BizPoland Magazine, September 2016

Special Focus: Kraków and Małopolskie September 2016

vol. 8 no. 4(53) Price: 20 zł

Food fuels Poland’s export boom Poland’s rich agricultural sector is leading a renaissance in food exports.

Budget 2017:

Kraków:

FDI:

Government optimistic on Revenues

BlueDivine wins ActInSpace

DocPlanner buys Spanish firm

20 October 2016

FDI Poland Investor Awards

“Distinguishing top foreign investors in Poland – and top Polish companies expanding globally”

in association with

For this 4th year of the FDI Poland Investor Awards Gala, we are expanding the concept to recognise the rapidly-growing expansion of Polish firms on a global scale. In addition to our 10 categories for major foreign investors in Poland, we have 10 new categories for Polish companies/entrepreneurs who are successfully expanding internationally.

With more than 250 international guests - top executives in charge of investment decisions related to Poland, and top management and entrepreneurs from Poland’s leading international companies – the FDI Poland Investor Awards continues to strengthen its position as the main Awards event recognising cross-border deals involving Poland.

The awards gala is preceded by a half-day of discussion panels covering key success factors and practical experiences for Polish companies expanding abroad.

23 Awards Categories

Top Foreign Investors in Poland

Top North American Investor Top UK/Irish Investor Top French Investor Top Iberian Investor Top Benelux Investor Top Scandinavian Investor Top DACH Investor (Germany/Austria/Switzerland) Top Chinese Investor Top East Asia Investor (Japan, Korea) Top Indian Investor of the Year Top Rest of the World Investor in Poland

NEW Top Polish companies going Global Top Polish Investor in North America Top Polish Investor in UK/Ireland Top Polish Investor in France Top Polish Investor in Spain/Portugal Top Polish Investor in Benelux Top Polish Investor in Scandinavia Top Polish Investor in DACH Top Polish Investor in China (or Taiwan) Top Polish Investor in Japan or Korea Top Polish Investor in India Top Polish Investor in the Rest of the World

Overall Award: Top Cross-Border M&A deal of the year (exclusively for Polish company expanding abroad)

WWW.FDIPOLANDAWARDS.PL

20 October 2016

FDI Poland Investor Awards

“Distinguishing top foreign investors in Poland – and top Polish companies expanding globally”

KeyNote Speaker: The Chinese Embassy’s Economic Counselor Liu Lijuan

We are pleased that Liu Lijuan, the top Economic Counselor at the Chinese Embassy has agreed to join as the FDI Awards KeyNote Speaker, reflecting the growing appeal of Poland amongst Chinese investors.

FDI Poland Investor Awards 2015 Winners Top CEE (Central East Europe) Investor

Top Scandinavian Investor

Top DACH Investor (Germany, Austria, Switzerland)

Top Benelux Investor

Top French Investor

Top Iberian Investor

Top UK Investor

Top Indian Investor

Top Taiwanese Investor

Top Japanese Investor

Top Korean Investor

Top Chinese Investor

Top Canadian Investor of the Year

Top U.S. Investor of the Year

Top Special Economic Zone

Auditor:

Sponsors:

Top Polish FDI Investor

WWW.FDIPOLANDAWARDS.PL

Cover Story 6 Food fuels Poland’s export boom

September 2016 vol. 8 no. 4(53)

Published by: CEE Business Media sp.z o.o. ul. Długa 44/50, bud. D, lok 704, 00-241 Warszawa tel.: 022 831 7062 General Manager and Editor: Thom Barnhardt (tb@biznespolska.pl) Editorial staff, contributors and columnists: Preston Smith, Steven Foster, Marek Matraszek, Christian Schnell, multiple Chambers of Commerce, more than 10 Polish cities and Special Economic Zones, PAIZ Maria Ponomareva (maria@biznespolska.pl) Armine Starowicz (armine@biznespolska.pl) Advertising Sales: Magdalena Jakubowska (mjakubowska@biznespolska.pl) Graphic Design: Sławek Parfianowicz (sparfianowicz.wordpress.com) Distribution of BizPoland Magazine: Direct, controlled distribution via post to international investors in Poland - members of major foreign Chambers of Commerce: United States (AmCham) • Canada (PCCC) • Ireland (IPCC) • Netherlands • Scandinavia (SPCC) • United Kingdom (BPCC) • France • Spain • Portugal • Switzerland

(8) Frozen veges production falls, but exports up (9) Salmon, Herring, Cod Exports expand; Apple farmers bear brunt of EU-Russia economic war (10) Huge apple harvest means 3-million-tonne apple surplus (11) Blueberries season closes earlier due to heat; Cherry production to rise. Dessert cherries up 43%

Special Focus: Kraków and Małopolskie

(12) EU support of 3 billion euro to boost growth prospects of Malopolska (13) Kraków maintains fine balance between growth and sustainability (14) A rising tide lifts all boats (16) Krakow Airport invests in new terminal and new runwa (17) ICE Kraków Congress Centre seals MICE investment fund (18) Revitalization projects for Nowa Huta (20) Unprecedented surge in new office developments in Krakow (22) Modern Retail Market in Kraków Agglomeration, August 2016 (23) Krakow warehouse prices one of the highest in the country (24) Velvet Care invests in Krakow zone; Blue Divine wins ActInSpace finals (26) Success of Digital Dragons 2016

Start Ups

(29) ABSL StartUp

Budget 2017

(31) Budget 2017: No room for error as government optimistic on revenues

Adisory

(34) Are Polish CEOs Ready to go Social? (35) The dangers of “failed” environmental testing (36) Tax planning time – don’t forget about land tax!

Polityka Insight

(38) Morawiecki’s plan takes final shape (39) Why would Kaczyński run a Cabinet reshuffle

Equities News

(41) Templeton Funds on equities prospects

Banking News

(43) PZU and Polish Development Fund in Milan to negotiate Bank Pekao deal with UniCredit

New Hotel

(44) Raffles ready to shake up luxury hotel market in 2017

FDI News

(45) PE fundraising drops, but Buyout financing buoyant (46) Helicopter hotel in Rzeszow (47) China-Europe Cargo Train brings TCL TV components to Poland (48) Warimpex to build 3 offices in Krakow and Łódź (49) UBM: new 4-star hotel in Gdańsk with Immobel and Multibud (50) TVN and Scripps Networks management changes (51) Zalando to launch new distribution hub near Szczecin (52) DocPlanner raises $20 million in VC funds to buy Spanish firm (53) Everbright International expands into Waste Management Market in Europe (54) German Sitech opens in Wrzesnia (56) Materialise in 33 million pln 3D factory

Events

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(58) World Youth Day: Worth it for Krakow’s economy?

Cover Story

Food fuels Poland’s export boom Poland’s rich agricultural sector is leading a renaissance in food exports.

6

Meat was the fastest-growing among the top 10 export categories, up 21.6% in value for the recent 5-year period, with increase in value led by poulty and, to a lesser extent, beef. Sales of pork declined.

Exports have become a very bright star in the constellation of Poland’s overall economy, and now accounts for nearly 20% of total Polish economic output.

While the government tightens its grip on key sectors such as energy, with a general urge to centralize, Poland’s largely de-centralized and diversified agricultural sector is finding new markets around the globe. The total exports of food – on a value basis – remain lower then value-added exports like machinery, and the effort to extract more value from Poland’s food

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sector remains a major challenge.

Food-processing and brand-development are high priorities not just for the government, but also for companies and entrepreneurs, who recognize that strong brands command much higher margins.

“Poland’s beef consumption is currently 1.5 kg per person. Yet pork consumption is 39.5 kg”

Beef exports Rise, but consumption still low Poland reported an increase in export sales of pork, beef and poultry

meat in the first three months of 2016, while imports of pork and beef meat were also on the rise in this period, according to the state-run Agricultural Market Agency (ARR).

From January to March 2016, local beef meat exporters managed to raise their sales to foreign markets by 2 per cent compared with the first quarter of a year earlier, totalling 84,000 tonnes.

This was accompanied by a significant increase in beef meat imports which rose by 18 per cent to a total of 6,000 tonnes.

This, however, indicates that beef meat sales in Poland remain at a relatively low level, despite efforts by the government.

Poland’s beef consumption is currently 1.5 kg per person, according to the Polish Association of Beef Cattle Breeders (PZPBM).

September 2016

Cover Story reaching only 2.9%. Imports were lower by 3.0 percent points and accounted for just 7.3%.

In the first quarter of 2016, Polish pork meat industry players managed to export 104,000 tonnes of pork meat which represented an increase of some 5 per cent compared with the same period a year earlier.

Pork dominates Poland’s meat market with an average Pole estimated to consume about 39.5 kg of pork per year, according to the Warsaw-based Institute of Agricultural and Food Economics (IERiGZ).

Poland’s poultry meat industry players were also able to report improved export sales for the first quarter of this year.

From January to March 2016, the country’s poultry meat exports totalled 221,000 tonnes, an increase of 13 per cent compared with the same period a year earlier.

Imports of poultry meat by the Polish market were down 8 per cent in the first three months of 2016 to 8,000 tonnes. Last year, Poland’s annual consumption of poultry meat was estimated at some 28 kg per capita.

Trade surplus grows The Central Statistical Office of Poland (GUS) issued the final data on the Polish foreign trade for 2015. Exports reached a total value

2016 September

of PLN 750.8 billion, while imports amounted to PLN 740.9 billion. As a result, Poland recorded a positive foreign trade balance of PLN 9.8 billion. Exports grew by 8.3% and imports by 5.2%.

Exporters increased their trade numbers with Spain, Italy, the Netherlands, Great Britain, Germany, the Czech Republic, Hungary, France and Sweden, while imports went up with China, the United States, Great Britain,

Germany, the Netherlands, Belgium, France, the Czech Republic and Italy.

Trade with Russia remains the most dramatic decline. Both exports and imports have suffered, after trade embargos and tits-fortats escalated. Russia’s share in exports fell by 1.3 percent points,

German powerhouse – 27% Trade with Germany continued its dynamic growth, with increases both in exports and imports.

Exports were up 0.8 percent points, meaning that exports to Germany account for 27% of exports from Poland. Imports also increased, by 0.9 percent points to the level of 23%. This means that a positive trade balance of PLN 34 billion was reported in comparison to PLN 27 billion the year earlier.

From a continental perspective, 87.4% of Polish exports - by value - are delivered to other European countries while only 6.2% are sold to Asian importers. Poland ships another 3.2% worth of goods to North American clients with a tiny 1.4% going to Africa.

Exports per capita translates to roughly $5,140 for every resident in Poland.

Poland’s Top 10 Exports The following export product groups represent the highest dollar value in Polish global shipments during 2015. Also shown is the percentage share each export category represents in terms of overall exports from Poland.

• Machines, engines, pumps: US$25.7 billion (12.9% of total exports) • Electronic equipment: $24 billion (12.1%) • Vehicles: $21.3 billion (10.8%) • Furniture, lighting, signs: $11.2 billion (5.6%) • Plastics: $9.2 billion (4.6%) • Oil: $6.5 billion (3.3%) • Iron or steel products: $6.3 billion (3.2%) • Ships, boats: $5.5 billion (2.8%) • Rubber: $4.5 billion (2.3%) • Meat: $4.3 billion (2.2%) After meat, in second place for improving export sales was electronic equipment which gained 21.6%. Polish plastics posted the third-fastest gain in value at 13.1%.

Among declining categories, Polish exports of oil were down by -29.2%, reflecting the lower global oil prices. n

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7

Cover Story

Frozen veges production falls, but exports up

8

According to the Central Statistical Office of Poland (GUS), the country’s frozen vegetable production in the 2015/2016 campaign in plants employing 50 people or more amounted to 571,000 tonnes, compared to 586,000 tonnes in the previous season (-2.6%). The reason for this decline was the much lower availability of raw materials in the domestic market, although looking at the decrease in the production of fresh vegetables, the fall in the frozen food production was relatively low.

According to the GUS, in 2015, the total vegetable production in Poland stood at less than 3.8 million tonnes, about 18 percent less than a year earlier, explains Mariusz Dziwulski, expert in agricultural market analysis at BGZ BNP Paribas.

Dziwulski stresses that despite the decline in the production volume in the previous season, Polish frozen vegetable exports have actually increased. According to Eurostat data, in the first 11 months of the 2015/2016 season (July 2015-May 2016), the country’s foreign sales amounted to 407,000 tonnes and were about 7 percent higher than a year earlier. It should be noted, however, that this was mostly the result of strong sales growth in the third quarter of 2015 (+27 percent).

Since the beginning of 2016, however, shortages in the supply

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of frozen foods have been increasingly visible and frozen vegetable sales have clearly slowed down. EU statistics show that, in the first five months of 2016, Poland has exported 188,000 tonnes of frozen vegetables, about 4 percent less than last year.

“The frozen vegetable market is still affected by trade restrictions from Russia. The volume of exports of frozen vegetables during the period at hand of the previous season was nearly 3 and 8 percent lower than two and three seasons earlier, respectively, with non-EU markets receiving 25 and 17 percent less frozen vegetables”, according to BGZ BNP Paribas.

BGZ BNP Paribas added that, as in the case of many products in the fruit and vegetable sector, the decline in shipments to Russia was offset by strong growth in sales in Belarus, with an increase of 38 percent (to 55,000 tonnes). Also worth noting is the particularly strong growth of sales of frozen vegetables to the US (+53 percent to 12,000 tonnes) and Saudi Arabia (about 170 percent, to 7,000 tonnes).

Polish Potato Association seeks to remove export restrictions Poland is the only country in the EU where the export of potatoes is restricted, which is why it continues to be the main focus of the entire Polish industry.

Up until recently the Polish potato industry was not really united like other countries such as Germany and the Netherlands, where the sector will band together in times of trouble to find solutions for the sector. In order to create this safety net in Poland as well, the Polish Potato Association was formed two years ago. Since their inception, they have started lobbying, meeting authorities and are now working with the government to teach them more about the industry so that they can work together.

The cause of the restriction is said to be because of high levels of ring rot outbreaks in Poland. This is why Polish seed and ware potatoes must be accompanied by a Ring Rot test certificate issued by the Polish Plant Health Authority at the time of import into another EU country.

This procedure takes time which makes exports almost impossible.

Also, producers are reluctant to have their potatoes tested due to fear that they will not be permitted to sell their potatoes if ring rot is found.

According to figures, rot outbreaks are not common in Poland.

The disease is hardly ever found on larger and professional farms. It is also rarely an issue within the minor producers, which still make up a high percentage of potatoes producers in Poland. n

September 2016

Cover Story

Salmon, Herring, Cod Exports expand From January to May 2016, Polish fish industry players managed to increase their export sales of salmon, herring and cod, according to the latest available figures from the state-run Institute of Agricultural and Food Economics (IERiGZ).

In the first five months of this year, Polish companies expanded their salmon exports by 6.9 per cent to a total of 27,000 tonnes.

The sales generated revenues of some PLN 1.25 billion (€286 million), an increase of 12.7 per cent compared with the same period a year earlier.

From January to May 2016, herring export sales were up by 2.3 per cent to 22,400 tonnes, and this was accompanied by an increase in sales revenues by 11.9 per cent to a total of PLN 240 million (€55 million). Polish entities also managed to export 7,400 tonnes of cod, up 6.9 per cent compared with the same period a year earlier, and this translated into an increase in sales revenues of 12.7 per cent to PLN 170 million (€38.9 million).

The higher export sales had an impact on the domestic prices of fish and seafood, according to data from the Polish research institute.

“In May 2016, retail fish and seafood prices continued to increase. Compared with the previous month, these prices were on average up by 0.3 per cent, and they were 2.6 per cent higher

than in December 2015,” the IERiGZ said in its market report.

Since December 2015, the prices of fresh fish have increased by 4.8 per cent, while prices of processed and canned fish have expanded by 2.3 per cent, frozen fish have increased by 1.8 per cent, and frozen seafood prices have expanded by 2.3 per cent, according to the institute. n

Apple farmers bear brunt of EU-Russia economic war Laden with fruit, the boughs of the apple trees in the orchards run

by Poland’s EUROSAD sag with what will be a record harvest for the country, Europe’s largest apple producer. But while nature has rewarded Poland’s farmers this year, geopolitics has not.

Caught on the front line in the economic war between the EU and Russia that was declared after Moscow’s invasion and annexation of Crimea in 2014, Poland’s apple farmers are cursing a bumper crop this summer, inundated with hundreds of thousands of tonnes of fruit with no one to sell it to.

“The situation in the Polish apple market is rather difficult,” said Anna Staszewska, an export specialist at Eurosad, a conglomerate of apple growers with more than 30 farms and 700 hectares

2016 September

of orchards in Poland. “Poland’s growers have been hit hardest by the Russian embargo.”

After Brussels reacted to the annexation of Crimea with trade sanctions against Russia, Moscow responded in kind with bans on food imports from the EU, cutting off a trade that accounted for more than half of Poland’s apple exports, and roughly one-fifth of all production.

That, combined with an expected 10 per cent increase in production this year, according to Poland’s official government statistical agency, to a record 3.5m tonnes, has driven prices to unprecedented lows, leaving many farmers facing painful losses in a country that grows roughly a third of all the apples produced in the EU.

“On one hand the higher harvest is a success,” said Grzegorz Rykaczewski, a food and agribusiness analyst at Bank Zachodni WBK in Warsaw. “But at the same time, it poses a huge challenge for Polish farmers … There is no profit with the market in this situation.”

In June, a kilo of dessert apples on the Polish market cost just 1 zloty per kilo. Industrial apples, used in juices, cider and other processed foods, were changing hands at 0.23 zloty per kilo.

That is about 20 per cent lower than a year previously, and half the price it fetched in 2011.

“We feel anxious about the situation,” said Marcin Hermanowicz, owner of Fresh Fruit Services, a trader. “If the situation continues, continued on page 10

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9

Cover Story continued from page 9

and there will be a lot of apples and the prices will be low, I think that farms will start to go bankrupt.”

Sanctions against Russia have become increasingly controversial with each six-monthly extension, as countries with better relations with Moscow, such as Greece, Italy and Hungary, argue that they are counter-productive and are failing to impact the conflict in Ukraine.

Poland has been one of the most vocal countries in demanding their continuation, despite the pain for the country’s farmers.

Initially, a government campaign to eat apples “against Putin” led to an increase in domestic consumption, but demand has retreated to average levels. An EU aid programme to buy apples and distribute them for free offered some respite but not enough to make up for an end to

Russian sales. Attempts to find new export markets have had some success, but demand from those new markets remains low.

The Russian food import ban plus falling apple prices has left many Polish farmers facing painful losses “The process of acquiring new markets is not that easy and I would risk the statement that it is impossible to fill the gap of Russian market by any other market,” said Mirosław Maliszewski, head of the Association of Polish Fruit-Growers.

Complicating efforts to offset the withdrawal of Russian demand is that Polish orchards have been calibrated to serve Russian tastes.

A quarter of Polish production is of the Idared variety — apples liked in Russia but not particularly popular in the rest of the world.

“Changing varieties takes time, and high costs. And low

prices means there’s less money around to invest in changes,” said Mr Rykaczewski.

“Next season, prices will probably fall further. So it is likely that many farmers will not invest in their orchards,” he added. “And frankly, they need investment if they are going to offer global markets the products they want to buy.”

Polish traders have had some luck reaching Russia via reexporting apples through countries unaffected by the embargo, such as Belarus and Serbia, but volumes are low. And while new trade routes to countries such as India, China and the Gulf have had some success, volume is paltry.

“There is a crisis,” said Mr Maliszewski. “And some farmers will not survive it.” n Source: Financial Times

Huge apple harvest means 3-million-tonne apple surplus The apple production of Poland could increase to 3.8 million tonnes or even 5 million tonnes within several years. This would mean an apple surplus of up to 3 million tonnes.

10

This year, Poland exports approximately 800,000 tonnes of apples with a harvest of 3.8 million tonnes. From Eurostat’s first data it can be concluded that Poland has visibly increased the export of apples to non-EU countries. During this period, export of apples to third countries was 247,000 tonnes, a 21 per cent increase compared with the same period a year previously. The largest influence on sales was the increasing demand from Belarus – export increased by 51 per cent to 176,000 tonnes.

Currently, Poland still exports most of its apples to Europe: Western Europe mostly remains the largest buyer of Polish apples.

Up till now, Eastern Europe also played an important part in the export of apples. This

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will probably change soon: in recent years Poland exported tens of millions of apple trees to Eastern Europe. Result is that Eastern Europe now has approximately 30 million apple trees planted, and as soon as these start giving fruit, export of Polish apples to this region will decrease. For that reason, Poland has to look for new markets.

For two years now, Poland has not delivered apples to Russia, where the two-coloured strains which can still be easily found in Polish orchards, were much appreciated. One of the new possible export countries is China, but to export a significant amount to that country, the structure of Polish orchards will have to change: only about 20 per cent of apples of Polish production are of the one-coloured strains, and China is mostly looking for one-coloured apples, just as Western Europe is.

Costs During the last five years, Polish tree nurseries produced 100 million apple trees. Of these, 20,000

hectares of orchards originated in Poland to produce 40 tonnes per hectare. The costs of replacing one hectare of orchard is approximately 60,000 to 80,000 PLN (13,000 to18,000 euro) A good-quality tree costs approximately 12 to 15 PLN, or about 4 Euro. Almost 3,000 trees are needed for one hectare.

Surplus production In coming years the apple harvest could increase to approximately 4.5 million tonnes, and if the weather conditions are good even up to 5 million tonnes. The only thing standing in the way of apple cultivators is thunder, because it causes large losses in trees. The demand for table or industrial apples is not increasing concurrently with the increase in harvests. Apple consumption is decreasing in other countries, while demand for concentrated juices remains at the same level.

If the apple production increases to the level of 4.5 million tonnes, the surplus – after import and export calculations – will amount to 2.8 tonnes. In case of a production of 5 million tonnes this could even amount to 3 million. n

September 2016

Cover Story

Blueberries season closes earlier due to heat The season is nearing its end in Poland. Prices have showed peaks and lows in the domestic market, but have been generally good. The price has ranged between 15 and 26 złoty per kilo. Export prices for destinations within Europe have showed a downward trend and stand currently between 7 and 8 Euro per kilo. In general, prices have been higher this year than in previous seasons. Normally, the campaign lasts from July to late August, but the high temperatures recorded have caused it to finish earlier. In the north of the country, the harvest volume has been greater than last year, but has still been in line with the average

harvest figures. Rain was a factor during harvest, although in the south of the country, growers have not been affected by it.

The demand is growing every year. Moreover, the plants are

young, so harvest volumes increase every year. Only a small share is 40 years old, the rest was planted in 2007, reports a grower in the south. The old crops consist mostly of Bluecrop blueberries, while the main varieties in the new plantations are the Liberty and Duke. Many growers have planned the planting of these varieties and are also on the look out for late varieties in order to extend the season. Western Europe, especially the UK, is the main market for Polish blueberries. At the end of the season, the Netherlands and Germany become more important export destinations. n

Cherry production to rise. Dessert cherries up 43% Polish stonefruit, which includes sweet and sour cherry production, is expected to increase in 2016.

Total cherry production is expected to hit 235,00 tonnes this year, up 3.1 per cent, made up of 185,000 tonnes of sour cherries and 50,000 tonnes of sweet cherries.

While planted area fell due to some growers giving up on unprofitable production, growing conditions generally were good with a mild winter and no losses, with plantations looking “in very good shape” .

Last year’s exports of fresh dessert cherries was higher than 2014 by 43 per cent in volume terms, coming in at 17,580 tonnes and a value of US$13.1m – although the increase in exports did not translate to an increase in income, with that representing a drop of 7 per cent.

The Russian ban on fresh produce from Poland has greatly impacted on cherry export destinations, with Russia the main market for cherries until the ban. For 2015, the main destination became EU member

states, a list topped by Germany for sour cherries, while Belarus took on greater volumes of sweet cherries. This year, cherry exports are expected to exceed the levels seen last year by 6 per cent. n

Peaches, plums and apricots Peach production is forecast at 9,600 tonnes, down 3 per cent year-on-year, while plums are expected to hit 86,000 tonnes, down from 94,900 tonnes in 2015, and nectarines should drop

2016 September

slightly to 3,000 tonnes from 3,700 tonnes.

Total exports for peaches and nectarines are expected to rise to 20,000 tonnes from 18,560 tonnes in 2015, with the majority – some 18,000 tonnes – heading to the EU. n

11 BiznesPolska.pl/EN

Kraków & Małopolska

Interview

EU support of 3 billion euro to boost growth prospects of Malopolska Interview with the Marshal of the Malopolska Jacek Krupa Mr. Marshal, let us talk about the economic development of the region. First of all, what are the biggest opportunities of the Malopolska Province.

I have no doubt that a great opportunity is to have the prestigous title for Malopolska as the European Entrepreneurial Region 2016. Granted to us by the European Commission and the Committee of the Regions, it is a clear endorsement and acknowledgment in the international arena that Malopolska is a reliable business partner. It’s a green light for foreign investors to cooperate with us on interesting projects, and for other regions – encouragemenet for cooperation and exchanges of experience.

What concrete actions are the regional authorities to develop the region’s economy? And what are the biggest development and infrastructure projects of the province for 2016-2020?

The Malopolska Regional Government is clearly focused now on the development of “smart specializations” for our region. We believe that as a result of these actions Malopolska in a few years will clearly strengthen its position in areas such as chemistry, life sciences, the creative industries and leisure - as well as information and communication technologies. We have great facilities - a vibrant university, unique historical monuments and outstanding tourist attractions – we just need a lot of funds for additional investment. The answer to this is the EU’s Regional Operational Programme for 2014-2020, under which the Malopolska region has received record support from the EU - nearly 3 billion euro! Much of these funds will be spent on innovative solutions and support for entrepreneurs - including as many as 350 million euros for the development of companies, and 50 million euro to support start-ups.

“Malopolska region has received record support from the EU - nearly 3 billion euro! Much of these funds will be spent on support for entrepreneurs”

12

What advantages does Malopolska Province offer to encourage potential investors – both foreign investors and large domestic investors?

First of all - huge potential. In Malopolska there are 32 higher education institutions, with

BiznesPolska.pl/EN

190,000 enrolled students. We have more than 360,000 companies who have located their business here, which puts us a strong 4th place in the country. Secondly, we are a rapidly-developing region: during the years 2008-2013, the GDP of Malopolska increased by as much as 30 percent!

The total volume of foreign capital invested since 1989 exceeds 18 billion dollars. Krakow - the capital of Malopolska - is now the most important European center for investment in the SSC/ BPO/outsourcing sectors, ahead of Dublin and even ahead of Shanghai. There are more than 100 business service centers, employing more than 55,000 employees. These and other indicators clearly show that it is worth investing in Malopolska. n

September 2016

Kraków maintains fine balance between growth and sustainability Interview with the Mayor of Kraków Jacek Majchrowski Mr. Mayor, let us talk about the economic development of the city. First of all, what are the biggest victories in Krakow’s economic development over the last 2-3 years?

What is deemed a real success is the stable development of Krakow, realized through balanced cooperation between business, science and the local government. The best evaluation of our activities in the field of promoting economic development are awards granted to us by representatives of business, for example CEE Shared Services And Outsourcing Awards for Best City of the Year and another time at the top ten ranking of the Top 100 Outsourcing Destinations 2015 indicating the world’s best locations for outsourcing. Also, the

increase in the number of companies means an increase in the level of employment - it is important that the companies are from different sectors - diversification of economic activity allows for stable development.

What are the biggest development and infrastructure projects of the city for 2016-2020. I understand that these 4 are important: Balice Airport City, Krakow New City, Vistula River Park and Krakow Nowa Huta.

Krakow skillfully combines tradition with modernity. The vision of development is based on a number of strategic actions, whose main priority is to create attractive areas for investment, modern yet friendly and green places to live and relax.

Significant investments are in infrastructure, ranging from communications solutions, transportation, and access to modern media. Krakow’s Development Strategy focuses on large projects - Nowa Huta future as a sustainable development project, Kraków Airport, and New Town Krakow.

Development - and no development - is one of the main slogans of the new, creative Krakow.

However, we will have strict protection of green areas.

Kraków & Małopolska

Interview

What advantages does Krakow offer to encourage potential investors – both foreign investors and large domestic investors?

Krakow is one of the most economically attractive cities of Eastern Europe, which affects the amount of FDI and the development of local entrepreneurship. Krakow together with its facilities and academic research is an extremely attractive place for business. Our city has 23 universities, 12,000 researchers, nearly 200,000 students and more than 100 scientific research units and institutes.

This potential undoubtedly attracts like a magnet both large and small businesses. They invest in our financial institutions, global brands, allow the city to explore new, previously fledgling development areas. Over the last several years, the number of investors in Krakow is steadily growing. It is also a result of the consequences of our actions in the economic development of the city. Krakow consistently builds its economic image and brand, creating dedicated institutions such as Investor Service Centre, the Centre for Entrepreneurship Support and Service Point Businesses.

Speaking of finances, tell us about the highlights in the City’s budgets and any significant changes. continued on page 19

2016 September

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13

Interview

Kraków & Małopolska

A rising tide lifts all boats A conversation about the future of Kraków’s No. 1 industry a significant pull in terms of experienced managers and people with specific and high level skills, whether that be in IT or finance or procurement or a range of other areas. This diversity is what makes the Kraków market so robust and the scale and maturity of the market means that Kraków can be seen now as more of a destination than simply a location now.

Andrew Hallam, Secretary General at ASPIRE Interviewed by Łukasz Cioch (lcmedia.pl/ASPIRE)

Let’s start with the ‘glass half empty’. What risks do you see ahead of Kraków’s No.1 industry?

Kraków has become what I would describe as a super-location. The city has a dynamically evolving ecosystem which serves the business-andtechnology services sector. The scale and maturity of the industry in Kraków, the fact that it already employs 55,000 people, recording consistent 20% growth year on year, the value it delivers to the local economy per annum to the tune of 2 billion dollars – all these factors make the city uniquely placed for further growth.

Some people refer to Kraków being saturated or near-saturated.

I think what people witness is the challenge that comes with a rapidly expanding and dynamically developing market like Kraków. People talked about saturation back in 2006 when the total number of employees in the sector stood at 6,000. On a day-to-day basis, there may be challenges related to filling certain positions, but this is quite logical, given that the job market itself is becoming ever more sophisticated. But if you look at the overall dynamics, what you see is that supply rises to meet demand. There is a constant need to innovate and this is what is happening. In fact, looking at the overall dynamics and key trends we can be very confident that Kraków is embarked on the next phase of its development.

“Kraków has become what I would describe as a super-location.”

“People talked about saturation back in 2006 when employment was 6,000.

Today we employ 55,000+”

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Would that involve possible shifts to new territories, e.g. specialising in a certain area of technology?

Very much so. One such shift relates to the type of work being delivered from Kraków.

There is a clear synergy between the growing capability of a location and the kind of work that gets placed in a location. We have

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It has a constantly growing ability to attract talent from across the world. That is absolutely unique in Central and Eastern Europe.

The most interesting developments you see happening before the end of the year?

There is always a lot of buzz about new entrants.

They come with different sets of expectations.

The key evolutionary change, however, is that companies now look at setting up multifunctional centres from the start; in the past they tended to establish a single-function centre and expanded scope over time. We also now have increasingly specialised or niche service providers, recruiters, training providers, advisors in process improvement and robotics and so on.

We also have developing professional networks, for instance in data science and quantitative development and analysis. It’s all to do with the scale and dynamics of the market. I call it an ecosystem but we could also call it a ‘real’ market, where people and organisations strive to create and capture opportunity, as opposed to the usual top-down approach where a bunch of elite politicians or business people say where they want Kraków to be. Kraków is already there.

There is always a hard-data part and the softfactors part to an evolving market. What is particularly important about the latter in the context of Kraków?

September 2016

To me, the word ‘connectivity’ is key. In this context, one important factor is that Kraków Airport serves as the hub for the south of Poland and it is pleasing to see the results of significant investments in the airport

infrastructure. This is more important than one might imagine in our industry, where although services are being delivered virtually, the industry also depends on high touch. There is a lot of business travel. And then, there is connectivity at the local level. It’s not an accident that Kraków has ASPIRE, which above all facilitates shared learning and information exchange across the industry and with stakeholders. A rising tide lifts all boats. There is the other dimension of Kraków being extremely compact, well designed, giving you the feeling that everything radiates from the market centre. The city’s financial and technology centres are scattered around the city, however, you’re never more than 20 minutes or so from the city centre. There are no community problems and everyone who comes to visit simply loves the city at once. It feels both large enough and intimate enough – truly, a rare combination. Finally, Kraków has become part of the global city networks of major industries, such as financial services and IT, sitting alongside cities such Boston, London, Frankfurt, Dublin and Bangalore. This is a very positive kind of connectivity going forward.

Kraków & Małopolska

Interview

Back to the future, what do you think comes next?

Kraków becoming the hub of the wider metropolitan area, extending along the A4 corridor, from Wrocław to Rzeszów, including Katowice and satellite towns, such as Bielsko Biała, Tarnów, which themselves will develop their own specialisations.

Is there anything that can be done now to improve or accelerate the positive change?

We need to work much harder within the industry to spread the positive message about the how the industry is developing and how this goes hand in hand with building local capability - in short that we are on an exciting journey and not to get caught in the trap of believing messages about saturation and to remember those who promote such messages have their own agendas. By getting our message across we will encourage better conversations, better solutions, greater diversity, more innovation.

How do you get better cooperation?

Vision. Strategy we know is about how you choose to prioritise resources. What we need is for stakeholders to prioritise according to our vision of the potential of this industry to develop.

For example, we should stop using the word ‘outsourcing’. We’ve long moved way beyond that.

The truth is that core technologies and new ways of delivering processes are being imagined and created in Kraków every day. Kraków’s centres are helping global global companies to transform.

You need talents and knowledge of the kind increasingly available in Kraków to make it happen. Its as simple as that. n

2016 September

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Kraków & Małopolska

Key Projects of the City

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Krakow Airport invests in new terminal and new runway In May 2016 KIA announced that its board and shareholders had approved the facility’s investment plan through 2023.

The investment plan includes the construction of a new runway, with a public consultation to follow.

Two variants are possible: either of a north or central runway - depending on the environmental impact the expansion will cause. The north variant requires a four-degree modification of the current runway, while the central runway intersects the current runway.

KIA has a single terminal building. A new terminal was constructed between April 2013 and September 2015, with 24/7 operations and handling of both domestic and international flights.

Work began to reconstruct the old terminal building in September 2015, and on completion there will be one combined integrated terminal, together with the new building. Along with a new car park having capacity for 850 cars and 50 buses, the cost of the project is USD 38 million.

Also in 2015 the airport completed renovation and expansion of the apron and taxiway, with aircraft parking now increased to 22 spaces.

As a result, the airport is now capable of accommodating larger aircraft such as the Boeing 787.

KIA was the second busiest in Poland in 2015, with 4.2 million passengers. Collectively, the two Warsaw airports had 13.8 million while third-placed Gdansk was on 3.7 million. KIA competes with Katowice, Rzeszow, and the two Warsaw airports.

Several schemes have been put forward over the years to construct a new airport to replace the existing JIA and Katowice airports on the basis that KIA suffers from fog in winter and Katowice’s airport is too far north and poorly served by highways. But nothing has come of it.

The most recent example is a proposal to build a new airport between Warsaw and Lodz, which would take three years to construct and which is interesting Chinese companies. Being closer to Krakow it would probably have a greater impact on Krakow Airport’s catchment area.

Traffic growth rising more rapidly, touching nearly 20% Passenger traffic growth at KIA is actually advancing rapidly. It was +10.6% between 2014 and 2015 and in the first four months of 2016 numbers increased by 18.5%. At that rate, for the full year it would easily outstrip anticipated capacity growth. However, impressive as these figures are, other Polish airports are

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also growing rapidly and some (e.g. Warsaw Modlin, Lublin and Szczecin) – at an even faster rate.

While Ryanair has more than the lion’s share of seat capacity at KIA there is a good mix of full service and low cost airlines operating there. Perhaps surprisingly, the state airline LOT has only the fourth largest seat share, marginally ahead of Norwegian.

Nonstop connectivity – a good range of routes, but all in Europe Only Warsaw Chopin offers long haul services, apart from one service from Katowice to the Middle East.

Otherwise all services are concentrated within Europe and KIA has the widest range of nonstop routes after that airport.

Sluggish rate of impact by alliances The largest alliance at KIA is Star Alliance, with 28% of capacity courtesy of LOT – despite its relatively small contribution to the airport – and Lufthansa; also Austrian Airlines. Oneworld and SkyTeam are bit-part players by comparison. Unaligned capacity remains high at 64%, accounted for principally by the LCCs Ryanair, easyJet and Norwegian.

Despite its proximity to the city (11km) there is no formal curfew in operation at KIA. Nevertheless there are no take-offs or landings between midnight and 0530 on any day except Saturday.

Cargo – capacity is climbing again There are no dedicated air freight airlines at KIA. All cargo capacity is provided in the belly hold of passenger aircraft and the capacity amounted to 712,000 kg in the period 30 May 2016 to 5 June 2016. Capacity fell from 31 million kilos in 2013 to 24 million in 2014 but has since picked up again to reach a project 28.1 million kg in 2016. 86.8% of freight capacity is international.

Lufthansa is the main capacity provider in the freight market, followed by Norwegian and then LOT. n

September 2016

ICE Kraków Congress Centre seals MICE investment fund The ICE Kraków Congress Centre has received nearly PLN 1 million from European funds for the promotion of the Małopolska meeting industry.

The operator, The Krakow Festival Office, will allocate the funds for activities including participation in international industry trade shows, studio visits for foreign MICE industry representatives, the development of Krakow Network – a local cooperation network – and activities to promote the economic offer of the region as well as the Congress Centre.

The investment was announced following an ‘exceptionally intense’ June at the ICE Kraków Congress Centre.

The Małopolskie Voivodeship Executive Board of the Marshal’s Office in Krakow, in cooperation with experts of the Regional Operational Programme for 2014-2020, awarded the funds on the back of the Małopolskie Meetings Industry–ICE Kraków report. The almost fifty-page applica-

tion was developed by an interdisciplinary team, which included employees of different departments of the ICE Kraków Congress Centre.

The project received 72% of the possible points, which translated into PLN 827,150 in financing.

The agreement will allow for the promotion of Krakow and the Małopolska region in 2016–2018.

“Nearly 20% of the residents of Krakow work in the tourism industry, including in the business tourist service field. There are significantly more business owners working directly and indirectly with the MICE industry in all of Małopolska region”, said the Mayor of Krakow, Jacek Majchrowski.

“The activities that will be undertaken by the ICE Kraków Congress Centre team in the next two years will therefore influence the entire sector of the meetings industry, which has been growing dynamically in Krakow for several years now. We need to maintain this trend in the coming years, as conferences

2016 September

and congresses affect the economic development of the whole region”, added Mayor Majchrowski.

Funding is also a big commitment. By mid-2018, the ICE Kraków Congress Centre will carry out the tasks contained in the application form. The Krakow Festival Office is obliged to organise the aforementioned meetings, trips as well as, very importantly, to study the efficiency of their activities, in order to evaluate the activities carried out.

Izabela Helbin, director of the Krakow Festival Office, the operator of the venue said: “Thanks to the funds we have received we will invite Polish Congress Ambassadors, who promote Krakow and the Małopolska region as a modern destination for congresses and conferences, for studio visits in Krakow. We have also planned six meetings as part of the Kraków Network project, which brings together representatives of local companies and institutions involved in the organisation of business tourism. “ Helbin added: “Our employees will promote ICE Kraków and the Małopolska region during industry trade shows in several trips abroad, while readers of industry publications around the world will see advertisements of our city and region.

“We have a lot of work to do, and its positive effects will be visible over the next few years. We are incredibly proud of the fact that we will be able to promote business tourism even more effectively.”

The competition was resolved within the framework of sub-measure 3.3.1, “Economic Promotion of the Małopolska Region” of the Regional Operational Programme of the Małopolskie Voivodeship for 2014–2020, which is funded by the European Regional Development Fund (ERDF) and the European Social Fund (ESF).

The calendar of the ICE Kraków Congress Centre is completely filled until the end of 2016. There are very few available dates in 2017, and now, thanks in part to the funds obtained from the European Union, the investment of the City of Krakow will be able to even better fulfil its tasks and fill their calendar of activities for 2018 and beyond. n

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Kraków & Małopolska

Key Projects of the City

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Kraków & Małopolska

Key Projects of the City

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Revitalization projects for Nowa Huta The future of the eastern suburbs of Kraków and a unique opportunity for investors.

Nowa Huta, a district of Kraków, has become a strategic area for implementing revitalization programs on several thousand hectares in the eastern parts of the city and for creating investment zones and public utilities in the capital of Małopolska. City of Krakow, Marshal Office of the Małopolska Region and Małopolska Regional Office, as state authorities, have developed their plans for the district.

In the autumn of 2014, the Minister of the Treasury, following the initiative of the Governor of the Małopolska Region, signed the founding act of state-owned company named “Nowe Centrum Administracyjne” (www.nca.malopolska.pl). NCA (the New Administrative Centre) was established for 10 years, and its aim is to restructure state assets.

One of the most important tasks of the NCA is the revitalization of almost 300 ha of post-industrial areas in Kraków Nowa Huta and the implementation of a unique investment project called „nh2”.

The aim of the project is to change the postindustrial areas in a modern district of Krakow with leading role of innovative technologies to

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create a “laboratory” for intelligent city and innovative economy. Funding for the project will be raised through the sale of state-owned real property - buildings and plots located in Małopolska.

Obtained funds will allow NCA to finance many initiatives, including comprehensive renovation of historic buildings of the Administrative Centre, formerly used by the board of local steelworks.

Also in autumn 2014 (12.11.2014), another jointstock company - “Kraków - Nowa Huta Przyszłości” (K-NHP) was established by the City of Krakow and Małopolska Region (Marshal Office). Action plan of K-NHP is based on the results of the architectural competition for broad revitalization and modernization of selected eastern areas of the city. Ultimately, the range of the plan covers almost 5500 hectares and assumes creating 30-40 thousand new jobs.

Investment areas taken into account in the first place include: • Branice Science and Technology Park (approx. 128 ha) located on the eastern side of the ‘Mittal Steel’ plant.

September 2016

• Logistics Centre – Economic Activity Zone (228.56 ha) located east of ‘Mittal Steel’ plant, north of Igołomska St., including railway areas and “Ruszcza” mine burrow, • Błonia 2.0 - Open Area for Large-Scale Cultural Events (approx. 37 ha), area located in District XVIII, in the Vistula valley, within its floodplain.

Borders: from north - below Deszczowa St., from west - along Suchy Jar canal, from south - closed

by Branicka St., from east - KaraszewiczaTokarzewskiego St.;

• Przylasek Rusiecki – rest-and-recreation area with auxiliary services (191.65 ha), located also in District XVIII. Borders: from north - below Kąkolowa St and Tatarakowa St., through Rzepakowa St., up to Kraków-Tarnów railway line, from west - partly along Suchy Jar canal, form south - along the left-bank dike on the Vistula, from east - along Kraków-Tarnów railway line.

The development processes in project “Kraków - Nowa Huta Przyszłości” will be financed from European funds (mainly MROP 2014-2020) and own funds of the company founders. The cost of the program is estimated at PLN 2 billion.

Ultimately, the above-mentioned areas will be the place for industrial, commercial and public investments, recreational and sport areas, and facilities created for scientific, research, development and educational purposes. The company is currently developing programs for completing the infrastructure, land consolidation, defining their new purpose in the zone planning and for promoting investments in the area.

Potential investors are offered with new investment areas located in very attractive city (Kraków), good transport infrastructure and (what is the most important) availability of educated and qualified personnel.

Investment projects located in areas managed by both companies will be supported by local authorities, both in terms of administrative arrangements and efforts to obtain the EU funds for 2014-2020. n

Kraków & Małopolska

Key Projects of the City

continued from page 13

We are on the eve of the creation of the budget for the next year. It should be noted, however, that the investment development of the town is mainly based on the Multi-Annual Financial Forecast, which are planned expenditures of Krakow in the perspective of much longer than one year. Such budgets and forecasts are the result of joint work of officials and councilors - an important element also provides guidance we receive from the central government. On this basis, we try to balance income and expenditure, so that Krakow develops in a sustainable way.

In addition to “soft” infrastructure, Krakow has significant road and light-rail infrastructure development plans, much of it with EU funds support.

What are the top infrastructure projects/priorities for the city over the next 5 years?

Given that the organization and management of the transport system of the city is one of the fundamental duties of local authorities, in June, we adopted the document “Transport Policy for the years 2016 - 2025”. In this regard, the most important items are the construction of roads and main circuits into/out of Krakow, expansion of the Park & Ride system and the development of the urban transport network, including the use of suburban railway network. One should not forget the bike paths and passageways for pedestrians

2016 September

and cyclists. Transport infrastructure should, first and foremost, serve rapid and efficient movement, while maintaining or even improving the environment in which it takes place.

What will the economy of the city of Krakow look like in 7-10 years?

Krakow is a city of traditions, with deeply rooted values, yet able to look courageously and ambitiously to the future. This is mainly due to the people who live here, the tourists who enrich the urban landscape, the students, who are able to bring to the historic urban spaces joy and openness of young hearts, as well as entrepreneurs, both foreign and local, without which surely the Krakow economy would not be the most recognizable Polish city on the international arena.

The future of Krakow is a city open to the world, a city proud of its traditions, a city that supports the aspirations of its people, creating for them a friendly space for development. These aspects are by me primary components of a modern urban center. The basis for strategic planning in local government is to adopt a proper perspective, with the city a kind of axis for its inhabitants. We need a greater involvement of people in the affairs of the city. Participation is the key to improving the quality of life, the city’s economy, and a bright future for the city. n

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Kraków & Małopolska

Real Estate

Unprecedented surge in new office developments in Krakow Agnieszka Sosnowska Senior Research Analyst, JLL

With 832,900 m2 of modern office space, Kraków has grown into the largest regional office market in Poland outside of Warsaw. On the back of the robust development activity, the 1 million m2 threshold should be crossed by the end of the 2017. Some 303,000 m2 of highest quality office space is currently under construction. Thus an unprecedented amount of space will arrive to Kraków over the course of 2016 and 2017: 136,600 m2 (of which 66,500 m2 was delivered in H1 2016) and 212,600 m2 respectively. Around 40% of the under construction office stock is already secured by pre-let agreements, which is typical for low-vacancy environment.

The new supply will predominantly be developed outside the strict city centre, in the form of extensions to existing office parks (e.g. Bonarka for Business, DOT Office, Enterprise Park, Jasnogórska, Equal Business Park, O3 Business Campus) and in new office complexes (e.g. CH2M Center or High Five). Within the city centre, the areas around Rondo Mogilskie and Rondo Grzegórzeckie look set to become the new Kraków central business district.

Examples of recent office projects in the neighbourhood include: K1 (after refurbishment), Aleja Pokoju 5, Axis, the Unity Centre mixed-used complex, and Browar Lubicz G towards the Old Town.

Kraków is considered an excellent BPO / SSC location worldwide thanks to a combination of factors such as excellent scores in international rankings, talented labour pool and a wide range of instituOffice completions in Kraków

Source: JLL, Q2 2016

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tions supporting the development of this sector in Poland. The international reputation of the city of Kraków is clearly reflected in the sustainable and very strong demand for modern office space. The annual total of 226,000 m2 in 2015 was the best outcome on record (a 56% increase y-o-y and more than double the five-year average). The strong momentum in the Kraków’s leasing market we saw in 2015 continued

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into H1 2016 with around 110,150 m2 let. This also accounted for 41% of total occupier demand registered in major regional cities in Poland outside of Warsaw. The modern business services sector was responsible for 75% of total leasing activity.

Such an unprecedented surge in office demand mirrors the increased migration of occupiers already present on the Kraków office market encouraged by the sizeable amount of new completions, as well as several new market entries. Among the companies that signed some of the most significant leasing transactions in 2015 and H1 2016 were: Shell (22,000 m2), ABB (20,000 m2, pre-let and expansion each 10,000 m2), Capgemini (17,000 m2), CH2M (13,400 m2), Comarch (11,700 m2), Motorola Solutions (11,200 m2), Aon (10,750 m2), Sabre (10,500 m2), HSBC (10,500 m2), and Euroclear Bank (10,000 m2).

Office employment is expected to grow further in the coming years with a clear focus on business services.

The sustained strong demand have pushed the vacancy rate down to a current level of 6.0%, a marginal increase q-o-q (0.3 p.p.) caused by substantial construction activity. At the moment around 50,300 m2 are vacant in the entire city, scattered across 49 office buildings. This indicates that, similarly to the situation observed in 2012-2015, larger requirements in H1 2016 had to follow the pre-let route.

Prime headline rents in the city have held firm in 2015. However, the first months of 2016 brought a marginal decrease in the lower rental band (of €0.20).

Currently, the prime headline rents range from €13.60 to € 14.50 / m2 / month. n

September 2016

Real Estate

Finished in 2016 Name

Investor

Location

GLA (sqm)

ECHO Opolska stage I

Echo Investment

Opolska/29 listopada

DOT Office building A

Grupa Buma

Czerwone Maki

7200

Equal Business Park A

Midvest

Wielicka

7080

Regent Office

Herbewo International S.A.

Prądnicka

5000

Browar Lubicz Office

Balmoral Properties

Lubicz

5000

Green Office Center

Masonia Sarastro

Walerego Sławka

4700

Ujastek 5B

A. Michalski, M. Kowalski

Ujastek

3450

Benaco

DK Development

Pilotów

3225

Jana Pawła 180

MIGAS INVESTMENT

Jana Pawła II

2346

Impol Office

Impol

Conrada

2000

Bronowicka BOAT

Teresa Łoboz

Bronowicka

1600

Name

Investor

Location

Enterprise Park stage IV

Avestus Real Estate

Na Dołach

26400

High Five stage I

Skanska Property Poland

Pawia

23500

Axis

Skanska Property Poland

Przy Rondzie

20000

Echo Opolska stage II

Echo Investment

Opolska

19000

Equal Business Park B

Midvest

Wielicka

17145

Vistula Business Garden

Vistula Business Garden Sp. z o.o.

Konopnickiej

16100

Astris

Astris Lublańska 12826

DOT Office D

Grupa Buma

Czerwone Maki

11520

Zabłocie Business Park A

IMS Budownictwo

Herlinga Grudzińskiego

11274

Halcon Triforium 2

Halcon Triforium 2 Sp. z o.o. S.K.A.

Sołtysowska

11000

Orange Office Park Haga

East-West Development

Klimeckiego

10000

B4B building G

TriGranit Corporation

Puszkarska

10000

Bronowice Business Center 9

MIX Biura

Jasnogórska

9000

Kotlarska 11

UBM Polska

Kotlarska

9000

DOT Office E

Grupa Buma

Czerwone Maki

7615

DOT Office B

Grupa Buma

Czerwone Maki

7200

DOT Office C

Grupa Buma

Czerwone Maki

7200

Park Club

Prestige Property Group

Oleandry

6927

Porto Office B

Detemo Investments

Zielińskiego

5500

Lobos

Lobos Nieruchomości

Medweckiego

4816

Kalwaryjska 33

Kart Sp. z o.o.

Kalwaryjska

3550

Sosnowiecka 75

P&W Developments Sp. z o.o.

Sosnowiecka

3200

Hexagon

Biurowiec Zamknięta Sp. z o.o.

Wielicka 29

2909

Sawig

Sawig Inwest Group

Rondo Matecznego

2500

19200

Kraków & Małopolska

New Office Buildings in Kraków

Under Construction in 2016 GLA (sqm)

Barzak Barzak Kapelanka 2000 Twardowskiego

P.B. Start

Twardowskiego

1670

Pawia Business Center

ALX Property

Pawia

1533

2016 September

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Kraków & Małopolska

Real Estate

Modern Retail Market in Kraków Agglomeration, August 2016 Joanna Tomczyk Research Analyst, JLL

In August 2016, modern retail stock in the agglomeration of Kraków1 totalled 720,000 m² GLA and was distributed over the following retail formats: 13 shopping and shopping & leisure centres (512,000 m2), 2 retail parks (33,000 m2), one factory outlet (22,000 m2), and several standalone retail warehouse units2 (153,000 m2).

The shopping centre density of 494 m2 per 1,000 inhabitants in Kraków region ranks fifth amongst the eight major metropolitan areas of Poland, ahead of Warsaw, Szczecin and Katowice agglomerations. Although the stock of modern retailing in the city may seem substantial, a new shopping centre, namely Serenada is expected to open in 2017.

Average annual purchasing power of the residents of Kraków stood at € 7,321 per capita in 2015 and was 14% higher than the national average of € 6,437.

The amount of vacant space in the shopping centres of Kraków stood at 3.5% at the end of H2 2015.

Today, two schemes may be considered as the market leaders in terms of size, quality and tenant mix: Galeria Krakowska and Bonarka City Center.

Galeria Krakowska benefits from its perfect city centre location, adjacent to the Main Railway Station and close to historical Old Town, and its considerable size of nearly 58,000 m2 with a wide and attractive tenant mix.

Bonarka City Center (91,000 m2) is the largest retail asset in the region, and the fifth largest in the country. Although it has experienced some challenges since its launch in 2009, currently the centre features rising footfall figures and falling vacancy rates.

Currently, development activity in the city is represented by one project, namely Serenada shopping and leisure centre (42,000 m2) by Mayland in the north-eastern district of the city. Delivery of the centre is set for Autumn 2017. After completion, shopping centre density in the city will increase to 534 m2 per 1,000 inhabitants.

Prime rents, which refer to a 100 m2 unit located in leading centres and earmarked for the fashion and accessories category, currently stand at approximately EUR 50 - 55 / m2 / month. n

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September 2016

Krakow warehouse prices one of the highest in the country together accounting for ca. 40% of the total demand since the start of local market development in 2006.

Przemysław Ciupek Senior Research Analyst, JLL

Vacancy In H1 2016, no major changes were observed with regards to vacant space, remaining at a very low 1.3% (2,600 m² in two parks).

Although Kraków remains the second most populous urban centre in Poland, it is one of the country’s smallest industrial markets. This could be put down to a number of reasons such as the city’s proximity to Upper Silesia (80 km from Katowice via the A4 motorway), which features an extensive road network; lower labour costs and rents. Furthermore, the Kraków agglomeration’s limited land supply due to the area’s fragmented agrarian structure and hilly landscape reduces the opportunities to invest in industrial buildings. A lack of availability of labour (low unemployment rate) for Kraków’s industrial sector when

Rents On the back of the limited supply in Kraków, coupled with low-to-no availability, the rents asked for warehouse units are one of the highest in the country. Headline rents for Kraków’s warehouse facilities range between €3.8 and €4.5 / m² / month. Effectively, these rents are between €2.8 and 3.4 /m² / month.

Kraków & Małopolska

Real Estate

Major Selected Warehouse Deals in Kraków in H1 2016 Year

Quarter

2016 2016 2016 2016 2016 2016

Q2 Q2 Q1 Q1 Q1 Q2

Warehouse

Tenant

Deal type

Area (m2)

7R Logistic Park Kraków II Panattoni Park Kraków III 7R Logistic Park Kraków II Panattoni Park Kraków III Panattoni Park Kraków III Logicor Kraków

Teekanne Polska Confidential Confidential Berner Polska Mateus Golden Tile

New deal New deal New deal New deal New deal New deal

5,800 3,000 2,500 2,500 2,500 1,700 Source: JLL, H1 2016

compared to, for example, Upper Silesia, is another reason for the city’s relatively small industrial sector.

As of Q2 2016, total modern A-class industrial stock in the region stood at 208,000 m². This figure accounted for 2% of national stock. Logistic parks are mainly located along or in proximity to the A4 motorway, e.g. western and southern suburban areas around Kraków (Modlniczka, Skawina). On the eastern side of the city, stock includes two schemes, in Kokotów and Tarnów.

In H1 2016, no new projects were delivered to the market, however, an additional 46,000 m² in two projects was under construction - Goodman Kraków Airport Logistics Centre (11,500 m²) and Panattoni Park Kraków III (34,500 m²).

Outlook The Kraków market can definitely be regarded as a subsidiary to Upper Silesia as it cannot be compared with the five largest markets in terms of stock and take-up volumes. On the back of higher land prices and warehouse rents, this location is attractive for those tenants, who need to locate their operations in the Kraków area and are ready to pay higher rent than in Upper Silesia, which is located nearby. However, there is demand for warehouse units in Kraków, yet it is small and infrequent. Vacancy is most often close to zero, and vacated units are usually leased very quickly, which allows for cautious optimism towards further development of this market. n

Demand In 2015 tenants leased almost 120,000 m2, of which 53,400 m² was attributed to net take-up. In H1 2016, tenant activity was quite reasonable with ca. 19,300 m² being leased (of which 97% were new leases) in seven transactions. Reflecting the national pattern, logistic operators and retailers are the major source of demand for new warehouse space in the region,

2016 September

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Kraków Economic Zone

Kraków & Małopolska

Velvet Care invests in Krakow zone Velvet Care, a company known well in the Polish and international markets, decided to make a new investment. The leading Polish manufacturers of paperbased hygiene products is expanding the power plant operating in Klucze by installing state-of-the-art machines producing tissue used in hygienic products.

Then investment will be completed in the Kraków special economic zone at the cost of PLN 170 million.

The company employing 270 people, announced opening at least 50 new jobs. Velvet Care also runs research and development activity, and works closely with institutions of higher education, notably with the technical universities of Kraków and Łódź. n

Blue Divine wins ActInSpace finals

The winner of the Polish edition of ActInSpace (AIS) is Blue Divine 1 from Łódź, who designed an app to let lorry drivers enjoy what is known as eco-driving.

Kraków became the stage for fierce competition for the title of the best Polish concept to find everyday

In Brief Switcher research to be commercialised

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Switcher makes use of an innovative technology that is just entering final marketing phase. The advanced system for the logistics of railway turnouts designed, produced, and developed by the Kolejowe Zakłady Nawierzchniowe “Bieżanów” thanks to the funds from the National Centre for Research and Development (NCBiR) will now go into serial production thanks to a new investment project conducted in the Kraków special economic zone. To make it possible, the Board of the Kraków Technology Park (KTP) issued a permit for the company to operate within the zone.

The company’s investment will include the development and further modernisation of the plant. The purpose is to launch the production of an innovative dumper car with a tipping platform, a safe and precise hydraulic lifting system, and

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uses for space-developed technologies. Our interstellar teams competed in the ActInSpace contest.

Although it may sound farfetched, it is not. After all, the water filters we use in the kitchen were originally made to cater for the needs of space stations and were not brought down to the Earth until many years later. With this in mind, we can easily realise that such ideas can have magnificent business future.

This year, the concepts were assessed by a number of experts, including Marek Moszyński, Vice President of the Polish Space Agency and Bartosz Sokoliński, the Director of the New Technologies Division in the Industry Development Agency (ARP).

The finals were held at the Kraków Technology Park (KTP), which applies an array of means to support new technologies and promotes their application in Polish businesses. The finals gathered four teams: two from Kraków, one from Warsaw, and one from Łódź. All the four were winners of hackathons held previously in Warsaw and Kraków, where they proved better than 7 and 11 other teams respectively. n

special modules increasing the load rigidity and stabilisation.

The Switcher will help to assemble railway turnouts faster, also on tracks dedicated for high velocity trains, maintaining the highest quality and durability of these elements of rail infrastructure as they are highly significant for travel security. n

Lajkonik in the zone Lajkonik Snacks will develop its operation in Kraków special economic zone. Owners of the company decided to increase production, which entails the need to expand production facilities. The new hall will be developed for a state-of-the-art multi-technology line for production of salty snacks. The new line will make it possible to programme fully the process of production and to obtain unique tastes that are certain to find plenty of enthusiasts. The investment outlay will exceed PLN 31.8 million and result in creating at least 30 new jobs. n

September 2016

Kraków Economic Zone

Success of Digital Dragons 2016 Kraków & Małopolska

The jubilee 5th round of the Digital Dragons attracted over 1300

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participants from 30 countries to Kraków.

For two days, the capital of Małopolska became the centre of the video games world and the electronic entertainment sector. The Digital Dragons Awards were presented for the best games of 2015 during the event, which has earned itself a permanent place in the agendas of leading game developers and producers. For the first time, the main partner of the conference was Małopolska Region.

During two days, Kraków’s Old Tram Depot and the Museum of Municipal Engineering, provided the stage for 71 lectures and presentations by world-class specialists in various fields connected to the production, development, and marketing of videogames. The lectures by the brightest stars of the event – John Romero, Chris Avellone, Feargus Urquhart, and David Brevik – enjoyed great popularity, yet crowds arrived in the lecture halls also during the addresses by Polish developers, which corroborates the power and popularity of Polish games sector growing from year to year. Altogether, in the two days of the Digital Dragons, the participants listened to nearly 3200 minutes of talks and lectures.

A special guest of the Digital Dragons 2016 was Prime Minister Jarosław Gowin (Deputy Prime Minister and Minister of Education and Higher Education), who held a press conference entitled “Let’s Play Innovation: Millions for the Support of the Polish Games Sector” addressed among others GAMEINN, a sectoral program addressed to the games industry that the National Centre for Research and Development (NCBiR) announced in May 2016.

For years, the Digital Dragons Awards presentation ceremony has been one of the most important elements of the Kraków event. The awards are presented for the best productions of the previous year. In 2016, The Witcher 3: Wild Hunt proved absolutely beyond match, winning four statuettes in Best Polish Game, Best Polish Game Art, Best Polish Game Audio, and Best Polish Game Design categories. The winner in the Best Polish Mobile Game category was This War of Mine produced by 11bit Studios, and the title of the Best Foreign Game was awarded to Life is Strange, a

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production of Dontnod Entertainment studio. Two special awards were also presented: Małopolska Game Award to Bloober Team for their exceptional contribution to the development of the sector in the region, and Michał Madej from CD Projekt RED was recognised for special contribution to the Polish gamedev. The partner of the gala was G2A.com.

The Digital Dragons was also an opportunity to run another round of the Indie Showcase for independent game developers. This year’s rivalry stood at a very high level, which was jointly emphasised by both conference participants and representatives of the jury evaluating the projects. Among the 60 projects submitted, it was a simulator of the emergency number operator, 911 Operator developed by Jutsu Games, that proved the winner. Besides the statuettes for the best game of the Indie Showcase, the creative artists left Kraków with PLN 10,000 from the Municipality of Kraków in their pocket, and an Oculus Rift from 11bit Studios, sponsor of the Indie Showcase. The runner-up was Crush Your Enemies from Vile Monarch studio, while Book of Demons from Thing Trunk ranked as third.

Community Vote Award went into the hands of Space Boat Studios for Out of Reach. It is worth emphasising that nearly 3000 votes were cast in the online plebiscite.

Another great tractor during the Digital Dragons was the tent of Techland, one of the main partners of the event. Set up in the courtyard of the Old Tram Depot, it attracted developers and conference participants, giving them a short break opportunity, and inviting to participate in numerous competitions and meetings with developers working on Dying Light, the latest hit of the Wrocław-based studio. Techland also used the Kraków event for recruitment, actively seeking personnel for the two AAA productions announced in Kraków and developed at the Wrocław HQ of the company, with the total budget of PLN 300 million.

This year again a session of VC Speed Networking was organised during the Digital Dragons. During the short, two-minute presentations, the participants tried to attract the interest of representatives of 10 investment funds with their game-related projects. A regular element of the conference, the networking sessions enjoy an ever greater popularity, as proved, among others, by the growing number of potential investors participating in the event.

The Digital Dragons continues to develop, following the expectations of game developers. The Kraków Technology Park (KTP) persistently supports the development of this innovative sector of Polish economy. n

September 2016

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September 2016

Start-ups

ABSL StartUp

Interview with Janusz Dziurzynski, Associate Director, Global Business Services, P&G. (A Juror in the project, and Vice-President of ABSL) P&G Global Business Service Centre in Warsaw (GBS) supports P&G business around the world. It specializes in creating tools and systems to support the identification of products and supply chain planning. Janusz Dziurzyński is Director of Global Business Services at Procter & Gamble. He is also a Founding Member of ABSL. Since 2005, he has managed the strategic Global Business Services center in Warsaw. From 2000 to 2002, he was CIO for Poland and the Baltic countries. Then, he managed systems, marketing, sales, and business analysis for Western Europe in the Fabric and Home Care Division in Switzerland.

and Elfinite in the Analytics & Big Data projects category, Lernie, HospiCare and Kadromierz in Customer & Employee Experience and Bin.e, XTPL and Zapakuj.to in Robotics & Process Automation.

The finalists were in 3 categories: Analytics & Big Data, Customer and Employee Experience, and Robotics & Process Automation.

Tell us more about the companies who were finalists (the entrepreneurs, their business models, operating businesses, etc.)

In the category Analytics & Big Data, the Jury chose Grinfy, whose business model is to reduce the energy consumption of computers. HospiCare was the winner in Customer & Employee

Before we talk about the ABSL Start-Up Challenge, tell us a bit about the “start-up” scene in Poland.

The Polish startup scene is relatively young but it is growing very fast and increases from year to year. A study conducted in 2015 estimated more than 2,500 startups operate in Poland. According to statistics only one out of 10 succeeds, which proves it is a challenging area of business.

Poland is a more and more friendly place for development of startups. The local environment supporting innovative young companies has become more accessible. It is also important that local authorities keep trying to create regulations so that startups can be set up and operate quickly and without unnecessary barriers. On the back of this brisk startup environment, a number of business incubators have been created including those located at universities, to help young people take their first steps in business. Numerous business accelerators provide young entrepreneurs tools for their development both in Poland and abroad.

Tell us about the Start-Up Challenge and how its related to ABSL. And why is P&G supporting this?

The ABSL Start-Up Challenge was part of the seventh annual conference of ABSL and was focused particularly on companies/ideas that can improve the business services sector. Big companies can learn agility from start-ups, and can offer start-ups stability and often funding. ABSL created the StartUp Challenge because we want to work together with young entrepreneurs, share with them our knowledge and experience and initiate partnerships. For P&G innovation is the cornerstone of the business.

We consider Poland as one of our key hubs for global innovations. Therefore P&G is open to create opportunities for Polish entrepreneurs, students and graduates to combine their innovation and intellectual potential with sound business capabilities and turn them into sustainable business solutions. For us it means access to innovative, often out-of-thebox ideas, approaches and solutions; for the startups it is an opportunity for business, but also for gaining experience of working with a big multinational.

The ABSL Start-up Challenge was conducted in 3 categories and attracted 40 participants. The contest's Jury selected 9 finalists: Lert, Grinfy,

2016 September

Experience category. The company created an application for data collection and exchange of information between patients and hospices.

Zapakuj.to was a winner in the Robotics & Process Automation category and in the whole Start-up Challenge. This company created a service to simplify and generate efficiencies in the process of ordering packaging for e-commerce companies.

The Start-Up Challenge combines the potential of small, highly entrepreneurial companies who have a fresh, open perspective, are willing to take a risk, and are looking for ideas of what can be done differently – combined with well-established global corporations which can be bring global scale, financial resources, and management know-how. n

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Budget 2017

Budget 2017: No room for error as government optimistic on revenues It may be a close call but it’s unlikely to go Poland’s way.

While the Polish Finance Ministry projects next year’s budget deficit will fall just short of the European Union’s limit, all but one economist surveyed by Bloomberg saw it reaching or exceeding the 3 percent of gross domestic product ceiling.

The shortfall will come in at 2.9 percent, the ministry said in late August, as it cut economic growth forecasts.The deficit is seen at 2.6 percent this year, according to Puls Biznesu daily.

“With government spending rising and the GDP growth outlook facing downside risks, the chances of Poland overshooting the 3 percent-of-GDP target are quite high over the next several years,” said Sharon Fisher, senior principal economist at IHS Markit in Washington. “Although we may see last-minute policy changes aimed at keeping public finances under control, these could pose further risks to the GDP growth outlook.”

2016 September

Only a year after winning reprieve from the EU’s monitoring procedure for budget offenders, the Law & Justice government’s higher spending on family benefits and plans to cut the retirement age next year may make that short lived. Breaching the limit would threaten the flow of 82.5 billion euros ($93 billion) in EU development funds earmarked for Poland through 2020.

Further complicating the task for the nine-month-old cabinet is a souring outlook for the economy. The Finance Ministry cut its growth forecast after measures aimed at spurring domestic demand failed to offset a drop in investment.

The challenge is to reverse an economic slowdown after Law & Justice rattled businesses by imposing new taxes on banks and retailers. The downswing may already be extending into the third quarter, with retail sales and construction for July missing analysts’ forecasts and industrial output unexpectedly contracting for the first time in almost two years.

A preliminary reading for second-quarter GDP showed a gain of 3.1 percent, missing estimates for 3.3 percent growth and barely improving on the first three months, when output rose 3 percent.

Modified Forecasts “Given the present data and the external factors, including possible scenarios for Britain’s exit from the European Union, we have modified the budget forecasts,” the Finance Ministry.

The ministry’s forecasts include economic growth of 3.6 percent next year and 3.4 percent in 2016, from 3.8 percent previously.

Poland’s spending plan is set to grow by over 10 billion zloty ($2.6 billion) next year to 324.1 billion zloty, chiefly thanks to rising value-added and corporate-income

taxes as part of Finance Minister Pawel Szalamacha’s campaign to improve revenue collection.

William Jackson, an analyst at Capital Economics Ltd. in London, says he’s “always slightly skeptical” when expectations of higher revenue hinge on better tax collection. “Small tweaks to spending” are possible to ensure that the threshold mandated by the EU is met, he said.

‘Too Optimistic’ “Even with the government’s latest forecast revisions, I think it may be a bit too optimistic on the growth outlook,” Jackson said. “And that suggests revenues may be weaker than the government anticipates.”

A gradual pickup in inflation, set to average 1.3 percent next year, will create grounds for an even better uptake next year, the ministry forecasts. The revised GDP figures still assume the economy will pick up in the second half and in 2017.

That may be too optimistic.

“There’s a growing risk in the context of economic results, as growth may turn out lower than expected,” said Grzegorz Maliszewski, chief economist at Bank Millennium SA in Warsaw.

“Meanwhile, additional revenue is supposed to come from better tax collection, which is another risky assumption.”

For S&P Global Ratings, which in January handed Poland its first-ever credit downgrade, the budget plan “doesn’t have an immediate ratings impact,” Felix Winnekens, a primary credit analyst, said by e-mail.

The company forecasts “a slightly higher deficit as a result of our lower growth forecast,” he said. “As we said before, we could lower our ratings if public finances deteriorated beyond our current baseline scenario.” n Source: Bloomberg

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Advisory

Are Polish CEOs Ready to go Social?

It’s tough at the top. Hanna Dymek-Jara explains how today’s Polish CEO needs to cope.

ADVISORY

This month’s edition of BizPoland Magazine goes to print at the time of the annual Krynica forum - the largest gathering of top businesspeople and politicians in the Central and Eastern European region. A lot will be discussed over the course of the conference, especially the many risks companies face today.

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It’s hard not to feel sorry for today’s CEO. As if reducing costs, finding the right talent, increasing sales, satisfying shareholders and driving growth weren’t enough already, a CEO now has to consider all sorts of additional risks and opportunities.

From managing cybercrime (named no 1 threat to Polish business in the latest PWC Global CEO Survey) to going mobile, from big data mining to massive technological shifts in business, today’s CEO finds themselves a part-time CDO – Chief Digital Officer.

But nowhere is that dramatic shift more true in the field of communications.

By Hanna Dymek-Jara CEO, Questia www.questiapr.pl

“So in fact CEOs have a double challenge: to act as both Chief Digital Officer and a CSO, Chief Social Officer.”

Let’s be honest - many big and medium-sized Polish companies are years behind Western European equivalents when it comes to marketing, sales and media communications.

According to Poland’s Central Statistics Office, 15% of mid-size Polish businesses have no website at all and only a third use social media to communicate. This is partly because many Polish business leaders have a lot to learn about communications best practice and plenty of other problems they’ll be discussing at Krynica.

The challenge for Polish CEOs is the same one leaders face everywhere.

Today’s CEO needs to be social-ready from day one. It’s not enough to sign off on a media statement and attend trade events to get noticed – not when your competition are developing loyal tribes on Twitter, leading opinion with LinkedIn Pulse articles and promoting their personal brand using targeted paid advertising to custom audiences.

Platforms are one thing, but very often CEOs find it hard to catch that elusive, magic golden goose of ‘authenticity’ and balance the needs of the business with their own professional ambitions.

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This is particularly hard when you have to boil a corporate message on Twitter down to 140 characters and react to consumer criticism in real-time without the reassuring support of a press officer.

So in fact CEOs have a double challenge: to act as both Chief Digital Officer and a CSO, Chief Social Officer. And there is little room to escape this increasing trend. As the CEO of ING Canada, Peter Aceto, has said, ‘Successful leaders will no longer be measured just by stock price. Managing and communicating with shareholders, employees, government, community, customers will be table stakes in the future. They are talking about your business anyway. Why not be included in the conversation?’

It’s precisely because the world is changing so rapidly that time-poor CEOs are being left high and dry in the global race for communication skills. Polish CEOs are not alone in resisting this change. The 2015 Ceo. com Social CEO survey of Fortune 500 leaders showed that 61% of CEOs have no social presence whatsoever.

CEOs could be forgiven for thinking that social media is still a phase, that people don’t ‘do business’ there, and that their personal relationships are enough to support the business objectives.

But in doing so, they miss the ability to engage with customers in real-time, build their personal profile and make their company a more attractive place to work (in a recent Weber Shandwick survey 71% of employees agreed a social CEO is a highly attractive company feature).

They also miss the fact that social media is the internet – the place where commerce, debate and engagement takes place in real time. According to the Reuters Institute for Journalism, 58% of Polish respondents used social media to find out about news with 13% using it as their main source. This number will only grow and will increasingly be mobile-based. To find the customers of the future,

“!They are talking about your business anyway.

Why not be included in the conversation?”

CEOs will need to be present on multiple platforms and comfortable with multiple types of content - from podcasts, to videos and web-streaming.

When even President Duda has his own personal Twitter account and happily uses emoticons at every occasion, Polish CEOs at Krynica should be considering whether they can afford to fall any further behind the curve. n

September 2016

Advisory

While the news of late has focused on cyber-security, e-mail hacking and US politics, allow me to introduce you to what could be a potentially a far more debilitating arrangement, which among my professionals we have nicknamed the “legacy-enviro scam.”

Put simply, this is a scam that highlights where Central European history and politics forces its ugly reality on the unwitting real estate investor or manufacturer. It is based on the following: • Many countries in CEE have historically strict (and often ignored) laws regulating contaminants and land usage with regard to soil, air and water.

• These same countries’ spotty enforcement track record with regard to the years prior to 1989—and to state-owned industries post-1989 can often create a illusion that anything goes and continues to go in your sector.

• Environmental studies and audits are often conducted by small companies without proper laboratory access and without a great deal of forethought.

• Finally, there is outright corruption on a grand scale in this sector throughout the CEE. But we’ll get to this in a moment.

With regard to the other points, the following is the type of situation often seen by our investigators • An investor (typically a fund) has a deadline and is under pressure to make a deal. The target has the manufacturing expertise, the distribution network and capable management. It has also supplied access to the numbers, to relevant permits and previous environmental studies. Based on the last documents, with regard to air pollution, effluent dumped into the river and bore hole soil tests, everything falls within acceptable state norms.

• Thus the deal is done.

• Only there is a problem: the said environmental testing was either outright falsified or polished and now the new owner is left with the risk—and this can include public relations disasters, serious health risks to workers, monster fines and possibly even the need to shut down production.

Yet it does get worse. The new investor learns of these “sudden” issues through the local mayor, regional inspector or head of the local political machine “unofficially.” As in, the hands come out.

2016 September

By Preston Smith Corporate Due Diligence and Investigation (CDDI) sp. z o.o.

Typically, this happens in the request for a donation, new investment (or in the odd case in the appropriation of newly expensive works of art).

Meanwhile, the next round of tests will be conducted probably through the same company that manipulated the first round of tests. In past experience, the CEOs of such companies tend to be related by blood to a former board member, to said city official or both.

Which means everyone is now in it for the long haul whether they like it or not.

Scary stuff. So how to avoid the trap?

• First, a fully competent environmental testing company must be brought in by the investor during the acquisition stage. Even at this level it does pay to conduct a quick screening of the company to ensure against a conflict-of-interest situation, as often big money is at stake.

• Second, part of this check likely will involve traditional detective work. Often the current acquisition target’s board may not be fully willing to divulge site history—or they may not even know the history to begin with. Thus the legwork may need to be put in to track down former workers, owners, security services, etc. to determine just how the site was used. Perhaps a chemical storage tank was located in the far corner of the site for years. Perhaps underground storage or wells were simply buried or forgotten, or there may have been repair works that were for years messily kept.

This last point is critical. Such an “informal history” may be key to successfully testing and protecting yourself from a dangerous investment. Why? First, the testing company will conduct random tests, but bore holes, for example, are expensive. Such testing needs to be guided in order to keep from missing key sample areas.

Second, when the hands come out such histories become formal indeed. It never ceases to amaze victims that those demanding bribes often have very exact knowledge of such matters. They not only know how to threaten but where to test in order to back up such threats. Yet such matters can be easily nipped in the bud. Better yet, they can often turned on the investment target during the negotiation phase, as modern reclamation procedures are not only becoming more effective, but economically viable.

This means enviro-detective due diligence will not kill the deal, but will potentially get you a much better deal and allow you to sleep at night—and we all know how much that is worth.

Preston Smith Corporate Due Diligence and Investigation (CDDI) sp. z o.o.

Detective License RD-69/2016 Preston.smith@cddi.eu www.cddi.eu

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ADVISORY

The dangers of “failed” environmental testing

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Advisory

Tax planning time – don’t forget about land tax!

Many businesses fret over their VAT and CIT compliance and spend lots of time and money getting it right, or entrusting their external accountants and advisers to get it right. However, even the most careful taxpayers sometimes get stung by unexpected tax charges that can spring up

ADVISORY

in the most unlikely situation.

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The past year has seen a significant increase in cases of cash-strapped local authorities looking to milk some extra money from property-owners with highly contentious claims for extra land tax. The problem relates to tax on “construction works” (in Polish: budowli), which includes kiosks and outbuildings, fencing, parking, water, sewerage, power installation and other civil engineering works.

The land tax cost on completed buildings is a fixed amount per square metre, which ignores the construction cost and acquisition cost of the underlying land. However, the tax cost on other construction works is 2% p.a. of the construction cost, which creates the absurd situation that an outbuilding and car park may cost more tax than a main building – as local councils are increasingly realising.

In the latest of a string of disputes to be decided, on 24th August the Supreme Administrative Court in Poznań thankfully struck down an enterprising attempt by the Poznań City Council to impose land tax on a marquee on the basis that it was an outbuilding. If the Council had succeeded, who knows how many council officers around the country would be patrolling the local village fête looking for an opportunity to collect tax from the cake stall.

So what can you do to prevent your local council from extorting taxes on assets which are not really separate assets anyway? The answer is that you need a double layer of defence: • Don’t identify separate assets in your accounting records • Don’t depreciate assets separately for CIT (corporate income tax) purposes The assets which are perhaps most vulnerable to tax include parking, fencing, water & sewerage works, external generator housings, etc. It is common practice to separately identify such assets in order to claim faster CIT deductions. However, this approach is a gift for your local authority: to avoid the 2% p.a. land tax charge, these items should where possible be accounted for as integral elements of the building. You need only consider whether it is practicable for the building to function without the additional works (most unlikely in the case of water, sewerage and in most cases fencing). For firms reporting under IFRS, in any

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By Steven Foster Process Solutions www.ps-bpo.com Steven.Foster@ps-bpo. com

event construction works cannot be separately recognised if they do not independently generate income.

Separate depreciation of construction works for CIT purposes should be avoided because the basis for charge to land tax is the asset cost which has been recognised for CIT depreciation purposes. If there is no separate asset cost for CIT purposes, then the local council cannot collect 2% p.a. of that amount in land tax. Instead the council can only impose tax based on the “market value” of the construction work “established by the taxpayer” on the date that the tax charge first arose. This provides a powerful defence against unreasonable land tax charges, because the open market value of construction work which is not capable of separate use is very likely to be demonstrably lower than construction cost – perhaps even no value. Also it is the taxpayer’s responsibility to establish market value, not the local authority, so there is no reason why a professional valuation arranged by you should not be regarded as authoritative.

“The past year has seen a significant increase in cases of cash-strapped local authorities looking to milk some extra money from property-owners with highly contentious claims for extra land tax.”

Dealing with the authority The most important action you can take is to treat any communication on land tax from your local authority seriously. Too often the damage is done when they are provided with the information that they are most likely to demand. They will demand information on the construction cost of the type of outbuildings and civil engineering works described above, but this should not be given to them, assuming that you have taken my advice and not separately depreciated such assets for CIT purposes. Instead you should: • reject identification of any civil engineering works that are essential to the proper functioning of your building, and • offer your open market value of any stand-alone assets. n

September 2016

CEE Shared Services & Outsourcing Awards Gala, 2nd February 2017 Winners awarded in 26 categories

At the 4th annual CEE Shared Services and Outsourcing Awards, held on 4 February 2016 at Warsaw’s Hotel Intercontinental, 26 companies, cities and individuals were distinguished for their exceptional performance. More than 280 guests from 21 countries – including Mayors and Vice-Mayors – attended the Awards Gala and Forum, which singled out Winners from 136 nominations.

Companies that attended included:

ACCA, Accent Business Training, Accent for Professionals, Adaptive Solutions, Adecco, Advisory Group Test HR, AIG, AIG Lincoln, Alliance for Recruitment, Allianz, ANIS Romania, ASPIRE, AVON, Barclays Group Ops Lithuania, Barclays Tech Ctr Lithuania, Bard SSC, Barona ICT Services Poland, BiznesPolska, Black&Decker, BNP Paribas Sec. Services, Bonnier Business, BP BSC Kft (GBS Europe), BPCC, BPH TFI, Bulgarian Outsourcing Assoc, Buma, Capgemini Polska, Capita, Capita Poland, CBRE, CBRE Corporate Outsourcing, CenturyLink Poland, CFA, CFA Society, CFA Society Poland, CH2M, Ciklum, Ciklum Poland, Cisco Systems Poland, Citibank, Citibank Europe plc, City of Ketrzyn, City of Lublin, City of Poznan, City of Vilnius, Coca-Cola, Colliers, Coloplast Business Centre, Conectys, CPL Integrated Solutions, CPL Krakow, Credit Suisse, CSC, Cushman&Wakefield, CzechInvest, Danske Bank Global Services Lithuania, Danske Bank Group Services, Danske Bank Group Services Lithuania , Danske Group IT Lithuania, Deloitte, DELTA Capital Group, Deutsche Services, DHL, Dixons Carphone, Electrolux Poland, Enterprise Lithuania, Europaproperty, Finelia- FORUM ONLY, Genpact Romania, Germany Trade (GTAI), Global Remote Services, Goldman Sachs, Grafton, GSK Services, GTC, HB Reavis, HCL, HCL Poland, Hungarian Outsourcing Assoc, Intermedix, Invest Lithuania, JLL, Kinnarps, KMD, Latvia (LIAA), Lexmark, MANN+HUMMEL SERVICE, s.r.o., MAYOR - VILNIUS, Mazars, Mettler-Toledo Sp, MoneyGram, NASDAQ, Newsec, NGA Human Resources, NOA (UK), Nowy Styl, Olivia Business Centre, PAIZ, Philips, PM Group, PM Group-FORUM ONLY, Proservartner, PWC, PWC Shared Delivery Centre Katowice, PWCIB, Randstad, RBS, Reed Hungary, SARIO, Schneider, Siemens, Skanska, Softserve, SSC Exec, SSC Heroes, State Street, Stefanini, Strategic Staffing - Lithuania, Sutherland, Tate & Lyle Global Shared Services, TCS, Tele2 Shared Service Center, Transparent, Trellis (Denmark), Turbine Analytics S.A., UCMS, UM Bydgoszcz, UM Lublin, UM Opole, UPS Global Business Services, Urząd Komisji Nadzoru Finansowy , Vastint, Verita HR, Viessman R&D Wroclaw, WBJ, Western Union, WNS

www.ceeOutsourcingAwards.com

Economic Policy

Morawiecki’s plan takes final shape The published Strategy for Responsible Development includes a detailed description of elements of Morawiecki’s plan, but it lacks some key information for investors.

Adam Czerniak Chief Economist, Polityka Insight

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Key Points Reindustrialisation owing to research institutions. Deputy Prime Minister Mateusz Morawiecki wants to base the process of reindustrialising the economy on new sectors of the industry.

As a result, Minister of Development promised to develop research and development institutions – the National Institute of Technology, the ELAMAT laboratory, which develops new materials, or the Cyberpark Enigma centre, which deals in cybersecurity. Ministry of Development is working on a number of flagship projects that would support production in the shipbuilding sector, IT, electric transport or medical technologies. Developing the industry would be also supported by a quality management system and reform of vocational schools.

The state would actively support investment growth. The Polish Development Fund (PFR) would become the key institution responsible for increasing investment. It would offer its support at every stage of the process. In addition, Ministry of Development would set up a rating and analysis centre that would improve the way investment risk is assessed, particularly in companies with small and medium-size capitalisation level. The state will not invest directly, but through a mechanism of loan guarantees and public-private partnerships. The necessary funds would come from pension funds (OFE) and state-owned enterprises that are part of the Polish Capital Group.

Nuclear power and “stable RES” to deliver energy security. The strategy until 2030 includes the construction of two nuclear power plants with a total capacity of 6,000 MW and the development of “stable” sources of green energy – hydroelectric power and biogas plants. Ministry of Development also plans to create a Nomaten laboratory, which would work on the technology of fourth generation nuclear power reactors (today, most of today’s reactors represent generation 3.5). In addition, it also plans to begin working on a small HTR reactor with a capacity of 200-350 MW. MinDev also wants to continue looking for shale gas, extend support for heat and power plants, and implement the so-called capacity market, intelligent metres and restructure the coal mining sector.

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A reform of higher education would ensure research growth. By 2020, Ministry of Development would like the share of research and development spending to increase from 0.94 to 1.7-2 per cent of the GDP. The ministry wants to finish work on the so-called constitution for business, amend the law on supporting innovation and reform higher education. It has also promised to lauch programmes aimed to support business: Start in Poland for start-ups, GLOBAL Inno-Stars for innovative exporters and a support package for creative industries. There are also additional plant to create a state-owned guarantee fund for innovative small and medium-size enterprises, which would enable them to access loans.

Creating new institutions to support exports.

Exports would grow (by 7.2 per cent annually by 2020, against 6.8 per cent in 2010-2014), and their structure would also change. Until 2020, high technology products are to amount to 10 per cent of exports (their exports currently stand at 8.8 per cent). Ministry of Development wants to strengthen the role of Export Credit Insurance Corporation Joint Stock Company (KUKE), and open a new portal devoted to promoting

“The ministry has also promised to lauch programmes aimed to support business: Start in Poland for start-ups, GLOBAL InnoStars for innovative exporters and a support package for creative industries” exports, take an active role at Expo fairs and open new trade agencies that would enable Polish companies to take root abroad. The ministry also plans to actively promote Polish brands overseas and set up, as part of PFR, a new entity that would coordinate the activity of Polish enterprises abroad.

Our View The strategy clears up out some ideas put forward by Minister of Development and other ministries, but the proposals remain sketchy and mainly involve long-term projects, such as the development of the fourth generation reactors, higher education reform, or the construction of Polish electric cars. But the document does not provide answers to a number of questions for the investors, which involve the model of financing the construction of the nuclear power plant, the final model for the coal-mining industry, PFR’s investment strategy, or the total cost for the state budget as a result of implementing the plan. n Dominik Sipiński and Robert Tomaszewski contributed to this analysis.

September 2016

Prawo i Sprawiedliwość

Why would Kaczyński run a Cabinet reshuffle Rumours of a government reshuffle are meant to discipline ministers, but a reconstruction would have a deeper meaning than just removing the weakest of them.

Wojciech Szacki Senior Analyst for Political Affairs, Polityka Insight

Key Points Threat of reconstruction as discipline tool. During the PiS congress in June Jarosław Kaczyński announced that its second phase will take place in December for the purposes of evaluating the first year on office. He also criticised several minsters for being too slow in introducing changes in their respective ministries; similar accusations – aimed also at Beata Szydło – were set out in an interview with the right-wing weekly w Sieci. Such comments are intended to mobilise ministers and encourage them to

continued on page 40

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Prawo i Sprawiedliwość continued from page 39

redouble their efforts. After the reprimand from the PiS leader, Szydło accelerated the implementation of the Mateusz Morawiecki plan, which weakened her position in favour of the deputy PM, while Minister of Health Konstanty Radziwiłł has announced a reform od healthcare system.

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Changes will confirm pecking order within the ruling camp. A reconstruction is formally carried out by the PM and president acting jointly.

In practice, the initiative for personnel changes will, however, come from Kaczyński, who is not content with just being the reviewer of the Cabinet actions. At the congress, he said that he considers himself “the true leader of the camp introducing changes”, so he will not allow Szydło to make the personnel reshuffles independently. Kaczyński will be the one to decide when the reshuffle itself takes place, who will leave their posts and who will replace the ministers deposed, with the role of the PM reduced to a formality. President Andrzej Duda will play no independent role in the changes either.

Opportunity to make structural changes. The reconstruction of Beata Szydło’s government will make it possible to shift competences between ministries. Dawid Jackiewicz’s Ministry of Treasury will be dissolved by the end of the year and, with its elimination, Ministry of Development will be further strengthened under Mateusz Morawiecki. The progovernmental w Sieci has suggested that Morawiecki could officially head all the economic ministries.

Within government circles, however, it is rumoured that a further weakening of Minister of Finances by handing over control over the budget composition to the head of Council of Ministers’ Standing Committee Henryk Kowalczyk cannot be ruled out.

What about the Szydło-Morawiecki conflict? Szydło’s government was constructed to give the ministers a rough balance of power. According to one of the deputy ministers, everyone in the government must feel their opponents breathing down their necks. The exception - thanks to the

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very strong support of Kaczyński - is Morawiecki, who took control of economic policy, thus entering into a direct conflict with Szydło. According to our source within the party, the deputy PM is indispensable as the face of “modern PiS”. If, therefore, Kaczyński considers that the conflict between Szydło and Morawiecki is seriously damaging the image of the government, the reconstruction will involve removing the PM, although this would not necessarily involve the promotion of Morawiecki.

Kaczyński as prime minister? Some of the PiS politicians would like Kaczyński to head the government. This stems from fear of Morawiecki’s influence growing too big and a belief that the current system – with the actual leader outside the structures of power - is dysfunctional. For Kaczyński, coming into government would, however, be risky.

It would do nothing to increase his influence and would force him to undertake tedious office work, as well as changing the image of the government to a more radical one. Szydło manages to play the role of moderate PM, engaged in substantive work.

Kaczyński would lose the ability to replace the prime minister in the future as a method of improving the ratings of PiS in the polls in the event of a crisis.

What’s Next The ratings of Beata Szydło’s government and the PM herself remain high, but so many suggestions of a reshuffle have been made that it appears to be inevitable. Its significance goes beyond a simple refurbishing of image. The key dilemma for the PiS leader is the appointment of a PM in the face of ever-increasing conflict between Szydło and Mateusz Morawiecki.

Kaczyński can keep the current setting, limiting changes to moving a few ministers, but there are other possible solutions: Piotr Glinski could become PM, as could Kaczyński himself. n

September 2016

Equities News

Templeton Funds on equities prospects An Interview with Krzysztof Musialik, SVP and Senior Executive Director, Portfolio Manager and Board Member, Templeton Asset Management (Poland) TFI SA

Polish GDP is expected to grow in the coming years at a rate of over 3 percent. It is a good result compared to other European countries. However, as the investment manager for the TAMP equities strategy, what keeps you awake at night? What worries are there on the horizon?

Growth is expected to continue to grow over the short-term, but there are some areas that pose a risk to this growth and to the Polish economy at the moment. These are in the form of public finances, which could very well come under strain due to government policies. For example, the current administration is planning to lower the retirement age to 60 for women and to 65 for men and to give people more money in the form of handouts via ‘The ‘Family 500+’ benefits program.

This all costs money, and the administration is counting on higher tax collection rates, targeting tax evasion and avoidance to fund this. However, this is easier said than done.

We must remember that the working-age population in Poland is shrinking and therefore, there will be fewer people paying taxes in coming years and more people taking pensions.

Another challenge facing the Polish economy relates to changes in the global economy. For example, as a result of the proliferation of 3D printing, increased automation in manufacturing and an increased reliance on artificial intelligence, some jobs may begin to return back to developed nations. Poland has been competing on the basis of cheap labor (with some small exceptions), which comes under threat by the aforementioned trends.

However, there is still enough time to transform the Polish economy into a more knowledge-based economy, but the clock is ticking…

The recent ratings from Fitch and S&P present somewhat conflicting views on Poland. First of all, please present the case for “optimism” on Poland.

The Polish economy is growing nicely and we genuinely hope this will continue. Investors are still flocking to Poland, into certain industries such as Shared Services Centers. Indeed, every week we are seeing news headlines about foreign companies opening such centers in Poland. Those companies appreciate the foreign languages skills of a young population that generally has elevated levels of education.

2016 September

Looking at the financial picture, public finances in 2017 should OK, but we see some challenges ahead that could begin to appear in 2018.

And what's the “pessimistic” case for Poland?

Generally speaking, Poland is in need of foreign investment. This brings not only capital but also knowledge, better management techniques, and the like. If the country is not perceived as being investor-friendly, then international investor interest in the country will wane. This would have negative consequences on the Polish economy with ripple effects that could be felt on the Polish stock market.

Indeed, some negative developments have taken place, in the firm of, for example, the

Krzysztof Musialik, SVP and Senior Executive Director, Portfolio Manager and Board Member, Templeton Asset Management (Poland) TFI SA

Constitutional Tribunal issue. Also, there are too many regulations and Polish law is being changed frequently. Such developments do not attract investors: neither foreign nor domestic. So, if the country goes down the path of increased regulation, legal instability, and a limitation of court powers, then investor appetite could suffer.

Poland's WIG20 stocks have taken a beating in the last 12 months, while investors in the WIG80 have performed relatively well. What accounts for this?

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Equities News WIG20 stocks have been weak for several reasons.

First, WIG20 is dominated by banks and these have recently been negatively impact by the new state-imposed tax targeting the sector. In addition, there was a real risk that the state would force banks to convert loans taken in CHF into PLN which would mean that the banks would incur significant losses.

Second, other WIG20 constituents happen to be state-controlled companies. We recently saw a development that is less than market friendly, whereby electricity producers were forced by the state to provide a financial lifeline to Polish coal mines.

Also, top managers at some of state-controlled firms were recently replaced, and these changes may have been seen as being political in nature.

So, bearing in mind all of these developments, the overall trajectory has not been positive.

However, on the flip side, smaller companies which comprise the WIG80 were largely immune to the above changes. Very often, these companies have had attractive business models, and this is usually reflected in the bottom line and in the dividends provided. Investors see and appreciate this.

What is the portfolio positioning of Subfundusz Templeton Wzrostowych Akcji Polskich? Which sectors and types of companies do you invest in now?

And which ones are you avoiding?

We do see lots of value in the IT space, and hold such companies in our portfolio. We also invest in some overseas companies as well, in the same sector. Overall, this sector is promising given its strong growth and scalability. We are also interested in the consumer discretionary sector, specifically companies purely exposed to the Polish consumer or those producing for export.

Some of the large international investors we have spoken to have said that Poland's state-owned or state-controlled companies have become the new “Untouchables”. They believe these companies will be “tools of the state” and that funds will be diverted to political aims. What's your view on this?

We continue to monitor developments carefully, and will proceed with caution with state-owned or state-controlled companies. The government has been fairly open about its goals, which have not always been market-friendly. This, coupled with significant reshuffling at the management level, has not always been in best interest of minority shareholders.

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What impact will Brexit have on Poland's economy?

While some experts say it will be negative, others see a “silver lining”.

Brexit can be viewed from many angles. Firstly, the UK is a net contributor to the EU budget. If there is less money in the EU budget, then this is definitely not good for Poland as an EU member.

Secondly, there are 800,000 Poles living in the UK who send a large portion of the EUR 4 billion the country receives annually, according to

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Bloomberg. If they are forced to leave the UK, then this will have negative consequences as well.

However, it should be noted that Britain wants still to have common market with the EU, and the EU stance is to guarantee free labor flows in exchange. Additionally, in my opinion, Poles will not be forced to leave. If, for whatever reason, they must return, then they come back with new skills which are needed by the Polish employers. Thirdly, exports of Poland to the UK are not big (although they have been growing strongly). Looking at new trade barriers, if these emerge, it could cause some companies based in the United Kingdom—particularly in the area of manufacturing—to move to countries which are still part of the EU and may offer more favorable agreements and lowercost labor. This includes Poland, in addition to Hungary and the Czech Republic.

We must remember that the working-age population in Poland is shrinking and therefore, there will be fewer people paying taxes in coming years and more people taking pensions.

Which sectors in Poland stand to benefit, and which suffer from a re-rating of Poland?

A further downgrade could lead to further depreciation of the Zloty. However, this could be positive for exporters. There are some companies that could stand to benefit, such as those in the automotive sector, or more broadly in the industrial space.

Poland has been proud to champion the Warsaw Stock Exchange as CEE's Capital Markets Hub. Yet the previous government's “dip” into the pension fund assets certainly hurt Poland's reputation in capital-markets circles. Now, the new government has decided on further pension fund reform, including a “diversion” of 25% of pension fund assets to the government's development fund. What impact will this have on development of Poland's capital markets?

Shifting 25% of open pension fund assets to a Demographic Reserve Fund is not ideal, as this could create the temptation to use those funds for purposes not necessarily related to pensions.

In my opinion, replacing inflows to open pension funds with voluntary savings (subsidized by employers) should help develop the capital market in Poland. However, taking a step back and looking at the reputation of our capital market, it has suffered lately as a result of the many changes on a frequent basis, but I am hopeful that we could see stability for longer this time. n

September 2016

Banking News

PZU and Polish Development Fund in Milan to negotiate Bank Pekao deal with UniCredit Polish government-controlled insurer PZU SA and its development fund are weighing the acquisition of a stake in the country’s second-largest bank held by Italy’s UniCredit SpA, said a person with knowledge of the discussions.

Talks over Bank Pekao SA are at an early stage and no decisions have been made, said the person, who asked not to be identified because the plans are private. Polish newspapers reported that the heads of PZU and the state’s Polish Development Fund will travel to Italy this week for talks with UniCredit officials.

UniCredit has been selling businesses to build up capital and meet regulatory requirements, a task compounded by the bank’s complex structure spread across some 17 countries. Poland’s government is considering mounting a bid via state-run companies to buy a controlling stake in the country’s second-largest lender from UniCredit to promote local ownership, a plan that has contributed to a drop in valuations for the industry.

“Nobody is sure if UniCredit is keen on selling its controlling stake, rather than raising cash by disposing of smaller parts of its holdings on the stock exchange,” said Marcin Materna, an analyst at Bank Millennium SA’s brokerage in Warsaw. A deal could be far from being reached, he said.

Bank Pekao, in which the Italian lender UniCredit holds a 40 percent stake valued at more than 13 billion zloty ($3.4 billion), declined 3.1 percent to the lowest in four weeks while PZU dropped 3.8 percent to a record low in late August.

Lock-Up Period UniCredit is considering tapping shareholders for as much as 5 billion euros and offloading Bank Pekao and online lender FinecoBank SpA, having already sold more than $1 billion of their shares last month.

The lock-up period for the disposal of further Pekao shares, which took place at 126 zloty, a 6.4 percent discount to the previous day’s market price, is due to end on Oct. 11.

2016 September

Jean Pierre Mustier, a 55-yearold Frenchman who took over as the Italian bank’s chief executive officer last month, said he will present a plan before the end of the year to strengthen capital and profitability.

“The disposal of Bank Pekao could partially offset UniCredit’s capital needs,” estimated at 7 billion euros and “thus reducing the size of the rights issue,” Manuela Meroni, an analyst at Banca IMI SpA with a hold recommendation on the Italian lender, wrote in a note. “On the other hand, the exit from Poland would reduce the group’s longterm growth opportunities.”

A sale of Pekao could help boost the Italian bank’s Tier 1 capital ratio by about 100 basis points, while decreasing the group’s profit by 10 percent, according to Matteo Ghilotti, an analyst at Equita SIM SpA, who has a hold recommendation on the shares.

Milan Visit Dziennik Gazeta Prawna reported that PZU CEO Michal Krupinski and Pawel Borys, head of the development fund, will travel to Milan to negotiate a potential Pekao purchase with UniCredit officials, without saying where it got the information. Agata Nalecz, a spokeswoman for the Polish Development

Fund, which under a government plan to boost long-term growth will manage about 50 billion zloty in assets, declined to comment on the report, as did PZU spokesman Pawel Kozyra.

Treasury Minister Dawid Jackiewicz saying in June that PZU was among the institutions that could help “re-Polonize” the banking industry. PZU’s boss Krupinski told public radio that the insurer, which bought a controlling stake in Polish lender Alior Bank SA in 2015, was in talks to buy “several” banks, but declined to say if Pekao was one of them.

The deal may be “value destructive” for PZU because a government-controlled Pekao would vie for dominance on the local market against another state-controlled lender, PKO Bank Polski SA, which could diminish efficiency, according to Bank Millennium’s Materna.

Lower Valuations Valuations of Polish banks have dropped almost to book value in 2016, when the government imposed the European Union’s highest tax rate on lenders. Shares rebounded this month as politicians opted to soften plans to force banks to convert more than $36 billion in foreign currency-denominated mortgages into zloty to trade around 1.2 times book value this week.

Just one of 24 analysts covering Pekao has a buy rating on the lender, while six have sell or underweight recommendations, according to data compiled by Bloomberg.

“State-controlled lenders are traded with a discount to the market, so investors may start to see the same impact on the Pekao price,” Dariusz Gorski, analyst at Bank Zachodni WBK SA with a sell recommendation on Pekao, said. If PZU buys only a 30 percent stake in Pekao, like it did in Alior so as to avoid triggering a bid for all shares, it could leave an overhang with UniCredit seeking to sell its remaining 10 percent, he said. n Source: Bloomberg

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New hotel

Raffles ready to shake up luxury hotel market in 2017 The only property that Raffles Hotels & Resorts currently manages in Europe is the ultra-luxury Le Royal Monceau in Paris. But that will soon change when Raffles takes over operation of the Hotel Europejski, a historic hotel in Warsaw, after a €65 million renovation.

Located close to the Old Town, the Europejski is the oldest hotel in Warsaw—dating from 1857. In 2013, the heirs of the pre-war owners sold two-thirds of their shares to Swiss businesswoman Vera MichalskiHoffman. After the renovation, the property will have 103 hotel rooms, offices, and upscale shops. The five-star will include spa and sauna, conference rooms, boutiques, and upscale restaurants. Two superstructure floors at the top will be for office space. The architectural design of the building revitalization was developed by a team at SUD Architect Poland.

“There will be nothing comparable on the market,” says Vera Michalski-Hoffman, a Swiss businesswoman who bought twothirds of the hotel from its aristocratic founding families in 2013.

“We’ll expect our offer to be significantly better than anything else on the market,” says Hannah.

Reconstruction began in early 2013 and the building will reopen in 2017 with a 100-room hotel managed by Raffles Hotels & Resorts as Raffles Europejski Warsaw and 6,500 m² of Class A office space.

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History: The hotel originally opened on January 1, 1857. Designed by Enrico Marconi, it was one of the most luxurious hotels in the Russian Empire. It was expanded in 1907 to designs by Czeslaw Przybylski. In 1921, the hotel's owners, including the Puslowski family, took on partners to form the company Hotel Europejski Spółka Akcyjna (HESA).

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The hotel was renamed the Europäisches Hotel during the German occupation in World War II and used to house Wehrmacht officers. It was severely damaged during the Warsaw Uprising in 1944.

In 1945, after the liberation of Warsaw, the original owners received permission from the

The building was transferred to the Orbis state tourist company in 1959 and converted back to a hotel, with Bohdan Pniewski again serving as architect, along with Bohdan Kijowicz. The resulting hotel had 260 rooms and 13 suites.

It reopened to guests on July 2, 1962 as the Orbis Hotel Europejski.

government to rebuild the hotel and set up a cafe in the surviving section of the building. However, before they could rebuild, the hotel was seized by the government in 1948 as a result of the Bierut Decrees. The building was rebuilt from 1949-1951 to designs by Bohdan Pniewski as a military school, with a balustrade added along the top, and a recreation of the ruined sections of the exterior. Many surviving interior elements were removed, including the grand staircase and ballrooms, replacing them were dormitories, classrooms and a gymnasium. The building served as the Military Political Academy (Akademia Wojskowa Polityczna) from 1951-1954 and then as offices for the Ministry of Transport. In 1956 the Polish government decided to return the building to its former use as a hotel. From 1956-1957, the empty building was used to house Jewish emigrants from the Soviet Union.

In 1993, the heirs of the hotel's original owners sued to regain the hotel from the state-run Orbis Hotels chain. The case took 12 years, as Orbis claimed they had constructed the current building and invested a great deal of money in it. The heirs were successful in their lawsuit, and the hotel was handed over to them and closed on June 30, 2005. While preparations were made for a complete restoration, spaces on the ground floor were rented out to shops and cafes, and space in the building was rented out as offices. The structure was completely closed in 2013 and gutted and rebuilt from 2013.

The majority shareholder of the hotel is Vera Michalski-Hoffmann, a Swiss citizen, which together with the heirs of the founding families of the hotel - Przeździecka and Czetwertyński - intends to restore the former glory to this historic building. The idea of the investors that the hotel can become the most luxurious hotel in Poland. n

September 2016

FDI Investment News – Incoming

PE fundraising drops, but Buyout financing buoyant Private equity fundraising for Central and Eastern Europe fell by almost three-quarters in 2015 to €418mn, indicating that the big increase in fundraising in 2014 was temporary, before sentiment towards the region soured again with Russia’s continuing incursions into Ukraine.

However, the report issued on August 31 by Invest Europe (the new name for the European Venture Capital Association) and law firm Gide Loyrette Nouel also shows that PE activity inside the region remained brisk, with investments up 25% to €1.66bn, the highest since 2009, and exits down 2% to €1.2bn, still the third highest ever. All figures exclude Russia.

“Last year’s increase in regional investment activity, at a new post-financial crisis high, points to a healthy and evolving market,” said Robert Manz, managing partner at Poland’s Enterprise Investors and chairman of Invest Europe’s Central and Eastern Europe task force.

Larger firms held back from trying to raise new funds in 2015 because of the Ukraine crisis, emerging market turbulence and the stalling of privatisation programmes in Southern Europe.

Fundraising had more than tripled in 2014 to €1.57bn, by far the highest figure since the global financial crisis. But in 2015 fundraising fell 73% to the below €1bn range it has moved in since 2009, at less than 2% of all European fundraising. Buyout fundraising was down 91% to €107mn, though venture capital fundraising was almost flat at €166mn, representing 40% of all CEE fundraising.

PE firms focused instead on using existing funds to make investments, as well as exiting investments, many of them made in the boom years before the global financial crisis.

Buyout investments increased by 36% to €1.3bn, representing 78% of all investments. Poland accounted for 54% of the total, boosted by CVC’s acquisition of

PKP Energetkya. Mid Europa’s investment in Danube Food Group put Serbia in second place again, with 14% of all investments.

Venture capital investment was down 16% at €84mn, but the number of deals was almost stable at 222, close to the record last year of 228. Hungary was again the most active market, with 57 deals worth a total of €25mn, 30% of the CEE total value.

There were a record number of PE exits at 97, boosted by a doubling of venture capital fund disposals. Poland was again the leader, with 65% of all exits by value (at historical investment cost), followed by Bulgaria with 14%.

CEE private equity investment still represents just 3.4% of the European total, with venture capital investment just 2.2%. Investment reached almost 0.2% of CEE gross domestic product (GDP), compared to 0.3% in Europe as a whole (Serbia’s influx made it one of the highest achievers in Europe at almost 0.7% of GDP). n

B&B Hotels see opportunity in Katowice and Łódź In September, the French hotelier will open two more hotels in Katowice and Łódź. B&B currently has three hotels in Warsaw, Toruń and Wrocław.

B&B Łódź Centrum Hotel, with 149 rooms is located in close proximity to Piotrkowska Street. B&B Katowice Centrum Hotel with 105 rooms is situated is close to the Silesian Philharmonic building. According to Małgorzata Łagodzińska, director, further development plans of the company concern major cities in Poland, including Poznań, Tri-City, Krakow, but also Rzeszów, Lublin and Białystok. “We are also looking for locations in the smaller regional

2016 September

cities, such as Opole, Gliwice where our hotels will have about 100 - 120 rooms. In the case of the larger markets, we can talk about facilities offering 150 rooms plus. Our network of hotels is developing due to signing lease agreements as well as through investments, such as purchase of plots of land”, said Małgorzata Łagodzińska. Łagodzińska said that the development of the hotel market in major Polish cities is a natural consequence of the development of the Polish economy and local economies. “In individual cities, factors such as active policy of local authorities and convention bureau, development of transport infrastructure, MICE infrastructure development, and the appearance of significant

investments a major impact. In some cases a large number of foreign students and different cultural, entertainment or sports events are also important”, says Małgorzata Łagodzińska. n

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FDI Investment News – Incoming

Helicopter hotel in Rzeszow Heli-One, a leading provider of helicopter maintenance, repair, and overhaul (MRO) services, has expanded its Poland facility by 6,000+ m² to accommodate helicopter storage for up to 40 “heavy” aircraft.

The facility provides for a controlled and monitored environment tailored for aircraft storage, allowing helicopter owners and operators to be assured that their aircraft assets will be maintained to proper storage conditions and be made service-ready quickly.

The facility offers a flexible set of storage service offerings, ranging from a minimum of 45 days to as much as 12 months or longer. Accepted aircraft platforms include the Airbus AS332 and H225, Sikorsky S-92 and S-76, and Leonardo AW139. The Rzeszow facility is approved by the Civil Aviation Authority of Poland and provides for around-the-clock staffing and a bonded warehouse.

“We are pleased to open this dedicated storage facility to support operators who require maximum flexibility in aircraft storage solutions,” said Anthony DiNota, President, Heli-One. “Our team in Poland offers a comprehensive solution encompassing preparation, routine maintenance, and returning the aircraft back to service levels quickly, reliably and safely. With decades of experience in helicopter maintenance and logistics planning, the

entire Heli-One team can support the complex needs of short- or long-term aircraft storage.”

Poland is the third Heli-One facility to offer H225 base maintenance capabilities expanding Heli-One’s ability to provide operators worldwide with industryleading helicopter maintenance.

Heli-One also offers H225 base

maintenance at facilities in Delta, Canada and Stavanger, Norway.

The 65,000 square foot stateof-the-art facility in Poland has a maintenance hangar which can accommodate up to six large airframes, a fully equipped avionics workshop, structure shop with a specialized tail boom repair area, and dedicated paint bay. n

Freightliner’s last locomotive from Gliwice In late July, the last Dragon locomotive, produced for Freightliner PL, left the Newag factory in Gliwice. Serving as a test run, the freight train ran from the cokes plant in Zdzieszowice to Dabrowa Gornicza Towarowa yard located near the Huta Katowice steel works.

This will be the last electric locomotive built by Newag in Gliwice.

The rolling stock manufacturer has decided to concentrate all its

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rolling stock construction activities at its main location in Nowy Sącz. The Gliwice factory came into possession of Newag when it fully took over ZNLE in 2015.

During the past 7 years, Newag released 15 new electrics from Gliwice – Dragon E6ACT-001 to 009, E6ACTd-101 to 105 and the prototype E4MSU-001. In the near future, Newag will deliver five new Griffin locomotives for Lotos with an additional diesel module. n

September 2016

FDI Investment News – Incoming

China-Europe Cargo Train brings TCL TV components to Poland TCL Corporation, a global leader in consumer electronics and communications, announced during the summer that its 33 carriages of electronic components transported by the first China-Europe Block Train under the family brand China Railway Express had safely arrived in Poland where they will be assembled into color TV sets and sold throughout Europe including Frankfurt, Paris, Lisbon and Madrid.

The arrival ceremony of the ChinaEurope cargo train in Warsaw was highlighted by the attendance of Chinese President Xi Jingping who was on a state visit to Poland, and Polish President Andrzej Duda.

In the presence of Mr. Tomson Li, Chairman and CEO of TCL Corporation, President Xi introduced to his Polish counterpart TCL’s investment in Poland and its connection with the country,

2016 September

emphasizing that 33 of the 41 carriages of products are electronic components from TCL, one of China’s biggest home appliances manufacturers. Meanwhile, Chinese Foreign Minister Wang Yi also conversed with Tomson Li. TCL’s Poland fabrication plant, covering 105,000m2, is the biggest Chinese-invested manufacturing plant in Poland. With 5 production lines and 284 employees, it has an annual capacity of 4.5 million assembled TV sets, which can be transported to Frankfurt and Paris within one day and to Lisbon and Madrid within three days.

Currently, 90% of the components assembled in the plant are transported by railway from China.

“While Poland is committed to reindustrialization, China is pressing forward with international cooperation in production capacity.

The two countries can strengthen their cooperation on energy, infrastructure, freight and logistics,” said Tomson Li, Chairman and CEO of TCL Corporation. “TCL should leverage its industrial capability to take root in Poland by establishing a manufacturing base and R&D center in the region, so as to be an integral part and a booster in the process of Poland’s reindustrialization.”

Facing opportunities brought about by China’s “One Belt, One Road” initiative, TCL is positioning itself to be a global provider of smart products and Internet application services, and is planning to further expand its presence in emerging markets overseas. By strategically transforming to the “smart + Internet” and “products + services” business models, TCL wants to provide consumers with better user experience and connect the ecosystem with potential global partners.

TCL Corporation is a global manufacturer of smart products and provider of Internet application services. n

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Warimpex to build 3 offices in Krakow and Łódź Ogrodowa Offices is to be constructed at ul. Ogrodowa 8 in Łódź and will comprise 26,000 sqm of office space. It will consist of seven abovethe-ground floors and two underground floors with a car park for 370 vehicles. Each floor will have an area of 4,700 sqm. The plot was acquired in a tender organised by the city and a building permit has been issued.

“At present, archaeological work is being carried out on the plot, but we do not anticipate any difficulties.

The construction will start in the second half of 2016,” says Alexander Jurkowitsch, a member of the management board of Warimpex.

The project has been scheduled for completion at the end of 2017.

And in Krakow, the company will start the construction of the Mogilska Office building, which will be situated at ul. Mogilska 43, due to open in 2017. It will have 12,500 sqm of office space with nine above-ground floors and three underground, including 243 parking underground parking spaces. The two projects will consume approximately EUR 30

mln per building. Another office in Krakow, Chopin Office, scheduled to be open in 2018, will be built at ul. Przy Rondzie 2. It will have 21,500 sqm of office space in total, with nine above-ground and three underground floors.

In Q1 2016 Warimpex also sold its 50 pct stake in Parkur Tower in Warsaw to UBM, leaving the latter as the sole proprietor of the building. The company has not disclosed the value of the transaction. In addition to this, the developer owns a plot in Białystok designated for a hotel or office development.

“We are in negotiations with operators interested in opening a three-star hotel,” reveals Alexander Jurkowitsch. In 2015 the sales income of the group fell by 16 pct to EUR 61.9 mln. “The firm’s negative financial results for 2016 so far are mainly due to losses on the value of real estate, unrelated to cash flow, and exchange losses also unrelated to cash flow.

However, this trend is only temporary and may turn at any moment in our favour, as soon as the Russian economy bounces back,” says Franz Jurkowitsch, the president of the management board of Warimpex. n

Aspöck Group in €9 million site expansion

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Austrian group Aspöck, Europe’s leading manufacturer of ready-made lighting systems for towed vehicles of all types, completed its Kluczbork site, near Wroclaw, representing an investment of € 9 million. In addition to its production sites in Austria, Portugal and Brazil, the site in Poland is its fourth plant. From the concept stage through to series production, Aspöck develops, tests and produces solutions in the field of lighting in the truck & trailer, automotive, caravan, motorcycle, agricultural machinery and special vehicle sectors. In the course of eleven months, approximately 4,400 m² of production, warehouse and office space have been constructed, which now provide jobs for more than 40 employees.

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The focus of the newly-built production facility is on the injection- moulding, plating, assembly and logistics processes. The plant is being used for managing projects from the automotive sector and for expanding capacity for truck & trailer customers. Product manufacturing for Thule started at the beginning of this year, and three Volkswagen projects will follow shortly.

The branch in Poland has been equipped with the latest injection-moulding machines, which have a clamping force of 110 - 1100 tonnes and can handle up to 3 components. Also part of the new stock of equipment are the plating machines, such as robots, which facilitate

the production of technically demanding plastic products.

Capacities for the Polish site are far from exhausted. The Aspöck Group plans to make further investments in the future so as to expand the range of products, to achieve greater flexibility and to continue to enhance its ability to compete.

The implementation of the quality management systems ISO 9001 and ISO TS 16949 as well as SAP and its auxiliary systems ME and EWM at the Polish site point to stable and high-quality production. Together with an experienced IT specialist, the production processes of the Polish site have been integrated into the central ERP system in such a way that they can be controlled from the head office in Austria. n

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FDI Investment News – Incoming

UBM: new 4-star hotel in Gdańsk with Immobel and Multibud The planning has already been completed and construction is set to start in autumn 2016. In 2015 the number of arrivals in Gdansk rose by 13.1 percent to 814,000 while overnights held steady. The business travellers during the week and tourists at the weekend thereby promise above-average occupancy rates. The operator of the hotel has not yet been determined; talks are underway between InterContinental Hotels Group and the Holiday Inn brand.

The plot is situated on the Wyspa Spichrzów Island in the centre of the former Hanseatic city and is part of a visionary urban development revitalisation project. By 2023 a consortium of the Polish Multibud and Immobel Poland intends to create a whole new quarter on an area of 1.7 hectares under a concept developed by Düsseldorf architects RKW RhodeKellermann Wawrowsky; the quarter will consist of residential buildings, retail space and the 4-star hotel.

In the course of the PublicPrivate Partnership with the City of Gdańsk, the shopping area that was completely destroyed in WWII along with its brick houses and offices should be transformed into a lively quarter, appealing as much to tourists as to residents.

The first buildings in the new urban development will be the

new hotel as well as a residential and commercial building. The project also includes a central square that will be home to cafes, restaurants, galleries and clubs.

The investment costs are estimated at EUR 100 million. In addition, Multibud and Immobel Poland are investing more than EUR 10 million in public infrastructure such as roads, harbour facilities and bridges. The costs of the UBM hotel and the office will be around EUR 32 million.

RKW’s design builds on the artistic forms of the historical city. For example, the new buildings should have sharp edges, as if cut from a block. In this way, the form, proportions, materials and colours of the hotel are also based on the historic buildings.

The main idea is to harmonise and accentuate the contrast between the historic Hanseatic city and the new city in such a way that each of them enhances the impact of the other.

UBM Polska is responsible for the detailed planning and the construction. The property development will consist of two seven-storey buildings with 13,700 m² floor space and 236 rooms.

With the 4-star building, UBM is also erecting the city’s most sustainable hotel. The project is setting new standards for Gdańsk in terms of energy efficiency, heat recovery, ecological construction materials and farsightedness. “In line with our high standards, the property should be certified in ‘Gold’ to the Leadership in Energy and Environmental Design programme (LEED)”, explains UBM COO Martin Löcker. “The location is exceptional. We are confident that the fantastic location and the open-lobby concept will make this hotel in Gdańsk the first choice for business travellers and holidaymakers”. n

Norwegian company Libertech opens its office in Poland Based in Norway Libertech Group has signed a lease on more than 700 sq m of office space in Warsaw Spire. The company intends to set up in Poland its headquarters for the CEE region. Cushman & Wakefield has advised the tenant in the lease negotiations. It will also coordinate and oversee the office fit-out.

Libertech Group (formerly CompareKing) is an IT services provider, developing comparison

2016 September

platforms for financial and insurance products. Its mission is to build consumer-centric technologies to revolutionise the way people access and use financial services globally. The company currently operates in Norway, Sweden and Poland and it plans to expand to the Asian market in Singapore by the end of the year.

“This office space will aid us in our Polish and international

expansion. Warsaw Spire provides the perfect stage from which to expand in CEE”, said Rene Skaflestad, Managing Director at Libertech.

The Norwegian company has decided to establish its headquarters for the CEE region in Warsaw, attracted by Poland’s favourable economic environment and access to highly skilled workforce. n

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TVN and Scripps Networks management changes Scripps Networks Interactive

Kenneth W. Lowe, Chairman, President & CEO of Scripps Networks Interactive said: “TVN has been an incredibly valuable acquisition for Scripps Networks, and continues to break new ground in developing and monetizing compelling content for Polish audiences. Markus Tellenbach is an accomplished media executive who has positioned TVN for sustained growth in both the linear and digital businesses. We thank him for his leadership and collaboration since the acquisition by Scripps Networks, and for his service to TVN over the last seven years.”

“Jim Samples has been instrumental in the success of our international business over the last year, and his deeper involvement in Poland will enable continued integration between TVN and our wider global operations. The outstanding management team at TVN has been integral to the company’s recent success, and will ensure that the business continues to go from strength to strength in the future.” n

announced that Markus Tellenbach is stepping down as President and CEO of Polish media company TVN. Jim Samples, President of Scripps Networks’ international division, will assume leadership of TVN as President of the management board, based in TVN’s Warsaw offices. Samples, who heads TVN’s supervisory board, will lead the company until a new senior executive for TVN is appointed. The move comes a year after Scripps Networks Interactive completed its acquisition of TVN. During that time, TVN has further solidified its position as Poland’s leading multiplatform media company. In 2016, the TVN portfolio has improved its market share among Polish audiences, while the main TVN broadcast channel further cemented its position as the leading network in the country. TVN’s digital player has become one of the fastest growing OTT services in Poland.

Asseco expands its activities in the African market

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The development of African countries requires intense computerization. This is an opportunity for IT vendors to further grow their businesses in this part of the world. Asseco Group organized a workshop in Angola for nearly 80 participants - representatives of the energy sector and public administration. Asseco experts presented the chosen solutions and case studies from both the European and African markets.

The meeting was also attended by the Ambassador of Poland in Angola, Mr Piotr Myśliwiec.

The conference, which took place in Luanda on July 6 was attended by experts from the companies within the Asseco Group:

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Asseco Poland, Asseco Central Europe, and the Portuguese Exictosa. Meeting addressed to the energy industry was attended by representatives of the management boards of companies active within the production, transmission, distribution, and sales areas, as well as representatives of the Ministries of Energy, Telecommunications, and

Finance. The speakers presented products from the Billing, Asset Management, and ERP areas, as well as a case studies, like the one concerning implementation at the Tauron Group. Meetings with representatives of the IT Institute responsible for the computerization of public administration followed the next day.

Maciej Tadla, International Business Development Manager: “We met with key IT executives and managers, representing both business and the government.

These discussions lead to further sales coordinated in the area by Exictosa representatives, as well as planned reference visits to Lithuania and Poland.” n

September 2016

FDI Investment News – Incoming

Zalando to launch new distribution hub near Szczecin Zalando, Europe’s biggest pure online fashion retailer, plans to open two new distribution hubs in France and Poland next year, stealing a march on competitors by cutting average delivery times by 1-2 days in an market where prompt dispatch is key. The two new centres located close to Paris and Szczecin will be its only foreign hubs outside of Milan and should help Zalando better cater to its French market as well as customers in Poland and the Nordics, Head of Operations David Schroeder said.

Faced with growing competition from Amazon which is expanding into fashion, Zalando is also investing in logistics and technology to offer customers more delivery options.

“Logistics play an incredibly important role for the success of our firm,” said Schroeder. Delivery time, costs and the returns process heavily influence levels of customer satisfaction, he added.

With customers growing to expect ever faster, cheaper and more convenient delivery, analysts believe e-commerce retailers like Zalando and rival Asos are better positioned than their bricks and mortar peers.

Zalando’s warehouse and logistics network enables it to currently offer same-day delivery to 12 percent of the European population and next-day delivery to 56 percent. By 2020, it

expects this to rise to 20 percent and 75 percent respectively.

In future, a package may even be able to locate the customer by using a GPS tracking sensor, Schroeder said.

“We have this vision that the package should fit in with the customer’s life and not that the customer should fit in with the package.”

Stamping By Hand Established in 2008, Zalando’s founders used to package every single order by hand in a Berlin apartment and stamp the wall with a postmark to celebrate each parcel they sent. The company has since grown to become Europe’s biggest online-only fashion group by sales with revenue of 3 billion euros (2.6 billion pounds) in 2015 when it handled some 55 million packages.

Zalando has four distribution hubs in Germany and opened a warehouse in northern Italy at the start of this year. Managing board member Rubin Ritter said last week it was weighing up the Nordics, Spain, Britain and France for further satellite hubs. “Now is the right time to start the next phase and pay more attention to local customer needs,” Schroeder said.

The company no longer wants to be simply Europe’s biggest online fashion retailer, but market leader in Germany, France, Italy and other individual countries. That will only work if it differentiates its service according to country, he said. While Germans like to pay by invoice, the French prefer to use credit cards and in Italy and Poland customers like to hand over cash on delivery. “You are only successful if you approach every single market in a targeted way,” he said.

Zalando will invest 150 million euros in a 130,000 square metre distribution centre close to Szczecin, which will open next summer and employ over 1,000 people, he said. In addition, Zalando will open a local warehouse operated by an external provider close to Paris at the start of 2017, which will allow same-day or next-day deliveries to customers. “If we continue to grow our sales by 20 to 25 percent, we will need new logistic capacity in one to two years,” Schroeder added. n

SEGRO builds Tesco new warehouse in Poznan SEGRO is building Tesco a new 30,000 sq m distribution centre at its Logistics Park Poznań in Poland. Tesco is a new SEGRO customer in Central Europe and will begin operations in the BTS (buildto-suit) building at the end of September. It will be Tesco’s main warehouse in Poland, delivering to 140 retail outlets in the north and north-west regions. Magdalena Szulc, Business Unit Director Central Europe, SEGRO, said: “We are pleased that Tesco has joined

2016 September

some of SEGRO’s leading customers in Central Europe. Undoubtedly one of the deciding factors for Tesco was the good location of the Logistics Park in Komorniki, Poland’s central region, which allows for good distribution across Poland, and also in neighbouring western countries through its proximity to the A2 motorway, which is the main transport corridor between Western and Eastern Europe. We are currently exploring the growing importance

and potential of the Wielkopolska region, and have plans to continue the expansion of our Central Europe portfolio.”

With the completion of Tesco’s distribution centre, the SEGRO Logistics Park Poznan Komorniki will provide over 206,000 sq m of warehouse space. The Park is located 10km from the city of Poznań, next to the A2 motorway and express way S5, with a cycle path offering unrivalled access for Tesco workers. n

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DocPlanner raises $20 million in VC funds to buy Spanish firm Spanish firm Doctoralia.com will be bought by DocPlanner, which operates in 25 countries, DocPlanner will use proceeds for further expansion into new markets and continue developing its booking platform. The fundraising brings DocPlanner’s total to $34 million, and it includes investors such as Target Global, ENERN Investments, EBRD, Point Nine Capital, Piton Capital, and RTAventures. “We have the ambition to become the clear number one global online platform for healthcare,” said Mariusz Gralewski, founder and CEO of DocPlanner, in a statement. “In our key markets, we are actively growing the supply of doctor calendars available to patients online and are focusing on delivering a

top quality experience for both sets of users.”

But competition looms. In the U.S., ZocDoc of New York raised $130 million last year, giving it

a valuation of $1.8 billion. And in France, Doctolib raised $20.5 million to help it expand into six new European countries in 2015. n

HKScan’s Polish bacon plant to be expanded As part of its profitable growth strategy, HKScan has decided to start an expansion investment of the Group’s bacon plant in Swinoujscie. The investment will augment the unit’s capacity and provide state-of-the-art production technology enabling the Group to develop new products and improve its product quality.

HKScan’s production plant in Poland is one of the Group’s most technologically sophisticated

units. The investment will enable HKScan to strengthen its position in the growing bacon segment and the high value added product category, which are both among the Group’s strategic focus areas. The investment is valued at approximately EUR 12 million and it is scheduled for completion by the end of 2017.

HKScan is the leading Nordic meat expert, selling, marketing and producing high-quality,

responsibly-produced pork, beef, poultry and lamb products, processed meats and convenience foods under strong brand names.

Customers are the retail, food service, industrial and export sectors, and our home markets comprise Finland, Sweden, Denmark and the Baltics. In 2015, HKScan had net sales of approximately EUR 1.9 billion and some 7 400 employees.

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Japanese YASKAWA opens office in Wroclaw

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The products of the Japanese company have been available in Poland for many years, however, the decision to open the office in Wroclaw was made only recently. Manfred Stern – CEO of YASKAWA Polska Sp. z o.o. and YASKAWA Europe GmbH, European headquarters of the company – explains the main reasons for this decision: “With the new office in Poland, we want to be closer to our customers and intend to strengthen our

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position in the Polish and European market. Poland is 6th biggest European industry with very good opportunities and Wroclaw is a city with a very good infrastructure such as the airport, highways and a strong academic centre. Furthermore, many companies have already chosen this city for their offices and production facilities.”

Many guests attended the grand opening of YASKAWA Polska Sp. z

o.o. including the Japanese ambassador in Poland, local politicians, customers, business partners and the press. More than 120 guests had the opportunity to see the training centre equipped with robots, testproduction lines with Sigma-7 servo drives, the latest GA700 inverters, VIPA PLCs and Panel PCs. The new training centre offers perfect conditions for customer support and training purposes. n

September 2016

FDI Investment News – Incoming

Everbright International expands into Waste Management Market in Europe China Everbright International Limited announced its EUR 123 million acquisition of Poland’s leading waste treatment company NOVAGO Sp. Z o.o., including EUR118 million equity purchase price and EUR5 million land bank.

The acquisition of NOVAGO is groundbreaking and the largest Chinese acquisition in environment industry in Central and Eastern Europe. It is in line with the “One Belt One Road” initiative, under which China has agreed to strengthen cooperation with Poland in environment and renewable energy fields after President XI, Jinping’s recent visit to Poland.

Established in 1992, NOVAGO is the largest independent waste treatment company in Poland. It was awarded as one of The Most Dynamic Polish Company by Forbes in 2016 and The Fastest Growing Polish Company by Gazele Biznesu in 2015. NOVAGO has a leading position in the mid-to-upper stream of the waste treatment value chain in Poland, maintaining over 30% market shares in its core operating regions – Warsaw and Olsztyn Province.

It has gained rich local expertise and developed a business portfolio includes municipal waste treatment, waste recycling and landfill for biogas production, production of high-calorific alternative

fuel RDF (refuse-derived fuel), and biogas cogeneration.

NOVAGO has built six technologically-advanced production sites in four provinces with 890,000 tonnes of waste treated in 2015. NOVAGO is also the quantity and quality leader in production of high-calorific RDF from municipal waste, and the leading supplier of alternative fuels to cement plants in Poland.

NOVAGO has maintained an extremely high growth rate in the

past few years. In 2015, NOVAGO’s revenues reached PLN135 million.

Mr. Chen Xiaoping, CEO of Everbright International, said, “This acquisition serves as an important platform for Everbright International’s overseas development strategy and a solid foundation with strategic significance laid for future expansion in the Central and Eastern Europe market. The business can be further expanded by integrating the Group’s advanced waste-to-energy technology and NOVAGO’s abundant local expertise. Moreover, NOVAGO’s success can be brought back to China for replication. We believe the common management philosophy and development plan shared by NOVAGO and us would facilitate the cooperation and create tremendous amount of synergies from this transaction.”

Michał Dąbrowski, VicePresident of the Management Board of NOVAGO, said: “Our shareholder Abris’ strong support and strategic vision helped us to reach new heights and, as a result, NOVAGO became stronger in every aspect. Now together with such an experienced new shareholder as Everbright International is, we feel a renewed enthusiasm for the future and believe this acquisition could further strengthen our market leadership.” n

Chinese factory in Gdansk Chinese manufacturer Chunxing Group has opened a factory in Gdansk. Chunxing Group is one of the world’s leading producers of aluminium components used for telecommunication, automotive and medical sector employing around 5000 people. The company provides products to other organizations, such as NSN, Flex, Philips, Samsung and Schneider.

Now Chunxing Group opens a prototype factory in Gdansk,

2016 September

mainly responsible for warehousing and logistics in Europe. The factory in Gdansk is a first stage of further development of Chineese group to the European market.

In next 3-4 years further actions will take place, according to Steve Sun – head of sales and marketing in Europe in Chunxing Group.

The localization of the factory was specified on the geographical basis and access to the potential employees. From Gdansk Chunxing Group

will have easy access to the Central and Eastern European customers which will reduce time needed for transportation. Also harbour in Gdansk has a direct sea connection with China and the company may find well qualified workers in Poland. This investment is especially interesting from the economic and political point of view, the relation between Poland and China may strengthen and become more solid. n

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Investments in the Slupsk SEZ In the first half of 2016, Slupsk Special Economic Zone issued 6 business for investors that are planning to invest PLN 63.62m and create 73 new jobs in the zone. Permits were given to: AMG (producer of containers and steel structures), Grupa Sportex that will build a galvanizing plant as well as to AJ Food that will create a warehouse for food storing.

Fabryka Flag Factory Linea will expand its investments in the zone, Laminopol will build a production and warehouse plant with R & D centre. Similar plans have BranQ, while JAS-FBG will build a warehouse and office building.

Slupsk Special Economic Zone covers the 910 hectares of investment located in two provinces: Pomerania and Zachoniopomorskie. 60 companies have already invested PLN 1.6bn and created 5,900 new jobs in the zone. n

Pure Energy, Xerima, and Bispol new in Mielec SEZ

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Industrial Development Agency (ARR) issued four next permits to investors. In total, in 2016, 23 new investments entered the zone. Among companies that will provide business activity in the zone there are: Bispol, that will invest PLN 10m and increase employment by at least 25 people. On the other hand, Pure Energy Systems is planning to launch the production of photovoltaic modules in the zone. The project is estimated at PLN 41m. The company also declared the will to employ 49 people. The third investor is Press-Media that plans to launch the production of devices for medical and aviation sectors.

Also XERIMA Jan Szwakop will invest in Mielec SEZ by building a production and warehouse hall with office space and creating infrastructure. n

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German Sitech opens in Wrzesnia Owned by Volkswagen, German Sitech on 18 August has opened a production plan in Wrzesnia. The investor will produce complete seats for the new Crafter, which will be produced in VW plant in Wrzesnia. Both projects were supported by PAIiIZ and VW investment itself has been one of the biggest in the Agency’s portfolio. Sitech production centre in Wrzesnia is the first Polish plant of this German company, where the complete car seats are to be produced. The factory was built especially for the needs of VW Crafter production. Sitech seats will be provided to VW in Wrzesnia according to “Just in Sequence” system. It means delivering in an exact time, directly to the production line.

Sitech also owns production centres in Polkowice and Glogów.

Poland is becoming increasingly important as a partner for this producer. “Developing our competence in Poland has a strategic meaning for our future”, said Sitech chairman Thomas Hegel Gunther, during the plant opening. “Wrzesnia offers us the perfect infrastructural and labour conditions”, added Sitech’s CTO and the Polish plant

director, Adam Holewa. The new factory in Wrzesnia will provide at least 80 job positions. Sitech VW Crafter seats production will begin this fall. n

Two business permits in Pomerania SEZ Wyspa Ostrów in Gdansk that since recently is governed by Pomerania Special Economic Zone has attracted its first investor - Montex Shipyard. Also, SPG Polska joins the group of investors in the zone.

Pomerania SEZ is revitalizing the shipyard area in Wyspa Ostrów to prepare it for new investors, including Montex Shipyard. The company is to create a production plant assembling large steel structures.

Montex cooperates with such Polish shipyards as Stocznia Gdansk, Gdanska Stocznia Remontowa, as well as with partners from

Norway, Germany, Sweden and the Netherlands. The business permit also went to the SPG Poland, specializing in printing on laminates, foils and paper used in the production of packaging for the food industry. The company intends to equip its plant in a new production line and thus increase the production capacity.

Since the beginning of 2016, the Pomeranian Special Economic Zone issued 8 permits which may provide jobs for over 450 new jobs and the total value of investments amount to PLN 115m. n

September 2016

FDI Investment News – Incoming

Taiwanese TexYear in Gniezno 100 people will be hired in the Taiwanese company Tex Year, which has begun the construction of a new plant in Gniezno (Wielkopolska).

The factory will be built in two years and operate under the KostrzynSlubice Special Economic Zone.

Currently, the company employs 20 people. After opening the new plant in Gniezno, this number will increase to 100 people. Tex Year is a manufacturer of adhesives, mainly for industrial purposes, including eco-friendly, toxic-free, hot melt adhesives. The Taiwanese company Tex Year has been operating for 40 years. Its products are distributed in more than 120 countries. Currently, the company has six factories. They are located in: Taiwan, China, India, Vietnam. n

Materialise in 33 million pln 3D factory

PLN 430m and 430 new jobs in Ujazd

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IFA Powertrain Polska has just started building the factory of drive shafts in Ujazd. In the investment that is worth PLN 430m in total, 430 employees will find new jobs. IFA Powertrain is a global manufacturer of drive shafts and car accessories.

In Ujazd (Opolskie province), on 12,95-hectar plot, the company is constructing a plant of automotive accessories for such companies as Daimler AG. Investment of IFA Powertrain is one of the biggest projects established in Katowice Special Economic Zone during the four years. n

Belgian company Metrialise is building a plant that will produce 3D printing objects and prototypes of products in Bielany Wroclawskie.

The project is provided with the Euro-Wislosan SSE. Headquartered in Luven, Belgium, Materialise is operating in additive manufacturing industry, also known as 3D printing. The company is cooperating with biomedical, clinical, automotive and other industries.

The investor declared to spend at

Qumak’s ICT Share service centre in Plock

Henniges Automotive to open first Manufacturing Plant

Qumak has just opened a Service Desk Centre in Plock, Mazowsze province. The company is operating on the telecommunication and IT market since 30 years. The centre in Plock will provide comprehensive outsourcing services of IT support for business clients of telecommunication operators. In the center, internal R&D processes will be developed. In the incoming months, Qumak plans to hire 200 professionals with various skills. n

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least PLN 33,2m to build the new plant in Bielany Wroclawskie. The company is also planning to hire 18 new employees. In the first half of 2016, Euro-Park Wislosan has issued 8 new business permits for companies to operate in the zone.

Six of them have Polish capital.

The total worth of the projects incoming to the zones reached PLN 193mln. This year’s investors declared the will to create 257 new jobs in total. n

Henniges Automotive Holdings, Inc., a leading global supplier of highly engineered sealing and anti-vibration components for the automotive market is opening a plant in Prudnik, Opole region.

The company expects to add more than 500 team members over the next five years.

The production is to star on 1 September 2016. Until then, the Prudnik municipality will renovate the old halls of the former company

Frotex. Henniges is another automotive investor that chose the Opole region. Among those who are already in the region there are: Mubea or Tru-Flex in Ujazd, Global Steering Systems Europe and Polaris in Opole or Donaldson and Johnson Controls in Skarbimierz.

The project of Henniges was supported by the Investor and Exporter Assistance Centre operating at the Opole Centre for Economic Development. n

September 2016

FDI Investment News – Incoming

Italy’s Gimatic opens in Częstochowa Italian handling equipment maker Gimatic has launched a branch in Poland, Gimatic Polska.

The Italian company says it specialises in pneumatic and electric grippers for industrial automation, and makes machinery for handling, plastics, mechatronics and sensors industries. Its plastics division produces “components for the plastics field and offers a vast range of products, such as modular clamping systems, quick changers, grippers for engagement, selfcentering and not self-centering sprue grippers” and many other products, according to Gimatic.

“Gimatic Polska is a very young entity, but, owing to the previous activities of our well-established distributors in Poland, the Gimatic brand is known and appreciated in this market,” said Paweł Łakomy, the managing director of Gimatic Polska.

The Polish subsidiary is based in Częstochowa, in the country’s southern part. Prior to the establishment of the Polandbased subsidiary, the products

of Gimatic’s plastics division had been distributed in the Polish market by local firm Dopak, according to data from the Italian manufacturer. n

Three investors in Zielona Góra Lubuski Industrial and Technology Park works at full steam. Recently, the Park attracted three investors, who are to employ more than 150 people in their new plants in Zielona Góra. In the future, this number may be much higher.

50 new jobs will be created in the industrial hall of W.P.I.P (Wielkopolska Greater Industrial Engineering Company). The

investor specialising in industrial - building and technology projects, is the creator of Poland’s first zeroenergy industrial facility certified with LEED Platinum. In the new plant, photothermal walls will designed, manufactured and sold.

The value of investment is PLN 23.5 m. Brinkmann Manufaktur is to build a plant producing mattresses, continental beds, pillows,

sheets and mattress covers. The company will employ 34 people: the seamstresses, dressmakers, cutters, assembly technicians and upholsterers. In the next phase of the investment, 114 people can be hired. The estimated cost of the project is PLN 8 m. Moreover, 70 jobs will be created in the factory of polystyrene boards of Polish company Styropmin. n

Asseco IT’s unit to buy Israeli peer Roshtov Software Industries Magic Software, an indirect unit of Asseco Poland IT group, struck a deal to acquire a 60% stake in Israeli IT firm Roshtov Software Industries for USD 21 million, with an option to increasing its stake to 100%, Magic Software said.

Roshtov Software Industries Ltd. is

2016 September

the owner of Clicks Development Platform, used in designing and managing programming solutions for healthcare providers. The deal is to be finalized in Q3. Magic Software expects it to boost profits already in 2016 and in the coming years. n

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Events

World Youth Day: Worth it for Krakow’s economy?

World Youth Day 2016, which brought over two million Catholic pilgrims to Krakow, has generally been hailed as an organizational success on the part of municipal authorities.

But what about the net economic effect? Along with 18.7 million PLN from the national government, the city spent about eight million from its own budget to deal with, among other things, the unusual level of security, transport, and cleanliness – actually less than expected, according to the office of Mayor Jacek Majchrowski.

Many local businesses, however, have complained that it did not inject as much money into the local economy as hoped, as many ordinary Cracovians left the city during the time, more than expected pilgrims walked rather than using taxis, and pilgrims

were able to pay for many meals with special vouchers. On the other hand, some of the preparations made by the government – such as road and park renovations – will

live on, and the supposed rise in Krakow’s appeal and reputation as a burgeoning destination for tourism and investment can only be estimated. n

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September 2016

around the word in just two days – discover the unknown at the only festival of its kind in Poland

when: place:

14 – 15 October 2016 Courtyard by Marriott Warsaw Airport ul. 1 Żwirki i Wigury, Warsaw

tickets available: online at www.whiskylivewarsaw.com, at Empik outlets, at George Ballantine’s chain

stores, on site during the event.

The largest whisky festival in Poland.

Hundreds of liquors in one place, during a single event.

Many of them can be sampled free of charge.

Exhibitors from all around the world. Whisky from Japan, Taiwan, Australia, India, Sweden, England, Ireland and, finally, Scotland, as well as craft distilleries from U.S.A. Noble single malt variants and limited single cask editions all available within reach. Engaging Master Class sessions.

2 days of an exciting journey around the world of whisky.

1 event – Whisky Live Warsaw