailer retailer retailer Avans Avans Avans Avans goes goes goes goes belly upbelly upbelly upbelly up with huge debtwith huge debtwith huge debtwith huge debt

Poland's number three electronics and household ap-pliance retailer Domex, owner of the Avans chain, was declared bankrupt last week by a court in Tarnobrzeg, which confirmed that the company's dues had substantially exceeded the combined value of its assets. According to unofficial estimates Avans had

PLN 380m worth of debt, whereas its assets were said to be in the PLN 300-320m territory. Domex, which acquired Avans following the bank-ruptcy of the latter's previous owner, added its own Partner and Media Expert-branded stores into the Avans chain, which according to recent reports in-cluded approximately 250 proprietary outlets and 200 franchisee-operated ones. Domex filed for bankruptcy protection at the end of April, hoping to settle with its creditors, but the condition of its business has proven too grave for the court to give the company a way out. Owned by Polish entrepreneurs, brothers Arkadiusz and Sławomir Tomala, Domex turned over approxi-mately PLN 2.4bn last year, but its net result has not been disclosed. In 2012 the company was in the black with a PLN 20m profit. A court-appointed receiver will now seek new owners for Avans' stores and other assets. Since some of the outlets were operated on a franchise-basis, their own-ers will be free to decide what to do next. The chain will almost certainly be divided between different players, as it is rather unlikely for any potential buyer to be interested in the entire network. Currently the leading chain in terms of network size is Neonet with more than 500 stores, followed by Media Expert with 256. In terms of turnover, the undisputed leader is Media Saturn Holding, the German owner of Media Markt and Saturn chains, which, however, operate in a different market segment with much larger outlets. The only company to have officially declared interest in portions of Avans' assets was the Warsaw-listed IT distributor Action, which expects 2014 sales of PLN 5.5bn. The bankruptcy of Avans illustrates the rapidly deteri-orating condition of brick & mortar electronics retail-ers who lose competition with their online rivals, who have much lower operating costs and offer better deals. In October 2013 another Polish chain, Mix

Electronics, which at one point had more than 200 stores, also filed for bankruptcy. Back in 2009, Mix Electronics acquired eight Electro World outlets from Britain's Dixons for a symbolic one euro. The Brits realized pretty quickly that there was hardly any money to be made in Poland's electronics sector. Poland's electronics & appliance sector is worth an es-timated PLN 20bn, which translates into annual per capita expenditures of EUR 190m – way below the Eu-ropean average. At the end of last year there were some 6,300 brick & mortar stores and 2,100 online out-lets selling electrical at the end of last year. The fastest growing category in recent months were tablets.

RETAIL PROPERTIES

Rank Progress Rank Progress Rank Progress Rank Progress opens opens opens opens new shopping center in new shopping center in new shopping center in new shopping center in OOOOleśnicaleśnicaleśnicaleśnica

Warsaw-listed property developer Rank Progress opened its newest retail project, Centrum Pogodne in Oleśnica on May 16. With a gross lettable area of 7,700 sq.m the project is part of the company's ambitious development pipeline that focuses on neighborhood shopping centers in smaller towns (below 50,000 in-habitants). Built by Erbud, the project had been 100% leased way ahead of its completion, to tenants that include Media Expert electronics store, LPP fashion outlets (Re-served, Sinsay, Cropp Town), CCC footwear store, Rossmann drugstore, Pepco textile retailer, and Czerwona Torebka grocery discounter as well as a handful of other retail and service outlets. The scheme offers 250 parking spaces.


Erbud is also building a new project for Rank Progress in Piła, which is more than 70% leased to Deichmann, Swiss, CCC, H&M, Adidas – Reebok, Nike, Levi's Mus-tang, Marilyn, Play, Techno Dry, Wrangler Lee, Hebe, Kolporter, Media Expert, as well as supermarket and DIY tenants. With a GLA of 23,800 sq.m the Piła pro-ject is to reach completion in Q4 2014. A few weeks ago Rank Progress teamed up with on this project with Austrian property giant Immofinanz.

Centrum Pogodne in Oleśnica opened on May 16. Image: Rank Progress

"According to the agreement, an Immofinanz subsidi-ary will acquire the property and cover all costs asso-ciated with its development until the opening. The PLN 56m worth of net proceeds from this transaction Rank Progress intends to utilize on reducing its debt. Additionally, Rank Progress to remain in charge of the property's management and leasing, for an additional fee, and participate in profits from the project on an earn-out basis," Łukasz Gruszczyński , Marketing Di-rector at Rank Progress tells Poland Today. "We are open to all possible forms of future cooperation with Immofinanz," he adds. 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. In Krosno, Rank Progress is planning a small retail park (5,600 sq.m GLA) adjacent to an OBI home improvement outlet that opened in 2011. 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. The company is currently working on a retail center in Piła, and its future pipe-line includes also schemes in Krosno, Mielec, Olsztyn, Kołobrzeg, Kielce, Duchnów near Warsaw, Kielce and Wejherowo. Overall, by 2015 the company plans to launch 10 shopping centers with a total floor space of 340,000 sq.m. and a GLA of 275,000 sq.m. "We have a building permit and general contractor for Krosno where the construction will begin this year. The preparations in Mielec are also quite advanced. We have obtained permission to redevelop the road network in the area as well as other infrastructure that collides with the project," says Łukasz Gruszczyński. 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.

Targeting medium-sized towns Rank Progress and its retail center projects

City Name GLA sq.m Opening

Completed Legnica Galeria Piastów 15,600 2006 Kłodzko* Galeria Twierdza 31,000 2009 Zgorzelec* Park Handlowy Eden 8,500 2008 Jelenia Góra Pasaż Grodzki 10,500 2010 Kalisz* Galeria Tęcza 16,000 2011 Zamość* Galeria Twierdza 24,000 2011 Świdnica Galeria Świdnicka 15,600 2012 Grudziądz Pasaż Wiślany 5,400 Q2 2013

Chojnice Brama Pomorza 25,600 Q4 2013

Oleśnica Pogodne Centrum 7,700 Q2 2014

Under development

Piła* Galeria Piła 28,750 Q4 2014

Planned Olsztyn CH Jaroty 30,000 TBA Kielce Regional Center S7 97,800 TBA Krosno Miejsce Piastowe 5,600 TBA Warsaw/Duchnów Warszawa Wschód 62,300 TBA Mielec Galeria Aviator 26,000 TBA Wejherowo n/a 18,200 TBA

Source: Rank Progress *) sold

POLITICS & ECONOMY

Q1 GDP growth beats Q1 GDP growth beats Q1 GDP growth beats Q1 GDP growth beats projections at 3.3% y/yprojections at 3.3% y/yprojections at 3.3% y/yprojections at 3.3% y/y

Poland's GDP growth accelerated to the fastest pace in two years as record-low borrowing costs boosted in-vestment and consumer spending. The economy grew by 3.3% y/y in Q1 2014 compared with 2.7% in Q4 2013, according to a flash estimate published last week by the Central Statistical Office GUS. The result ex-ceeded the 3.1% median estimate of 27 economists


surveyed by Bloomberg. GDP rose 1.1% from the pre-vious quarter. "The rebound in the Polish economy is a fact. The GDP growth should move towards 4.0% y/y in the coming quarters. Although the exact structure of GDP growth is not yet known, one can definitely say that it was based on two pillars in Q1: domestic and external demand, whereas the contribution of the latter proba-bly decreased versus the former. Based on monthly re-tail sales data, I assess the consumption growth rate at 2.5-3.0%. Investments grew by some 4-5% y/y. At the same time the positive contribution of net exports was likely lower than in Q4 and was below 1.0 ppt," com-mented Bank Pocztowy economist Monika Kurtek.

GDP growth in Poland (y/y)

0%

1%

2%

3%

4%

5%

6%

7%

2005

2006

2007

2008

2009

2010

2011

2012

2013

*2014

*2015

Source: GUS, EC *) European Commission projections

According to central bank cited by policy maker Andrzej Kazmierczak, fixed investment accelerated to 6.1% from a year earlier in the first three months and may peak at 9% in the final quarter of this year. Private consumption probably quickened to 2.8% on improved labor-market conditions and higher wages, he said in an interview. The Polish economy is set to double its pace of growth, according to the European Commission, which pre-

dicts GDP will rise 3.2% in 2014 and 3.4% in 2015 after last year’s 1.6% expansion. Poland is set to outperform the European Union’s largest post-communist mem-bers this year and in 2015. Borrowing costs have been kept at a record low since July and policy makers have pledged to keep the key rate unchanged until at least the end of the third quarter to bolster consumer de-mand and investment. "The economic recovery is taking place in conditions of very low inflation, which is very comfortable for the monetary authorities. Low growth of prices of goods and services does not stem from a slowing domestic demand (quite the opposite) but from general global trends, especially in Europe. That's why the Monetary Policy Council doesn't have to think either of interest rate cuts or of hikes. What is more, the Russian-Ukrainian crisis should not have any major impact on the Polish economy - of course barring its further es-calation - while losses in foreign trade caused by it should be more than offset by the rising domestic de-mand. As a result, I expect the period of rates stability to be extended to the end of the year and first rate hikes in March next year at the soonest. If the period of low inflation prolongs further, it cannot the ruled out that the MPC will postpone tightening to H2 2015," Kurtek added.

POLITICS & ECONOMY

Inflation down to 0.3% Inflation down to 0.3% Inflation down to 0.3% Inflation down to 0.3% in April, NBP may keep in April, NBP may keep in April, NBP may keep in April, NBP may keep interest rates low for interest rates low for interest rates low for interest rates low for longerlongerlongerlonger

Poland's annual inflation rate fell sharply to 0.3% in April from 0.7% in March, well below the central

bank's official target (2.5%) and average projections (0.6%), the country's statistics office said Wednesday. Fuel prices declined 3.8% in April compared with a year earlier, while food prices were 1.1% higher. Prices in April were unchanged from the previous month. "The biggest surprise came from prices of food and non-alcoholic beverages, which declined noticeably (-0.5% m/m, while we expected a 0.4% m/m increase). Pork meat prices rebounded, in line with our expecta-tions, but this was neutralized by strong prices decline of other items (including sugar, flour, vegetables or drinks). Second category that dragged CPI down was communication (by -1.5% m/m) while the seasonal in-crease of clothing and footwear prices (+2.8% m/m) proved weaker than we had expected. Price changes in the remaining categories were roughly in line with our forecasts and continued to show no signs of demand-side pressure. After today’s data, we estimate April core inflation after excluding food and energy prices at 0.8% y/y vs. 1.1% y/y in March," commented BZ WBK analysts. Policy makers will probably review their forward guidance in July, central bank Governor Marek Belka said May 7. The current approach may be retained, with the 10-member Monetary Policy Council in "very wide consensus" on rates, he said. "The MPC may feel comfortable keeping interest rates unchanged for longer than we had expected so far. At the same time, we do not think that today’s data got us closer to a scenario of interest rate cuts in Poland even if the ECB eases monetary policy further in June. We share the opinion of the NBP governor Marek Belka, who said once that cutting interest rates amid visible acceleration of a GDP growth would be a pro-cyclical action," BZ WBK economists said.

weekly newsletter # 035 / 19th May 2014 / page 13

KEY STATISTICS

Consumer PriceConsumer PriceConsumer PriceConsumer Pricessss

Data in (%) Jan '14 Feb '14 Mar '14 Apr '14

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

Food & bev +1.8 +1.6 +1.6 -0.2 +1.2 -0.3 +0.3 -0.5

Alcohol, tobacco +3.4 +0.8 +2.2 +1.4 +3.7 +0.7 +3.9 +0.3

Clothing, shoes -5.0 -3.7 -4.7 -1.7 -4.3 +0.8 -4.4 +2.8

Housing +1.9 +0.2 +1.9 +0.1 +1.8 -0.1 +1.7 0.0

Transport -1.2 -1.5 -1.1 +0.4 -2.7 +0.1 -2.1 -0.1

Communications -7.8 -0.3 -3.2 +0.4 -0.3 +0.6 -1.7 -1.5

Gross CPI +0.5 +0.1 +0.7 +0.1 +0.7 +0.1 +0.3 0.0

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

5%

Ap

r 12

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

y/y m/m

Retail Retail Retail Retail TurnoverTurnoverTurnoverTurnover

Month Nov '13 Dec '13 Jan '14 Feb '14 Mar '14

m/m (%) -5.8 +17.3 -21.3 -0.6 +12.5

y/y (%) +3.8 +5.8 +4.8 +7.0 +3.1

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-Mar

2014

y/y

(%)

Permits 178.8 174.9 184.1 165.1 138.7 33.9 +49.4

Commenced 142.9 158.1 162.2 141.8 127.4 32.2 +56.4

U. construction 670.3 692.7 723.0 713.1 694.0 691.3 -0.8

Completed 160.0 135.7 131.7 152.5 146.1 35.7 -3.9

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 +3.3% n/a n/a

Q4 2013 +2.7% 442,167 -1.5%

Q3 2013 +1.9% 393,725 -1.9%

Q2 2013 +0.8% 389,244 -2.3%

2013 +1.6% 1,635,746 -1.5%

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% +1.0%

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% +5.2%

Unemployment** 12.4% 12.5% 13.4% 13.4% 12.3%

EUR/PLN 3.99 4.12 4.19 4.20 4.12

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

GroGroGroGross Wagesss Wagesss Wagesss Wages A: avg monthly wages in PLN B: indexed avg wages, 100=2005

Sector Q1 2013 Q2 2013 Q3 2013 Q4 2013

A B A B A B A B

Coal mining 6,060 138 6,290 143 6,061 138 8,615 196

Manufacturing 3,491 152 3,560 155 3,625 158 3,690 161

Energy 6,196 188 5,828 177 6,021 183 6,736 205

Construction 3,556 152 3,693 157 3,766 160 3,895 166

Retail & repairs 3,432 146 3,421 146 3,408 145 3,456 147

Transportation 3,439 122 3,547 125 3,589 127 3,913 138

IT, telecoms 6,685 174 6,707 174 6,654 173 6,695 174

Financial sector 6,356 143 6,702 151 6,109 137 6,602 148

National average 3,741 149 3,613 144 3,652 145 3,823 152

Source: Central Statistical Office (GUS)

Construction OutputConstruction OutputConstruction OutputConstruction Output

Month Sep '13 Oct '13 Nov '13 Dec '13 Jan '14 Feb '14 Mar '14

m/m (%) +9.4 +14.3 -2.9 +21.5 -64.0 +18.7 +24.2

y/y (%) -4.8 -3.2 -8.9 +5.8 -3.9 +14.4 +17.4

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

Ju

l 11

Oc

t 1

1

Jan

12

Ap

r 12

Ju

l 12

Oc

t 1

2

Jan

13

Ap

r 13

Jul

13

Oc

t 13

Jan

14

Ap

r 14

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 Sep'13 Oct'13 Nov'13 Dec'13 Jan'14 Feb'14 Mar'14

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

y/y (%) -1.4 -1.4 -1.5 -1.0 -1.0 -1.4 -1.3

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 Sep'13 Oct'13 Nov'13 Dec'13 Jan'14 Feb'14 Mar'14

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

y/y (%) -1.8 -1.8 -1.7 -1.7 -1.7 -1.6 -1.6

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 Sep '13 Oct '13 Nov '13 Dec '13 Jan '14 Feb '14 Mar '14

m/m (%) +9.6 +6.0 -6.2 -9.7 +2.9 -1.8 +9.4

y/y (%) +6.2 +4.4 +2.9 +6.6 +4.1 +5.3 +5.4

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-Feb 2014

y/y (%)

share (%)

2013 share (%)

Jan-Feb 2014

y/y (%)

share (%)

2013 share (%)

Food and live animals 11,425 +7.0 10.6 69,304 10.9 7,921 +2.4 7.6 47,906 7.4

Beverages and tobacco 1,296 +22 1.3 8,624 1.4 564 -8.9 0.6 4,150 0.6

Crude materials except fuels 2,799 +0.9 2.8 15,744 2.5 3,551 -2.3 3.6 21,585 3.3

Fuels etc 5,001 -7.8 5.4 30,013 4.7 13,046 +7.5 11.9 75,539 11.7

Animal and vegetable oils 321 +49.7 0.2 1,864 0.2 397 -4.4 0.4 2,646 0.4

Chemical products 9,592 +4.1 9.2 59,103 9.3 15,616 +3.2 14.8 92,917 14.3

Manufactured goods by material 20,989 +0.7 20.7 129,915 20.3 18,664 +4.2 17.6 112,392 17.3

Machinery, transport equip. 40,068 +7.8 37.0 239,434 37.5 33,679 +4.5 31.6 216,608 33.4

Other manufactured articles 13,873 +8.8 12.7 82,816 13.0 9,508 +5.5 8.8 58,210 9.0

Not classified 163 n/a 0.1 1,782 0.2 2,455 n/a 3.1 16,242 2.6

TOTAL 105,527 +4.9 100 638,599 100 105,401 +3.3 100 648,195 100

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

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-Mar 2014

share *2013 share No Country Jan-Mar 2014

share *2013 share

1 Germany 43,408 26.3% 159,622 25.0% 1 Germany 35,357 21.6% 139,334 21.5%

2 UK 10,511 6.4% 41,503 6.5% 2 Russia 19,708 12.0% 79,601 12.3%

3 Czech Rep. 10,119 6.1% 39,421 6.2% 3 China 16,346 10.0% 60,914 9.4%

4 France 9,958 6.0% 35,745 5.6% 4 Italy 8,339 5.1% 33,703 5.2%

5 Russia 7,200 4.4% 34,058 5.3% 5 Netherlands 5,973 3.6% 25,005 3.9%

6 Italy 7,409 4.5% 27,450 4.3% 6 France 6,523 4.0% 24,533 3.8%

7 Netherlands 6,715 4.1% 25,292 4.0% 7 Czech Rep. 5,709 3.5% 23,778 3.7%

8 Ukraine n/a n/a 18,037 2.8% 8 USA 3,647 2.2% 17,350 2.7%

9 Sweden 4,843 2.9% 17,498 2.7% 9 UK 4,496 2.7% 16,861 2.6%

10 Slovakia n/a n/a 16,795 2.6% 10 Belgium 4,060 2.5% 14,913 2.3%

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

CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 16 May 2014

100 USD 305.67 ↑

100 EUR 419.35 ↑

100 GBP 513.75 ↑

100 CHF 343.34 ↑

100 DKK 56.18 ↑

100 SEK 46.53 ↑

100 NOK 51.41 ↑

10,000 JPY 300.99 ↑

100 CZK 15.28 ↑

10,000 HUF 137.35 ↓

100 USD/EUR against PLN

300

350

400

450

3 Jun 13

8 A

ug 13

16 O

ct 13

27 D

ec 13

7 M

ar 14

16 M

ay 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Dec '13 Jan '14 Feb '14 Mar '14

Monetary base 164,010 161,544 158,330 173,213

M1 555,851 546,487 548,033 558,954

- Currency outside banks 114,401 113,455 114,680 116,657

M2 960,361 947,443 954,284 964,624

- Time deposits 421,160 418,259 423,296 422,990

M3 978,924 962,416 968,442 980,377

- Net foreign assets 143,430 140,617 135,759 132,849 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 Dec '13 Jan '14 Feb '14 Mar' 14

Loans to customers 903,890 914,189 914,068 923,709

- to private companies 259,061 263,063 263,941 267,553

- to households 562,381 567,984 567,257 569,334

Total assets of banks 1,601,293 1,628,197 1,616,891 1,628,519

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Oct '13 Nov '13 Dec '13 Jan '14 Feb '14 Mar '14

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

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

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

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

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

EUR (over 1m EUR) 2.5% 3.0% 2.9% 3.6% 3.4% 3.3%

Warsaw Inter Bank Offered Rate (WIBOR) as of 16 May 2014

Overnight 1 week 1 month 3 months 6 months

2.60%% 2.60% 2.62% 2.72% 2.74%

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 16 May '14

Change 9 May '14

Change end of '13

↓ Alior Bank 77.5 -1% -5%

↑ Asseco Pol. 44.17 +1% -4%

↑ Bogdanka 115.5 +1% -8%

↓ BZ WBK 351.5 -4% -9%

↑ Eurocash 39.8 +1% -17%

↑ Grupa Lotos 37.99 +2% +7%

↑ JSW 46.08 +10% -13%

↓ Kernel 26.53 -8% -30%

↑ KGHM 113.9 +3% -3%

↑ LPP 7,823.5 +2% -13%

↑ mBank 498.55 +2% 0%

↑ Orange Pol. 10.44 +2% +7%

↓ Pekao 179.5 -5% 0%

↑ PGE 21.06 +5% +29%

↑ PGNiG 4.85 +1% -6%

↑ PKN Orlen 44.21 +3% +8%

↓ PKO BP 38.8 -4% -2%

↑ PZU 438.95 +3% -2%

↓ Synthos 4.65 -1% -15%

↑ Tauron 5.28 +3% 21%

Source: Warsaw Stock Exchange

Key indices

as of 16 May 2014

WIG Total index

55550000,,,,858858858858....58585858 Change 1 week +1% ↑

Change end of '13 -1% ↓

WIG-20 blue chip index

2,2,2,2,392392392392....89898989 Change 1 week -6% ↓

Change end of '13 0% →

WIG Total closing index

last three months

49,000

50,000

51,000

52,000

53,000

54,000

55,000

30 Jan 14

21 Feb 14

17 M

ar 14

8 A

pr 14

16 M

ay 14


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New Business Consultant

Tomasz Andryszczyk

RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Mar 2014 *

Monthly wages (PLN)

Jan-Mar 2014**

Unemploy-ment

Mar 2014

New dwellings Jan-Mar 2014

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 101.4 108.3 4,130 3,970 155.3 13.3 3,940 103.4

Kujawsko-Pomorskie (Bydgoszcz) 109.4 123.4 3,392 3,170 151.7 18.2 1,725 87.8

Lubelskie (Lublin) 106.0 77.5 3,778 3,018 136.4 14.6 1,135 84.0

Lubuskie (Zielona Góra) 116.8 115.2 3,425 3,005 59.7 15.6 965 105.6

Łódzkie (Łódź) 102.0 110.8 3,732 3,151 153.9 14.2 1,860 127.9

Małopolskie (Kraków) 96.6 105.9 3,841 3,293 167.1 11.7 4,506 99.2

Mazowieckie (Warszawa) 106.9 104.7 4,562 4,903 287.4 11.1 6,906 86.9

Opolskie (Opole) 108.3 144.1 3,573 3,461 52.2 14.3 522 116.8

Podkarpackie (Rzeszów) 106.6 112.0 3,367 3,024 155.3 16.4 1,625 103.4

Podlaskie (Białystok) 104.6 114.0 3,280 3,672 71.0 15.1 868 126.0

Pomorskie (Gdańsk-Gdynia) 105.0 108.8 4,052 3,428 116.2 13.4 2,043 69.3

Śląskie (Katowice) 100.2 112.3 4,647 3,495 212.7 11.4 2,628 94.4

Świętokrzyskie (Kielce) 116.9 75.2 3,395 3,151 90.6 16.5 803 134.1

Warmińsko-Mazurskie (Olsztyn) 106.1 115.1 3,294 3,063 115.7 21.5 1,342 104.4

Wielkopolskie (Poznań) 109.4 106.8 3,729 3,590 145.9 9.6 3,453 106.0

Zachodniopomorskie (Szczecin) 112.6 90.2 3,525 3,363 111.0 17.9 1,348 86.7

National average 104.8 106.3 3,983 3,705 2,182.2 13.5 35,669 96.1

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

in Poland 1,381 2,886 175 -3,020 1,885 -3,614

Polish DI -550 -1,203 957 2,588 -1,449 1,588

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 Q2 '13 Q3 '13 Q4 '13

Trade balance -10,059 -5,175 2,309 1,203 1,094 151

Services, net 4,048 4,642 5,249 1,686 1,032 1,257

CA balance -18,519 -14,191 -4,984 486 -2,086 -1,071

CA balance vs GDP -5.0% -3.7% -1.5% -2.3% -1.9% -1.5%

Source: NBP, BZ WBK

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1,800

2,000

2,200

2,400

2,600

Q1

11

Q3

11

Q1

12

Q3

12

Q1

13

Q3

13

Q1

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

Q4 '13

PLN/sq.m

Change

y/y

Headline

rents**

Vacancy

ratio

Retail

centres

High

streets

Warsaw 8,088 +5.1% 11.5-25.5 11.75% 80-90 85

Kraków 6,073 -8.9% 13-15 4.90% 35-45 78

Katowice 5,456 +2.5% 13-14 7.30% 35-45 56

Poznań 6,404 +4.4% 14-16 14.20% 35-45 55

Łódź 4,768 +2.6% 12-14 14.40% 35-45 25

Wrocław 5,928 +2.3% 13-15.5 11.75% 35-45 40

Gdańsk 6,525 +0.1% 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

Mar10

Nov10

Jul11

Mar12

Nov12

Jul13

Mar14

Wage CPI

Index 100 = Jan 2005. Source: GUS

Documents

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