Poland Today Business Review+ No. 55

No. 055 / 6th October 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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MANUFACTURING & PROCESSING

Manufacturing PMI remains in contraction territory in September page 2

BANKING & FINANCE

mBank & Orange launch joint mobile banking project page 2

SERVICES & BPO

RWE to hire hundreds of graduates at Kraków shared services center page 4 French IT outsourcing firm Sii to hit 2,000 employee mark in 2015 page 5

PROPERTY & CONSTRUCTION

Strabag Real Estate debuts in Poland with EUR 75m office project page 6 Adgar adds 6th office property to its Warsaw portfolio page 7

TRANSPORT & LOGISTICS

DCT Gdańsk awards EUR 90m terminal expansion contract to Belgium's Besix page 8 DPD gets regulatory blessing for takeover of Siódemka par-cel firm page 9

RETAIL PROPERTIES

A never-ending market: In-terview with Leszek Sikora, managing director at ECE Projektmanagement Polska page 10

OPINION

The Kopacz doctrine: con-solidate power, win elections page 13

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 14-16

Polish geology is proving too challenging for global shale gas companies. Image: 3Legs Resources

3Legs Resources abandons Polish shale3Legs Resources abandons Polish shale3Legs Resources abandons Polish shale3Legs Resources abandons Polish shale London-listed 3Legs Resources, one of the most active shale gas players in Poland, has decided to wind up operations following disappointing drilling results. The decision is a major blow to Poland's hopes for a US-style shale gas revolution. page 3

New government passes confidence voteNew government passes confidence voteNew government passes confidence voteNew government passes confidence vote Poland's new government is now officially in power, following last week successful confidence vote. In her policy speech Prime Minister Ewa Kopacz promised a greater emphasis on social is-sues and a total overhaul of Poland's tax system. page 12

weekly newsletter # 055 / 6th October 2014 / page 2

POLITICS & ECONOMY

Manufacturing PMI Manufacturing PMI Manufacturing PMI Manufacturing PMI remainsremainsremainsremains in contraction in contraction in contraction in contraction territory in territory in territory in territory in SeptemberSeptemberSeptemberSeptember

Poland's manufacturing sector purchasing managers' index PMI inched up by 0.5 points on the prior month to 49.5 points in September, a report by HSBC and Markit showed. Although this marginal improvement was described as a "faint positive sign" by HSBC's CEE economist Agata Urbańska-Giner, the reading still "signaled a deterioration in Poland's manufacturing economy in September, in line with the trend shown throughout the third quarter," the report reads. A PMI figure below 50 indicates contraction, while one above that level signals expansion.

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

45

50

55

60

Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14

Source: Markit & HSBC

Production declined at a fastest pace since May 2013 and new orders fell for the fourth month in a row, the researchers wrote. New export orders fell for the fifth month running, they added. At the same time, firms adjusted their purchases to lower output require-ments. Interestingly, despite this overall pessimistic outlook, Polish goods manufacturers have raised headcounts every month since August 2013, according to the re-port. Other sources likewise confirm the improving situation on the country's job market. According to last week's release from EU statistics office Eurostat, Po-land's seasonally-adjusted unemployment fell to 8.8% in August from 9.0% in July. Poland's own unemploy-ment reading in August, based on registrations rather than a labour force survey, amounted to 11.7%, Po-land's Central Statistical Office (GUS) said previously.

BANKING & FINANCE

mBank & Orange mBank & Orange mBank & Orange mBank & Orange launch joint mobile launch joint mobile launch joint mobile launch joint mobile banking project banking project banking project banking project

French-owned Orange Polska, Poland’s second larg-est wireless provider by subscribers at end-June 2014, has launched a mobile banking service in a joint ven-ture with one of the country’s largest lenders mBank, a unit of Germany's Commerzbank. The two part-ners are hoping their 'Orange Finanse'-branded ser-vice, encompassing mobile payments, currents ac-counts, loans, deposits, credit and debit cards, will at-tract in the region of one million customers over the next three years. Orange will be responsible for marketing the venture and drawing in customers while mBank will establish

a new branch to provide banking services. The opera-tor will offer the service as part of various telecom bundles as a means of attracting customers and says that setting up a mobile account – by opening a bank account or installing the mobile phone app – and using basic operations will be free of charge. Under the agreed cooperation model, Orange Polska will distrib-ute financial services via its sales network consisting of around 900 outlets. According to Orange and mBank, their joint project should give their clients access to cheaper credit and help lower their telephone bills, which seems some-what in contrast with the revenue-generating and cus-tomer retention-oriented objectives of the initiative. Orange has a customer base of 15m while mBank boasts 8m clients. "If revenue is comparable to current levels, we're talk-ing a few hundred million zlotys of additional income in the third year, mBank's CEO Cezary Stypulkowski, told reporters. "We expect that after three years this offer will con-tribute the equivalent of 7% of our current total reve-nue," added Bruno Duthoit, chief executive at Orange Polska. In Poland, a country of 38m people, there are an esti-mated 57m SIM cards and 38.5m bank accounts, and amid a shrinking market for voice services operators are desperate to tap into new sources of revenue. The market is also becoming increasingly difficult for banks, due to tough competition and low interest rates. The Polish unit of Deutsche Telekom set up a joint mobile banking project with Alior Bank, while mobile operator Polkomtel has bundled its offer with that of Plus Bank, both sharing the same majority share-holder, Polish billionaire Zygmunt Solorz-Żak.


ENERGY & RESOURCES

3Legs Resources'3Legs Resources'3Legs Resources'3Legs Resources' exitexitexitexit shattersshattersshattersshatters Poland's shale Poland's shale Poland's shale Poland's shale gas hopesgas hopesgas hopesgas hopes

One of the most active foreign players in Poland's un-conventional hydrocarbons industry, the London-listed explorer 3Legs Resources has decided to close up shop after pulling out of a Polish shale joint venture with ConocoPhillips due to disappointing drilling results. The voluntary liquidation of 3Legs Re-sources, whose CEO Kamlesh Pramar only a few weeks ago spoke of very promising gas flows on some of its Polish wells, is a major blow to Poland's budding shale gas sector. The company told investors that although the recently drilled and fracked Lublewo well continues to flow natural gas and light oil, it is not confident that the well's performance will improve sufficiently to be commercially viable. According to 3Legs, in the period between August 8 and September 17, the well pro-duced at an average rate of 396,000 cubic feet of gas and 157 barrels of light oil per day. This follows a se-ries of interventions and remedial activities that aimed to enhance output. The company said that the amount of oil recovered was actually higher than anticipated; however, gas flows were lower than it had hoped for. Having spent more than USD 19m for its share of the project costs, 3Legs told investors it now has a one-time opportunity to end its participation in the project and it believes it is in best interest of shareholders it to do so. 3Legs had a drilling program agreement with ConocoPhillips, the last US major present in the coun-try, that includes an option to end the contract once the former's net share of expenses topped USD 19m.

"This limit has now been reached," 3Legs said in its statement.

Assessing Poland's shale riches Estimated recoverable shale gas reserves in bn cb.m

0

1,000

2,000

3,000

4,000

5,000

6,000

*PIG (2012)

Wood M ackenzie (2010)

EIA (2013)

EIA (2011)

*) Poland's Geological Institute PIG estimates the country's recovera-

ble shale gas reserves at 346-768bn cb.m

Source: EIA, Wood Mackenzie, PIG, PT archives "We were optimistic - but our continued investment was always going to depend on the results of the Lublewo flow test. As those results came in, we had to make a decision on what we should do next. I think the 3Legs position is clear on its ability to progress its interests - 3Legs did not believe it would be able to demonstrate commercially viable rates from the Lublewo well. While our actions are clearly not help-ful for the development of Polish shales, our position should be viewed strictly as our company position only," Kamlesh Pramar told Poland Today. At the end of the past decade many saw Poland as a potential game changer on the European gas market, as according to some historical data its geological structure was said to resemble that of some of North America's gas-richest shales. However, revised esti-mates published in 2011 and a string of disappointing drillings have driven most of the largest foreign play-ers out of the country. The exodus saw France's Total,

Italy's Eni, US Exxon Mobil and Marathon Oil, as well as Canada's Talisman exit Poland, leaving only small independent exploration firms and state-controlled Polish operators on the market. The num-ber of share gas exploration licenses in Poland has dropped to 69 from 115 for the last two years. At the moment, Poland's top fuel and gas firms PKN Orlen and PGNiG are the only entities in Poland still ready to invest substantial amount of money in shale gas pro-jects. PGNiG is cooperating with US Chevron on a number of concessions.

3Legs Resources joins a growing group of foreign

exploration firms that have lost faith in Poland's shale gas potential. Image: 3Legs Resources

Desperate to reduce its dependence on Russian gas and oil, the Polish government demanded the coun-try's largest utilities pour money into shale explora-tion, but this approach is proving problematic, as the very same firms are also expected to finance huge power generation and grid expansion projects. Treas-ury Minister Włodzimierz Karpiński said in late Au-gust that state companies would invest PLN 5bn into shale projects by 2016. Unlike their American coun-terparts, however, Polish companies lack the technol-ogy and experience needed to squeeze gas out of tight rock formations.


The Polish authorities took a long time to work out a regulatory and fiscal regime the shale industry would find attractive, which many observers blamed for the lack of progress on the drilling front . A draft bill was approved as recently as July this year. Meanwhile, however, it is becoming clear that no matter how large Poland's shale gas reserves really are (the most recent Polish estimates see them at 768bn cb.m), the geology appears to be much more complicated than initially expected, making commercial production problematic, if not impossible.

Shale exploration wells in Poland

0

5

10

15

20

25

2010 2011 2012 2013 *2014

*) projected Source: Ministry for Environment

It seems that in the short term the only viable path to energy security for Poland will be to develop cross-border connections with its neighbors, and secure LNG supplies via the soon-to-be completed marine terminal in Świnoujście, thus boosting imports from countries other than Russia. A united European energy policy, something that Poland has been pushing for in recent months amid growing tensions between Mos-cow and the West, could also prove very beneficial, but it remains highly unlikely for some of Russia's other European clients to dare to upset the Kremlin. In the long-term (before the end of the next decade) Poland is hoping to add nuclear energy to its energy mix.

SERVICES & BPO

RWE to hiRWE to hiRWE to hiRWE to hire hundreds re hundreds re hundreds re hundreds of graduates at Kraków of graduates at Kraków of graduates at Kraków of graduates at Kraków shared services centershared services centershared services centershared services center

RWE Group Business Services, the shared services arm of German energy giant RWE seeks to recruit 100 new staff at its Kraków center that provides account-ing, finance and HR management services to other RWE group companies. The announcement came last week when the Kraków unit celebrated its first year of operation. At the moment, the Kraków-based RWE GBS Poland, which was the German group's first ever shared ser-vices unit, handles bookkeeping & finance processes for six RWE subsidiaries as well as HR management services for 19 group companies from Poland, Germa-ny, Netherlands and the UK. The project had been so successful that the company decided to transfer ac-counting & finance operations from a further ten RWE companies to the Kraków centre over the next two years. By the end of 2014 RWE GBS Poland will be re-sponsible for selected HR & payroll functions for all RWE group companies. Asked whether they are not facing shortage of suitable candidates in the highly competitive Kraków market, RWE's spokesperson Jan Pilewski replies: "We are having no problems whatsoever finding the right people and the fact that we managed to onboard 150 staff in less a year serves as proof of that." Besides Kraków and its immediate vicinity, RWE's re-cruitment campaign will target mainly southeastern Poland (Małopolskie, Śląskie, Podkarpackie and Świętokrzyskie regions), but also the rest of the coun-

try. The center is currently seeking 100 finance & ac-counting professionals with fluent English and/or German, both fresh graduates as well as experienced staff. According to the company, finance/accounting experience is secondary, due to in-depth training of-fered by the centre, but language skills are absolutely essential to get a job at RWE GBS Poland. Next year the center will relocated to new offices that will enable RWE GBS Poland to grow its headcount up to as many as 400 positions. "Our immediate focus is to recruit and train 100 new staff by the end of February 2015 so that they are able to start working in March next year. Over the next year we will continue to relocate further bookkeeping, finance and administration, as well as payroll func-tions to Kraków. Decisions on the directions in which the centre will expand after that. will be made after 2015, when we plan to finalize the current stage of process migration," Pilewski tells Poland Today. With as many as 69% of its staff belonging to the 24-30 age group, for most of its employees the center is their first serious job. Some 95% of its current employees are university graduates and the remaining 5% are students. Kraków remains Poland's top destination for business process outsourcing projects. The city is home to 85 foreign-owned BPO/SSC/ITO centers which employ an estimated 30,600 staff. In the newest Tholons list of the world's top 100 outsourcing destinations, Kraków ranks as number nine globally, ahead of Dublin. RWE Group Business Services is a wholly-owned sub-sidiary of RWE AG, one of Europe's five leading elec-tricity and gas companies. In fiscal 2013, RWE turned over EUR 54m. It has 66,000 employees, 16m electrici-ty customers and 7m gas customers.


With a staff of more than 1,200 employees, RWE's Polish businesses turned over ca. PLN 2.5bn last year. Its Polish operations include the main unit RWE Polska (which supports the group's development in the country and sells energy to some 0.9m clients pri-marily in the Warsaw area), Warsaw power grid com-pany RWE Stoen Operator, as well as wind farms that geenrate 400 GWh of clean power every year. With 5,718GWh sold last year, RWE Polska had an estimat-ed 5% share in the market. Earlier this year RWE Stoen Operator (see BR+ No. 038) announced plans to invest more than PLN 1.6bn in the development of the Warsaw power grid, following a estimated PLN 1.9bn worth of investments in the past decade.

SERVICES & BPO

French IT outsourcing French IT outsourcing French IT outsourcing French IT outsourcing firm Sii to hit 2,000 firm Sii to hit 2,000 firm Sii to hit 2,000 firm Sii to hit 2,000 employee mark in 2015employee mark in 2015employee mark in 2015employee mark in 2015

Eight years after its debut on the Polish market, IT outsourcing company Sii is showing no signs of slow-ing down. Back in 2012, when we last spoke to Sii, it had six locations and 1,000 staff in Poland and plans to double the headcount. Now, with some 1,800 employ-ees and eight offices in key Polish cities, the company is very close to achieving that goal. "Reaching the 2,000 employees milestone is just ahead of us. Another key goal for us is to further develop co-operation with foreign clients and provide them with top services from our Polish delivery centers," says Grégoire Nitot, French entrepreneur who established Sii Polska in 2006, and who remains the company's CEO and co-owner. Although the Paris-listed IT firm Sii is a shareholder in Sii Polska, the latter remains an independent company, registered in Poland, where it

pays taxes. Sii Polska generates a half of its revenues domestically, and the other half - from contracts with foreign clients. The Polish business was Sii's first foreign endeavor and it has since remained its fastest-growing opera-tion. The company was one of the pioneers of the mul-ti-site delivery model in Poland, tapping into many re-gional talent pools at the same time. In merely five years its workforce has grown from 200 to 1,800 - an impressive achievement in the highly competitive IT sector. "Decentralization enables us to stay closer to our cus-tomers. Our clients and prospects are scattered all over Poland so regional branches make Sii more acces-sible for them. Our regional units are very independ-ent, which makes the Sii structure flatter, more agile and flexible. We act fast: we do not need much time to make a decision and take action," Mr. Nitot explains the logic behind Sii's multi-site approach. "Last but not least, our branches are in the biggest academic centers. It would be difficult to achieve the growth we have seen based on just one city."

"We are hiring 50-60 new employees every month," Grégoire Nitot, CEO of Sii Polska tells Poland Today Photo: Sii

At the end of September the company announced it would create 150 new positions at its Kraków unit, which currently employs 130 staff. Launched in 2011, Kraków is one of Sii's youngest centers, although the company has since opened units in Łódź, Lublin, and Katowice. Sii is hoping to recruit 70 new employees in

Kraków by March next year and further increase its staff numbers over the subsequent months. Sii's re-maining Polish centers are located in Warsaw, Gdańsk, Wrocław and Poznań. According to its CEO, the com-pany is not considering any further new locations at the moment. "All of our units are growing fast, not just Kraków. We are recruiting 50-60 new employees every month across Poland and we can see how competitive the IT staffing market has become in all the cities where we operate. The competition between employers is boost-ing candidate expectations with respect to wages and non-wage benefits. This poses a risk to the Polish market: if wages continue to grow, Poland loses its competitive edge and global corporations start seeking service providers from other countries," Grégoire Nitot tells Poland Today. As an IT outsourcing and engineering company, Sii provides consultancy, analytics, and testing services, software development, infrastructure management, system integration and maintenance services. Its Polish customers include top names from the banking, insurance, and finance sector, telecommunications, power supply industry as well as heavy industry and FMCG. Sii turned over PLN 225m in 2013. "Our service range continues to evolve and we are do-ing more and more business with foreign clients. We are working under various cooperation models which guarantees flexibility. Sii is developing new compe-tences, for instance in electrical and mechanical engi-neering and expanding," says the CEO. As for its shareholder, SII Group, the French company generated revenue of EUR 294m in the financial year 2013-2014, up 3.3% on the prior period. With 50 branch offices in France, a number of other European countries, as well as North Africa and South America, the group employs more than 4,850 staff.



Strabag Real Estate Strabag Real Estate Strabag Real Estate Strabag Real Estate debuts in Poland with debuts in Poland with debuts in Poland with debuts in Poland with EUR 75m office projectEUR 75m office projectEUR 75m office projectEUR 75m office project

Cologne-based Strabag Real Estate GmbH (SRE), the property development arm of German construc-tion giant Strabag has broken ground on a EUR 75m project in Warsaw's city centre. Located on Przeskok street, a stone's throw from the Nowy Świat and Chmielna shopping streets and the landmark Palace of Culture, Strabag's mixed-use Astoria scheme is to reach completion in 1H 2016 with 17,600 sq.m of office space and 1,400 sq.m of retail space on the ground lev-el. The LEED Gold-certified building will include 100 parking spaces in an underground garage, flexible floor plans, LED lighting, two entrance lobbies, as well as all of the usual class-A amenities. Due to the pro-ject's location near some of Warsaw's key landmarks and most important public institutions (Poland's cen-tral bank and a number of ministries are in its immedi-ate vicinity), as well as the subway and train stations, the investor is hoping it will attract top-notch tenants. Although Strabag's construction arm has been one of the most active players on the Polish market for many years, particularly in infrastructure, its only episode as a property developer was in the late 1980s, when it was part of a joint venture that built the LIM Center complex in downtown Warsaw. Astoria is the first Polish investment for Strabag Real Estate, marking its entry to the highly competitive Polish market. The company intends to launch its own property develop-ment unit in Poland.

"We will provide the same range of services in Poland as we do in other countries. These are primarily office, retail and commercial properties as well as residential buildings, hotels and special use properties. Besides our own developments, we are also open to act as a service provider for third parties. This means that we do not act as intermediate investor, but take on the de-velopment through to the completion of construction for third party property owners We already recruited a team that will handle the Astoria project and also ac-quire other projects." Timo Haep of SRE's head office in Cologne tells Poland Today.

Astoria (right of the centre) boasts one of Warsaw's

best locations, near the city's top attractions. Image: Strabag Real Estate GmbH

"At the moment Astoria is our only tangible develop-ment in Poland, though we have others in acquisition. We want to focus on the strongest property markets in Poland. First of all this means Warsaw. However cities such as Wrocław, Gdańsk, Kraków or Poznań are also interesting to us," he adds.

DATA BOX: WARSAW OFFICE MARKET IN 1H 2014

Warsaw's modern office space stock rose to more

than 4.3m s. m at the end of June 2014. In H1 2014,

more than 190,000 sq.m of modern office space was

delivered onto the Warsaw market in 17 schemes,

nearly 40,000 sq.m more than in H1 2013. The largest

completions were HB Reavis’ Gdański Business Center

near the Warsaw Gdańska railway station (two build-

ings totaling 44,500 sq.m) and phase one of Capital

Park’s Eurocentrum Office Complex in Al.

Jerozolimskie (two buildings totaling 38,700 sq.m).

Other major completions included phase one of Echo

Investment’s Park Rozwoju, (16,000 sq.m), Skanska’s

Atrium 1 (15,700 sq.m) and OKRE Development’s

Green Wings (10,800 sq.m). Overall, more than

140,000 sq m of office space is to come onto the

Warsaw market by end of 2014, bringing this year’s to-

tal supply to 330,000 sq.m, the highest since 2000.

Leasing activity at the end of Q2 2014 totaled 259,000

sq.m, representing 41% of 2013’s total take-up. Ab-

sorption in Warsaw in H1 2014 stood at 99,000 sq.m,

which marked an increase of 24% on the level in the

same period of 2013. The rising office supply pushed

the vacancy rate in Warsaw up to 13.35% at the end of

Q2 2014, a rise of around 1.6 pps since end of 2013.

With office supply outstripping current demand, rising

void rates are leading to further downward pressure

on rents, but prime headline rents remained flat in H1

2014. In Warsaw’s Core rents stood at less than EUR

25/sq.m/month, while the lowest rents in Central Lo-

cations were in the EUR 16.5-18/sq.m/month range for

modern office buildings. Non-Central Locations fetch

EUR 11-16.5/sq.m/month, but prime office buildings

outside the city centre command EUR 13.5/sq

m/month or more.

Source: Cushman & Wakefield Marketbeat Autumn 2014


Since its founding in 1965, Strabag Real Estate has de-veloped more than EUR 5.9bn worth of projects, that include Milaneo in Stuttgart, Upper West in Berlin, and Dancing Towers in Hamburg. "We are currently working on our first foreign invest-ments in Austria and Sweden. Astoria is the next step in our international expansion," says Thomas Hohwieler, CEO of Strabag Real Estate. The company chose Poland because Strabag group already has all the necessary means to design and develop a project in this market. "In that way we not only get to draw up on our 50 years of experience in property development on the German market, but also continue to success-fully cooperate with Strabag's construction arm, the way it has been done so far," Hohwieler adds.


Adgar adds 6th office Adgar adds 6th office Adgar adds 6th office Adgar adds 6th office property to its Warsaw property to its Warsaw property to its Warsaw property to its Warsaw portfolioportfolioportfolioportfolio

Israeli property firm Adgar has completed its sixth investment in Warsaw with the acquisition of the Cir-rus building in the heart of Warsaw's Mokotów busi-ness district, across the street from the popular Galeria Mokotów shopping center. Cirrus, which has been re-named Adgar Wave, offers a total of 14,007 sq.m of of-fice and retail space and 283 parking places in an un-derground car park. The seller was Castle Carbery Properties, on behalf of Mazovia Holdings II sp. z o.o. which was represented in the transaction by Col-liers International. "After the purchase of Adgar Park West last year, which is now being re-imagined and undergoing a

complete transformation, we were interested in ac-quiring another office investment in an attractive Warsaw location. We planned to purchase an existing project and increase its market value, making use of Adgar’s experience, extensive knowledge of the office market and expertise in the latest technologies. We decided to purchase the Cirrus building, which we have renamed Adgar Wave, because we see it as an ex-cellent investment. The building is 100% leased by re-nowned international companies and is situated in the capital’s most important business district," said Eyal Litwin, CEO of Adgar in Poland.

Adgar Wave is 100% leased at the moment. Photo: Adgar

The projects managed by the Adgar Group in Poland include the 38,600 sq m Adgar office complex (Adgar Plaza and Adgar Business Center) in Mokotów, Adgar Business Centre II on Konstruktorska St., with 8,100 sq m of office space, and a property on Prymasa Tysiąclecia Ave. in Warsaw’s Wola district, where BMW Inchcape’s showroom and service point are sit-uated. Adgar is currently in the process of moderniz-ing the 44,600 sq.m Adgar Park West, which the com-pany purchased in 2013. "In the near future we plan to introduce a number of new features and improvements at Adgar Wave to

bring it in line with the Adgar standards we have in place in other office projects in our portfolio. This will include a tenant service program, new parking system and and signage systems. We will also modernize the structured cabling, as well as the surrounding space outside the building. In addition, we plan to install a bicycle room and showers to encourage people to commute by bicycle," added Eyal Litwin. Adgar Investments & Development Ltd. is a public company traded on the Tel Aviv Stock Exchange, and acts as the real estate arm of the Zur Shamir Group. It operates in Israel, Canada, Poland and Belgium, and owns 30 income-producing properties with a total ar-ea of some 276,000 sq.m.

Poland Today talks to: Eyal Litwin. CEO of Adgar in Poland Photo: Adgar

• PT: What was the final value of the deal? In the memorandum the seller distributed a few years ago the asking price was in the region of EUR 42m... Eyal Litwin: The parties have agreed not to disclose the price of the deal, but I am pleased to say this is a very good investment for Adgar. • PT: How would you describe Adgar's investment approach? EL: Adgar is focused on buying either high yield assets or assets that require some upgrades, as was the case with for example Adgar Park West.


DATA BOX: COMMERCIAL PROPERTY INVESTMENT IN 1H '14

Polish commercial investment market volume in H1

2014 reached EUR 1.4bn, an increase of more than 27%

y/y. This improvement was particularly notable in the

office sector, which accounted for 51.5% of the total

transaction volume, followed by retail with 26.5% and

the logistics and warehouse sector taking 22%. Alt-

hough demand for prime assets remains robust across

all the sectors, the office sector owes its strong per-

formance to the ample supply of attractive properties

both in Warsaw and in regional cities.

Office investment volume in H1 2014 reached EUR

719m, which represents an increase of around 9% on

the same period of the previous year and a rise of two

and a half times on H1 2012.

Despite the continued modern office space growth

outside Warsaw, the capital city remains the top des-

tination for investors with its share of around 75% in

the total transaction volume noted in this sector. Out

of the eight office buildings transacted in Warsaw, the

largest deals included DeAWM’s acquisition of Rondo 1

in the city’s core for around EUR 300m, W. P. Carey’s

acquisition of Lipowy Office Park for EUR 108m and

Deka’s acquisition of Atrium 1 for EUR 94m. The latter

two properties are home to banks: Lipowy Office Park

is fully taken up by Bank Pekao SA, while bank BZ

WBK SA is the anchor tenant of Atrium 1.

The largest deals in regional markets were recorded in

Krakow, where a fund managed by Griffi n Real Estate

acquired Office Centre Lubicz, and in Wrocław, where

the Green Day office building, fully leased to Credit

Suisse, was acquired by GLL Real Estate Partners for

EUR 42m.

Source: Cushman & Wakefield Marketbeat Autumn 2014

• PT: You make value add acquisitions but at the same time you are building a long-term portfolio. What's the formula? EL: For Adgar the real added value is reached from the second cycle of the leasing and we also believe that tenants are beginning, like in other more mature mar-kets, to appreciate long term landlords and no longer want to switch to a new one every few years. • PT: With the amount of new space that's being de-veloped in Warsaw at the moment, we are likely to see tenants move from older buildings to new ones at attractive rent rates. Does this create opportunities for value add investors such as Adgar? EL: Yes, that is likely, but our main goal is convincing tenants to stay in the buildings we currently own. That’s why we are investing in amenities, upgrading the infrastructure and expanding the functions in the properties we own. For example in Adgar Park West, which is currently undergoing a through moderniza-tion, we are creating AgdarFit – a zone dedicated to sport, relaxation, retail and other pursuits for fans of an active lifestyle. We even plan to install a 900 m running track, which will circle the whole complex. • PT: Are you actively seeking properties in need of an upgrade? EL: Of course, we are always on the lookout for great investment opportunities.


DCT Gdańsk awards DCT Gdańsk awards DCT Gdańsk awards DCT Gdańsk awards EUR 90mEUR 90mEUR 90mEUR 90m terminal terminal terminal terminal expansion expansion expansion expansion contractcontractcontractcontract to to to to Belgium's BesixBelgium's BesixBelgium's BesixBelgium's Besix

Poland's leading container terminal, the Australian-owned DCT Gdańsk, has chosen a general contractor for a key expansion project that will boost the facility's annual handling capacity beyond 3m TEU. The EUR 89m contract for the construction of a new berth along with the adjacent container stacking yards, went to Belgium's Besix. "The entire investment, including equipment, will amount to EUR 200m. Besix will be responsible for design and construction work. The initial capacity of the new berth will be 1.5m TEU annually, which means it will match that of our existing terminal, bringing the total handling capacity of DCT Gdańsk up to 3m TEU. We intend to subsequently expand the fa-cility by a further 1m TEU, but the timing of phase two will depend on market situation," Adam Żołnowski, Chief Financial Officer at DCT tells Poland Today. The brand new, 656m-long berth will be ready to op-erate in 2016. It will be equipped with 5 STS cranes, delivered by Liebherr Container Cranes Ltd., 15 RTG cranes and additional yard equipment. Unlike the ex-isting T1 terminal, which is an artificial box pier pro-truding into the sea, T2 will be positioned along the waterfront, reducing costs and offering better access to larger ships, even the kinds that are still on drawing boards. The draught will be up to 17m, along the quay.


"We are directly employing 530 staff at the moment and we are expecting this number to double gradually following the launch of T2. This does not include jobs to be created by our partners in logistics, construction, In general direct and indirect effect, combined with induced effect could reach 8-10 thousand jobs "says Żołnowski.

DCT Gdańsk 's handling capacity will more than

double with the new investment. Image: DCT Gdańsk

Besix is Belgium’s largest group operating in the con-struction of infrastructure, environmental projects and roads. Its largest marine projects include The Ras Laffan Port expansion in Qatar, the construction of quay walls and dredging in Sohar, Oman and in Port Amazone Rotterdam in the Netherlands as well as the expansion of the Belgian Port of Zeebrugge. As a joint venture member, N.V. BESIX was responsible for the modernization of the South Hook LNG Terminal in the United Kingdom. The latter project, worth over EUR 250m, encompassed renovation and moderniza-tion of an existing quay, construction of a 200-meter long extension of the existing berth as well as devel-opment of new mooring and berthing facilities. DCT Gdańsk's position as a key Baltic hub received a considerable boost in 2011, when Maersk decided to establish the first direct deep-sea container service

from China to the Baltic Sea, serviced by the Danish company's first E-class type vessel Emma Maersk. Last year the terminal joined the prestigious group of mere-ly 14 ports worldwide that regularly receive the giant Triple E fleet. In the first half of 2015 Gdańsk will start receiving ships covered by the 2M vessel sharing agreement Maersk Line and Mediterranean Shipping Co inked earlier this year, further strengthening DCT's position in the region. In 2013 DCT Gdańsk handled more than 1m TEU, up from nearly 0.9m in 2012. Amid record-breaking transshipment volumes, DCT Gdansk has embarked on large-scale investments that will see its capacity in-crease significantly over the coming years, responding to market demand for higher capacities and larger ves-sel sizes. Following utilization of additional storage area, DCT expanded its capacity by a half, to approx. 1.5m TEU in 2012 and 2013. According to estimates, in a couple of years Gdańsk will be able to handle a half of the volume that currently gets transshipped in Hamburg. DCT Gdańsk belongs to Global Infrastructure Fund II, managed by the Australia-based Macquarie Group. The construction of DCT1 began in 2005 and the ter-minal welcomed its first ship in June 2007. Total in-vestments to-date have come in excess of EUR 200m. The terminal offers year-round ice-free access with a 17.0m deep approach channel and up to 16.5m depth along the berth. The adjacent rail terminal, 4 x 1000m long is also operated by DCT Gdańsk. As far as addi-tional infrastructure in the area is concerned, Australi-an developer Goodman has recently completed phase one of its Pomeranian Logistics Center, a giant ware-house & distribution project located at a 100ha site di-rectly by the DCT.


DPD DPD DPD DPD gets regulatory gets regulatory gets regulatory gets regulatory blessing forblessing forblessing forblessing for takeover takeover takeover takeover of of of of SiódemkaSiódemkaSiódemkaSiódemka parcel parcel parcel parcel firm firm firm firm

Poland's competition watchdog UOKiK has greenlighted one of the largest transactions in years in Poland's parcel delivery sector that will see the French-owned courier firm DPD acquire Polish Siódemka from private equity fund Abris Equity Partners. Estimated at PLN 0.5bn, the merger of DPD Polska and Siódemka will create a number two player in the sector with a market share of approximately 24% and a combined turnover of more than PLN 1bn. "We have built our strength on B2B services but in times when business relations with the end-user mi-grate to online channels, we find Siódemka's capital particularly valuable," said DPD's CEO Rafał Nawłoka. "The merger with Siódemka will expand our offering to include innovative, customer-friendly solutions, particularly in the e-commerce business area. Siódemka has vast experience and tested know-how in this market segment," he added. A major international provider of parcel and express services, DPD ships 2.5m parcels daily, with a work-force of 24,000, fleet of 18,000 vehicles and more than 800 locations throughout Europe. The majority share-holder in DPD (83.32%) is the GeoPost Group, a whol-ly-owned subsidiary of French Groupe La Poste. With a consolidated turnover of EUR 4.39bn last year (up from EUR 4bn in 2012 and 3.67bn in 2011) GeoPost is currently Europe's third-largest provider of express parcel services.


DPD Polska's predecessor was established by Polish entrepreneurs back in 1991 as Masterlink Express, which in 1998 was acquired by the Swedish Post to fi-nally become part of GeoPost, as a result of global ownership reshuffles. With 50 regional depots, one central hub and four sorting centers, DPD's Polish unit boosted its turnover by close to 6% last year, reaching PLN 707m. It has a fleet of 3,000 vehicles (operated by subcontractors) and a staff of 5,500 employees and partners. As of end of 2012 e-commerce deliveries rep-resented approximately a third of DPD Polska's busi-ness.

DPD 's key competitors in Poland are Germany's

DHL and US-owned UPS. Image: DPD

In the end of 2012 DPD Polska opened a giant central sorting center in Stryków, developed at the cost of EUR 39m. One of the largest and most advanced facili-ties of this kind in Central and Eastern Europe, the project completed DPD's network of distribution cen-ters in Poland. Its 2014 investment pipeline included relocation of one of its Warsaw depots as well as a new unit in Gliwice, adding a combined 14,000 sq.m to the company's warehouse stock, CEO Rafał Nawłoka told Poland Today,

A Polish brand, Siódemka has been present on the lo-cal market for 15 years and offers parcel delivery ser-vice to all customer groups: individuals, microenter-prises, SMEs and large firms. In recent years the com-pany has focused on online retailers, ranking as num-ber three in a recent list of most preferred logistics op-erators for the e-commerce sector. Siódemka employs 1,400 staff and 2,100 couriers and has a network of 40 depots, including a central sorting hub in Rawa Mazowiecka. DPD representatives said the bulk of the merger, de-tails of which are being currently hammered out, will take place next year. "We expect the combination of both networks to im-prove the efficiency of connections. We can only say that a broader scale of operations will require adjust-ing employment levels to the new circumstances. We wish to make the best possible use of the competences and experience of DPD and Siódemka employees," Rafał Nawłoka replied to our question about possible redundancies.

RETAIL PROPERTIES

A neverA neverA neverA never----ending market ending market ending market ending market

Poland Today sits down with Leszek Sikora, managing director at devel-oper ECE Projektmanagement Pol-ska, to talk about the condition of the retail property market in Poland. • PT: Developers are announcing and launching all kinds of new retail projects across Poland. How sus-tainable is the current demand for retail space in the country?

Leszek Sikora: Retail chains continue to expand. Ad-mittedly, they have become more selective and the process of choosing new locations takes more time than in the past. The growth today is slower than it used to be. The times when any new project in the market could easily and quickly be filled with tenants are over, which is good. Tenants are now much more careful when it comes to their expansion strategies. This is not a problem for us as we ourselves are very selective with regard to the locations we want to be in as a developer. • PT: Many of the new retail schemes in Poland are relatively small projects, including convenience shopping centres. Is there still room in the market for the regular large-scale shopping malls? LS: There is still room for large shopping centre pro-jects in the largest cities, in good locations which allow for the development of an investment that will remain dominant in a given city for many years. We are cur-rently developing a large-scale shopping centre scheme in Bydgoszcz. Of course, there is more risk in-volved in these kinds of developments. Small retail formats are growing in Poland, but this is not a seg-ment of the market that we would like to be present in. • PT: All or most of the large cities in Poland proba-bly already have atleast one large dominant shop-ping centre. How can developers compete today with those existing malls? LS: The best sites in the largest Polish cities have probably already been developed. However, I think that there is a lot of development potential in new lo-cations, created through the constant improvement of transport infrastructure. For example, the construc-tion of new ring roads in Poland’s largest cities, and the second subway line in Warsaw, will create new ar-eas with a high concentrations of pedestrian and car traffic and thus generate new investment opportuni-ties.


• PT: Has the size of new, large shopping centre pro-jects in Poland changed in recent years? LS: There are fewer new large shopping centre pro-jects – but they have become larger. Statistics shows that the average size of new shopping centres in Po-land and elsewhere in Europe has grown by approxi-mately 30% over the last 10 years.

Leszek Sikora, managing director at ECE Pro-

jektmanagement Polska, says that public investments in Warsaw could benefit through retail development and a PPP model. Image: ECE

• PT: Why is that? LS: It is because developers, who want to make sure that their projects will succeed in a competitive and relatively saturated market, focus on the development of dominant schemes – and those need to be large. • PT: Do you see potential in the redevelopment of the existing malls in Poland? LS: Definitely. Last year, our owner actually decided that when it comes to the development of new shop-ping centre projects in Poland, ECE Projektmanage-ment will be very selective and will practically limit its choice of locations to Warsaw. In the regional cities, the company will mostly focus on the redevelopment

and repositioning of the existing shopping malls, which is, in some respects, even more difficult than the development of a new centre because you have to remodel a centre that continues to operate. This also pertains to our own centres – in Gdansk, for instance, we will be redeveloping and expanding the Galeria Bałtycka mall, which will get another 16,000 sqm of leasable space. This market never ends and new op-portunities are emerging all the time. • PT: What are the latest trends in designing new shopping centre projects? LS: First of all, shopping centres today have to be multi-functional and satisfy both the shopping and en-tertainment needs of their visitors. When it comes to the architectural aspect, people increasingly expect that a new shopping centre will be integrated with the neighbourhood it is developed in. Green building solu-tions have become a standard in the sector. Another thing is the application of modern It technologies in shopping centres – studies are now underway on the use of applications and devices including smart- phones as sales and marketing tools. • PT: Has the e-commerce market already had a ma-jor impact on shopping centres in Poland? LS: There are tenants who have decided to withdraw from shopping centres. In Germany, which is the main market for us, around 16% of all shopping is now done online and in Poland we can see things going in the same direction. We are thinking of ways of addressing the issue, of how shopping centre developers and in-vestors could benefit from the development of e-commerce. I do not think that e-commerce is or will ever be a major threat for shopping malls that offer a unique shopping experience. I would rather call it an evolution of shopping habits. • PT: ECE Projektmanagement Polska is one of the companies that want to redevelop the former War-

szawa Główna railway station site in Warsaw. What is your vision of the place? LS: We are focusing on the retail function because the site is in a very good and well-connected location, on the fringes of the Central Business District of Warsaw, which continues to expand westwards, and close to a stop of the second subway line. We are thinking of a dominant shopping centre with at least 80,000 sqm of leasable space that would be integrated with the rail-way station. We would probably decide to develop the office and residential functions in cooperation with another developer. • PT: What if Polish State Railways selects one of the other bidding developers? Will you still be looking for a site for a large shopping centre scheme in Warsaw? LS: Yes, we will. We are actually looking for such sites all the time. We are looking at opportunities to acquire existing facilities in Warsaw and in the largest regional cities across Poland. We have a new fund which will spend almost EUR 2 billion on existing retail facilities in Germany, Poland, the Czech Republic and Slovakia, as well as in southern Europe. The fund is not going to finance the acquisition of sites for new projects. We are looking at major existing centres which can be re-developed and repositioned. It does not matter so much which generation such a facility would belong to – what matters is whether we could add value to it. The problem is that it is not that easy to find good re-tail product in Poland at the moment. • PT: What about sites for a completely new project in Warsaw? LS: We are looking at a number of locations, both in the centre of Warsaw and on the outskirts of the city. I think that what would be worth considering is a pub-lic-private partnership (PPP) formula. There are many potential public investments in Warsaw, including the construction of sports facilities, which would be much easier to develop if they could be financed through the development of retail facilities near them. This is a


win-win situation – you can deliver something that serves the local community and finance it with private money. The first attempts to carry out such projects have already been made in Poland but they have failed. Nevertheless, I think that with a little bit of determi-nation and a well thought-out PPP formula, this can and will one day be done.

by Adam Zdrodowski

POLITICS & ECONOMY

New government wins New government wins New government wins New government wins confidence vote; PM confidence vote; PM confidence vote; PM confidence vote; PM Ewa Kopacz pledges Ewa Kopacz pledges Ewa Kopacz pledges Ewa Kopacz pledges greatergreatergreatergreater focus on social focus on social focus on social focus on social issuesissuesissuesissues

Poland's new government, led by Ewa Kopacz, who took over the prime minister's job from Donald Tusk, won a confidence vote in parliament last week. Kopacz, a 57-year old former pediatrician who until last month was speaker of parliament, and her gov-ernment were backed by 259, with 183 against and 7 abstentions. The vote was the final stage of procedures set out under the constitution for installing a new prime minister. Prior to the vote, the new PM delivered her inaugural policy speech in the lower house of parliament, touch-ing upon a long list of issues ranging from global poli-tics to school lunches. Although some observers had been hoping to hear something more concrete about Poland's euro zone entry plans, Kopacz said she would adhere to her predecessor's cautious approach in that matter. According to the new PM, besides Poland needing to meet the technical criteria for euro entry, the euro zone needed to show it was stable.

"We must remember that the euro zone only recently experienced the biggest crisis in its history. Both Po-land and the countries of the euro zone have some homework to do " Kopacz told the MPs. "A strength-ened euro zone and a stable economy; these are the two criteria which will define the best moment for adopting the single currency," she added.

Trading places: Former Speaker of Parliament Ewa

Kopacz in her new role as Prime Minister of Poland (bottom; center), and Former Foreign Minister Radek Sikorski as the new Speaker of Parliament (top; center). Photo: M. Śmiarowski/KPRM

As far as foreign policy is concerned, Kopacz promised more continuity, saying her government would not stand for a break-up of the neighboring Ukraine and it would keep supporting Kiev's pro-European direction. She said her government would push for greater US military presence on the Polish soil as a deterrent to potential Russian aggression. On the domestic front, the new Premier stressed her commitment to social policy, addressing families with children and pensioners ahead of the 2015 general election. She promised her government would double funding for childcare for pre-kindergarten children, and allocate some PLN 1.8bn to create more nursery places in workplaces. Kopacz pledged to ban junk food

in schools, to provide free textbooks for primary schools, and to create day care centers for the elderly. The decisions of the previous government regarding tax breaks for families with children and new indexa-tion system for retirement and disability benefits are to remain in force. According to finance Minister Mateusz Szczurek, the initiatives will be financed from savings the govern-ment expects to make elsewhere and therefore they would not push up state debt. Kopacz has also ordered her ministers to accelerate business deregulation and completely overhaul the country's inefficient and overtly complicated tax sys-tem. "What was originally meant to be done in three years, we will achieve in 12 months," Kopacz said, re-ferring to the brand new tax system and a bill on busi-ness freedom. Kopacz has also appealed for a truce with Jarosław Kaczyński, leader of the conservative opposition and bitter enemy of her predecessor Donald Tusk. >> See below (page 13) for Poland Today Editor An-

drew Kureth's commentary on Poland's new Prime

Minister.

IN BRIEF: According to the ESA2010 methodology and taking in-

to account the an estimated size of Poland's shadow

economy, the country's GDP increased in 2013 by 1.7%

versus ESA'95 estimate at 1.6%. The new way of calcu-

lating gross domestic product, recommended by the EU

to standardize and broaden the data, comes after a

"best practices" directive laid out in 2008 by the United

Nations.


OPINION

The Kopacz doctrine: The Kopacz doctrine: The Kopacz doctrine: The Kopacz doctrine: consolidate power, consolidate power, consolidate power, consolidate power, win electionswin electionswin electionswin elections

by Poland Today Editor Andrew Kureth

Who is Ewa Kopacz and what exactly does she believe in? Those were the questions observers were asking last month when it became clear that she would be-come Poland’s next prime minister. We are now closer to knowing the answers to those questions. Her two major moves since her nomination – the creation of a new cabinet and her first policy speech – have painted a revealing picture. Kopacz is intent on consolidating power behind her in a party divided into several factions. Her policies, at least for the next year, will focus on domestic and so-cial issues, in a bid to ensure her party wins its third consecutive parliamentary elections. Foreign policy – to the extent allowed by events on the ground – will take a back seat. This is a significant departure from the policies of former Premier Donald Tusk, who had mostly given lip service to social issues while doing his best to maintain the status quo. While Tusk focused on fiscal policy and building strong international ties, especially within Europe, the Kopacz government will have a singular goal: winning the upcoming local and parlia-mentary elections.

The first evidence for this in her cabinet decisions. Replacing the polished, perfect-English-speaking Ra-dosław Sikorski with political insider Grzegorz Sche-tyna as Poland’s top diplomat was met with much forehead-slapping amongst foreign policy columnists. But it makes a lot of sense from a political point of view. As the leader of a large faction inside the ruling Civic Platform party, Kopacz needed Schetyna’s sup-port. Giving him a high-profile ministry achieved that while limiting his power: he won’t have control over any purse strings, meaning he can’t spread cash around to allies. The same goes for Cezary Grabarczyk, who is also said to lead a strong faction within the rul-ing party. Booted from the government in 2011 for poorly managing the Infrastructure Ministry, he will now take over the justice portfolio, replacing the staunchly conservative Marek Biernacki. The two cabinet members who will have significant funds at their disposal are relative unknowns who will now owe their political advancement to Ms Kopacz. Both are women. Maria Wasiak will leave the man-agement board of Poland’s state-owned rail company to run the Ministry of Infrastructure and Develop-ment, while Teresa Piotrowska, an unheralded mem-ber of parliament who is said to be a close friend of Kopacz, will take over the powerful position of inte-rior minister. There were two more changes. Andrzej Halicki, the leader of Civic Platform in the Mazowieckie voivod-ship, where Warsaw is located, will now head the Ministry of Administration and Digitisation. Finally, Tomasz Siemoniak, who is said to have the staunch support of President Bronisław Komorowski, has re-ceived a promotion to deputy prime minister while re-taining the defence portfolio. This is a government that will keep PO’s power bro-kers happy but will still give Kopacz plenty of lever-age.

Policy shift In her policy speech last Wednesday, Kopacz empha-sised continuity, security, economic growth and pro-family principles – priorities that align with those of the Polish electorate. Much of what she outlined hewed closely to stances Tusk had set out. Among these were maintaining the US-Poland security rela-tionship, decreasing energy dependence on Russia and continuing to play an active role in the EU. She also held to the previous government’s policy that euro zone entry is a priority for Poland, but would happen only when the country was ready. Where Kopacz departed from her predecessor’s ap-proach was in her emphasis on domestic and social is-sues. She promised to work for a ‘balanced’ tax policy and to extend full parental leave rights to employees working under so-called ‘trash contracts’. She also downplayed Ukraine. While vowing not to allow any change of borders in Europe by force, she promised to take a “pragmatic” approach to the crisis. Tusk and Si-korski had taken a much harder line. Kopacz clearly believes that voters are tiring of hearing about the Ukraine crisis, which is becoming more drawn out and diplomatically complicated. Instead, she is offering them red meat, betting that they will vote on quality of life issues in the upcoming elections. All in all Kopacz is putting politics first, and policy second. She has done her best to balance PO’s compet-ing factions, keeping the party from splitting or revolt-ing against her ahead of local elections in November and parliamentary elections next year. Now she is making promises the electorate wants to hear, all in the hope of leading Civic Platform to its third consecu-tive parliamentary election victory. For now at least, might trumps merit in the Kopacz government. Whether that will change remains to be seen. It all depends on whether she is anything more than a politician who believes in holding on to power.


KEY STATISTICS

Consumer PricesConsumer PricesConsumer PricesConsumer Prices

Data in (%) May '14 Jun '14 Jul '14 Aug '14

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

Food & bev -0.8 -0.4 -0.9 -0.3 -1.7 -1.1 -2.1 -1.6

Alcohol, tobacco +3.9 +0.2 +4.0 +0.1 +4.0 0.0 +3.8 0.0

Clothing, shoes -4.6 -0.1 -4.7 -0.8 -4.9 -2.8 -5.1 -2.7

Housing +1.6 0.0 +1.6 -0.1 +0.6 0.0 +0.6 +0.1

Transport -0.1 -0.4 -0.6 -0.2 -1.0 +0.8 -1.5 0.0

Communications -1.1 -0.1 +1.3 +2.4 +2.6 +1.2 +3.9 +1.3

Gross CPI +0.2 -0.1 +0.3 0.0 -0.2 -0.2 -0.3 -0.4

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

Au

g 1

2

Oc

t 12

De

c 1

2

Fe

b 1

3

Ap

r 13

Ju

n 1

3

Au

g 1

3

Oc

t 13

De

c 1

3

Fe

b 1

4

Ap

r 14

Ju

n 1

4

Au

g 1

4

y/y m/m

Retail TurnoverRetail TurnoverRetail TurnoverRetail Turnover

Month Apr '14 May '14 Jun '14 Jul '14 Aug '14

m/m (%) +2.3 -2.7 -1.1 +4.7 -1.1

y/y (%) +8.4 +3.8 +1.2 +2.1 +1.7

Year 2009 2010 2011 2012 2013

Turnover in PLNbn 582.8 593.0 646.1 676.0 685.7

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-Aug

2014

y/y

(%)

Permits 178.8 174.9 184.1 165.1 138.7 105.8 +15.6

Commenced 142.9 158.1 162.2 141.8 127.4 99.5 +16.5

U. construction 670.3 692.7 723.0 713.1 694.0 705.7 -0.1

Completed 160.0 135.7 131.7 152.5 146.1 88.7 -2.9

Source: Central Statistical Office (GUS)

GGGGross Domestic Productross Domestic Productross Domestic Productross Domestic Product (ESA2010)

Period Growth y/y unadjusted

GDP in PLN bn current prices

Current account def. in % of GDP

Q2 2014 +3.3% 413,457 -0.9%

Q1 2014 +3.4% 397,429 -1.0%

Q4 2013 +2.7% 455,528 -1.3%

Q3 2013 +2.0% 405,554 -1.9%

2013 +1.7% 1,662,052 -1.3%

2012 +1.8% 1,615,894 -3.7%

2011 +4.8% 1,553,582 -5.0%

2010 +3.7% 1,437,357 -5.1%

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

Indicator 2011 2012 2013 *2014 *2015

GDP change +4.5% +1.9% +1.6% +3.1% +3.1%

Consumer inflation +4.3% +3.7% +0.9% +0.1% +0.9%

Producer inflation +7.6% +3.4% -1.3% -1.0% +1.1%

CA balance, % of GDP -5.0% -3.7% -1.4% -1.3% -2.0%

Nominal gross wage +5.2% +3.7% +3.4% +3.5% +4.0%

Unemployment** 12.5% 13.4% 13.4% 12.2% 11.7%

EUR/PLN 4.12 4.19 4.20 4.17 4.09

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

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

Sector Q3 2013 Q4 2013 Q1 2014 Q2 2014

A B A B A B A B

Coal mining 6,061 138 8,615 196 6,333 144 6,382 145

Manufacturing 3,625 158 3,690 161 3,663 160 3,743 163

Energy 6,021 183 6,736 205 6,358 193 6,020 183

Construction 3,766 160 3,895 166 3,706 158 3,884 166

Retail & repairs 3,408 145 3,456 147 3,544 151 3,577 153

Transportation 3,589 127 3,913 138 3,666 130 3,650 129

IT, telecoms 6,654 173 6,695 174 6,987 181 6,835 177

Financial sector 6,109 137 6,602 148 6,747 152 6,738 151

National average 3,652 145 3,823 152 3,895 155 3,740 149


Construction OutputConstruction OutputConstruction OutputConstruction Output

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

m/m (%) +18.7 +24.2 +3.2 +14.0 +16.9 +0.9 -5.4

y/y (%) +14.4 +17.4 +12.2 +10.0 +8.0 +1.1 -3.6

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

De

c 1

1

Ma

r 12

Ju

n 1

2

Se

p 1

2

De

c 1

2

Ma

r 13

Ju

n 1

3

Se

p 1

3

De

c 1

3

Ma

r 14

Ju

n 1

4

Se

p 1

460

80

100

120 C onsumer confidenc e (le ft a xis)

Economic se ntiment (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 PricesProducer PricesProducer PricesProducer Prices

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

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

y/y (%) -1.4 -1.3 -0.7 -1.0 -1.8 -2.1 -1.5

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 PricesConstruction PricesConstruction PricesConstruction Prices

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

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

y/y (%) -1.7 -1.6 -1.5 -1.5 -1.4 -1.2 -0.9

Year 2007 2008 2009 2010 2011 2012 2013

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

IndusIndusIndusIndustrial Outputtrial Outputtrial Outputtrial Output

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

m/m (%) -1.8 +9.4 -2.3 -1.7 -0.1 +2.0 -8.5

y/y (%) +5.3 +5.4 +5.4 +4.4 +1.7 +2.3 -1.9

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-Jul 2014

y/y (%)

share (%)

2013 share (%)

Jan-Jul 2014

y/y (%)

share (%)

2013 share (%)

Food and live animals 42,121 +6.3 10.7 69,304 10.9 28,562 +5.2 7.3 47,906 7.4

Beverages and tobacco 5,724 +15.8 1.5 8,624 1.4 2,366 +2.8 0.6 4,150 0.6

Crude materials except fuels 9,655 +3.6 2.5 15,744 2.5 12,436 -1.6 3.2 21,585 3.3

Fuels etc 16,270 -6.1 4.1 30,013 4.7 42,903 +3.3 10.9 75,539 11.7

Animal and vegetable oils 1,115 +9.2 0.3 1,864 0.2 1,531 +04 0.4 2,646 0.4

Chemical products 36,076 +4.6 9.2 59,103 9.3 58,772 +6.5 15.0 92,917 14.3

Manufactured goods by material 78,475 +3.1 20.0 129,915 20.3 70,529 +6.5 18.0 112,392 17.3

Machinery, transport equip. 150,231 +7.5 38.3 239,434 37.5 129,867 +3.7 33.1 216,608 33.4

Other manufactured articles 51,908 +11.7 13.2 82,816 13.0 37,818 +14.8 9.6 58,210 9.0

Not classified 629 n/a 0.2 1,782 0.2 8,044 n/a 1.9 16,242 2.6

TOTAL 392,204 +6.0 100 638,599 100 392,828 +5.0 100 648,195 100

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

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-Jul 2014

share 2013 share No Country Jan-Jul 2014

share 2013 share

1 Germany 101,201 25.8% 162,548 25.1% 1 Germany 85,393 21.7% 142,161 21.7%

2 UK 25,021 6.4% 42,138 6.5% 2 Russia 44,274 11.3% 79,578 12.1%

3 Czech Rep. 23,969 6.1% 40,110 6.2% 3 China 38,226 9.7% 61,127 9.3%

4 France 22,469 5.7% 36,367 5.6% 4 Italy 21,433 5.5% 34,940 5.3%

5 Russia 17,355 4.4% 34,069 5.3% 5 Netherlands 14,647 3.7% 25,409 3.9%

6 Italy 18,212 4.6% 27,958 4.3% 6 France 15,374 3.9% 25,041 3.8%

7 Netherlands 15,808 4.0% 25,707 4.0% 7 Czech Rep. 13,558 3.5% 24,054 3.7%

8 Ukraine n/a n/a 18,020 2.8% 8 USA 9,482 2.4% 17,431 2.7%

9 Sweden 11,081 2.8% 17,581 2.7% 9 UK 10,269 2.6% 17,184 2.6%

10 Slovakia 9,795 2.5% 17,099 2.6% 10 Belgium 9,768 2.5% 15,137 2.3%


CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 3 October 2014

100 USD 330.79 ↑

100 EUR 417.89 ↑

100 GBP 532.17 ↓

100 CHF 345.72 ↓

100 DKK 56.14 ↑

100 SEK 45.85 ↑

100 NOK 51.08 ↓

10,000 JPY 303.78 ↑

100 CZK 15.21 ↑

10,000 HUF 135.08 ↑

100 USD/EUR against PLN

300

350

400

450

18 O

ct 13

31 Dec 13

11 M

ar 14

20 M

ay 14

28 Jul 14

3 O

ct 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m May '14 Jun '14 Jul '14 Aug '14

Monetary base 162,246 173,096 164,008 167,008

M1 557,651 572,376 570,507 574,529

- Currency outside banks 119,649 120,828 122,209 124,986

M2 975,001 980,090 985,769 1,003,128

- Time deposits 435,386 426,351 434,256 448,037

M3 991,120 996,171 1,002,137 1,020,561

- Net foreign assets 142,260 144,033 152,864 162,129 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 May' 14 Jun' 14 Jul' 14 Aug' 14

Loans to customers 930,652 940,703 939,641 950,774

- to private companies 273,360 276,709 274,549 277,482

- to households 574,800 578,639 581,447 587,136

Total assets of banks 1,660,583 1,667,783 1,678,129 1,718,251

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Mar '14 Apr '14 May '14 Jun '14 Jul '14 Aug '14

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

PLN (up to 5 y ) 4.9% 4.8% 4.8% 4.8% 4.7% 4.8%

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

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

EUR (up to 1m EUR) 1.9% 2.0% 2.0% 1.9% 1.7% 1.6%

EUR (over 1m EUR) 3.3% 3.0% 2.7% 3.4% 3.1% 2.5%

Warsaw Inter Bank Offered Rate (WIBOR) as of 3 Oct 2014

Overnight 1 week 1 month 3 months 6 months

2.59% 2.49% 2.38% 2.25% 2.22%

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 3 Oct '14

Change 26 Sep

'14

Change end of '13

↑ Alior Bank 83.06 +1% +2%

↑ Asseco Pol. 46.1 +1% 0%

↑ Bogdanka 112.75 +4% -10%

↓ BZ WBK 391.8 -1% +1%

↑ Eurocash 32 +3% -33%

↓ Grupa Lotos 27.71 -3% -22%

↑ JSW 32.43 +4% -39%

↓ Kernel 24.92 -1% -35%

↓ KGHM 122.65 -4% +4%

↓ LPP 9,000.2 -7% 0%

↓ mBank 481 -2% -4%

↑ Orange Pol. 11.68 +3% +19%

↓ Pekao 189.85 -1% +6%

↓ PGE 20.29 -2% +25%

↓ PGNiG 5.08 -1% -1%

↓ PKN Orlen 41.22 -1% +1%

↓ PKO BP 38.55 -1% -2%

↓ PZU 470.05 -3% +5%

↓ Synthos 4.55 -4% -17%

↓ Tauron 5.17 -2% +18%

Source: Warsaw Stock Exchange

Key indices

as of 3 October 2014

WIG Total index

55553333,,,,754754754754....63636363 Change 1 week -2% ↓

Change end of '13 +5% ↑

WIG-20 blue chip index

2,2,2,2,444444444444....00006666 Change 1 week -2% ↓

Change end of ' +5% ↑

WIG Total closing index

last three months

49,000

50,000

51,000

52,000

53,000

54,000

55,000

56,000

4 Jul 14

28 Jul 14

20 A

ug 14

11 Sep 14

3 O

ct 14


Poland Today Sp. z o. o.

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today.pl

Publisher Richard Stephens

Financial Director Arkadiusz Jamski

Creative Director Bartosz Stefaniak

New Business Consultant

Tomasz Andryszczyk

RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Aug 2014 *

Monthly wages (PLN)

Jan-Aug 2014**

Unemploy-ment

Aug 2014

New dwellings Jan-Aug 2014

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 102.4 113.1 4,403 4,228 129.0 11.2 8,335 79.3

Kujawsko-Pomorskie (Bydgoszcz) 104.7 109.6 3,447 3,304 128.0 15.8 3,901 94.2

Lubelskie (Lublin) 102.8 82.8 3,742 3,099 115.9 12.6 3,317 84.9

Lubuskie (Zielona Góra) 115.1 106 3,483 3,081 48.3 13.1 1,811 89.6

Łódzkie (Łódź) 100.6 109.9 3,740 3,315 131.7 12.4 4,195 101.9

Małopolskie (Kraków) 100.7 107.1 3,827 3,391 139.9 10.0 10,236 99.6

Mazowieckie (Warszawa) 100.5 104.3 4,623 5,048 258.0 10.1 18,863 106.3

Opolskie (Opole) 105.9 122.3 3,649 3,549 43.7 12.3 1,168 102.8

Podkarpackie (Rzeszów) 102.9 110.8 3,425 3,124 134.8 14.5 4,231 105.8

Podlaskie (Białystok) 106.9 120.4 3,323 3,904 61.5 13.3 2,539 109.9

Pomorskie (Gdańsk-Gdynia) 108.5 121.8 4,041 3,470 96.0 11.3 6,208 85.1

Śląskie (Katowice) 100.7 109.2 4,572 3,552 181.5 9.9 6,642 94.7

Świętokrzyskie (Kielce) 108.3 100.9 3,444 3,296 77.8 14.6 1,960 122.1

Warmińsko-Mazurskie (Olsztyn) 104.5 107.1 3,293 3,153 95.2 18.4 2,681 99.1

Wielkopolskie (Poznań) 106.5 104.0 3,767 3,784 120.7 8.1 8,894 99.8

Zachodniopomorskie (Szczecin) 104.1 103.0 3,559 3,487 91.0 15.2 3,718 100.9

National average 103.4 107.2 4,016 3,831 1,853.2 11.7 88,699 97.1

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

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

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

Year 2008 2009 2010 2011 2012 2013

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

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

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

Period 2011 2012 2013 Q4 '13 Q1 '14 Q2 '14

Trade balance -10,059 -5,175 2,309 138 159 71

Services, net 4,048 4,642 5,249 1,941 1,684 2,013

CA balance -18,519 -14,191 -4,984 -1,324 -1,403 -553

CA balance vs GDP -5.0% -3.7% -1.3% -1.3% -1.1% n/a

Source: NBP, BZ WBK, PKO BP

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1,800

2,000

2,200

2,400

2,600

Q3 1

1

Q1

12

Q3

12

Q1

13

Q3

13

Q1

14

Q3 1

4

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, 1H 2014

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 617,000 8,000 14.7% 1–5.0

Warsaw suburbs 2,137,000 14,000 11.3% 1.9–3.2

Central Poland 1,107,000 59,000 11.7% 1.9-3.1

Poznań 1,100,000 316,000 1.9% 2.3–2.9

Upper Silesia 1,576,000 57,000 7.9% 2.3–3.1

Wrocław 939,000 315,000 6.2% 2.4–3.0

Tri-city 215,000 45,000 4.2% 2.2–3.7

Kraków 159,000 11,000 1.9% 3.5-4.0

Homes & CHomes & CHomes & CHomes & Commercialommercialommercialommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 1H'14 Retail rents**1H'14

Q2 '14

PLN/sq.m

Change

y/y

Headline

rents**

Vacancy

ratio

Retail

centres

High

streets

Warsaw 7,924 -2.0% 11 -25 13.35% 100-120 148

Kraków 6,389 +6.0% 13.5-14.5 3.6% 35-40 78

Katowice 5,602 -3.7% 11.5-13.8 5.4% 35-40 50

Poznań 6,552 +3.3% 14-15 11.5% 35-40 62

Łódź 4,936 +2.6% 11.5-12.5 10.6% 35-40 78

Wrocław 6,092 +2.0% 14.15 10.9% 35-40 45

Tricity 6,092 -4.9% 12.8-13.5 11.5% 35-40 40

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

Country Credit Country Credit Country Credit Country Credit RatingsRatingsRatingsRatings

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

Aug10

Apr11

Dec11

Aug12

Apr13

Dec13

Aug14

Wage CPI

Index 100 = Jan 2005. Source: GUS

Documents

Poland Today Business Review+ No. 55