Poland Today Business Review+ No. 035 by Poland Today Business Review+

1 year subscription: EUR 690 (PLN 2760) Newsletter Editor: Lech Kaczanowski lech.kaczanowski@poland-today.pl tel. +48 607 079 547 Sales Contact: James Anderson-Hanney james.anderson-hanney@poland-today.pl

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

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

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

Chemicals firm PCC Rokita hits the bourse to finance expansion page 2

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

Specialty chemicals firm Clariant opens new plant near Łódź page 3 BANKING & FINANCE DNB completes sale of Monetia chain page 3

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

Alstom's Pendolino contract in trouble

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

Economic recovery gains traction in Q1

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

tel. +48 881 650 600

ENERGY & RESOURCES Poland-Lithuania power link receives more EU funding as construction begins page 4 PROPERTY & CONSTRUCTION Poland's green office stock totals 730,000 sq.m page 5 SERVICES & BPO Danish pharma firm Lundbeck to launch shared services centre in Kraków page 6 250 new jobs in Łódź and Kraków from leading ICT exporter Ericpol page 6

RETAIL CHAINS Major electronics retailer Avans goes belly up with huge debt page 10 RETAIL PROPERTIES Rank Progress opens new shopping center in Oleśnica page 10 POLITICS & ECONOMY Inflation down to 0.3% in April, NBP may keep interest rates low for longer page 12 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 13-15

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

MANUFACTURING & PROCESSING

Denmark's IQ Metal to create 200 jobs at new Szczecin plant Denmark's IQ Metal, which supplies metal components, subassemblies and complete products to a range of industries, is gearing up for a major expansion of its Polish unit in Szczecin. The company has recently secured a flexible rental agreement for up to 14,000 sq.m of total shop floor space at building D of Szczecin's North-West Logistic Park, which provides the Danish firm with ample space for growth. Over the coming years IQ Metal seeks to create more than 200 new jobs at the site. "We started our Polish business in May 2010 in a very old building with seven employees and a 1,400 sq.m shop floor. Today we have two factories with a combined area of 5,000 sq.m, 140 employees and annual sales of PLN 28m and growing. In the medium-term we intend to expand our workforce to 250 employees, and in the long run our target is 350 staff," Bo Fischer Larsen, CEO of IQ Metal tells Poland Today. The new building is currently under construction and the relocation will take place early next year. IQ Metal was founded 49 years ago and operates from Aarhus in Denmark as well as from Szczecin in Poland with a total staff of 180 employees. Its total turnover is about EUR 16.5m and the company projects an annual growth rate of approximately 10 â&#x20AC;&#x201C; 15 %. IQ Metal supplies industrial customers in Denmark, Germany and Poland with precision metal parts. Many of its clients represent the wind turbine industry.

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

IQ Metal will take up to 14,000 sq.m at building D of Szczecin's North-West Logistic Park. Image: NWLP "Furthermore and even worse, since it is most common that all sales and orders are passed through the parent company only, if the parent company faces a drop in sales, the daughter company, which is fully dependent upon the parent organization, will suffer as well. Bearing all this in mind, it was IQ Metal's aim to create an independent Polish business unit, with domestic management and an entirely independent value chain and customer service." Asked about his thoughts on IQ Metal's first four years in Poland, Bo Fischer Larsen replies: "Growing the business from one that employed seven people in an old hen house into a professional organi-

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

MANUFACTURING & PROCESSING

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

weekly newsletter # 035/ 19th May 2014 / page 3

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

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

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

Clariant is to create up to 170 jobs at its newly completed masterbatches plant in Konstantynów Łódzki. Image: Clariant

PCC Rokita is Poland's only producer of polyether polyols, used in the production of polyurethane foams for the mattress, furniture, and automotive industries. Image: PCC SE

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

MANUFACTURING & PROCESSING

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

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

BANKING & FINANCE

DNB completes sale of Monetia chain The Norwegian-owned Bank DNB Polska has completed another step in its ongoing shift from universal

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

Bank DNB Polska Total assets, in PLNb n, lef t axis Net result in PLNm, right ax is

*20 12

2011

20 10

200 9

20 08

200 7

40 20 0 -20 -40 -60 -80 200 6

6 3 0 -3 -6 -9 -12 20 0 5

10 0 80 60

200 4

15 12 9

Source: DNB

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

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

ENERGY & RESOURCES

PolandPoland-Lithuania Lithuania power link receives more EU funding as construction begins The European Commission last week approved an investment of EUR 60m from the European Regional and Development Fund (ERDF) to complete the construction of the electrical grid between Poland and Lithuania. This undertaking forms part of the 'PolandLithuania power link project' as well as the Baltic Energy Market Interconnection Plan (BEMIP) which is designed to fully integrate the electrical energy markets of the three Baltic States of Lithuania, Latvia and Estonia with the other electrical energy markets in Europe.

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

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

LitPol Link interconnection scheme.

Image: Litgrid

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

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

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

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

PROPERTY & CONSTRUCTION

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

LEED 22.5%

BREEAM 71.5%

Other 5.4%

Source: JLL February 2014

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

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SERVICES & BPO

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

disease, depression/anxiety, epilepsy, Huntington’s disease, Parkinson’s disease, schizophrenia and stroke. Its products are registered in more than 100 countries. "Our Polish unit, Lundbeck Poland Sp. z o.o. has been active on the Polish pharmaceutical market as independent company since 1999. We have 25 employees in sales, marketing and administration. Our main activities are promotion of Lundbeck’s products among Polish psychiatrists and neurologists. As a Central Nervous System innovative company we have a lot of educational meetings and actively participate in scientific congresses and symposia. We do perform clinical trials in Poland in order to secure new products entry to the world market." Quattro Business Park is located at Generał BorKomorowski Av., one of Kraków's main arteries. The building complex will consist of five office buildings, with a total office space of ca. 57,000 sq.m and 1,150 parking places. Image: JLL

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

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

SERVICES & BPO

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

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"Last year we created 130 new positions in Poland alone, and this year the figure will nearly double," Jan Malkiewicz, marketing and communication manager at Ericpol, tells Poland Today. "Competition among employers for the best talents is a normal thing. Ericpol is cooperating with universities and student organizations and we are well known among students and graduates. We are used to organizing recruitment campaigns every year, and we target not only Poles but also candidates from other EU countries. Our teams operate in an international environment and foreign employees only strengthen our potential."

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

Ericpol's six years of rapid growth Turnover in EURm , lef t axis Emp loyment, rig ht ax is 80

2,00 0

1 ,750

1 ,50 0

1 ,250

1 ,0 00

750

50 0

250

Ericpol, which exports some 90% of its output, achieved a record turnover of EUR 66.8m last year, against EUR 62.5m in 2012 and only EUR 30.7m in 2009.

Source: Ericpol

"Our fastest growing business areas are those related to 3G & 4G telecommunications technologies, services for banks, as well as Machine to Machine (M2M) communications which is now becoming known as the Internet of Things (IoT). We remain active in the public procurement area and continue looking for attractive acquisition opportunities. Ericpol keeps expanding." says Jan Malkiewicz.

"The situation in Belarus and western Ukraine is calm, but problems persist in eastern Ukraine and Russia. Over the past three months the market has been looking at those areas differently, and we are receiving growing numbers of inquiries from Western companies operating there, which are concerned about the ongoing developments and seek to diversify their suppliers."

The company was established back in 1991 in Łódź by Jan Smela, a former Ericsson project manager. The Swedish telecommunications technology giant has remained one of Ericpol's key clients to this day. As years went by, Ericpol expanded its service offering, which currently includes outsourcing and consulting services as well as dedicated solutions in telecommunications, M2M communications, healthcare, banking & finance, and business solutions area. The Ericpol Group has three units in Poland that employ some 1,600 qualified engineers, as well as three development centers in Ukraine (120), Belarus (150) and Sweden (30). Asked whether the ongoing Russia-Ukraine

Ericpol is building a new office complex in Łódź, where some 800 of its employees, mostly engineers and software developers, will be relocated in the autumn. The investor had acquired a former swimming pool site on the corner of Sienkiewicza and Tymienieckiego streets, which it subsequently transformed into a modern four-story building with an underground car park. The PLN 60m project was included in the Łódź special economic zone, where the company promised to create 100 jobs by 2017, aimed at IT, telecommunications, electronics, robotics, mathematics and science graduates. Back in 2005 the investor bought a dilapidated building on Dowborczyków St.

201 3

20 12

201 1

20 10

20 09

0 20 0 8

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

TRANSPORT & LOGISTICS

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

weekly newsletter # 035/ 19th May 2014 / page 8

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

"It was not the best decision to make at the onset of the European crisis. We should have chosen trains that travel up to 160 km/h, like the ones made by Polish PESA or NEWAG, both of which have proven that they can make top quality product." The first Pendolino set for PKP Intercity was presented to the public and the media in Wrocław in midAugust, while en route from Alstom's Savigliano plant in Italy to the test centre at Żmigród, Poland. The 250km/h trains are to enter service on Warsaw – Gdańsk, Warsaw – Wrocław and Warsaw – Kraków/Katowice EIC Premium services in December 2014, but the ongoing certification spat is likely to cause additional delays. These routes are currently being modernized to allow the new trains to operate at higher speeds. Following the completion of the CMK upgrade in 2015, which includes the installation of ERTMS Level 2, it is likely the trains will be able to operate at up to 230km/h on this route.

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

Passenger traffic at Polish airports Millions of passengers Warsaw* Kraków Gdańsk Katowice Wrocław Poznań Rzeszów Łódź

TRANSPORT & LOGISTICS The first Pendolino train ordered by PKP Intercity from France's Alstom arrived at Wrocław's central station in August. Photo: PKP Intercity

PKP Intercity ordered 20 of the seven-car Pendolino EMUs at a cost of EUR 400m, and the trains will be maintained by the manufacturer under a 17-year deal worth a further EUR 265m, which includes the construction of dedicated maintenance facilities for the fleet. The Polish company faced a great deal of criticism for having chosen a non-tilting version of the Pendolino, thus abandoning one of its key features, due to limitations of the Polish railway infrastructure. Piechociński admitted last week that Pendolino may not have been the best choice for Poland.

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

Modlin*

2013 2012

Bydgoszcz

2011

Lublin Zielona Góra 0

Source: ULC *) Chopin Airport

The former military airport in Radom was upgraded at the cost of PLN 25m. The airport acquired a secondhand passenger terminal from Łódź, which had been dismantled and reassembled in Radom. The terminal will be able to handle 380 passengers (two Boeing 73780) at a time, maximum 1.5m a year. The municipality is already planning further investments at the airport, including a runway extension, additional aircraft parking space, and new lighting.

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

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

TRANSPORT & LOGISTICS

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

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

weekly newsletter # 035/ 19th May 2014 / page 10

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

RETAIL CHAINS

Major electronics retailer Avans goes belly up with huge debt Poland's number three electronics and household appliance retailer Domex, owner of the Avans chain, was declared bankrupt last week by a court in Tarnobrzeg, which confirmed that the company's dues had substantially exceeded the combined value of its assets. According to unofficial estimates Avans had

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

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

RETAIL PROPERTIES

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

weekly newsletter # 035/ 19th May 2014 / page 11

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

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

"According to the agreement, an Immofinanz subsidiary will acquire the property and cover all costs associated with its development until the opening. The PLN 56m worth of net proceeds from this transaction Rank Progress intends to utilize on reducing its debt. Additionally, Rank Progress to remain in charge of the property's management and leasing, for an additional fee, and participate in profits from the project on an earn-out basis," Łukasz Gruszczyński , Marketing Director at Rank Progress tells Poland Today. "We are open to all possible forms of future cooperation with Immofinanz," he adds. Based in Legnica, Rank Progress had long specialized in development of shopping centers for international

retail chains, such as Tesco, Carrefour, Castorama, Leroy Merlin, or Jeronimo Martins. The company also carried out a number of highly-profitable short-term projects that typically encompassed site acquisition, permitting, and design, and eventually sale to renowned domestic and foreign buyers. However, in the past couple of years their key focus have been large shopping centers and retail parks in medium-sized cities. Since 2001 Rank Progress has completed 25 proprietary investments, including nine shopping centers, located in Legnica, Jelenia Góra, Świdnica, Zgorzelec, Kłodzko, Zamość, Kalisz (the latter three were sold to Blackstone Real Estate), as well as Grudziądz (Pasaż Wiślany) and Chojnice (Brama Pomorza), which opened last year. Unlike most of its other projects, Brama Pomorza is a regional shopping center with a 34,000 sq.m GLA and 50 retail units. In Krosno, Rank Progress is planning a small retail park (5,600 sq.m GLA) adjacent to an OBI home improvement outlet that opened in 2011. Back in mid-2011 Rank Progress has announced plans to build 16 new retail centers at the cost of PLN 2.2bn over the 2011-14 period. The company is currently working on a retail center in Piła, and its future pipeline includes also schemes in Krosno, Mielec, Olsztyn, Kołobrzeg, Kielce, Duchnów near Warsaw, Kielce and Wejherowo. Overall, by 2015 the company plans to launch 10 shopping centers with a total floor space of 340,000 sq.m. and a GLA of 275,000 sq.m. "We have a building permit and general contractor for Krosno where the construction will begin this year. The preparations in Mielec are also quite advanced. We have obtained permission to redevelop the road network in the area as well as other infrastructure that collides with the project," says Łukasz Gruszczyński. Rank Progress posted a PLN 11m net loss on continued operations last year against a PLN 23.7m profit in 2012. As of end of December its total assets were

worth close to PLN 1.02bn, up from PLN 859m a year earlier.

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

City

Name

GLA sq.m Opening

Legnica Kłodzko* Zgorzelec* Jelenia Góra Kalisz* Zamość* Świdnica Grudziądz Chojnice Oleśnica

Completed Galeria Piastów Galeria Twierdza Park Handlowy Eden Pasaż Grodzki Galeria Tęcza Galeria Twierdza Galeria Świdnicka Pasaż Wiślany Brama Pomorza Pogodne Centrum

15,600 2006 31,000 2009 8,500 2008 10,500 2010 16,000 2011 24,000 2011 15,600 2012 5,400 Q2 2013 25,600 Q4 2013 7,700 Q2 2014

Piła*

Under development Galeria Piła

28,750 Q4 2014

Olsztyn Kielce Krosno Warsaw/Duchnów Mielec Wejherowo

Planned CH Jaroty Regional Center S7 Miejsce Piastowe Warszawa Wschód Galeria Aviator n/a

30,000 97,800 5,600 62,300 26,000 18,200

TBA TBA TBA TBA TBA TBA

Source: Rank Progress *) sold

POLITICS & ECONOMY

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

weekly newsletter # 035/ 19th May 2014 / page 12

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

GDP growth in Poland (y/y) 7% 6% 5% 4% 3% 2% 1%

Source: GUS, EC

*2015

*2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

*) European Commission projections

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

POLITICS & ECONOMY

According to central bank cited by policy maker Andrzej Kazmierczak, fixed investment accelerated to 6.1% from a year earlier in the first three months and may peak at 9% in the final quarter of this year. Private consumption probably quickened to 2.8% on improved labor-market conditions and higher wages, he said in an interview.

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

The Polish economy is set to double its pace of growth, according to the European Commission, which pre-

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

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

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

KEY STATISTICS Consumer Prices Prices

Inflation

Alcohol, tobacco +3.4

+0.8

+2.2

+1.4

+3.7 +0.7 +3.9 +0.3 -4.3 +0.8

-4.4 +2.8

+1.8

-0.1

+1.7

0.0

-2.7

+0.1

-2.1

-0.1

-0.3 +0.6

Clothing, shoes

-5.0

-3.7

-4.7

-1.7

Housing

+1.9

+0.2

+1.9

+0.1

Transport

-0.3 +0.3

-0.5

-1.2

-1.5

-1.1 +0.4

Communications -7.8

-0.3

-3.2 +0.4

-1.7

-1.5

Gross CPI

+0.1 +0.7 +0.1 +0.7 +0.1 +0.3

0.0

+0.5

Dec '13

Jan '14

m/m (%)

Nov '13 -5.8

+17.3

-21.3

-0.6

y/y (%)

+3.8

+5.8

+4.8

+7.0

Year

2009

2010

2011

2012

Turnover in PLNbn

582.8

593.0

646.1

676.0

n/a

+4.3

+5.5

+11.6

+5.6

+2.3

y/y (%) Apr 14

+1.2

Feb 14

-0.2

Dec 13

+1.6

m/m

Oct 13

+1.6

Aug 13

+1.8

y/y

Jun 13

Food & bev

Month

5% 4% 3% 2% 1% 0% -1% Apr 13

y/y m/m y/y m/m y/y m/m y/y m/m

Feb 13

Sector

Retail Turnover

Dec 12

Apr '14

Oct 12

Mar '14

Aug 12

Feb '14

Jun 12

Jan '14

Apr 12

Data in (%)

Feb '14 Mar '14

Industrial Output

+3.1 2013

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-Mar y/y

178.8

174.9

184.1

165.1

138.7

158.1

162.2

141.8

(in '000 units)

Producer Prices Prices

+12.5

Permits

2014

(%)

33.9

+49.4

Commenced

142.9

127.4

32.2

+56.4

m/m (%)

+0.1

-0.7

-0.3

-0.1

0.0

-0.1

-0.2

m/m (%)

+9.6

+6.0

-6.2

-9.7

+2.9

-1.8

+9.4

U. construction

670.3 692.7 723.0

713.1 694.0

691.3

-0.8

y/y (%)

-1.4

-1.5

-1.0

-1.4

-1.3

y/y (%)

+6.2

+4.4

+2.9

+6.6

+4.1

+5.3

+5.4

Completed

160.0 135.7

152.5

35.7

-3.9

Year

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product

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

-0.1

-0.2

-0.1

-1.8

-1.7

-1.6

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

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

y/y (%)

+21.5

-64.0

+18.7

+24.2

-4.8

-3.2

-8.9

+5.8

-3.9

+14.4

+17.4

2007

2008

2009

2010

2011

2012

2013

Q1 2013

Q2 2013

Q3 2013

Q4 2013

138

8,615 196

+1.6%

1,635,746

-1.5%

2012

+1.9%

1,596,379

-3.7%

Sentiment Indicators

2011

+4.5%

1,528,127

-5.0%

Economic sentiment and consumer confidence indicators

2010

+3.9%

1,416,585

-5.1%

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

155 3,625

158 3,690

161

177 6,021

183 6,736 205

-20

100 80

125 3,589

127

174 6,707

174 6,654

173 6,695 174

Financial sector 6,356

143 6,702

151 6,109

137 6,602 148

3,613 144 3,652

145 3,823 152

Ap r 1 4

122 3,547

6,685

60 Jan 14

3,913 138

3,439

-40 J ul 1 1

145 3,456 147

IT, telecoms

Source: Central Statistical Office (GUS)

120

160 3,895 166

Transportation

National average 3,741 149

Co nsumer conf id ence (lef t axis) Economic sentiment (right axis)

152 3,560

3,421 146 3,408

-1.5%

2013

y/y (%)

188 5,828

3,432 146

n/a

442,167

-1.9%

3,491

157 3,766

n/a

+2.7%

-2.3%

6,196

152 3,693

+3.3%

Q4 2013

393,725

Energy

3,556

Q1 2014

389,244

O c t 13

143 6,061

Current account def. in % of GDP

+1.9%

Jul 13

138 6,290

GDP in PLN bn current prices

+0.8%

A pr 1 3

6,060

146.1

Q2 2013

Manufacturing

Retail & repairs

-2.9

Growth y/y unadjusted

131.7

Q3 2013

Year

Construction

+14.3

J an 13

Coal mining

+9.4

Source: The Central Statistical Office of Poland, GUS

Gross Gro ss Wages Sector

m/m (%)

O ct 1 2

y/y (%)

-0.1

Period

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

J ul 12

Year

-0.1

Month

A pr 12

y/y (%)

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

J an 1 2

m/m (%)

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

Construction Output

Construction Prices Price s Month

Month

Oc t 1 1

Month

The economic sentiment (1990-2010 average = 100) is a composite made up of 5 sectoral confidence indicators, which are arithmetic means of seasonally adjusted balances of answers to a selection of questions closely related to the reference variable. Source: Eurostat

Key Economic Data & Projections Indicator

2010

2013

*2014

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+1.0%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

-1.4%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.6%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+5.2%

Unemployment**

12.4%

12.5%

13.4%

12.3%

3.99

4.12

4.19

4.20

4.12

EUR/PLN

2011

2012

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

weekly newsletter # 035 / 19th May 2014 / page 14

100 DKK

56.18 ↑

100 SEK

46.53 ↑

350

300

300.99 ↑ 15.28 ↑

100 CZK 10,000 HUF

USD EUR

3 Jun 13

10,000 JPY

400

51.41 ↑

100 NOK

as of 16 May 2014

WIG-20 stocks Price Change Change in alphabetical 16 May 9 May end of order '14 '14 '13

WIG Total index

137.35 ↓

Money Supply

PLN (up to 1 year)

4.5%

4.3%

4.2%

4.5%

PLN (up to 5 y )

4.9%

4.8%

4.9%

PLN (over 5 y)

4.8%

4.7%

4.8%

4.7%

↑ Asseco Pol.

PLN (total)

4.8%

4.7%

4.8%

4.7%

↑ Bogdanka

EUR (up to 1m EUR) 2.0%

1.9%

2.0%

1.9%

↓ BZ WBK

EUR (over 1m EUR) 2.5%

3.0%

2.9%

3.6%

3.4%

3.3%

↑ Eurocash

Overnight

1 week

1 month

3 months

6 months

2.60%%

2.60%

2.62%

2.72%

2.74%

Central Bank (NBP) Base Rates

in PLN m

Dec '13

Jan '14

Feb '14

Mar '14

Monetary base

164,010

161,544

158,330

173,213

2.59%

- Currency outside banks

555,851 114,401

546,487

548,033

113,455

114,680

558,954 116,657

960,361

947,443

954,284

964,624

- Time deposits

421,160

418,259

423,296

422,990

↓ Alior Bank

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

Reference

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

978,924

962,416

968,442

980,377

- Net foreign assets 143,430 140,617 135,759 132,849 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

Lombard

NBP deposit

Rediscount

4.00%

1.00%

2.75%

77.5

-1%

-5%

50,858. 858.58

44.17

+1%

-4%

Change 1 week

+1% ↑

115.5

+1%

-8%

Change end of '13

-1% ↓

351.5

-4%

-9%

39.8

+1%

-17%

WIG-20 blue chip index

↑ Grupa Lotos

37.99

+2%

+7%

↑ JSW

46.08

+10%

-13%

2,392 2,392. 392.89

↓ Kernel

26.53

-8%

-30%

↑ KGHM

113.9

+3%

-3%

↑ LPP

7,823.5

+2%

-13%

↑ mBank

Change 1 week

498.55

+2%

↑ Orange Pol.

10.44

+2%

+7%

Credit

↓ Pekao

179.5

-5%

55,000

The financial sector's net lending in PLN bn,

↑ PGE

21.06

+5%

+29%

54,000

4.85

+1%

-6%

44.21

+3%

+8%

38.8

-4%

-2%

50,000 49,000

loan stock at the end of period Type of loan

↑ PGNiG

Dec '13

Jan '14

Feb '14

Mar' 14

903,890

914,189

914,068

923,709

↓ PKO BP

- to private companies

259,061

263,063

263,941

267,553

↑ PZU

438.95

+3%

-2%

- to households

562,381

567,984

567,257

569,334

↓ Synthos

4.65

-1%

-15%

1,601,293

1,628,197

1,616,891

1,628,519

↑ Tauron

5.28

+3%

21%

Loans to customers

Total assets of banks

↑ PKN Orlen

Source: Central Bank NBP

-6% ↓

Change end of '13

0% →

WIG Total closing index last three months

53,000 52,000 51,000

16 May 14

343.34 ↑

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

8 Apr 14

513.75 ↑

100 CHF

16 May 14

100 GBP

7 Mar 14

419.35 ↑

27 Dec 13

100 EUR

Key indices

Term / currency

450

16 Oct 13

305.67 ↑

8 Aug 13

100 USD

Stock Exchange

Average weighted annual interest rates

17 Mar 14

as of 16 May 2014

Interest rates

21 Feb 14

100 USD/EUR against PLN

Central Bank average rates

30 Jan 14

Currency

Source: Warsaw Stock Exchange

T rade Poland's ten largest trading partners, ranked according to 2013

Poland exports and imports according to commodity groups, according to SITC classification EXPORTS in PLN bn Jan-Feb 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Feb 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Mar share 2014

IMPORTS in PLN bn *2013

share No

Country

Jan-Mar share 2014

*2013

11,425

+7.0

10.6

69,304

10.9

7,921

+2.4

7.6

47,906

7.4

1 Germany

35,357 21.6% 139,334 21.5%

Beverages and tobacco

1,296

+22

1.3

8,624

1.4

564

-8.9

0.6

4,150

0.6

2 UK

10,511

6.4%

41,503

6.5%

2 Russia

19,708 12.0%

Crude materials except fuels

2,799

+0.9

2.8

15,744

2.5

3,551

-2.3

3.6

21,585

3.3

3 Czech Rep.

10,119

6.1%

39,421

6.2%

3 China

16,346 10.0% 60,914 9.4%

Fuels etc

5,001

-7.8

5.4

30,013

4.7

13,046

+7.5

11.9

75,539

11.7

4 France

9,958

6.0%

35,745

5.6%

4 Italy

8,339

321

+49.7

0.2

1,864

0.2

397

-4.4

0.4

2,646

0.4

5 Russia

7,200

4.4% 34,058

5.3%

5 Netherlands

5,973 3.6% 25,005 3.9%

7,409

4.5% 27,450

4.3%

6 France

6,523 4.0% 24,533 3.8%

7 Czech Rep.

5,709 3.5% 23,778 3.7%

Food and live animals

Animal and vegetable oils

43,408 26.3% 159,622 25.0%

79,601 12.3%

5.1% 33,703 5.2%

9,592

+4.1

9.2

59,103

9.3

15,616

+3.2

14.8

92,917

14.3

6 Italy

Manufactured goods by material

20,989

+0.7

20.7

129,915

20.3

18,664

+4.2

17.6

112,392

17.3

7 Netherlands

Machinery, transport equip.

40,068

+7.8

37.0

239,434

37.5

33,679

+4.5

31.6

216,608

33.4

8 Ukraine

n/a

18,037

2.8%

8 USA

3,647

2.2%

17,350