Poland Today Business Review+ No. 038 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. 038 / 9th June 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Ciech privatization completed as Kulczyk acquires 51% of shares page 2 Finnish Valmet may relocate production from Germany to Poland page 2 May Manufacturing PMI data weakest since June 2013 page 3

Some of the 50 international journalists taking part in Poland Today’s Poland Transformed press tour, which aimed to bring the country’s success over the past 25 years to a wider audience around the world. The journalists started the tour at the Warsaw Stock Exchange, a key symbol of Poland’s economic success. Photo: Poland Today

Poland Transformed: special coverage

In this special edition of BR+ we bring you extended coverage of our highly successful Poland Transformed conference, which saw business leaders and opinion formers discuss Poland's key economic achievements and challenges. pages 10-20

Obama: Poland will never stand alone

During his high-profile visit to Warsaw last week US President Barack Obama reaffirmed his country's commitment to Poland's security under the NATO alliance and said he would ask the Congress to boost the US military presence in Europe. page 8

ENERGY & RESOURCES Germany's RWE to invest PLN 1.64bn in Warsaw power grid page 3 PROPERTY & CONSTRUCTION CBRE looks back at the last 25 years of Poland's office market page 4 SERVICES & BPO Employment in business services sector to reach 160,000 by end-2015 page 5 RETAIL PROPERTIES Austria's Immofinanz obtains permit for EUR 50m retail project in Stalowa Wola page 6

tel. +48 881 650 600

TECHNOLOGY Google to open its Campus start-up hub in Warsaw page 7 IT & TELECOM Skąpiec.pl, Opineo.pl and Telepolis.pl change owners page 7 POLITICS & ECONOMY European Commission to lift excessive deficit procedure on Poland page 9 POLAND TRANSFORMED No pain, no gain page 13 More trust, less red tape page 14 People power page 15 Master of its own destiny page 18 Through the lens of history page 19 Telling Poland's story to the world page 20 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 21-23

weekly newsletter # 038/ 9th June 2014 / page 2

MANUFACTURING & PROCESSING

Ciech privatization completed as Kulczyk acquires 51% of shares Polish billionaire Jan Kulczyk has successfully acquired a 51% stake in the Warsaw-listed chemical producer Ciech through a buyout bid, at the cost of approximately PLN 0.8bn. The Polish state, which had a 38% stake in the company, has thus exited Ciech, cashing in PLN 642m (including a PLN 23m dividend). "We have successfully closed one of the longest privatizations," deputy Treasury Minister Paweł Tamborski said last week. "Ciech has undergone deep restructuring in which the Treasury played an active part. We hope the transaction enables the company to develop to the benefit of its shareholders."

Ciech Group key financial figures Turnover in PLNb n, lef t axis Net profit in PLNm , right axis 5 4 3 2 1 0 -1 -2 -3 -4 -5

500 40 0 300 200 100 0 -1 00 -20 0 -30 0 -4 00 -50 0 200 6

200 7 20 08

200 9

20 10

20 11

20 12

201 3

Source: Ciech

Kulczyk had initially sought to acquire 66% of Ciech offering PLN 29.5 per share, but it later lowered the

threshold to 60% and raised the price to PLN 31, which convinced the Treasury as well as some other shareholders. Although Kulczyk's SPV KI Chemistry managed to buy only slightly more than 50% of shares, it decided to finalize the transaction. "We are confident that thanks to Ciech's global expansion we will be able to significantly increase the company's value," commented Sebastian Kulczyk, who has recently taken over management of his father's company Kulczyk Investments. Ciech is one of Poland's leading chemical companies with a stock market capitalization of more than PLN 1.7bn. The group includes more than 30 companies that produce, among other, soda ash (Ciech is its number two supplier in Europe), sodium bicarbonate, salt, fertilizers, crop protection chemicals, epoxy, polyester resins and other organic chemical products that are used in glass, furniture, chemical, construction industries and agriculture. Besides several production units in Poland, Ciech owns factories in Romania and Germany.

MANUFACTURING & PROCESSING

Finnish Valmet may relocate production from Germany to Poland Finnish auto supplier Valmet Automotive plans to downsize 300 jobs in Germany because of dwindling demand for convertible cars, German union IG Metall said last week. The maker of roof systems will cut all production jobs and some white-collar positions at a plant employing 400 people in Osnabrueck, western Germany, IG Metall's regional director Stephan Soldanski said. Valmet will either transfer jobs immediately to Poland or gradually phase out the positions through 2017, Soldanski told Reuters, citing a staff briefing by company managers. The units in Germany and Poland manufacture roof systems also for e.g. Renault, BMW/MINI and VW/Bentley.

In 2013 Ciech turned over PLN 3.5bn (down from PLN 4.4bn in 2012) and posted a small profit (against a net loss of PLN 431m in the prior year). Ciech is currently seeking buyers for a number of attractive assets, including the site of its former headquarters on Warsaw's Powązkowska Street that seems like a perfect spot for a large office project. With some EUR 2.8bn under management, Kulczyk Investments is involved in the mineral resources, energy, infrastructure and real estate sectors. It's largest projects include Autostrada Wielkopolska (the Konin-Świecko section of the A2 highway), Kompania Piwowarska (Kulczyk sold exchange his shares in Poland's top beer maker for a stake in its strategic investor SABMiller) as well as the largest importer of VW group vehicles to Poland.

Valmet Automotive produces roofing systems in Photo: Valmet Automotive Germany and Poland.

weekly newsletter # 038/ 9th June 2014 / page 3

Valmet Automotive is a service provider in automotive engineering, vehicle manufacturing, convertible roof systems and related business services. Their focus areas of expertise are premium cars, convertibles and electric vehicles. In 2010 the company took over the convertible roof business from bankrupt German Wilhelm Karmann GmbH. It employs around 2,000 professionals in Finland, Germany, Poland and China. Valmet Automotive was founded in 1968 as a manifestation of Finland's desire to have its own auto industry and has assembled Saab, Opels, Porsches, TalbotChryslers, but is probably most known internationally for its production of the Saab convertible. In August last year Valmet Automotive launched the manufacturing of the Mercedes-Benz A-Class. Valmet belongs to the Finnish engineering group Metso, private equity fund Pontos Group and the Finnish state. Shifting production to Poland, where manufacturing sector wages amounted to an hourly EUR 6.65 per worker in 2012, compared to the EUR 36.98 in Germany, according to the Cologne-based IW economic institute, would enable the Finns to substantially lower production costs. German automotive giant Volkswagen makes the convertible version of its popular Golf mode in Osnabrueck, whereas its GM-owned rival Opel has been making the Cascada drop-top in Gliwice, Poland, since 2013.

POLITICS & ECONOMY

May PMI data weakest weakest since June 2013 Poland's manufacturing sector purchasing managers' index PMI fell to 50.8 points in May, its 11-month low,

from 52.0 points just one month prior. The data, provided by HSBC and Markit, was lower than average expectations (52.2 pts). According to the report, growth of both output and new orders slowed for the third successive month to weak rates, and new export orders fell for the first time since May 2013.

Purchasing Managers' Index (PMI)

but a continuation of downward trend can suggest that the recovery is waning. In our view next few months will be crucial, as they will show if we are dealing with a downward trend in activity or only with a temporary deterioration of mood, due to worries about conflict between Russia and Ukraine. We view the latter effect as temporary, as data show that decline of orders from Russia and Ukraine is more than offset by rising demand from the euro zone," they concluded.

The 50 mark separates growth from contraction 60

ENERGY & RESOURCES

Germany's RWE to invest PLN 1.64bn in Warsaw power grid

45 Mar 13

May 13

Jul 13

Sep 13

Nov 13

Jan 14

Mar 14

May 14

Source: Markit & HSBC

New business rose for the twelfth month running, but the rate of expansion slowed further from February's peak to the slowest since June 2013, whereas manufacturing employment rose for the tenth month running in May, but the rate of job creation slowed to a marginal pace, the report said. Firms also cut purchasing activity for the first time in 11 months. "This was the third consecutive decline and it affected all main sub-indices: employment, output and new orders. We have been suggesting for a couple of months already that the PMI was too high as compared with pace of economic recovery. However, now the indicator approached the 50pts mark, a border between expansion and contraction, and this is worrying," commented bank BZ WBK bank analysts. "The current level of the gauge is still more or less in line with expansion of industrial output by ca. 5%y/y,

German power distributor RWE Stoen Operator will make grid investments in the Warsaw area to the tune of PLN 1.64bn over the coming half a decade, the company announced. The investor is expecting a considerable growth in power consumption as the city and its vicinity keep developing and the planned investments are to ensure security and continuity of supplies. Over the past ten years the German investor spent PLN 1.9bn on grid improvements in Warsaw. "The investments planned for the years 2014-2019 will not only stimulate the development of the Warsaw agglomeration, but will also serve as an opportunity to transform Warsaw into the city of the future," comments Robert Stelmaszczyk, President of the Board of RWE Stoen Operator. "Implementation of the Smart Grid concept in the area of our operation will essentially improve the level of energy efficiency of the system. It will also allow for the development of dispersed generation which is to play a major role on the future energy marketâ&#x20AC;?

weekly newsletter # 038/ 9th June 2014 / page 4

This year alone, RWE is to spend PLN 235m on gridrelated investments that will include the construction high-voltage power substations: Cybernetyki (PLN 17m), Towarowa (PLKN 50m), Tarchomin (PLN 17m) and high-voltage power lines: Mościska (PLN 52m) as well as Siekierki-Stegny-Południowa (PLN 20m). The new substations are located in the fastest growing areas of the city: the business hubs of Mokotów and Wola (Cybernetyki and Towarowa) as well as the residential suburb of Tarchomin. Those new projects will not only improve the security of power supply in Warsaw, responding to the growing demand for electricity, but also improve the quality of supply for existing customers, RWE said. According to estimates cited by RWE, by 2030 the population of Warsaw is likely to hit the 3m mark. RWE's new investment program is part of the company's efforts aimed at transforming the Warsaw power system towards modern solutions. As a result, traditional one-way grids will be gradually replaced by Smart Grids which, owing to two-way communication, support the sustainable consumption of energy and the development of dispersed generation. The introduction of smart grids and remote metering is intended to help achieve the EU goal of 20% growth in energy efficiency. RWE is to implement its first PLN 65m smart metering project in Warsaw in the years 2014-15 by installing modern meters that enable remote data reading at selected locations.

The largest energy producer in Germany and number three in the UK, RWE employs 66,000 staff and supplies electricity to more than 17m customers and gas to some seven million households. Its Polish operations include the main unit RWE Polska (which supports the group's development in the country and sells energy to some 0.9m clients primarily in the Warsaw area), Warsaw power grid company RWE Stoen Operator, as well as wind farms with a combined capacity of 197MW.

The first decade following the end of Communism (before 2000) saw the completion of, among others, the initial phases of the Atrium and Empark complexes as well as the first high-rises such as Orco Tower, Ilmet or Warsaw Financial Center. Apart from office buildings situated in the centre of Warsaw, there were also Poland's first business parks, for instance Wiśniowy Business Park, Jerozolimskie Business Park, Ochota Office Park or University Business Center.

New office space in Warsaw in sq.m PROPERTY & CONSTRUCTION

CBRE looks back at the last 25 years of Poland's office market Amid last week's celebrations surrounding the 25th anniversary of the 1989 elections, also Poland's real estate sector indulged in some reminiscences, with the consultancy CBRE publishing a report on the past 25 years of the country's office sector. Looking back, one finds it hard to believe that the first modern office buildings began appearing in Warsaw only as recently as the early 1990s. According to CBRE data, throughout the past quarter of a century a total of 951 office buildings with a combined area of 7m sq.m have been built in Poland, roughly a half of which in Warsaw. "Over the past 25 years, 430 modern office buildings with a total area of 4.2sq.m were constructed in Warsaw. Previously existing office buildings such as Universa, which was built in mid 1960s, or Intraco, which was delivered ten years later, offered a relatively low standard. Buildings developed throughout all these years in Warsaw brought various standards and functions," – said Joanna Mroczek, Director of Research and Consultancy at CBRE.

450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 200 2001 2002 2003 200 2005 2006 2007 2008 2009 2010 2011 2012 2013

Under its development plan for the 2014-2019 period, which has been approved by the energy regulator URE, RWE Stoen Operator is to install over 165 km of high-voltage, 512 km of medium-voltage, and 1,332 km low-voltage lines in the Warsaw area. Additionally, the company will build and/or modernize 24 high-voltage power substations and 843 medium-voltage/lowvoltage power substations.

Source: CBRE

In the years 1990-2000, 153 buildings with a total area of 1.44m sq.m were constructed in Warsaw, of which more than 0.4m sq.m in the year 2000 alone, which to this day remains an unrivaled record. In the early 90s, the highest recorded rents reached USD 50 per a sq.m a month, while the vacancy rate remained below 2%. Over the subsequent decade, which witnessed both the investment boom related to Poland's EU accession as well as the fallout of the global financial crisis, a further 208 office buildings with a total area of nearly 2m sq.m were delivered. The Warsaw real estate market has changed significantly within the past two decades. In the early 90s, the supply of new office space covered the take-up and the vacancy rate did not exceed 3%. Most office assets were able to find tenants even before commissioning

weekly newsletter # 038/ 9th June 2014 / page 5

or soon after completion. Since 1998, a rapid growth of modern office space supply coupled with limited demand, have pushed the vacancy rate up. According to CBRE, the most difficult periods for developers and landlords were the crisis years of 1999-2001 and 20092011.

premises, consolidate branches, diversify activities region-wise and enter the Polish market in search for highly skilled employees. Polish businesses, banks or insurance companies in particular, usually decide to build their own seats or lease space in co-owned buildings," says Łukasz Kałędkiewicz, Senior Director at CBRE Office Agency.

Modern office stock in key cities No. of assets Warsaw

Total area in sq.m

430

4,200,000

Kraków

102

628,000

Wrocław

100

551,000

455,000

Tri-City Katowice

317,000

Poznań

303,000

Łódź

297,000

Source: CBRE

Over the next three years, CBRE analysts expect an estimate 0.6m sq.m of modern office space to be delivered in the Warsaw area, including 350,000 sq.m in the city centre, mainly along the new subway line, the central part of which is to reach completion later this year.

25 YEARS OF THE POLISH OFFICE MARKET IN NUMBERS • highest office building (Warsaw Trade Tower – 208 m with the pinnacle) • largest office building – Rondo 1 – 57,000 sq.m GLA • largest office complex – Empark – 107,000 sq.m GLA • highest rent – USD 50-60 - early 90s – Centrum LIM • highest vacancy rate – 25% in Lodz (2009) • most expensive office building (investment sales) – Rondo 1 sold for EUR 297m (2014) • largest floor space in an office building – Konstruktorska Business Centre in Warsaw – 7,341 sq.m. • largest amount of office space delivered in a single year in one city – 427,000 sq m in Warsaw (2000) • largest amount of office space leased in a single year in one city – 107,000 sq m in Krakow (2012) • biggest lease agreement – 43,700 sq.m. Orange in Miasteczko Orange in Warsaw (43,700 sq.m. Source:CBRE

Warsaw's skyline is far from complete: a number of high rises are currently under construction and many Photo: CBRE more are still at a planning stage.

"The demand for office space is shaped mostly by foreign businesses which are looking to expand their

Foreign investors, mainly business process outsourcing companies, are also the main driver of office development in regional cities, mainly Kraków, Wrocłąw, Poznań, Katowice, Tri-City and Łódź. The first modern office building outside Warsaw was Szczecin's PAZIM, completed in 1992. Currently, there are over 1.2m sq.m of office space under construction throughout Poland, which, when completed, will boost the office stock in the largest Polish cities by over 17%.

SERVICES & BPO

Employment in business services sector to hit 160,000 by endend-2015 Over the past 2½ years Poland's modern business services sector has grown by a half and currently employs close to 130,000 people in foreign-owned centers alone, shows a brand new report by the industry's organization ABSL. Including domestic centers and outsourcing firms, the sector boasts more than 200,000 employees. Since the beginning of 2013 Polish cities welcomed 66 new business services centers, most of which were opened by new investors that included the likes of ThyssenKrupp, Merck, GE Healthcare, RWE, Mars, DFDS, Linklaters and McCormick. "Before the end of 2004 there were 96 foreign-owned business services centers. Today there are 470 – nearly five times more. They employ 128,000 staff – mainly university graduates, as well as professionals and managers with a few years of experience," says Marek Grodziński, deputy chair of ABSL and manager of Capgemini's European BPO center network. ABSL points out that the sector already employs more people than the coalmining industry, and according to projections it will create a further 30,000 jobs by the end of next year. According to a 2014 report by Gartner Poland is the number one destination for business services projects in the EMEA region. Another global consultancy Everest has listed the country as the most mature loca-

weekly newsletter # 038/ 9th June 2014 / page 6

tion in Europe for foreign direct investment in the business services sector.

300,000 residents with a substantial supply of talents and offices.

will be Immofinanz's first center in Poland developed under the company's newest Vivo! concept.

"Business services centers are already the leading category among foreign investments, both in terms of project numbers as well as job creation. There are 325 foreign business services center operators from 28 countries in Poland, mainly from the US, France, UK, and Germany," says Przemysław Berendt, Global VP Marketing at Luxoft and deputy chair of ABSL.

As far as the centers' key focus is concerned, 29% of their employees manage IT processes and a further 22% provide financial and bookkeeping services. Most centers cover a number of different processes and a vast majority have been expanding their competences and will continue doing so in the future. When it comes to their geographic coverage, the Poland-based centers serve mainly customers in Western Europe (90% of centers), Poland (63%) and the CEE region (60%) in as many as 40 different languages.

With 64,000 residents, Stalowa Wola is a major railway junction in the region directly connected to Przemyśl, Kraków, Lublin, Warszawa, Łódź, Wrocław and Silesia. The industrial town is part of the EuroPark Wisłosan Special Economic Zone. According to the investors, an estimated 400,000 people live within a radius of 30-40 minutes driving time from the center, including in the towns of Tarnobrzeg (population: 50,000) and Sandomierz (25,000).

An average center employs 273 staff and that number continues to increase every year, as it's the existing centers, not newcomers, that are the main job creators. According to the ABSL report there are 28 centers in Poland with more than 1,000 employees.

Employment at BPO/SSC centers in Poland 175,000 150,000

"Modern business services, especially of the more advanced kind, such as services for international investment funds, are likely to become one of Poland's most important and recognizable exports in the coming three-five years. In a relatively short Poland may become a European hub, providing strategic services for global clients," says Jacek Levernes, Chairman of ABSL and member of the board at HP Europe.

125,000 100,000

RETAIL PROPERTIES

75,000 50,000 25,000

Source: ABSL

*) as of April

**2015

*2014

*2013

2012

2011

2010

2009

2008

Austria's Immofinanz obtains permit for EUR 50m retail project in Stalowa Wola

**) projected year-end

Although investors continue to choose mainly Poland's largest cities: Kraków, Wrocław, Warsaw, Tri-City, Łódź and Poznań, recently one has seen growing interest in smaller towns, for instance Bydgoszcz, Radom, Lublin or Szczecin. Poland is the only CEE country that offers as many as 11 cities of more than

Austrian property giant Immofinanz and its partner Acteeum Group have received a building permit for a retail project in Stalowa Wola,60 km north of Rzeszów, with a GLA of approx. 32,500 sq.m. The investment is expected to total EUR 50m, with construction set to start during 2H 2014, and completion being scheduled for Q3 2015, the company said. The scheme

The investors behind Vivo! in Stalowa Wola will seek to obtain a BREEAM certificate for the project. Image: Acteeum/Immofinanz

Acteeum Group has a 14% stake in the project with Immofinanz Group holding the remaining 86%. The Jersey-based Acteeum Group was founded in 2006 by Dane Henrik Stig Moeller, who remains the company’s managing director. From May 1998-2006 Moeller was Head of International Business Development and board member at Danish TK Development A/S where he was responsible for the company’s Central and Eastern European activities. During this period TK developed 18 shopping centers in these markets. Besides Stalowa Wola, Acteeum is currently involved

weekly newsletter # 038/ 9th June 2014 / page 7

in two Polish projects: Ogrody shopping centre in Elbląg (currently being expanded from 17,500 sq.m to 40,000 sq.m of GLA) and Galeria Solna in Inowrocław (opened in May 2013 with 31,000 sq.m of GLA). As for Immofinanz, it is focusing on the construction of its flagship retail development in Poland – Tarasy Zamkowe in Lublin. Scheduled to open in Q4 2014, the EUR 95m shopping and entertainment project will comprise up to 38,000 sq.m of rentable space divided into ca. 150 retail units. The Vienna-listed company, which carried out a secondary listing in Warsaw last year, has recently completed one of the largest ever deals on Poland's property market with the EUR 412m sale of Silesia City Center retail property in Katowice to an international consortium of investors led by Allianz. Silesia City Center has about 340 stores with combined floor space of 89,000 sq.m, all of which is occupied. Immofinanz's recent completions include a STOP.SHOP. retail park in Mława with a similar property in Kętrzyn to be opened in 2H 2014. Overall, the developer seeks to build ten STOP.SHOP. projects in Poland over the coming years. Besides shopping centers, Immofinanz Group's ongoing investments in Poland include the Nimbus office building (19,000 sq.m of GLA) in Warsaw, and residential projects Riverpark in Poznań (189 apartments) and Dębowe Tarasy in Katowice (phase three with 317 apartments).

TECHNOLOGY

Google to open its Campus startstart-up hub in Warsaw Poland's tech community was buzzing with excitement after finding out that the entourage of US President Barack Obama, who came to Warsaw last week (see page 8), would include Google boss Eric Schmidt. His visit did not disappoint, as Schmidt announced that Google for Entrepreneurs was bringing its Campus concept to Warsaw. Campuses are Google's spaces for entrepreneurs to connect, learn and get mentorship, and build innovative startups. According to the announcement, posted by the Head of Google for Entrepreneurs Europe, Eze Vidra, the move to Poland is part of their "ongoing investment throughout the region."

Eric Schmidt met with Polish Prime Minister Donald Tusk for last week's inauguration. "Google started as a startup in garage, so supporting startups is part of our DNA," Eric said. "Our hope is that Campus Warsaw will supercharge tech entrepreneurs, strengthen the startup ecosystem and encourage even more innovation in Poland." In the past couple of years, Poland's entrepreneurial scene has grown and attracted both domestic and international startups and investors. Warsaw's relatively low cost of living, quality of talent, and proximity to Europe's largest tech city, Berlin, are major selling points. In the EMEA region, Google for Entrepreneurs currently operate Campuses in London and Tel Aviv. The Google unit has over 60 programs in 110 countries. This is not the company's first initiative in Poland. In Krakow, they previously launched the Google for Entrepreneurs Krakow program. They also launched the Digital Economy Lab with Warsaw University. Along with the Visegrad Fund, ResPublica and the Financial Times, Google started New Europe Challengers campaign to identify the next generation of innovators.

IT & TELECOM

Skąpiec.pl, Opineo.pl and Telepolis.pl change owners

Since its founding in 1990, Immofinanz has compiled a portfolio with a carrying amount of approx. EUR 7.4bn. The company concentrates on development management and sale of commercial properties in top locations. Immofinanz Group focuses on retail, office, and logistics projects in Central Europe and Russia. Google for Entrepreneurs is adding a Warsaw Campus to its two existing EMEA region start-up hubs in London (pictured above) and Tel Aviv. Photo: Bayerberg of Flickr

The past few weeks have seen some ownership reshuffles between popular Polish comparison websites, signaling further consolidation moves in the country's online media sector.

weekly newsletter # 038/ 9th June 2014 / page 8

Firstly, Onet.pl, the Polish online business of Germany's Ringier Axel Springer Media, agreed to acquire 80% of the shares in retail price comparison website Skapiec.pl and product review site Opineo.pl. Skapiec.pl was set up in 2004 and in March 2014, some 2.1m people visited the portal. The product comparison site Opineo.pl was established in 2006 and it provides more than 3.8m customer rates and information about more than 32,000 e-shops. In all, 550,000 people used the portal in March 2014. Onet, which reaches 70% of all internet users in Poland said the acquisitions will enable it to diversify its portfolio. Skapiec founder Mariusz Janiszewski and Opineo founder Pawel Kucharzak will continue to manage their companies and will each own a 20% stake. Ringier Axel Springer acquired Onet in June 2012 from the ITI Group or a reported PLN 1.275bn (RAS paid PLN 960m for a 70% stake in the business).Until recently, Onet had been Poland's number one internet portal, but the company is currently competing for the top spot with Grupa Wirtualna Polska, controlled by private equity fund Innova Capital. Another deal saw Comperia.pl, the Polish financial and insurance comparison website, acquire the portal Telepolis.pl, which specializes in telecommunications and mobile telephony. According to Media2.pl the transaction amounted to PLN 2.55m. The transaction reflects the trend of convergence of financial services and mobile telephony, said Bartosz Michalek, CEO of Comperia.pl. On 30 May, the companies signed a preliminary agreement, and the final contract will be signed on 30 June. The merger will significantly boost the Comperia user base.

POLITICS & ECONOMY

Obama hails ‘unbreakable’ PolandPolandUS alliance A rousing speech in Warsaw has helped reassure Poles that the US is serious about its security guarantees There is hope for new vigour in the Polish-American alliance after US President Barack Obama delivered a stirring speech in Warsaw on June 4. The remarks came as part of official celebrations surrounding the 25th anniversary of the end of communist rule and had plenty of red-meat for the Polish audience. President Obama mentioned his home town of Chicago ("In Chicago, we think of ourselves as a little piece of Poland") and referenced John Paul II (he emphasized the word "saint"). There was also the expected comparison of Ukraine's struggle with Poland's ("The Ukrainians of today are the heirs of Solidarity"). But Obama also made sure Poles felt appreciated: he said "thank you" a full 10 times during the speech, and once in Polish. Most importantly – for Poles at least – Obama took great care to emphasize the United States’ commitment to help defend Poland’s territorial integrity. Poland depends on the US for security, and the Ukrainian crisis has Poles looking warily across their eastern border. With Poland’s history of aggression from neighbors, Poles wanted to be reminded that the US would adhere to Article 5 of the NATO treaty, which obliges every member of the alliance to help defend any other NATO nation under attack.

President Obama did not disappoint. Referring to the US's obligation to defend Poland, he used phrases like "unwavering commitment", "solemn duty", "binding obligation" and "unbreakable commitment". "We stand together – now and forever – for your freedom is ours," he said. "Poland will never stand alone." However, one issue was left conspicuously out of the speech: visas. Poland is one of only four EU countries whose citizens still have to obtain a visa to enter the US. Many Poles deeply resent the time-consuming and sometimes humiliating process of queuing, interviewing and paying – later only to be rejected in some cases.

"Poland will never stand alone," pledged US President Barack Obama. Photo: Peter Andrews / KPRM

Though visas have dogged bilateral relations for years, there was hardly a murmur about them in the postspeech commentary. Now that Poles feel reassured, the issue has conveniently faded into the background, at least temporarily. President Obama's success contrasts with previous flubs, like when he announced major changes to the missile shield program on the anniversary of Soviet invasion or when he used the egregiously erroneous phrase "Polish death camps". His seeming lack of sensitivity had Poles wondering how seriously Obama was

weekly newsletter # 038/ 9th June 2014 / page 9

taking the alliance. In the run-up to his visit, the New York Times ran a story on how Poles’ love for the United States had “cooled”. For now, President Obama seems to have brought some warmth back to the Poland-US relationship. His speech drove home the point that the countries stand together. Usually, the president will end a speech with the words "God bless America". In Warsaw, that was the penultimate phrase. Instead, he signed off with: "God bless this unbreakable alliance." by Andrew Kureth

POLITICS & ECONOMY

European Commission to lift excessive deficit procedure on Poland Poland needs to take "no further steps" in the excessive deficit procedure at present, the European Commission said last week , paving the way for suspension of the procedure. However, risks to a durable correction of excessive deficit exist, the European Commission wrote in an assessment of Poland's actions taken in response to the Council recommendation from December 2013. According to the latter, Poland were to reach a headline deficit of 4.8% of GDP in 2013, 3.9% of GDP in 2014 and of 2.8% of GDP in 2015 (excluding the impact of the asset transfers from the second pillar pension system). Based on the macroeconomic forecast underlying the Council Recommendation, this is consistent with an improvement of the structural balance of 1% of GDP in 2014 and 1.2% of GDP for 2015. Poland was also recommended to implement rigorously the measures it had already announced and adopted, while complementing them with additional measures to

achieve a sustainable correction of the excessive deficit by 2015. Poland was given a deadline of 15 April 2014 to take effective action and to report in detail on the consolidation strategy that is envisaged to achieve the recommended targets.

Kosiniak-Kamysz citing his ministry's estimates. The number of registered jobless declined to 1.993 million, the minister added, adding that unemployment may decline to below 12% in the coming months if the current positive tendencies on the job market hold.

"Given that Poland has met the recommended headline balance as well as the recommended change in the structural balance in 2014, the Commission considers that the procedure is to be held in abeyance," the European Commission wrote.

Although improvement on the labor market is typical of this time of the year, when seasonal jobs fully kick off, according to the minister, we are seeing an actual reversal of trends on the job market as a whole.

At the same time, the commission sees risks to a durable correction of the excessive deficit, "as the fiscal effort measured by both the corrected change in the structural balance and the bottom-up assessment are well below the recommended level."

Registered unemployment in Poland 15% 14% 13% 12%

"In particular, for 2015, and prior to the presentation of the 2015 budget, the Commission services forecast the headline deficit to decline to 3.1% of GDP (excluding the transfer of pension assets) and the structural improvement to reach 0.4% of GDP, thus below the targets recommended by the Council," the document reads. "Therefore, the 2015 budget needs to include structural adjustment measures to ensure compliance with the Council recommendation." Poland is obliged to reduce its public finance sector deficit to below 3% of GDP by 2015.

POLITICS & ECONOMY

May unemployment at 12.5%, says ministry Poland's unemployment in May declined to 12.5% from 13.0% in April, said Labor Minister Władysław

Mar 13 May 13

Jul 13

Sep 13 Nov 13 Jan 14 Mar 14 May 14

Source: GUS

"The main factor is economic growth which guarantees an increase in job numbers," he said, adding that investments in special economic zones also played its role. Polish companies notified job agencies of 94,000 vacancies in May, up 22% year on year, Labor Ministry's data showed. A better May result was last recorded in 2008, the ministry noted. "Taking into consideration the current pace of improvement the unemployment rate may settle at around 12.5% at the end of the year. However, the decline in registered jobless numbers does not necessarily mean that new jobs are being created. April data showed no growth in employment despite very good GDP growth data at 3.5%," commented Łukasz Piechowiak, chief economist at Bankier.pl financial portal.

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weekly newsletter # 038 / 9th June 2014 / page 21

KEY STATISTICS Consumer Prices Prices

Inflation

Alcohol, tobacco +3.4

-0.3 +0.3

-0.5

+0.8

+2.2

+1.4

+3.7 +0.7 +3.9 +0.3

Clothing, shoes

-5.0

-3.7

-4.7

-1.7

-4.3 +0.8

-4.4 +2.8

Housing

+1.9

+0.2

+1.9

+0.1

+1.8

-0.1

+1.7

0.0

Transport

-2.7

+0.1

-2.1

-0.1

-0.3 +0.6

-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

Jan '14

+17.3

-21.3

-0.6

+12.5

+2.3

+5.8

+4.8

+7.0

+3.1

+8.4 2013

y/y (%)

Feb '14 Mar '14 Apr '14

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

Dec '13

m/m (%)

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 (%)

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-Apr y/y

178.8

174.9

184.1

165.1

138.7

158.1

162.2

141.8

127.4

(in '000 units)

Producer Prices Prices

Industrial Output

Permits

2014

(%)

48.8

+15.9

Commenced

142.9

45.1

+27.7

m/m (%)

-0.7

-0.3

-0.1

0.0

-0.1

-0.2

-0.1

m/m (%)

+6.0

-6.2

-9.7

+2.9

-1.8

+9.4

-2.3

U. construction

670.3 692.7 723.0

713.1 694.0

693.2

-1.0

y/y (%)

-1.4

-1.5

-1.0

-1.4

-1.3

-0.7

y/y (%)

+4.4

+2.9

+6.6

+4.1

+5.3

+5.4

Completed

160.0 135.7

152.5

46.9

-1.8

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

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

-0.1

-0.2

-0.1

0.0

-1.8

-1.7

-1.6

-1.5

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

397,429

n/a

455,528

-1.5%

Q3 2013

+2.0%

405,554

-1.9%

Q2 2013

+0.8%

296,314

-2.3%

2013

+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%

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

+24.2

+3.2

-3.2

-8.9

+5.8

-3.9

+14.4

+17.4

+12.2

2007

2008

2009

2010

2011

2012

2013

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

6,060

138 6,290

143 6,061

B 138

8,615 196

3,491

152 3,560

155 3,625

158 3,690

161

Energy

6,196

188 5,828

177 6,021

183 6,736 205

-20

152 3,693

3,432 146

157 3,766

3,421 146 3,408

160 3,895 166 145 3,456 147 3,913 138

Transportation

3,439

122 3,547

125 3,589

127

IT, telecoms

6,685

174 6,707

174 6,654

173 6,695 174

Financial sector 6,356

143 6,702

151 6,109

137 6,602 148

3,613 144 3,652

145 3,823 152

National average 3,741 149

Source: Central Statistical Office (GUS)

120

-40

Key Economic Data & Projections

100

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

60 Aug 1 1

3,556

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

M ay 1 4

Q4 2013

Feb 14

Q3 2013

Manufacturing

Retail & repairs

+18.7

No v 1 3

Q2 2013

Construction

-64.0

Aug 1 3

Coal mining

Q1 2013

Current account def. in % of GDP

+2.7%

+21.5

M ay 13

Sector

GDP in PLN bn current prices

+3.4%

-2.9

Feb 13

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

146.1

Q4 2013

+14.3

Source: The Central Statistical Office of Poland, GUS

Gross Gro ss Wages

Growth y/y unadjusted

131.7

Q1 2014

m/m (%)

N ov 12

y/y (%)

-0.1

Period

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

Aug 1 2

Year

-0.1

Month

M ay 12

y/y (%)

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

Feb 1 2

m/m (%)

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

Construction Output

Construction Prices Price s Month

Month

Nov 11

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

EUR/PLN

2011

2012

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

weekly newsletter # 038 / 9th June 2014 / page 22

55.23 ↓

100 SEK

45.41 ↓

100 NOK

50.58 ↓

10,000 JPY

USD EUR

350

300

15.00 ↓

100 CZK 10,000 HUF

400

295.49 ↓

as of 6 June 2014

WIG-20 stocks Price Change Change in alphabetical 6 June 30 May end of order '14 '14 '13

WIG Total index

135.74 ↓

Money Supply

PLN (up to 1 year)

4.5%

4.3%

4.2%

4.5%

4.4%

PLN (up to 5 y )

4.9%

4.8%

4.9%

4.8%

PLN (over 5 y)

4.8%

4.7%

4.8%

4.7%

PLN (total)

4.8%

4.7%

4.8%

4.7%

EUR (up to 1m EUR) 1.9%

1.9%

2.0%

1.9%

2.0%

EUR (over 1m EUR) 3.0%

2.9%

3.6%

3.4%

3.3%

3.0%

84.96

+2%

+4%

53,233. 233.18

↑ Asseco Pol.

42.77

+5%

-7%

Change 1 week

+2% ↑

↑ Bogdanka

122.4

+6%

-3%

Change end of '13

+4% ↑

↑ BZ WBK

398

+9%

+3%

↓ Eurocash

42.9

-1%

-10%

WIG-20 blue chip index

↑ Grupa Lotos

38.95

+5%

+10%

↓ JSW

46.49

-1%

-12%

2,667 2,667. 667.86

↑ Kernel

31.2

+11%

-18%

Change 1 week

+10% ↑

↑ KGHM

118.4

+2%

Change end of '13

+11% ↑

↑ LPP

8550

+2%

-5%

↑ mBank

541.5

+9%

+8%

WIG Total closing index

↑ Orange Pol.

10.64

+2%

+9%

last three months

Credit redit

↑ Pekao

189.6

+2%

+6%

55,000

The financial sector's net lending in PLN bn,

↓ PGE

20.83

-1%

+28%

54,000

5.07

+9%

-2%

+2%

+5% +4%

50,000 49,000

Overnight

1 week

1 month

3 months

6 months

2.59%%

2.60%

2.61%

2.69%

2.71%

Central Bank (NBP) Base Rates

in PLN m

Jan '14

Feb '14

Mar '14

Apr '14

Monetary base

161,544

158,330

173,213

168,511

2.59%

- Currency outside banks M2 - Time deposits M3

↑ Alior Bank

Warsaw Inter Bank Offered Rate (WIBOR) as of 6 June 2014

Reference

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

546,487 113,455 947,443 418,259 962,416

548,033

558,954

114,680

116,657

954,284 964,624 423,296 968,442

422,990 980,377

548,394 119,261 969,754 439,137 986,142

- Net foreign assets 140,617 135,759 132,849 126,943 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%

loan stock at the end of period

↑ PGNiG

Type of loan

Jan '14

Feb '14

Mar' 14

Apr' 14

Loans to customers

914,189

914,068

923,709

928,450

→ PKO BP

40.8

↑ PKN Orlen

- to private companies

263,063

263,941

267,553

270,886

↑ PZU

461.7

+3%

- to households

567,984

567,257

569,334

573,332

↑ Synthos

4.56

+3%

-17%

Total assets of banks

1,628,197

1,616,891

1,628,519 1,639,359

↑ Tauron

5.42

+1%

+24%

Source: Central Bank NBP

53,000 52,000 51,000

6 Jun 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

7 Apr 14

338.50 ↓

6 Jun 14

507.90 ↓

100 CHF

28 Mar 14

100 GBP

21 Jan 14

412.11 ↓

7 Nov 13

100 EUR

Key indices

Term / currency

450

30 Aug 13

302.22 ↓

24 Jun 13

100 USD

Stock Exchange

Average weighted annual interest rates

15 May 14

as of 6 June 2014

Interest rates

14 Mar 14

100 USD/EUR against PLN

Central Bank average rates

20 Feb 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-Mar 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Mar 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

17,740

+8.5

10.8

69,304

10.9

12,271

+3.2

7.5

47,906

7.4

1 Germany

35,357 21.6% 139,334 21.5%

Beverages and tobacco

2,065

+4.8

1.3

8,624

1.4

899

-6.1

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

4,180

-0.9

2.5

15,744

2.5

5,430

-1.4

3.3

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

7,503

-7.1

4.5

30,013

4.7

19,069

+1.2

11.6

75,539

11.7

4 France

9,958

6.0%

35,745

5.6%

4 Italy

8,339

490

+43.6

0.3

1,864

0.2

628

-0.3

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%

15,190

+7.1

9.2

59,103

9.3

24,737

+6.8

15.1

92,917

14.3

6 Italy

Manufactured goods by material

32,339

+3.1

19.6

129,915

20.3

28,881

+5.9

17.6

112,392

17.3

7 Netherlands

Machinery, transport equip.

62,802

+11.1

38.0

239,434

37.5

52,769

+3.8

32.2

216,608

33.4

8 Ukraine

n/a

18,037

2.8%

8 USA

3,647

2.2%

17,350