Poland Today Business Review+ No. 003 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. 003 / 16th September 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Sweden's Saab inks teaming agreement with top Polish arms producer page 2 Danish Rockwool continues expansion of Cigacice insulation plant page 3 BANKING & FINANCE New blue chip index to include 30 stocks and replace WIG20 on Warsaw bourse page 3 ENERGY & RESOURCES Polish LNG terminal to be delivered six months later and cost EUR 70m extra page 5 US food giant Mars Inc has spent more than PLN 800m in Poland to-date.

Photo: Mars Inc.

Mars to invest PLN 250m in Poland

One of the world's top FMCG producers, US Mars Inc. seeks to expand its Polish pet food and confectionery factories at the cost of PLN 250m. The investments are to create some 100 new jobs at the company's industrial complex near Warsaw. page 12

Union protesters descend on Warsaw

Up to 100,000 people took part in demonstrations in Warsaw organized jointly by Poland's three largest trade unions in a protest against government labor and pension policy. page 13

Hopeful about Poland's nuclear ambitions, Areva and EDF seek local partners page 6 PROPERTY & CONSTRUCTION SwedeCenter breaks ground on mixed-use complex Gdynia Waterfront page 7 Ghelamco closes EUR 121m sale of Mokot贸w Nova office project in Warsaw page 8

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SERVICES & BPO Poland's outsourcing sector growing faster than Asia's, report says page 9 TRANSPORT & LOGISTICS Szczecin's North-West Logistic Park moves on to phase two page 10 Ryanair relocates Warsaw base back to Modlin from September 30th page 11 CONSUMER GOODS & RETAIL Poland is EU's 6th largest retail centre market by turnover page 12 POLITICS & ECONOMY MP exodus cuts ruling coalition's majority down to one vote page 14 Special economic zones to offer investment incentives until 2026 page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 16-18

Please enter the registration code CEEPT when booking

CEE M&A AND PRIVATE EQUITY FORUM 2013 24 SEPTEMBER 2013 THE WESTIN, WARSAW Join a senior-level audience from the corporate finance and private equity communities in the CEE region and contribute to in-depth discussions examining the current CEE M&A market and the opportunities for outbound cross-border activity. Expert speakers will also provide insight into the deal trends that are likely to be seen over the next year.

Confirmed Speakers include:

Key discussion topics for 2013

• George Kikvadze, Managing Director, Terra Food

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

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

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

• Roland Haidner, Director M&A, Telekom Austria

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

• Chris Mruck, Managing Partner, Advent International

• Outlining an overview of the changing private equity landscape

• Gierdius Pukas, Managing Partner, Quadro Capital Partners

• Will we see a revival in CEE IPO markets?

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

• Keynote speaker: Artur Tomala, Managing Director, Warsaw, Goldman Sachs • Wojciech Mroczynski, Chief Strategy Officer, Amrest • Nikola Jekic, Deputy Director of Function, NIS Gazprom

For more details about the event and to download the agenda, please visit http://mergermarketgroup.com/event/CEE2013 For any additional enquiries, please email events@mergermarket.com Lead strategic partner:

Strategic partners:

In association with:

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weekly newsletter # 003 / 16th September 2013 / page 2

MANUFACTURING & PROCESSING

Saab inks teaming agreement with top Polish arms producer During the annual International Defense Exhibition (MSPO), held in Kielce in early September, Swedish Defence and Security company Saab inked a teaming agreement with Polski Holding Obronny (Polish Defence Holding), Poland's largest manufacturer and supplier of arms, which had until recently operated under the Bumar brand. The agreement serves as further indication of the growing interest of global defense contractors in Poland, as the country's military gears up for massive investments in new equipment and technology. The deal was signed by Tobias Wennberg, Senior Vice President, Head of Central & Eastern Europe at Saab AB, Mariusz Andrzejczak, Vice President for R&D at Polish Defence Holding, and Andrzej Szortyka, CEO at Łabędy/OBRUM . "I am sure that this agreement is just the beginning of a long term business relation between our Groups," commented Mr. Andrzejczak, adding that the deal illustrates PHO's openness to cooperation with international partners. PHO's predecessor, Bumar, turned over PLN 3.2bn last year. The state-owned group includes some 40 companies producing missiles, ammunition, radar, detection & combat management systems, as well as armored vehicles. It employs close to 10,000 workers. Earlier this year PHO had signed a similar deal with BAE Systems Hägglunds, the Swedish unit of Eu-

ropean defense giant BAE Systems. The two partners are jointly working on a new tracked armored combat vehicles for a top-priority Polish military program under an exclusive teaming agreement. Poland seeks to buy some 600 vehicles of that kind by 2022. Poland's centre-right government, has put modernizing the armed forces high on its agenda. This year's defense budget of USD 9.5bn has grown by 7% over 2012, bringing Poland close to the 2%-of-GDP NATOrecommended target. The Defense Ministry seeks to spend USD 43m over the coming decade to replace outdated weaponry, much of which dates back to the Communist times. Investments will include a missiledefense system, new ships for the navy, upgraded tanks, military training aircraft, 70 helicopters, unmanned aerial vehicles and better equipment for ground troops. Overall, the share of the defense budget going on equipment will rise from 15% to 33%.

Poland Today talks to: Tobias Wennberg, Senior Vice President, Head of Central & Eastern Europe at Saab AB

teaming agreement. It has been important for both parties to maintain and strengthen that relationship, and as a result we have been working closely together for the last six to eight months. Together we have identified a few areas of cooperation, where Saab and PHO have complementary competencies for current and future development programs, primarily regarding land based platform technology. We complement each other very well on land side, and on product and sub-system level. • PT: Earlier this year PHO signed a teaming agreement with BAE Systems Hägglunds AB, regarding a major tracked armored vehicle project. Is SAAB in some way a part of that project? TW: The Saab-PHO cooperation is not driven by this specific program, but by complementary competencies in a broader perspective. But to show a good example of cooperation between PHO and Saab, both parties decided to showcase our Active Protection System [LEDS 150 – Saab's laser-based system that detects threats against armored vehicles; ed.] on the PL 01 Concept [a new Polish tank that is being developed in cooperation with BAE Systems; ed] which was unveiled at the MSPO. Saab and Hägglunds as well have a long cooperation history, and we will of course evaluate potential synergies going forward but our respective cooperation are not related and do not form an alliance.

Photo: SAAB

• PT: Can you tells us more about the scope of the recent SAAB/PHO teaming agreement? Tobias Wennberg: The most recent signing of the teaming agreement defines our short term objectives and creates a platform for Saab and PHO for more detailed product based cooperation in future. Saab have a strong and long history of cooperating with Bumar/PHO dating back more than ten years and had an ongoing cooperation long before the signing of the

• PT: As you well know, the Polish military is gearing up for massive investments in new equipment, aiming to spend billions of EUR over the coming decade. Which products in particular does SAAB want to offer its Polish clients? TW: Our ambition is partnering up with Polish industry and authorities and to offer both our products and competence where it adds value, either in close cooperation with local industry or by offering our specific products directly to the Polish customer. Our focus in Poland has traditionally been on the naval side, and

weekly newsletter # 003 / 16th September 2013 / page 3

that will be a focus area going forward as well. But we are one of few full spectrum defense contractors, from infantry weapons to air power systems and we view Poland as a potential customer – directly or together with strong partners, for a broad range of our product portfolio. • PT: Is SAAB contemplating any manufacturing investments in Poland, independently or together with PHO or other partners? TW: Saab serves the global market with highly advanced products and systems for the defense and civil security sector and has a long tradition of deep involvement in industrial and community cooperation in the countries with which we do business. As mentioned earlier, our ambition is partnering up with Polish industry and authorities and to offer both our products and competence where it adds value. It is therefore early to talk about other ways of cooperation.

MANUFACTURING & PROCESSING

Rockwool continues expansion of Cigacice insulation plant After adding a new production line for Rockfon acoustic ceiling panels at their factory in Cigacice (100km southwest of Poznań), Danish insulation giant Rockwool has broken ground on a new high bay warehouse at the site. Together with a new reception and offices for Rockwool's logistics department, the project is to cost PLN 12.5m and reach completion by the end of the year. Rockwool embarked on a PLN 100m expansion of the Cigacice unit in October last year. The project were to

add some 100 jobs to the estimated 1,000 staff the Danish company has in Poland. Overall, Rockwool has invested close to PLN 1bn to-date at its two Polish production units in Cigacice and Małkinia (70km northeast of Warsaw). In 2011 the Danish giant took over a Polish external façade solutions company Fast to boost its competences in this booming segment of the Polish building insulation market.

mineral wool-based thermal insulation products. The new line is a natural extension of the site, as Rockfon acoustic panels are produced from semi-finished goods made at the factory. Rockwool said its investment responds to growing demand for ceiling panels in the EU, Russia, Middles East and Asia. Overall, the two Polish Rockwool plants produce 400,000 tons of mineral wool per annum. The Rockwool Group was founded in 1909, but in 1962 the owner families split the business in what is now Rockwool and the aeroconcrete maker H+H, both of which operate in Poland. Rockwool has been a brand since 1937 and from 1976 it is also the company name. With a head office in Hedehusene south of Copenhagen, Rockwool has in excess of 9,800 employees in more than 40 countries. In 2012 the Group generated sales of DKK 14.7bn. The company is listed on the NASDAQ OMX Nordic Exchange Copenhagen, but the founding Kähler family's Rockwool Foundation is the largest shareholder with 23% of the shares. Chairman of the supervisory board is former CEO Tom Kähler.

Rockwool employs more than 700 staff at the Photo: Rockwool Cigacice plant.

"In the wake of the financial crisis public investments gained in relative importance and schools, hospitals etc. are the type of projects that typically use acoustic insulation," Rockwool's Group Communications Manager Lars Wodschow told Poland Today's Lech Kaczanowski when the Cigacice extension was first announced. "Moreover, the quality of construction in Central and Eastern Europe has improved which is why we see more demand for products like Rockfon and this is also the reason why we have also added a production unit for this type of products in Russia." The Cigacice site became part of the Rockwool group in 1993, when the Danes acquired a local insulation manufacturer. With a staff of 730 it makes a range of

BANKING & FINANCE

New blue chip index to replace WIG20 on Warsaw bourse The Warsaw Stock Exchange's blue chips index WIG20 will be replaced by a new indicator, featuring 10 additional companies, on 23 September. The move is seen as a step toward improving the index's liquidity. The WSE says the new WIG30 indicator will help to diversify WSE's main index, which is currently dominated by the banking sector.

weekly newsletter # 003 / 16th September 2013 / page 4

"Since the introduction of WIG20 in April 1994, Poland’s economy has undergone a transformation and the Polish capital market as well as the WSE have recorded rapid growth. During this period the number of companies listed on the Main Market increased from 24 to 443, and the capitalization of domestic companies increased from over PLN 8bn to nearly PLN 540bn. WSE is currently one of the fastest growing markets in Europe and the largest stock exchange in Central and Eastern Europe. Thus, this qualitative change needs to be reflected in an index that brings together the largest and most liquid companies listed on the WSE's Main Market. The changes are also set to stimulate the pace of growth of individual market sectors," WSE said in a statement. WIG30 will include the 20 companies from the current main WIG20 index and an additional ten: Alior Bank, Azoty Tarnow, Boryszew, CCC, Cyfrowy Polsat, Enea, ING BSK, LPP, Netia and TVN. Overall, companies from 13 different sectors will make up the new blue-chip index, which is scheduled to fully replace the current WIG20 by the end of 2015, when WSE will cease publication of the old index. The WSE said that the reserve list includes Millennium, Getin Noble Bank, CEZ and AmRest. Although the decision did not come as a surprise to WSE's small and medium-sized companies, they consider it unnecessary, since apart from the WIG and WIG20 indexes, the market also includes the mWIG40 and sWIG80, as well as a number of other industry indexes. On the other hand, supporters point out that since its introduction in 1994, no changes have been made to WSE's major index, despite the immense growth the Warsaw bourse has seen over that period. "The changes to the main stock market indices are intended to better reflect the condition and size of our market and to stimulate its development. This should improve liquidity on the equities market and – in the

longer term – stimulate the derivatives market. We have carried out extensive domestic and international consultations, as making such historic changes requires particular attention and care for the interests of our stakeholders. We have approved a detailed timetable aimed at introducing the changes in a safe and transparent manner so that the entire market is adequately prepared for them," said Adam Maciejewski, President of the WSE Management Board. Naturally, the changes will affect all index-based derivatives. WSE said WIG30 will become the underlying for new futures contracts as well as options and will eventually replace currently listed WIG20 futures and options. A newly introduced mid-cap index WIG50 will become the underlying for new futures contracts and will eventually replace currently listed mWIG40 futures. The process of migration from the currently listed index based derivatives to the new ones will begin at the end of 2014 and it assumes a certain period of parallel listing of derivatives based on current and new indices. The migration process of WIG30 derivatives (futures and options) may take until September 2015 and WIG50 derivates may take until June 2015, although the whole operation is likely to end earlier, WSE representatives said.

BANKING & FINANCE

PKO BP mulling alliance with PZU According to Reuters, Poland's top lender PKO BP is looking for a partner to buy 50% of its insurance business and could be interested in cooperating with PZU, the nation's biggest insurer. The search for an insurance partner follows PKO's first ever acquisition. In June the bank sealed a deal to take over Poland's

tenth-largest lender Nordea Bank Polska and its insurance business from Sweden's Nordea for PLN 2.83bn. PKO BP estimates that the acquisition will help the bank increase its assets by 16%, at the same time boosting its network in Poland's largest cities by 25% and its portfolio of wealthy customers - by 8%. In short, the deal seals PKO's position as Poland's number one lender, expanding its share in the banking sector's totals asset from 15% to 18%. The Polish bank's key competitor, Italian-owned Pekao SA, comes second with an 11% share. PKO's share in retail loans will increase from 17.5% to 20.7%, as a result of the Nordea deal, the bank said. PKO BP earned PLN 3.78bn last year, down from PLN 3.8bn in 2011. "We are in the process of choosing our partner. We feel closest to PZU," PKO's CEO Zbigniew Jagiełło told a parliamentary committee. The two statecontrolled market leaders seem like a natural match to both analysts and decision makers. PZU is the largest insurer in Central and Eastern Europe, with a 43.1% share in Poland's life insurance market (as of 2012) and 32.2% share in the non-life segment. PKO has long been touted as a potential consolidating force in Poland's financial services sector, where foreign players dominate and margins are under pressure because of record low interest rates. According to analysts quoted by Reuters, PKO's insurance joint-venture plans may be similar to a partnership between Banco Santander's Polish unit BZ WBK and British insurer Aviva, which included BZ WBK getting a 10% stake, worth PLN 500-600m, in Aviva's local business.

weekly newsletter # 003 / 16th September 2013 / page 5

ENERGY & RESOURCES

Polish LNG terminal to be delivered half a year late and cost more Poland's much awaited LNG terminal in Świnoujście will be delivered later than initially planned, but still in time to receive the first shipments of liquefied natural gas from the Persian Gulf under a contract with Qatargas. According to the updated schedule, the project is to be operational by the end of 2014. The operator Polskie LNG said in a statement it had signed an annex to the original agreement with the terminal's general contractor, which extends the deadline for construction completion and increases the value of the contract by EUR 67.5m to a total of PLN 2.4bn. The state-controlled investor had earlier indicated that the terminal construction deadline would be postponed, among other factors due to financial problems of contractors. One of consortium members, PBG, has been in bankruptcy protection for debt restructuring since June 2012. The annex raises the value of the remuneration of the general contractor, consortium of Italy's Saipem and Technit, and Polish builder PBG, as it will extend the scope of construction works, the guarantee period, as well as operating support after finishing construction, Polskie LNG said. According to the original order (worth EUR 714m), the system (comprising two liquid gas storage tanks, each 160,000 cubic meters and the LNG terminal itself) were to be completed and started-up by 30 June 2014. The terminal will allow for importing 5bn cubic meters of liquefied natural gas annually (more than a third of Poland's annual consumption), with a possibility of increasing the capacity

to 7.5bn cubic meters. The running of the plant, which will significantly reduce Poland's dependence on Russian gas imports, will be managed by the national gas network operator Gaz System through the company Polskie LNG.

to attend to matters related with the [LNG] construction such as the North-South corridor, allowing to transport gas from Świnoujście on the Baltic coast to our southern neighbors and to the Balkans, and PGNiG's contract with Qatargas."

The end-2014 deadline constitutes a safe solution for natural gas firm PGNiG, which needs to receive the first shipment of LNG from Qatargas gas group on the basis of a take-or-pay contract around that period, Polskie LNG said said. Poland signed a deal with Qatargas for the import of 1bn cubic meters of LNG a year back in 2009. However, Qatar links its gas prices to oil prices, which have decreased significantly since the deal was signed. In November last year, Mikołaj Budzanowski, who was Poland’s treasury minister at the time, said that Poland wanted to renegotiate the deal. However, no attempt to do so has been made thus far.

Russia dominates Poland's gas supply The 14.9bn cb.m of gas sold by Poland's PGNiG last year came from: *Germany 9%

Russia 61%

*Czech Rep. 4%

Domestic 26%

*) the Czech and German imports are largely comprised of Russian gas

Source: PGNiG

Poland seeks to better connect its gas pipeline network with those of its neighbors, hoping to offer the terminal's regasification services to other countries in the region that seek alternatives to Russian gas. Back in June, during his visit to Washington, DC, Polish Foreign Minister Radosław Sikorski said Poland is interested in importing natural gas from the United States. Mr. Sikorski met with US Energy Secretary Ernest Moniz to discuss the possibility. Polskie LNG says the terminal will be ready toi receive first shipments of Qatari gas by end-2014. Photo: Polskie LNG

Commenting on the deadline postponement, current Treasury Minister Wlodzimierz Karpinski said that while he is "not pleased" with the fact, "it will allow . . .

In recent years, thanks to technological developments that allow for the extraction of gas trapped in shale rock, the US has become the world’s largest producer of natural gas. As a result, the fuel has become much cheaper in the US than in other countries. A thousand cubic feet of natural gas costs USD 3-4 in the US, while in Europe the same amount costs around USD 12.Over

weekly newsletter # 003 / 16th September 2013 / page 6

70% of the gas Poland consumes is imported from Russia, and a few months ago Polish state-controlled gas firm PGNiG renegotiated a deal with Gazprom to reduce the price of the gas it buys from the Russian state-owned giant by some 15%. Nevertheless, Poland would like to further reduce its dependence on Russian gas. Hence the country's recent efforts to boost domestic production, particularly from shale gas deposits, but according to most market observers it will take years before Polish shale gas can be extracted commercially.

ENERGY & RESOURCES

Areva and EDF hopeful about Poland's nuclear ambitions, secure more local contractors Despite growing rumors that the Polish government may be losing its heart for the country's nuclear energy program, leaning towards the less capital-intensive shale gas and clean coal technologies, the world's top suppliers of nuclear reactors keep up their lobbying efforts. Only weeks after Japanese Prime Minister Shinzo Abe arrived in Poland to promote Japan's nuclear energy expertise, France's Areva and EDF held the third joint-edition of 'Supplier Days,' as part of France's campaign to export its nuclear energy to Poland. More than 50 companies specialized in manufacturing, construction and engineering services attended the Supplier Day, alongside senior Areva and EDF executives. According to the companies, the event underlines Areva and EDF’s ambition to create an extended network of Polish suppliers to participate in fu-

ture nuclear projects in Poland, and their commitment to support the industrial and technical development of local Polish contractors. Four new Memoranda of Understanding (MoUs) were signed during the event, with Polish companies Grupa Powen-Wafapomp, Elektrobudowa, Tele-Fonika Kable and Rafako.

clear power station will most certainly be higher than the entire capitalization of Poland's leading energy utility PGE, which tops some PLN 31.5bn. Hoping to establish a consortium with a foreign partner for the project, PGE is also counting on government guarantees.

"Today’s event and the signature of these MoU agreements will help to strengthen the supply chain implemented by Areva and EDF, and will enable us to make the best possible offer for the construction and operation of nuclear reactors in Poland," commented Tarik Choho, Areva’s Chief Commercial Executive Officer. "Approximately 25 Polish companies are already working at the Olkiluoto 3 construction site in Finland, demonstrating first-hand their capabilities to become a significant part of the future reactor project work in Poland." Areva's Jérôme Rosso told Poland Today the company had earlier inked MoUs with Polish construction and engineering firms Polimex Mostostal and Energoprojekt Warszawa. "In total six MoUs have so far been signed with Polish companies," said Rosso, confirming that the agreements are not exclusive. "We are planning other supplier days in the future, for instance in the Pomeranian region." Poland, which currently relies on its vast coal reserves to produce about 90% of its electricity, is scrambling to find alternative energy sources - including nuclear and shale gas - to meet European Union greenhouse gas emission limits by 2020. According to government plans, the first Polish nuclear power unit is to be operational around 2024 and the second similar one a few years later. However, besides protests from local residents at the proposed sites of the planned stations, Poland's nuclear ambitions are facing another, perhaps even larger, challenge – financing. The cost of the nu-

PGE listed Żarnowiec, Choczewo and Gąski on the Polish Baltic coast as the most likely locations of the Source: PGE country's first nuclear plant.

"Associating the skills and knowledge of companies who know the local context to the expertise and know-how of experienced nuclear companies is a condition for the success of the Polish nuclear program, in particular to ensure the quality and industrial safety for future operations. The signing of these four new MoUs strengthens the link between EDF and the hundreds of Polish suppliers that EDF Polska already works with for its power generation plants, and demonstrates our willingness to share our skills and knowledge with partners over the longer term, said Dominique Lagarde, Executive Vice-President of EDF's New Nuclear Engineering Division. Power utility PGE's fledgling nuclear unit is currently collecting bids for the contract engineer deal for Poland's first power plant. PGE may launch procedure of

weekly newsletter # 003 / 16th September 2013 / page 7

selecting the technology provider by the end of the year, as long as the government approves the national program for nuclear energy by the end of the year. Earlier this year, PGE awarded a PLN 252m contract for assistance in the delivery of Poland's first nuclear power plant to WorleyParsons, a major Australian provider of professional services to the energy, resource, and complex process industries. The company will provide services related to site characterization, licensing and permitting for the development of the plant, which will have a power output of about 3,000 MW. Crucially, over the coming two years Worley Parsons is to help PGE's nuclear power subsidiary PGE EJ 1 select a suitable site for the project. The services will be provided by WorleyParsons' nuclear hubs in Europe (Sofia, Bulgaria) and the United States (Reading, Pennsylvania) and will involve work on two potential sites on the Baltic coast: Choczewo and Żarnowiec. Should these two locations prove unsuitable, the Australian contractor may be asked to look into another two sites, according to the contract. PGE EJ 1 is a special purpose company responsible for preparing the investment process and construction of the first nuclear power plant in Poland. It operates as part of Nuclear Power business line of PGE Capital Group.

PROPERTY & CONSTRUCTION

SwedeCenter breaks ground on mixedmixed-use complex in Gdynia Shortly after completing phase one of their giant Business Garden office park in Warsaw, and breaking ground on a similar development in Poznań, Swedish developer SwedeCenter, part of the Inter IKEA

Group, has officially launched the construction of an office and hotel complex Gdynia Waterfront. Located in one of Gdynia's most attractive spots, next to the landmark SeaTowers building and near the busy Kościuszki square, phase one the LEED certified development is to reach completion in 2015. Gdynia Waterfront is a mixed-use project with a floor area of 90,000 sq.m, featuring offices, residential, retail, and hospitality space accompanied by cultural and leisure facilities. The general contractor is Austrian-owned PORR Polska, which has cooperated with SwedeCenter on a number of other projects. The first stage of the project (21,100 sq.m) will comprise a Mariott Courtyard hotel and conference center (to be managed by Scandinavian Hospitality Management) and an office building that will serve as the new headquarters of Nordea Bank Polska.

"We signed a long-term lease in Gdynia Waterfront back in June, but since the building will be delivered in 2015 it is hard to determine what use it will be to us by then or how many jobs will be created at the site. Our original intention, dating back to 2009, was to group together three separate units that are currently scattered across Gdynia," Ms. Krawczyk-Golba tells Poland Today's Lech Kaczanowski. Besides Gdynia Waterfront, SwedeCenter is developing three business parks under the Business Garden logo – in Warsaw, Poznań, and Wrocław. Before the summer, the company laid a cornerstone for the one in Poznań - a class A office complex of nine buildings with a planned area of 80,000 sq.m. Phase one of the project will feature 42,000 sq.m of leasable space. In addition to offices, the buildings will also accommodate a restaurant and retail space. Located on Marcelińska and Bułgarska streets, the first stage of the LEED Gold-certified Business Garden Poznań, is to be opened in the beginning of 2015. Over the coming two years, the Austrian general contractor PORR will have some 200 people working at the site. Unlike in Business Garden Warsaw, which includes a hotel, no hospitality facilities are being planned in Poznań. Later this year, the developer plans to launch the construction of its third business park, this time in Wrocław.

Gdynia Waterfront is to house the new headquarters of Nordea Bank Polska, which is facing a takeover by Source: SwedeCenter the Warsaw-based PKO BP.

Although the latter is to become part of the Warsawbased Poland's largest lender PKO BP, under a PLN 2.83bn takeover announced earlier this year, Nordea's spokesperson Joanna Krawczyk-Golba tells Poland Today the ownership reshuffle will have no impact on the Gdynia lease.

"In Poznań we are not planning any hospitality facilities as part of the Business Garden complex, whereas in Wrocław there will be a convention center and business hotel," SwedeCenter's CEO Roger Andersson told Poland Today's Lech Kaczanowski earlier this year. Although SwedeCenter is primarily a real estate investment and development company, it also manages its own portfolio of commercial properties. Established two decades ago in a move to back the commer-

weekly newsletter # 003 / 16th September 2013 / page 8

cial real estate operations of Inter IKEA Group's property division in Poland, it has since developed a portfolio of 600,000 sq.m in completed and pipeline projects. Their developments include the SwedeCenter, University Business Center and N21 office buildings in Warsaw and Cracovia Business Center in Krakow (the latter three have been sold), Brama Portowa in Szczecin (13,000 sq.m with tenants that include Deloitte, LUX MED, Genpact, and Starbucks) as well as Mera Hotel & Spa in Sopot. The company's largest project to-date is Warsaw's Business Garden (90,000 sq.m), the first installment of which was delivered in July, nearly 13 years after the investor first got hold of the site.

Located in the Mokotów district, Warsaw's largest non-central office zone, Mokotów Nova was completed in January 2012 and is currently 95% occupied. Aside from Ghelamco itself, its tenants include Oriflame, Hyundai Motor Poland, BMW, Cargill, Medicover, Emitel, LG Electronics Polska, CEGEDIM, Reckitt Benckiser, CBG International, Svenska Handelsbanken, Lego Poland, as well as PRIMA PASTA restaurant on the ground floor. The U-shaped complex is comprised of two main buildings, which have been divided to create four separate sections providing 43,750 sq.m of class A office space. Three underground levels and the adjacent area offer more than 1,000 parking spaces. The project has recently received the BREEAM European ecological certificate with a "very good" grade.

"We hope to brak ground on phase two of Business Garden Warsaw by the end of the year," says Ewa Łydkowska, Head of Marketing & PR at SwedeCenter. "It will comprise three of the remaining five office buildings we are yet to deliver at the site."

PROPERTY & CONSTRUCTION

Ghelamco closes EUR 121m sale of Mokotów Mokotów Nova office project Flemish developer Ghelamco has finalized the sale of its Mokotów Nova office project to Curzon Capital Partners III core plus real estate fund for EUR 121m. This is Ghelamco's second major deal this year following the May sale of the Senator office building to Union Investment for EUR 120m.

Mokotów Nova is part of the estimated 0.5m sq,m of office and warehouse space Ghelamco has delivered in Poland to-date. In August the Flemish developer secured a record-breaking PLN 904m.financing for Photo: Ghelamco its flagship project Warsaw Spire

Curzon Capital Partners III were represented by Tristan Capital Partners, an investment management company specializing in the public and private property market in United Kingdom and continental Europe.

Ghelamco's advisors in this transaction were Hogan Lovells and Jones Lang LaSalle. "Poland has been a favorite market for the fund and we are delighted to have acquired this asset at an attractive price in one of Europe's most prestigious and largest business districts located outside a city centre. This takes the CCPIII fund closer to being fully invested," commented Daniel Harris, Managing Director at Tristan Capital Partners.

Investment volume to hit EUR 3bn

According to real estate consultants Savills, the 2013 property investment volume in Poland is likely to hit EUR 3bn, the highest result since 2006. In 2012 Poland accounted for ca. 80% by volume of investment sales in the core CEE markets (Poland, Czech Republic, Slovakia and Hungary). Investment volume in the first half of 2013 came to approximately EUR 1.26bn, 47% of the total 2012 volume and ca. 48% more than in H1 2012. Additionally, five preliminary sale and purchase agreements were signed during H1 2013 and the first half of July for more than EUR 850m (including Silesia City Center, Galeria Dominikańska, Wola Park, Mokotów Nova and Le Palais). The office sector accounted for 51% of activity by volume in H1 2013 with ca. EUR 644m from 14 transactions (11 in Warsaw, two in Wroclaw and one in Tricity). Warsaw clearly remains the leading location in the office sector, however, investor activity outside Warsaw is rising, Savills analysts said in their August report. In terms of Warsaw locations, the city centre is still the most sought after among risk averse investors. This is reflected in yield expectations of 6.00% for prime buildings. In the first half of this year four office properties located in Warsaw city centre were sold. The Mokotów district, the largest non-central office zone in Warsaw, has lately received slightly less atten-

weekly newsletter # 003 / 16th September 2013 / page 9

tion, since most investors targeting the office sector already have assets in this area. Lighter investor appetite for office buildings located in this part of the city resulted in the easing of prime yields by ca. 75 bps over the last 18 months from 6.75% to 7.50%. The yield gap between prime CBD and non-central locations has widened recently to ca. 150 bps, but according to Savills this is likely to compress over the coming months as the long-term sustainable gap should be around 50-75bps. A bit more investor interest was also noticed in other Warsaw non-central locations, in particular in the western part of the city, however, in H1 2013 these were mainly distressed sales and opportunistic acquisitions.

DATA BOX: CEMENT SALES Cement production edged down 1.9% y/y to 1.576m tons in August, while August sales fell 3.9% y/y to 1.616m tons, Poland's Cement Producer Association SPC said in a statement. Year-to-date production dropped by 15.2% y/y to 9.092m tons, while JanuaryAugust sales declined by 14.8% to 9.295m tons.

SERVICES & BPO

Poland's BPO sector growing faster than Asia's Asia's, 's, report says Poland has maintained its position as the European destination of choice for companies operating in the business process outsourcing sector, confirms the latest edition of Jones Lang LaSalle's "Onshore, Nearshore, Offshore: Unsure?" report on modern business services opportunities in Poland prepared in

cooperation with recruitment company Hays, the Polish Information and Foreign Investment Agency (PAIiIZ), and Association of Business Service Leaders in Poland (ABSL). According to ABSL, as of mid- 2013, Poland's 400 foreign-owned business centers employed more than 110,000 people which represented approximately 40% of the total BPO workforce in Central and Eastern Europe. The market has been growing steadily by over 20% annually since 2008 and ABSL experts expect the figure to reach between 115,000 and 120,000 by the end of 2013. Over the past year Poland outpaced India in the rate of job creation and project expansions in the BPO sector.

process started several years ago when these units began to extend their service portfolio to include tasks that required experience, knowledge and foreign language proficiency," says Jacek Levernes, President of ABSL. "At the moment, we are aiming at a wide range of middle office processes - with a particular focus on services for investment funds. In addition, we are targeting contracts concerning financial analysis, financial instruments, tax services, transfer pricing, and financial risk management. Within the next few years, Poland will have the opportunity to acquire a considerable number of financial services from Western Europe. This will generate a further 100,000 well-paid jobs for specialists."

Poland has 3.4% of all global outsourcing/offshoring jobs, ranking 1st in CEE, 2nd in Europe and 6th globally, according to estimates by fDi Markets and Financial Times). It is also 3rd in the Hackett Group's ranking of destinations for global service centers. Together with China and India, Poland was chosen as one of the best places for Business Services investment projects. Poland was the only CEE country to be described as a "mature market," together with Brazil, China and India, in the latest report from the Everest Group. Recently, a growing number of European companies have shifted from ‘far-shoring’ in Asia to ‘nearshoring’ in Central Europe, which shares the same time zone, similar culture and regulatory environment, and can be easily accessed by air from all major cities on the continent. The range of services that are being delivered by the Polish nearshoring centers is also expanding at a faster pace than in Asia, and includes increasingly complex functions such as R&D, software development, HR, as well as more advanced finance and accounting processes. "Centres operating in Poland are now competing for contracts in the highly-advanced services sector. This

Key locations of business services centers in Poland. Source: Jones Lang LaSalle

Many investors enter Poland attracted by its estimated half a million university graduates who enter the job market every year. As the sector matures, the supply of experienced BPO staff also increases. "According to a

weekly newsletter # 003 / 16th September 2013 / page 10

Hays survey, over 30% of respondents have more than five years' experience in the service centre environment. Also, Poland has a low attrition rate which currently stands at 15%. However, the rate can be as low as 5% for centers with more advanced processes," says Małgorzata Jasińska, Corporate Accounts Director Central Eastern Europe at Hays. In May 2013 there were 25,400 jobs in the sector located in 43 centers in Kraków, Poland’s top outsourcing destination (growth of almost 31% since January 2012). Warsaw had 18,900 jobs (33% increase over the same period) in 55 centers, while Wrocław had 18,400 jobs in 38 centers (46% increase). While leading Polish regional cities attract the largest numbers of investors, new destinations in smaller cities are emerging as significant locations. The growing office stock in smaller cities such as Olsztyn, Bydgoszcz, Opole and Rzeszów means that over the past four years they have been able to meet BPO requirements from international companies across diverse sectors. "The office market is developing quickly, with 1m sq.m of space currently under construction across Poland showing that this is one of the most dynamic markets in Europe and the largest in CEE. Poland offers the widest range of office locations in the region, which is key for companies that want to expand or are looking to diversify. The high level of construction activity indicates that more quality space will come onto the market in the short to medium term, resulting in an even broader choice of available space both in Warsaw and other major cities. It is also worth mentioning that modern business services drive the growth of Poland's office market, especially on the markets outside the capital city. A prime example is Kraków, where tenants from the sector occupy almost a half of the total stock. Jones Lang LaSalle estimates that business services sector tenants occupy approximately 1m sq.m of office space," says Julita Spychalska, National Director, Corporate Advisory, Jones Lang LaSalle.

The government, on its part, is also supportive of the sector, which provides entry level jobs to graduates, helping reduce unemployment. Large or innovative business services projects may receive public aid in the form of tax breaks or training grants. BPO projects worth in excess of PLN 2m or vowing to employ more than 250 staff may be eligible for investment grants on the basis of job creation. In the case of R&D projects, an investor is required to create a minimum of 35 new jobs for university graduates and to spend a minimum of PLN 3m. The maximum amount of support varies from PLN 3,200 to PLN 15,600 per job created and is dependent on a number of factors, including the percentage of university educated personnel, location, type of processes offered etc. Currently one in four investments handled by PAIiIZ are service outsourcing projects.

TRANSPORT & LOGISTICS

Szczecin's NorthNorth-West Logistic Park moves on to phase two Encouraged by the huge success of its North-West Logistic Park in Szczecin, the first section of which has been fully-leased since it reached completion in July, the Cyprus-based property investment company Waimea Holdings Limited wasted no time breaking ground on phase two of the project. Offering twice as much space as the recently delivered building one, the 13,380 sq.m new section of the project likewise targets logistics and light manufacturing tenants. With an estimated total capex of PLN 110m and planned leasable area of 64,000 sq.m, North-West Logistic Park is Szczecin's first class-A warehouse and industrial complex. Located on a 14ha site in the city's

south-eastern Dąbie district, the project benefits from direct access to the A6 highway (Szczecin-Berlin) and the S3 expressway (Szczecin-Świnoujście port), and proximity to the Goleniow airport (30km), the German border and ferry connections to Scandinavia.

Once fully completed, North-West Logistic Park will have a leasable area of 64,000 sq.m. Photo: North-West Logistic Park

The 6,850 sq.m phase one of the project attracted three tenants (InCom Polska, Premium Distributors, and IQ Metal Polska) which employ 110 staff at the site. North-West Logistic Park targets especially companies from Scandinavia and northern Europe. Thanks to its strategic location Szczecin represents an attractive warehouse and manufacturing destination for northern European companies seeking to expand in Germany and the CEE region. After all, it takes merely 1½ hours to get from Szczecin to Berlin by car, which makes the Polish port town a natural logistics hub for the German capital. Financing for the first two stages of North-West Logistic Park was provided by BOŚ Bank, with TraskoInvest being the general contractor. Besides the Szczecin investment, Waimea Holdings Limited is working on a similar logistics project in southeastern Poland. Located by the A4 highway near the Poland-

weekly newsletter # 003 / 16th September 2013 / page 11

Ukraine border crossing in Korczowa, Waimea's East A4 Logistic Park is currently at the predevelopment stage. The investor is no stranger to this area, where its only Polish project to-date, the giant 45,000-sq.m Korczowa Dolina shopping centre is currently under construction.

Poland is CEE's industrial property giant Modern industrial property stock in million sq.m as of end of 2012

Poland

houses located in the Szczecin area serve mainly the local, market, due to the city's considerable distance from the A2 highway connecting Berlin and Warsaw. However, the region is exceptionally attractive in terms of logistics, since it is conveniently located close to the German border and to Scandinavian countries and offers sea connections. Szczecin's industrial stock amounts to nearly 50,000 sq.m while the vacancy rate is close to zero. Effective rents range between EUR 2.50-2.90/month/sq.m. The rates are competitive in relation to other Polish regional markets and might encourage tenants to locate their resources in schemes situated the region, argues the property consultancy.

Czech Rep.

Hungary

TRANSPORT & LOGISTICS

Ryanair moves Warsaw base back to Modlin from September 30th

Slovakia

Romania 0

Source: Cushman & Wakefield

"Until recently companies looking for warehouse space in Szczecin were forced to buy or even build their own logistics properties. The recently completed North-West Logistic Park was 100% leased from the start, part of that even before construction had been completed. This indicates that there is unmet demand for quality warehouse space. There is a large area to be developed along the S10 express road or West Pomeranian Logistic Centre of around 20ha located in the former Port of Szczecin. Nevertheless no new plans for such developments have been announced," commented Aleksander Kuźniewski, Senior Property Negotiator, Industrial and Logistics at CBRE in Poland. Szczecin is one of Poland's smallest regional logistics and warehouse markets. According to CBRE, ware-

From 30 September, Irish no-frills carrier Ryanair is to return to Warsaw’s Modlin airport following an almost year-long absence, Ryanair deputy head Michael Cawley and Modlin airport CEO Piotr Okienczyc announced at a joint press conference. Neither Modlin airport nor Ryanair have disclosed the details of their agreement. Ryanair is the first budget airline to return to the troubled airport since it reopened at the beginning of July. Cawley said that Modlin will become an important base for Ryanair, with the airline expected to fly to 26 destinations during the winter months. Furthermore, Ryanair hopes to carry some 1.3m passengers in and out of Modlin in 2014. In the first half of 2013 the Irish low-cost carried 731,000 on routes to and from the Polish capital.

Ryanair's announcement is of crucial importance for Modlin airport's management, who have been in talks with both Wizz Air and Ryanair to rekindle business after runway problems at the airport forced it to close just months after opening in December 2012. Both Ryanair and Wizz Air transferred their flights to Warsaw’s Chopin Airport, as a result, even though Ryanair had earlier refused to fly there due to "elevated" fees. Modlin, which had been designed as a low-cost alternative to the Chopin Airport, reopened a few weeks ago, after being closed for repairs for more than half a year. Besides the necessary runway upgrades, the airport has been equipped with landing systems (ILS), the lack of which was a major issue last year, when heavy autumn fog made approach difficult for many pilots, causing them to detour to the Chopin Airport. While the first Ryanair planes in almost a year will start landing at Modlin in two weeks, Wizz Air stated that it will be expanding its presence at the Chopin airport, with a fourth aircraft and additional flights to Greece, Sweden, Israel, s well as the UK, among other destinations. József Váradi, CEO of the Hungarian carrier, said Modlin still remains too risky a destination for Wizz Air, due to potential landing problems. He alluded to the fact that Modlin's new ILS system will initially operate in the lowest category (I), providing guidance only in conditions of slightly reduced visibility. A more advanced version (Category II), better suited for Modlin's riverside setting, is to be introduced in the autumn of 2014. According to some observers, WizzAir seeks to become the airline of choice for passengers who don't mind paying a little extra to avoid the hassle of having to add an extra hour to their travel time to get to and from Modlin, which is located some 30km north of Warsaw. Unlike Modlin, which is out in the sticks, the Chopin Airport is situated very conveniently just outside Warsaw's city centre.

weekly newsletter # 003 / 16th September 2013 / page 12

some catching up to do as far as growth of its shopping center segment is concerned.

CONSUMER GOODS & RETAIL

Poland is EU's 6th largest retail centre market by turnover Gross sales in Polish malls came to EUR 26.3bn last year, making the country Europe's 6th largest retail center market, according to a fresh estimate by the Polish Council of Shopping Centers (PRCH). The calculation takes into consideration the average turnover in all shopping centers in the country. "This means that in 2012 an average Pole spent some PLN 2,860 on shopping in modern retail centers," says Radosław Knap, New Business & Market Research Manager at PRCH. "In the past few years Poland has caught up with other European markets and currently it ranks just behind France, Great Britain, Germany, Spain and Italy. There are an estimated 400 shopping centers in Poland with a combined turnover corresponding to some 7% of the country's Gross Domestic Product."

Last year, the main focus of shopping centre development activity in Poland was on smaller urban areas. These accounted for 75% of the total shopping centre floor space delivered, according to the spring edition of Cushman & Wakefield's MarketBeat report. Shopping centre provision increased by 400,000 sq.m of GLA, as 20 new schemes and a number of extensions came on stream. The largest schemes completed were Galeria Rzeszów (42,000 sq.m of GLA), NoVa Park in Gorzów Wielkopolski (32,400 sq.m) and Korona Kielce (34,100 sq.m). Extensions accounted for 21% of this total GLA. At the end of 2012, Poland's total shopping centre GLA stood at 8.1m sq.m.

Sales turnover in Polish retail centers Estimates by Polish Council of Shopping Centers, in PLNbn 115

105

FOOD & AGRICULTURE

100

US Mars to invest PLN 250m in Polish pet food & chocolate factories

95 90

80 2008

Number of properties & total GLA, estimates by PRCH 2008 No. of retail centers Gross leasing area (million sq.m)

2009

2010

2011

2012

295

318

339

363

391

7.13

7.69

8.14

8.67

9.21

Source: PRCH

According to data from the International Council of Shopping Centers (ICSC), shopping center sales in 27 EU member states represented approximately 19% of total retail sales, on the average. In Poland the figure stood at 16%, which means the country may still have

Occupier demand for shopping centre space is modest and shows variations between both regions and individual schemes. Lublin, Częstochowa and Szczecin posted the lowest vacancy rate (respectively – 0.97%, 1.76%, 1.89%), while the highest vacancy was in Toruń (5.93%), Kielce (5.37%) and greater Krakow area (4.61%). The highest rents in Warsaw’s prime shopping centers stood at EUR 75–85/sq.m/month and in other key metropolitan areas they came to EUR 35– 40/sq.m/month. Shopping centers in medium-sized cities fetch average rents of EUR 20–25/sq.m/month, reported Cushman & Wakefield.

110

Growth of Poland's retail center stock

tension will complete, while in Poznań, Poznań City Center being developed by TriGranit. In Warsaw's Mokotów district the 16,000 sq.m Galeria Miejska (part of office and retail complex Plac Unii currently under construction) is to open shortly. As of 1H 2013, there was around 850,000 sq.m of GLA under construction throughout the country.

2009

2010

2011

2012

Source: PRCH

In 2013, the shopping centre development pipeline is expected to deliver a further 750,000 sq.m of GLA, with large cities accounting for 45% of all newly completed space as development focus shifts towards these areas. The Katowice conurbation has seen the opening of Helical's Europa Centralna retail park in Gliwice to be followed by Neinver's Galeria Katowicka. Galeria Bronowice will open to the public in Krakow. In Gdynia, Mayland's Wzgórze shopping centre ex-

One of the world's top producers of fast moving consumer goods, US Mars, Inc. will spend PLN 250m on expansion of its production capacities in Poland. Scheduled for completion in 2014, the investment will lead to creation of some 100 new jobs at the company's manufacturing and office cluster near Warsaw. "The recruitment is already underway," says Elżbieta Tomczuk, Talent Development Manager, Mars Polska. "We are looking for engineers, shift managers, as well as line workers."

weekly newsletter # 003 / 16th September 2013 / page 13

Mars built its first Polish factory, focusing on dry pet food, back in 1992, near Sochaczew (50km west of Warsaw). Three years later a second plant was completed in the area, this time for chocolate products, while the original petcare unit extended its product portfolio to include wet canned food. In 1996 Mars started making chocolate bars near Sochaczew, and in 1999 also the popular candy range M&M's. In 2004 the US food giant opened its 4th Polish production plant near Sochaczew, and its only global unit that makes special milk-based nutritional products for cats.

Mars has invested more than PLN 800m at its proPhoto: Mars Polska duction cluster near Sochaczew.

"Our investments follow growing demand for Mars chocolate and petcare products. As far as the growth in pet food sales is concerned, it has to do with increasing awareness among pet owners of the health benefits of balanced nutrition. This is a market with a substantial growth potential, both in short- and long term and we expect it to evolve into one of the largest FMCG categories in Poland," says Aku Vikström, Managing Director, Mars Polska Petcare. Mr. Vikström's statement echoes an assessment we heard from Giorgio Vesprini, Country Manager Nestlè Purina Poland & Baltics, whose company announced a PLN 300m investment in a brand new pet food factory in Wrocław only a few weeks ago (see PT

Business Review+ No. 001, page 12). With Poland's estimated 7.4m dogs and 5.7m cats (according to Euromonitor), pet nutrition remains one of the fastest growing segments of the country's food sector. According to estimates, its value is likely to come in excess of EUR 0.5bn next year, which is still way behind France (EUR 2.4bn) and Germany (EUR 2bn). Mars, with its Pedigree, Whiskas, Chappi, Kitekat, and Royal Canin brands, remains the undisputed leader in Poland's pet food segment, with close to a 50% market share. The number two player is Nestlè Purina, with slightly less than 10%. Overall, Mars, Inc. has invested in excess of PLN 800m in Poland, where its local unit currently employs 1,400 people and turns over PLN 1.5bn annually. More than 50% of Mars Polska's production is being exported to more than 30 markets worldwide. With the planned expansion, Mars' investment outlays in Poland will pass the PLN 1bn mark in the near future. "The ongoing investments encompass expansion and modernization of our factory cluster near Sochaczew and applies to both buildings as well as production lines," Marzena Ignaczak, Corporate Communications Director at Mars Polska tells Poland Today. "The resulting capacity increase may lead to a potential expansion of our product portfolio in Poland."

DATA BOX: UNEMPLOYMENT Poland's registered unemployment likely fell in August to 13.0% from 13.1% in July, the Labor Ministry said in a statement. The number of unemployed was at 2.085m at end-August, down by 8,400 from July. Employers filed 74,400 job offers in August, up by 16% m/m. According to the ministry, Polish registered unemployment is likely to hold below 14% by year-end.

POLITICS & ECONOMY

Trade union protesters protesters descend on Warsaw Up to 100,000 people took part in the antigovernment demonstrations on Saturday in Warsaw organized jointly by Poland's three largest trade unions - Solidarity, the All-Poland Alliance of Trade Unions (OPZZ) and the Trade Unions Forum in a protest against government labor policy, pension system reform and to call for higher pay. The Saturday event marked the end of a unionsinspired "week of protest" that began on Wednesday with rallies in front of eight ministries (the Treasury, Labor, Transport, Economy, Health, Interior Affairs, Agriculture and Justice) where the protesters left lists of their demands, and subsequently marched to the parliament building, in front of which they pitched tents. The protesters called on the government to abandon its plans for the introduction of the so-called flexible working arrangements, that would enable employers to adjust working hours depending on current conditions, making staff work longer hours when companies have more orders, and shorter when the business is bad. Designed as part of the government's anti-crisis measures, the draft bill seeks to help businesses weather tough economic times without resorting to layoffs, but according to the unionists the planned regulations are "scandalous and will not help increase employment." Other demands voiced during last week's rallies included a higher minimum wage, improvements to the healthcare system, and a ban on the so-called junk

weekly newsletter # 003 / 16th September 2013 / page 14

employment contracts, short-time agreements without social security that have become a plague in many industries. Last but not least, the employee organizations want the reversal of a raise in the retirement age to 67 years from the previous 60 for women and 65 for men, and demand government support for certain types of industry. After six year in power, Prime Minister Donald Tusk sees public support for his centre-right government ebb away. The ruling coalition was overtaken recently in opinion polls by the country's conservative opposition Law and Justice (PiS) after making a series of unpopular policy moves and its parliament majority has shrunk to one vote after three MPs left the ruling Civic Platform (PO). Prime Minister Donald Tusk asserted that the appropriate place for debate remained the Trilateral Commission, that comprises of the government, labor unions and business organizations. He added that the protests were "political," and aimed at “bringing down the government." According to a poll by MillwardBrown, commissioned by a private broadcaster TVN, 59% of Poles were in favor of antigovernment rallies and 31% against.

POLITICS & ECONOMY

MP exodus cuts ruling coalition's majority down to one vote The Polish government is left with a one seat majority in parliament following the departure of three lawmakers in less than two weeks. Although this exodus does not pose an immediate threat to Prime Minister Donald Tusk's rule, his position seems to be at its

weakest since the centrist coalition of Civic Platform (PO) and its agrarian junior partner Polish People's Party (PSL) came to power six years ago. The first to leave was John Godson, the Nigerian-born Poland's first black member of parliament. Mr. Godson, an evangelical pastor, had been one of PO's most conservative MPs and often differed with the party's official line on social issues. For example, earlier this year he opposed Prime Minister Donald Tusk's efforts to sanction civil unions, which he viewed as a prelude to legalizing gay marriage. Godson was followed by Jarosław Gowin, one of PO's most senior figures, regarded as the unofficial leader of the party's conservative wing. Gowin, who unsuccessfully challenged Tusk for the party's leadership in a contest last month, also believes the Premier is too liberal on issues such as abortion and same-sex partnerships. A first test for Tusk's reduced majority will come when the 460-seat parliament votes on a government law on transferring Treasury bonds held by private pension funds to the state in an effort to curb the country's rapidly growing public debt (see No. 002 of PT Business Review+, page 14). Gowin said it was the pension reform that triggered his departure, which was preceded by a prolonged tug of war between Tusk and his in-party rival. "Today we have reached a threshold, beyond which loyalty to the party will be in conflict with loyalty to the Polish people," Gowin told reporters. "Remaining in the party would be contrary to my conscience." The third MP to abandon PO was Jacek Żalek, another member of the informal conservative camp, who together with Godson and Gowin was facing disciplinary action for abstaining from voting on the ruling party's

proposal to suspend fiscal rules and thus allow for the public debt-to-GDP ratio to exceed a threshold of 50%. It remains to be seen whether the three renegades have any political plans for the future. According to rumors, Mr. Gowin is mulling the creation of a new political entity called Republikanie (The Republicans), and both Mr. Żalek and Mr. Godson will join him, together with a handful of right-wing politicians who have left the opposition party Law and Justice (PiS) in the past few years. Although Tusk's rule may not be under immediate threat, any further erosion of his support in parliament could lead to the collapse of his coalition and early elections, with hard-to-predict consequences. The general election is scheduled for 2015. Although according to political analysts PO usually manages to persuade a handful of independents to back the government, a defeat on an important vote could encourage more dissenters to leave the party, and in consequence, bring down the government. The first big test for the weakened PO will be sometime within the next two or three months, when the pension reform comes before parliament.

POLITICS & ECONOMY

Special economic zones to offer investment incentives until 2026 A government ruling extending the life of Poland's special economic zones (SEZ) by six years entered into force in early September. The cabinet of Prime Minister Donald Tusk has decided that the SEZ, which offer incentives to investors and play a crucial role in re-

weekly newsletter # 003 / 16th September 2013 / page 15

gional economic development, will continue to be operational through to the end of 2026. Ministers had originally planned to shut down the zones by the end of 2020. While the shutdown will eventually cause investors operating production facilities in the zones to lose preferential tax treatment, the six-year postponement is seen as a good move for those looking to put money into the region's economies.

The maximum amount of state aid (including tax exemptions) that can be granted to an investor varies between regions, depending on economic situation. According to new directives of the European Commission, the current map that outlines the aid ceiling in different parts of Poland is to be replaced with a new one in mid-2014. In a number of regions the new limits will be considerably lower, reflecting improving conditions.

"The extension of the functioning of the zones is a very positive signal sent to investors who are currently evaluating the possibility of investing in Central and Eastern Europe," said RafaĹ&#x201A; Prusakowski, senior manager in the public aid unit of consultants PwC Poland. "This will allow the investors to take advantage of tax exemption on revenues generated in the SEZ until 2026." Since 1995, a total of 14 special economic zones have been launched in Poland, offering Corporate Income Tax (CIT) and property tax exemptions to investors and stimulating economic development. According to Ministry of Economy figures, companies have so far invested some PLN 86bn in the SEZ, creating approximately 186,000 jobs. Recently, investor activity in the zones has slowed quite a bit, partly due to their declining attractiveness ahead of the original 2020 expiration date. Now that the government has given investors a few extra years, the ministry is counting on a further PLN 30bn in capital expenditures and 20,000 new jobs across the SEZ. Experts from tax consultancy KPMG point out that the new ruling lacks transitional regulations explaining how this extension of SEZ operations applies to current holders of SEZ permits. According to information obtained by the consultancy, companies that have permits with no specified date of validity will be able to use those until 2026.

for an investment relates to 2014 or beyond," suggested KPMG experts in a recent commentary.

DATA BOX: INFLATION Poland's consumer price inflation stayed unchanged in August, in line with economists' forecast, latest data showed Friday. The consumer price index moved up 1.1% on an annual basis in August, as they did in the previous month, the Central Statistical Office GUS said. The outcome was in line with average projections. Data showed that inflation was influenced by a 2.5% growth in food and non-alcoholic beverages prices, and a 2% gain in housing costs. The negative contributions came from a 4.8% fall in prices of clothing and footwear and a 1.4% decline in transportation expenses. Consumer prices dropped 0.3% on a monthly basis, as expected by economists. In July, prices had recorded a 0.3% increase.

CPI inflation in Poland (y/y) 5% 4% 3% 2% 1% 0%

The regional aid map for Poland covering the period Source: KPMG 2007-2013 and 2014-2020.

"Bearing in mind the above, if you are planning investments in an SEZ located in a region where the state aid ceiling will be reduced, it is worth to obtain an SEZ permit before the end of 2013. This would allow permit holders to enjoy the regional aid limits specified on the map for 2007-2013 even if the permit

Feb 11

Aug 11

Feb 12

Aug 12

Source: GUS, the central statistical office

Feb 13

Aug 13

weekly newsletter # 003 / 16th September 2013 / page 16

KEY STATISTICS Consumer Prices Prices

Inflation

2.5

-1.2

Alcohol, tobacco +3.5

+0.2

+3.7 +0.2 +3.6

+0.1 +3.6 +0.2

Clothing, shoes

+0.1

-4.7

-2.7

Housing Transport

-4.8 +1.1

+0.1 +0.9

-0.8

-5.0

0.0 +2.0

-4.8

-2.7

+1.2 +2.0

+0.1

-4.2

-2.3

-3.5 +0.4

-1.2

+1.1

-1.4 +0.5

Communications -9.7

-2.6

-9.7

0.0

-9.7

0.0

-9.7

0.0

Gross CPI

-0.1

+0.2

0.0

+1.1

+0.3

+1.1

-0.3

+0.5

y/y (%) y/y

m/m

Apr '13 May '13 Jun '13 -2.7

+1.6

+1.5

+3.8

+0.1

-0.2

+0.5

+1.8

+4.3 2012

2008

2009

2010

2011

Turnover in PLNbn

564.7

582.8

593.0

646.1

n/a

+13.3

+4.3

+5.5

+11.6

+5.6

Residential Construction Dwellings

2008 2009 2010

2011

2012 Jan-Jul y/y

230.1

178.8

174.9

184.1

165.1

142.9

158.1

(in '000 units)

Producer Prices Prices

Industrial Industrial Output

Jul '13

+16.8

Year

y/y (%) Aug 13

-0.3

Jun 13

2.5

Apr 13

-0.3

Feb 13

+0.7 +0.7

Dec 12

+1.6

Mar '13

m/m (%)

Oct 12

Food & bev

Month

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

Aug 12

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

Jun 12

Sector

Retail Turnover

Apr 12

Aug '13

Feb 12

Jul '13

Dec 11

Jun '13

Oct 11

May '13

Aug 11

Data in (%)

Permits

2013

(%)

79.7

-22.3

Commenced

174.7

162.2

141.8

71.9

-21.8

m/m (%)

0.0

+0.3

-0.3

-0.7%

+0.1

+0.7

+0.2

m/m (%)

+5.4

+0.3

-0.2

-2.3

-0.7

+2.6

+1.5

U. construction

687.4 670.3 692.7 723.0

713.1

703.5

-4.4

y/y (%)

-1.2

-0.4

-0.7

-2.1%

-2.5

-1.3

-0.8

y/y (%)

+0.3

-2.7

-0.6

+2.7

-1.8

+2.8

+6.3

Completed

165.2 160.0 135.7

152.5

81.1

+1.7

Year

2006

2007

2008

2009

2010

2011

2012

Year

2006

2007

2008

2009

2010

2011

2012

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

y/y (%)

+11.6

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

Gross Domestic Product

Month

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

m/m (%) y/y (%) Year y/y (%)

Jan '13 Feb '13 Mar '13 Apr '13 May'13 Jun '13 Jul'13 -0.2

-0.2

-0.1

-0.2

-0.1

-1.4

-1.6

-1.8

-1.9

-2.0

-1.9

2006

2007

2008

2009

2010

2011

2012

+3.2

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

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

Coal mining

Month

Period

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

m/m (%)

-60.3

-0.3

+20.9

+7.9

+16.1

+19.1

+7.8

y/y (%)

-26.1

-11.4

-18.5

-23.1

-27.5

-18.3

-5.2

Year

2006

2007

2008

2009

2010

2011

2012

y/y (%)

+18.1

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages Sector

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

Construction Output

Construction Prices Price s Month

Month

Q3 2012

Q4 2012

Q1 2013

Q2 2013

5,920

135 8,427

192 6,060

138 6,290 143

442,231

-3.5%

+1.3%

393,792

-4.1%

2012

+1.9%

1,595,264

-3.5% -4.9% -5.1%

+1.6%

1,344,384

-3.9%

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

120

Transportation

3,543

125

3,816

135 3,439

122 3,547 125

IT, telecoms

6,493

169 6,379

166 6,685

174 6,707 174

Financial sector 5,875

132 6,044

136 6,356

143

Key Economic Data & Projections

100

Indicator GDP change

+3.9% +4.5%

Consumer inflation Producer inflation CA balance, % of GDP

Aug 13

60 May 13

-40 Feb 13

146

Nov 12

152 3,693 157

143 3,432

A ug 12

163 3,556

142 3,365

M ay 12

158 3,829

3,322

F eb 12

3,709

Retail & repairs

Nov 11

Construction

A ug 11

M ay 1 1

-20

Feb 11

152 3,560 155 188 5,828 177

Nov 1 0

3,491

Source: Central Statistical Office (GUS)

+0.7%

Q3 2012

2009

198 6,196

3,613 144

Q4 2012

Economic sentiment and consumer confidence indicators

154

149

-2.8%

1,528,127

151 3,522

3,741

n/a

377,815

1,416,585

176 6,535

154

395,507

+0.5%

+3.9%

3,463

147 3,878

+0.8%

Q1 2013

+4.5%

5,790

National average 3,690

Q2 2013

2010

Energy

151

Current account def. in % of GDP

2011

Manufacturing

6,712

GDP in PLN bn current prices

Sentiment Indicators

3,421 146

Growth y/y unadjusted

131.7

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

2013

2014

+1.9%

+1.0%

+2.5%

+2.6% +4.3%

+3.7%

+1.0%

+1.9%

+2.1% +7.6%

+3.4%

-1.4%

1.0%

-5.1%

-4.9%

-3.5%

-1.0%

-0.1%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+2.6%

+4.0%

Unemployment**

12.4%

12.5%

13.4%

13.9%

13.5%

3.99

4.12

4.19

4.22

4.06

EUR/PLN

*2010

*2011

*2012

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

weekly newsletter # 003 / 16th September 2013 / page 17

100 DKK

56.47 ↓

100 SEK

48.45 ↓

350

300

317.96 ↓ 16.34 ↓

100 CZK 10,000 HUF

USD EUR

1 Oct 12

10,000 JPY

400

53.65 ↓

100 NOK

139.96 ↓

Money Supply in PLN m Monetary base M1 - Currency outside banks M2 - Time deposits M3

as of 13 September 2013

WIG-20 stocks Price Change Change in alphabetical 13 Sep 6 Sep end of order '13 '13 '12

WIG Total index

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

PLN (up to 1 year)

5.9%

PLN (up to 5 y ) PLN (over 5 y) PLN (total)

5.6%

5.4%

5.3%

5.0%

6.4%

6.2%

6.3%

6.0%

6.3%

4.7%

5.9%

5.7%

5.4%

5.1%

5.7%

5.6%

5.3%

6.0%

5.8%

5.6%

5.3%

4.9%

EUR (up to 1m EUR) 2.1%

2.3%

2.1%

2.3%

1.9%

2.3%

EUR (over 1m EUR) 2.8%

3.6%

2.9%

3.2%

2.9%

3.5%

Apr '13

May '13

Jun '13

Jul '13

150,475

144,260

155,767

493,721 107,468

508,299

523,783

109,312

914,732

920,112

433,840

425,740

935,231

941,791

112,815 927,345

530,666 112,565 921,662

418,252 405,900 946,586

945,077

- Net foreign assets 161,880 176,278 160,267 159,749 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

+5%

+4%

49,348. 348.61

↑ Bogdanka

110.2

+1%

-19%

Change 1 week

+6% ↑

↑ BRE

431.4

+3%

+32%

Change end of '12

+4% ↑

↑ BZ WBK

320.55

+5%

+33%

↑ Eurocash

50.95

+12%

+17%

WIG-20 blue chip index

7.22

+7%

-27%

↑ Handlowy

105.3

+5%

+7%

2,375 2,375. 375.44

↑ JSW

↑ GTC

Warsaw Inter Bank Offered Rate (WIBOR) as of 13 Sep 2013 Overnight

1 week

1 month

3 months

6 months

2.57%%

2.60%

2.61%

2.70%

2.73%

Central Bank (NBP) Base Rates

150,295

47.1

↑ Asseco Pol.

76.85

+16%

-17%

Change 1 week

+6% ↑

↑ Kernel

52.4

+11%

-21%

Change end of '12

-8% ↓

+3%

-35%

Reference

Lombard

NBP deposit

Rediscount

↑ KGHM

124

2.50%

4.00%

1.00%

2.75%

↑ Lotos

36.5

+1%

-11%

WIG Total closing index

↑ Pekao

171

+5%

+2%

last three months

17.04

+6%

-6%

52000

6.15

+8%

+18%

50000

Credit

↑ PGE

The financial sector's net lending in PLN bn,

↑ PGNiG

loan stock at the end of period Type of loan

43.1

+5%

-13%

48000

↑ PKO BP

37.85

+7%

+3%

46000

↑ PZU

422.3

+6%

-3%

44000

-4%

42000

↑ PKN Orlen

Apr '13

May '13

Jun'13

Jul '13

Loans to customers

880,213

887,960

900,999

896,635

- to private companies

257,956

259,593

263,453

261,000

↑ Synthos

5.22

+19%

- to households

542,130

549,117

553,055

552,503

↑ Tauron

4.66

+10%

-2%

1,588,750 1,622,666 1,634,587

1,616,221

↑TP SA

7.80

+7%

-36%

Total assets of banks

Source: Central Bank NBP

13 Sep 13

340.24 ↓

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

22 Aug 13

501.04 ↓

100 CHF

13 Sep 13

100 GBP

8 Jul 13

421.10 ↓

26 Apr 13

100 EUR

Key indices

Term / currency

450

18 Feb 13

316.96 ↓

7 Dec 12

100 USD

Stock Exchange

Average weighted annual interest rates

8 Jul 13

as of 13 September 2013

Interest rates

30 Jul 13

100 USD/EUR against PLN

Central Bank average rates

14 Jun 13

Currency

Source: Warsaw Stock Exchange

T rade Poland's ten largest trading partners, ranked according to 2012

Poland exports and imports according to commodity groups, according to SITC classification EXPORTS in PLN bn Jan-Jun 2013

y/y (%)

share (%)

2012

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Jun 2013

y/y (%)

share (%)

2012

share (%)

No Country

Jan-Jul share 2013

IMPORTS in PLN bn *2012

Share No

Country

Jan-Jul share 2013

*2012 Share

32,226

+9.7

10.5

61,694

10.3

22,938

+3.1

7.4

44,287

6.9

1 Germany

89,862 24.9% 150,046 25.1%

1 Germany

77,335 21.3% 134,933 21.1%

Beverages and tobacco

4,077

+5.7

1.3

7,967

1.3

1,911

-0.7

0.6

3,989

0.6

2 UK

23,427

6.5%

40,184

6.7%

2 Russia

45,944 12.6%

Crude materials except fuels

7,842

+5.4

2.6

14,024

2.4

10,539

-8.7

3.4

22,053

3.5

3 Czech Rep.

21,951

6.1%

37,475

6.3%

3 China

32,785 9.0% 57,235 9.0%

14,708

+1.4

4.8

29,389

4.9

35,257

-16.4

11.4

85,280

13.4

4 France

21,017

5.8%

34,862

5.8%

4 Italy

19,010

5.2% 32,782

739

+54

0.2

1,342

0.2

1,247

-12.2

0.4

2,887

0.5

5 Russia

19,345

5.4%

32,290

5.4%

5 France

14,267

3.9% 25,303 4.0%

Chemical products

28,890

+5.5

9.4

54,295

9.1

45,247

-11.1

14.6

89,140

14.0

6 Italy

16,368

4.5%

29,067 4.9%

6 Netherlands

13,837

3.8% 24,543

Manufactured goods by material

63,359

-1.4

20.6

126,161

21.1

54,120

-7.1

17.5

110,773

17.4

7 Netherlands

14,129

3.9%

26,678 4.5%

7 Czech Rep.

13,374

3.7% 23,327

3.7%

Machinery, transport equip.

115,762

+2.7

37.7

223,646

37.5

102,109

-0.9

33.0

203,718

31.9

8 Ukraine

9,940

2.8%

10,628

2.9%

16,436

2.6%