Poland Today Business Review+ No. 002 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. 002 / 9th September 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Manufacturing PMI reaches two-year high in August, beats expectations page 2 Unilever completes EUR 32m expansion of Bydgoszcz factory page 2

Polish retailer Czerwona Torebka is working on two new nationwide chains.

Photo: Małpka Express

Biedronka founders are back in retail

The founders of Poland's two most successful retail formats: Biedronka discount groceries and Żabka convenience stores are throwing down the gauntlet at their former creations. The plan is to flood the country with thousands of new shops. page 12

Pension overhaul to curb public debt

Poland will take over and redeem bonds held by its privately managed pension funds as part of a drastic pension system revamp, announces Prime Minister Donald Tusk. page 14

tel. +48 881 650 600

SERVICES & BPO Finnish chemical firm Kemira relocates back office operations to Gdańsk page 8 TRANSPORT & LOGISTICS Rail firm PKP Intercity embarks on PLN 5.5bn shopping spree page 9

BANKING & FINANCE Parliament passes bill to cut interchange fees, card issuers are not pleased page 4

Rail freight giant PKP Cargo gets trade union blessing to hit the bourse in Q4 page 11

ENERGY & RESOURCES AmeriGas to double revenues in Poland with the acquisition of BP's LPG business page 4

FOOD & AGRICULTURE Private equity funds to merge Polish biscuit manufacturers Delicpol and Cuprod page 13

PROPERTY & CONSTRUCTION Atrium completes EUR 152m takeover of Wrocław's leading retail centre page 5

IT & TELECOM Deutsche Telecom mulling Netia takeover page 13

Capital Park breaks ground on new Warsaw office project Royal Wilanów page 6 Warsaw's modern office stock reaches 4m sq.m, reports consultancy CBRE page 7

POLITICS & ECONOMY Gov't sees smaller deficit for next fiscal year page 15 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 17-19

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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Part of the Financial Times Group

weekly newsletter # 002 / 9th September 2013 / page 2

MANUFACTURING & PROCESSING

August PMI reaches twotwo-year high, beats expectations Following the heartwarming batch of Polish macroeconomic figures we covered in the last issue, the August reading of Markit and HSBC's Purchasing Managers' (PMI) Index provided further indication that the country's recovery is indeed gaining traction. The headline manufacturing PMI reading came in at 52.6 for August, a big improvement from July's 51.1 score and a full point better than consensus projections (51.6). August was the second consecutive month Poland's manufacturing PMI recorded an above-50 score, which indicates economic upturn.

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

53 52

ly 2011. The three main components of the PMI – new orders, output and employment – all exerted positive contributions in August," Markit and HSBC said in a comment. According to the report, demand improved both in terms of domestic orders as well as foreign orders. New order growth expanded at the fastest rate since March 2011, and new export business increased at the fastest pace since April 2011. This has prompted producers to start hiring again with employment in the sector going up for the first time in a year. "The improvement in Polish growth outlook could be traced in hard economic data as well such as strong sold industrial output and retail sales in July," commented Murat Ulgen, Chief Economist, Central & Eastern Europe and sub-Saharan Africa at HSBC.

and installed new machinery, creating 122 new jobs at the site. As a result of the expansion, the plant's output is set to double over the coming year. Unilever representatives said the expansion cost more than what the company paid for the Pollena plant in Bydgoszcz, when the investor acquired it from the state in 1991. With a total staff of 640 employees, the factory produces a range of well-known brands, including Dove, Timotei, Clear, Vaseline, Simple and VO5. It exports close to 90% of its output to 29 global markets. It is the fastest growing factory of body and hair care products in the Unilever group and the 7th largest worldwide.

"Meanwhile consumer confidence in August also rose to its highest level in more than a year. While it is early to say whether this momentum could be sustained, there are reasons to be hopeful with the eurozone being out of its long recession as of the second quarter and Poland’s resilience to a global liquidity shock given its low current account deficit and low inflation," added the HSBC expert.

51 50 49

MANUFACTURING & PROCESSING

Unilever completes EUR 32m expansion of Bydgoszcz factory

47 46 45 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13

A pr 13 Jun 13 Aug 13

Source: Markit & HSBC

The result "signaled the first continuous improvement in business conditions in the manufacturing sector since October 2011, and to the greatest extent since Ju-

Consumer products giant Unilever has finalized the largest investment to-date at its of body and hair care products plant in Bydgoszcz. At the cost of EUR 32m the company has extended the plant by 12,608 sq.m

Unilever arrived in Bydgoszcz more than two decPhoto: Unilever ades ago.

Besides the Bydgoszcz project, Unilever has recently completed a number of other investments at its Polish locations. Most have been efficiency and environmental protection improvements, for instance a EUR 2m wastewater treatment plant at the Unilever ice cream factory in Banino. Over the past few years the company has significantly reduced the amount of waste generated by its production facilities and cut down water usage.

weekly newsletter # 002 / 9th September 2013 / page 3

Unilever is a British–Dutch multinational consumer goods company with a global turnover of EUR 51.3bn in 2012. Its products include foods, beverages, cleaning agents and personal care products. It is the world's third-largest consumer goods company measured by revenues (after Procter & Gamble and Nestlé) and the world's largest maker of ice cream. Its top brands include Knorr, Lipton, Algida, Rama, Domestos, Axe, Dove, Timotei and Signal.

has been growing at a snail pace, with only a couple of thousand new locations being added to the network each year. The fact that an average Pole pays with plastic three times less frequently than an average European is also a major problem for the state budget, as the more cash changes hands, the easier it is for the shadow economy to thrive.

Topping the wrong ranking In Poland Unilever currently employs more than 3,500 staff. Its four Polish factories: Banino near Gdańsk (ice cream), Katowice (margarine & tea), Bydgoszcz (cleaning agents), and Poznan (culinary products & condiments) export approximately a fifth of their output. Unilever Polska turned over more than PLN 3.2bn in 2012 while its net earnings came in excess of PLN 59.2m.

Interchange fees for VISA card transactions in selected countries Poland Germany

wallets and Polish banks cash in an estimated PLN 1.4PLN 1.6bn annually from interchange fees. Subsequently, Poland called on card payment clearing houses to come up with a way to put interchange payments down to the EU average by 2016, warning that it would take that regulatory action on its own if that call was not heard. Poland's central bank came up with its own compromise proposal, but that attempt failed through mid-2012 after negotiations between the NBP, banks and credit card operators Visa Inc and MasterCard fell through without an agreement. Despite the fiasco, afraid of administrative retaliation, payment clearing companies have since lowered the fees down to their current level of 1.2-1.3%.

Spain

Lagging behind the rest of Europe

Estonia Lithuania

No. of POS terminals per 1,000 inhabitants

EU average

Interchange fees are paid by merchants and shop owners who utilize terminals that allow their customers to pay with a credit or debit card. For many years, their rates in Poland have been EU's highest, which is the key reason why many small shops in Poland refuse to install POS (point-of-sale) terminals and the market

1.6%

Denmark 1.4%

Finland 1.2%

France

1.0%

Sweden

0.8%

Sweden

0.6%

Hungary

0.4%

Poland's lower house of parliament, or Sejm, has approved a bill to slash credit card interchange fees to a maximum of 0.5% from 1.3% currently. All 439 MPs participating in the vote supported the bill. New regulations are to enter into force as of January 2014 with transition period lasting no longer than until mid2014, the amendment assumes.

Spain

Denmark

0.2%

Parliament passes bill to cut interchange fees

Finland

Latvia

0.0%

BANKING & FINANCE

UK EU average

Source: NBP report 2012

Bulgaria

Following years of lobbying on the part of retailer organizations, last year Poland's central bank NBP finally took a closer look at the issue. In a 2012 report, the bank concluded that on average, shopkeepers and business owners were being charged 1.6% of the grand total per single Visa transaction. In Europe, the figure stood at 0.7% and in some countries (for instance in Hungary) it was eight times lower than in Poland. The Poles have an estimated 31m payment cards in their

Poland 0

Source: NBP, Rzeczpospolita

In defense of their pricing policy, car issuers have been arguing that a cut to interchange fees would force them to start charging card holders. The NBP wanted financial institutions to voluntarily pledge that

weekly newsletter # 002 / 9th September 2013 / page 4

they are not going to impose any new types of fees on retailers to compensate for the less revenue from interchange fees. In Australia and the US, where the fees were lowered via administrative decision, the banks were quick to introduce new fees for individual customers. In the US case, the attempt by some of the nation's leading banks to tack on new debit card fees led to the social media driven Bank Transfer Day, which saw hundreds of thousands of disgruntled consumers abandon major banks for community banks or credit unions, which are known for having fewer and/or lower banking fees. "Visa Europe is and has always been against regulation as a top-down imposition of arbitrary arrangements upon the market. It is to be regretted that the sector’s self-regulation, based on a compromise program of the National Bank of Poland, could not materialize back in 2012," Jakub Kiwior, Country Manager at Visa Poland, tells Poland Today. "The much steeper reduction that has now been passed - and which is to be made by a single stroke rather than spread over four years comes down to the abrupt loss of a large portion of bank revenue from interchange, thus restricting the banking sector’s potential to invest in the development of innovative payment products, such as contactless cards and mobile payments."

BANKING & FINANCE

Portugal's BCP to keep Bank Millennium Although a number of banks, including reportedly also Poland's leading lender PKO BP, had been hoping to get their hands on Bank Millennium in the past few years, as the latter's owner, Banco Comercial Português, was seeking ways to stay afloat, a European

Commission-approved restructuring plan for the Portuguese giant has put an end to their dreams. Under the plan, BCP is to sell its Romanian operation and Greek assets while retaining its Polish arm Bank Millennium, which remains profitable with more than EUR 110m in last year's net earnings. The Portuguese lender was forced to sell assets and cut costs in exchange for EUR 3bn in convertible bonds drawn last year from a recapitalization line in Portugal's EUR 78bn bailout by the EU and IMF. Portugal's largest listed bank is expected to continue its deleveraging efforts by reducing non-core assets, with the aim of achieving a minimum return on equity of 10% from 2016 and a 25% reduction in staff-related costs in the 2012 to 2015 period. BCP said that the agreement shows that its business is viable without the need for continued state support. It listed Poland's Bank Millennium among its core assets, alongside operations in Angola and Mozambique. "There is no commitment to sell it unless the amount of convertible bonds to be paid [by BCP] in December 2016 exceeds EUR 700m," the bank said. "It was the best possible deal for all parties involved, allowing the bank to keep its core assets and continue to undertake its activity in its main lines of business, with lower execution risk, commented CEO Nuno Amado. BCP posted a EUR 1.2bn net loss last year following a EUR 850m loss in 2011. The bank was badly hit by its exposure to Greece and Portugal's own economic woes, which affected BCP's ratings and hiked up its financing costs. When faced with very similar challenges, Ireland's AIB had to sell its highly profitable Polish unit BZ WBK to Spain's Santander, making the latter one of top three players in Poland's banking sector. Earlier this year Polish daily Rzeczpospolita reported that the Portuguese bank was again looking to divest

its 66% holding in Bank Millennium, worth some EUR 1-1.5bn, after failing to find a buyer in 2011. Zbigniew Jagiełło, CEO of Poland's largest bank PKO BP openly admitted then that Bank Millennium would make a nice addition to his group, but in the end PKO chose to acquire the Polish business of Sweden's Nordea Bank. It seems that following a few years of rumors of its potential sale, Bank Millennium will remain part of BCP after all and should the Portuguese ever decide to offload the Polish business, they will be in a much better position to do so.

ENERGY & RESOURCES

AmeriGas finalizes acquisition of BP's LPG business in Poland Nearly three years after acquiring Shell's propane business in Poland, US AmeriGas has completed a second major acquisition on the Polish market. The Americans took over British BP's liquefied petroleum gas (LPG) distribution business in Poland, which traded over 150m gallons of LPG in 2012, serving the residential, commercial, autogas, and wholesale segments. Formally, the transaction was completed by Flaga GmbH, the Austria-based European subsidiary of the NYSE-listed UGI Corporation, which controls AmeriGas. Terms of the transaction were not disclosed. BP has three LPG filling plants in Swarzędz, Sąpólno, and Przytoczno as well as a transshipment terminal in Sławków, one of Poland's key logistics nodes where the broad gauge tracks from Russia connect with the standard European railroad. Distribution is being carried out via a network of authorized distributors, petrol stations, and directly to retail clients.

weekly newsletter # 002 / 9th September 2013 / page 5

Following the transaction, AmeriGas becomes one of two leading players in Poland's LPG market (alongside the Dutch-owned Gaspol) with a 23% share in the bulk & canisters segment and 13% of the autogas segment. As a result, its turnover is to leap from PLN 593m to PLN 1.244bn in 2014, making AmeriGas one of Poland's top 300 largest corporations. After the merger, the company will have six LPG filling plants, six regional distribution centers (separate from the plants) and two transshipment terminals for LPG, all with a combined workforce of 350 employees.

tons, Poland is Europe's number two market after Italy (3.2m tons), particularly due to the popularity of LPGpowered vehicles. Last year Poland's 2.6m LPGpowered cars consumed 1.6m tons of the fuel, more than in any other European country. There are an estimated 82,600 residential LPG tanks currently installed throughout the country and growth on this market segment is expected to continue.

Autogas dominates LPG market Poland's LPG market in 2012

"We are pleased to have closed this important transaction which will combine two high-quality LPG businesses in Poland, one of the largest LPG markets in Europe. The acquisition represents a further step in our international growth strategy and reaffirms our commitment to add value for our shareholders through profitable growth in Europe. We expect the transaction to be modestly accretive to EPS in fiscal 2014," commented John L. Walsh, chief executive officer of UGI. UGI Corporation is a distributor and marketer of energy products and services. The company owns 26% of the NYSE-listed AmeriGas Partners, the largest retail marketer of propane in the US, which serves over 2m customers in all 50 states. Through its wholly owned subsidiaries, Antargaz (France & Benelux), Flaga (Austria, Scandinavia and Central Europe) and Avantigas (UK), UGI Corporation distributes LPG in 16 European countries. UGI also distributes LPG in the Nantong region of China. In the fiscal year 2012 UGI turned over USD 6.5bn (with its international propane division representing more than USD 1.9bn of the total amount) and posted a net income of USD 187m.

Europe's 2nd largest LPG market

Bulk LPG (tanks) and canisters represent roughly a quarter of the entire LPG market in Poland, the rest (73.4%) being autogas. With annual LPG sales of 2.2m

"We believe that LPG will play an important part in a balanced structure of fuel consumption and its environmental benefits will be recognized by the EU and Poland. Promotion of LPG is in line with the country's energy security as well as environmental goals. It gives customers a choice that is both effective and environmentally friendly," Piotr Maślakiewicz, business development director at AmeriGas Polska told Poland Today's Lech Kaczanowski.

PROPERTY & CONSTRUCTION Cylinders 14.4%

Autogas 73.4%

Bulk (tanks) 12.2%

Source: POGP

Besides AmeriGas, the key players in the Polish LPG market include Dutch SHV (owner of Polish Gaspol, which acquired PKN Orlen's propane unit earlier last year), France's Total (importer of LPG to Poland from the Leuna and Schwedt refineries in Germany), Polish Petrolinvest (owner of an LPG terminal in Gdynia as well as a network of autogas and canister filling stations throughout the country), and Russia's Novatek, which entered the market two years ago with the acquisition of Intergaz-System, a distributor from south east of Poland. As part of the latter transaction, the Russians got hold of a transshipment terminal with access to the wide-gauge railroad from the East. What they are said to be lacking, however, are filling and storage facilities as well as broader market footprint.

Atrium completes EUR 152m acquisition of Wrocław mall Property group Atrium European Real Estate has completed the EUR 151.7m acquisition of Wrocław's Galeria Dominikańska shopping centre from the Otto Family and Deutsche EuroShop AG. The transaction, financed from the group's existing cash resources, has boosted the share of Polish properties in Atrium's total shopping center portfolio from 47% to 50.4% by market value. The Amsterdam & Vienna-listed company said the acquisition is in line with its strategy of acquiring prime, income producing shopping centers in the major cities of Poland, Czech Republic and Slovakia, which have the strongest economies in the CEE region. In addition, Atrium’s exposure to markets in the region with an investment grade rating of A- and above now stands at 75.1%, up from 73.4% as at 30 June 2013. "Galeria Dominikańska is a very good example of the type of assets we want to purchase and the completion of this acquisition strengthens our portfolio through the addition of a prime, fully let shopping centre

weekly newsletter # 002 / 9th September 2013 / page 6

which is well located within a tier one city in our region," commented Rachel Lavine, CEO of Atrium. Opened in 2011, Galeria Dominikańska is a fully occupied, Grade A shopping centre which comprises approximately 32,900 sq.m of gross lettable area spread over three levels and across 102 units, and some 1,250 sq.m of office space. The shopping centre is anchored by a Carrefour supermarket and a Media Markt electronics outlet and houses a wide range of international and domestic retail brands including Van Graaf, Zara, Pull & Bear, Bershka, Benetton, Douglas, Sephora, Mango, Max Mara, New Yorker and Reserved, together with a strong food and hospitality offering. According to Atrium's communiqué, the average duration of all lease contracts is over six years. In addition, the centre includes more than 900 parking spaces.

manage the shopping centre, working closely alongside Atrium’s in-house team of retail experts. With a population of some 630,000 inhabitants Wrocław is Poland’s fourth largest city and a dynamically developing capital of the Lower Silesia region.

dergone BREEAM precertification to ensure the project is energy efficient and environmentally friendly. Warsaw's JEMS Architekci provided the design, while BOIG and Colliers International are responsible for leasing.

Atrium is a real estate company focused on shopping centre investment, management and development in Central and Eastern Europe. As at 30 June 2013 (and not including Galeria Dominikańska), the group owned 156 retail properties, with a market value of EUR 2.20bn, diversified across seven countries with a total gross lettable area of 1.245m sq.m. In 2012, the Jersey-based company generated a gross rental income of EUR 193.5m.

The Capital Park Group has actively operated in the real estate market in Poland since 2003, investing jointly with the EUR 2.5bn London-based private equity fund Patron Capital Partners. Since its establishment, Capital Park has built an investment portfolio of 76 assets with a total gross floor area of approx. 250,000 sq.m in both completed and planned projects, 80% of which are located in Warsaw.

PROPERTY & CONSTRUCTION

Capital Park breaks ground on office project Royal Wilanów

Galeria Dominikańska boasts a wider catchment area of some 1m potential consumers, of whom circa 580,000 live within 15 minutes travel time. Photo: Atrium

Galeria Dominikańska is one of Wrocław's top shopping destinations. It is situated in a prime location at the heart of the city, right next to the historic Old Town, and on the inner city ring road. Despite the change of ownership, Germany's ECE will continue to

Warsaw-based property developer Capital Park Group has broken ground on its latest office project in Warsaw – Royal Wilanów. Located at the corner of Klimczaka and Przyczółkowa streets in Warsaw's upscale suburb of Wilanów, the five-storey building will offer close to 30,000 sq.m of office space as well as some 7,000 sq.m of retail space, accommodating restaurants, bars, cafes, shops and service units, all much needed in this largely residential neighborhood. The first tenant in the office section of the project will be Polish construction company Erbud, which is also the project's general contractor. Tenants and visitors will have access to an underground parking lot with 931 spaces. Similar to Capital Park's flagship Warsaw development Eurocentrum, Royal Wilanów has un-

Royal Wilanów is one of Capital Park's three major Photo: Capital Park office projects in Warsaw.

By mid-2014 Capital Park is to complete its flagship Eurocentrum scheme on Jerozolimskie avenue in Warsaw's Ochota district. The investor, which acquired the site back in 2007, awarded the PLN 337m contract for the construction of Eurocentrum to Polish Erbud. Eurocentrum will be a 15-floor building housing more that 67,500 sq.m of office and more than 2,400 sq.m of retail-service space as well as more than 770 parking spaces. According to the developer it will be the largest LEED CS Gold-certified office scheme

weekly newsletter # 002 / 9th September 2013 / page 7

in Poland, employing a whole range of energy-efficient solutions. Their other project that has already attracted a great deal of media attention is the artNorblin development in Wola district, on the edge of Warsaw's central business district, a stone's throw from the ONZ roundabout and its iconic Rondo 1 building. ArtNorblin will incorporate the pre-war Norblin factory buildings, striving to create a trendy mixture of industrial architecture, class A office and shops. The investor is to develop 22,000 sq.m of retail, service, and cultural space, 39,000 sq.m of offices as well as parking lots for some 700 vehicles. The Warsaw City Hall, which has granted a planning permission for the site, asked the investor to keep 11 existing historic buildings and 44 machinery units and create a museum as part of the project.

Poland's office property market Key indicators as of end of 2012 Rents Stock sq.m

(EUR/sq.m/ Vacancy month)

Warsaw (central)

1,283,300

22-26.5

8.82%

Warsaw (non-central)

2,575,700

12-16.5

9.09%

Warsaw (total)

3,859,000

12-26.5

9.00%

Kraków

602,350

13-15

3.95%

Wrocław

468,700

13-16

8.01%

Tricity

359,800

13-15

9.445

Poznań

284,800

14-16

14.35%

Łódź

281,300

12-14

11.99%

Katowice

278,900

13-14

6.85%

Source: Cushman & Wakefield Valuation & Advisory, Jan 2o13

Although the company does not communicate financial details of its undertakings, the combined capex for the three projects is likely to come in excess of PLN 1bn. Besides large office buildings, Capital Park develops and manages retail properties (Vis à Vis shopping

plazas) as well as residential projects. Their overall investment approach is to acquire properties with significant value creation potential, be it through changes to land use decisions, obtaining building permits, construction of new facilities or alteration of existing ones and improved management of existing buildings.

Warsaw with 154,000 sq.m scheduled for delivery before the end of the year. According to CBRE's projections, Warsaw's office market is expected to grow by almost a fifth by the end of 2015. That being said, the market remains highly concentrated as five biggest schemes comprise almost 50% of the total GLA under construction.

PROPERTY & CONSTRUCTION

Warsaw office market

Warsaw has more than 4m sq.m of modern offices, says CBRE

Key indicators as of end of 1H 2013 Office zones Central locations CBD-Central Business District CCF-City Centre Fringe

With five new buildings (76,000 sq.m) completed in Q2 2013, Warsaw's modern office stock passed the 4m sq.m mark at the end of June, according to a recent report by property consultancy CBRE. The largest schemes completed in H1 2013 included Konstruktorska Business Centre (48,000 sq.m) by Slovakia's HB Reavis, followed by T-Mobile Office Park (36,000 sq.m) from Flemish Ghelamco. Most of the new developments are located in the non-central areas, mostly in SW or US zones (see chart). Since the beginning of 2013 only one project was delivered in the City Centre – Plac Bankowy 1 (4,000 sq.m). That should change in the second part of the year with such schemes as Skanska's Atrium 1 (16,000 sq.m) to be completed in downtown Warsaw. Although banks remain iffy about financing real estate developments, an grant loans only for pre-leased projects, the amount of office space under construction remains high, says CBRE. Amid robust demand from tenants, developers often launch their investments on a speculative basis, securing pre-let agreements during the construction works. In the end of Q2 there was 562,000 sq.m of office space under construction in

Non-central locations

Stock

Vacan-

sq.m

1,287,000

9.9%

501,000

11.4%

786,000

8.9%

2,724,000

10.8%

E-East (Praga)

172,000

9.8%

LS-Lower South (Puławska)

176,000

13.0%

N-North (Żoliborz)

135,000

9.0%

SE-South East (Wilanów & Sadyba)

188,000

2.2%

SW-South West (Jerozolimskie & Okęcie)

660,000

15.6%

US-Upper South (Mokotów)

1,105,000

10.5%

W-West (Wola) Total

288,000

6.4%

4,011,000

10.5%

Source: CBRE H1 2013 Warsaw Office MarketView

Although of the total newly developed office space in Warsaw merely a third has been pre-leased, vacancy rates in the best new schemes remain extremely low. This also translates into a high level of market absorption that reached over 70,000 sq.m in the H1 2013. It is expected that the total absorption in 2013 should exceed the 2012 level, driven mostly high tenant activity. CBRE points out that occupiers are very well aware of the growing competition among developers and take advantage of the tenant market to get significantly better terms in the same or new locations. There is also an increasing migration of tenants from core central locations to offices located further away from the central business district.

weekly newsletter # 002 / 9th September 2013 / page 8

The total take-up in H1 2013 amounted to 334,000 sq.m, representing a robust, 12% increase in comparison to the corresponding period last year. It is expected that the whole of 2013 might bring another record in terms of the amount of office leasing activity in Warsaw. In H1 2013, as much as 46% of the leased space was newly occupied, with renegotiations representing 31% of the total take-up and pre-lets the remaining 16%.

Since the beginning of the year prime headline rents have declined slightly and are currently estimated at EUR 25–26/sq.m/month in the CBD. In non-central locations, headline rents for the best projects amount to EUR 14 – 15/sq.m/month. The overall average office rent in Warsaw oscillates around EUR 17/sq.m/month. Due to a number of new deliveries and a growing vacancy rate the rental level is currently under downward pressure, particularly in areas with the highest number of competing projects. Typical offers include a rent-free period, up to 1.5 months for each year of the lease as well as a landlords’ contribution to fit-out and other capital costs.

OUTSOURCING & BPO

Finnish Kemira relocates back office operations to Gdańsk Gdańsk In the longer term, a handful of brand new high rises are to emerge in the City Centre, mostly in its western part, including the Warsaw Spire (100,000 sq.m) under construction by Ghelamco, to be delivered in 2014/2015 and Q22 (52,000 sq.m) by Echo Investment, to be commenced in the next months at the site of the former Mercure hotel, across the street from the Westin. Photo: CBRE

The overall Warsaw office vacancy rate surged to 10.5% at the end of H1 2013 and CBRE analysts expect the figure to go up gradually throughout the next 1824 months, as the number of speculative projects increases. The majority of vacant space can be found in Mokotow (US) and Jerozolimskie (SW).

Finnish chemicals giant Kemira has joined the rapidly growing group of Nordic investors that discover Poland's offshoring potential. The company has set up a shared services centre in Gdańsk, which over the coming two years is to create some 200 jobs in bookkeeping, customer service, purchasing, HR & payroll, and IT. Once fully implemented, the annual cost savings target for the planned support functions reorganization in EMEA is expected to be close to EUR 10m.

Kemira turned over EUR 2.2bn and their financial targets for 2016 are EUR 2.6 - 2.7bn in revenue with an EBITDA margin of 15%. Its global workforce totals 4,900 employees. Besides the Gdańsk center Kemira's Polish workforce totals some 130 employees including 70 at the Kemipol units in Police near Szczecin and Wrocław, 50 at the Kemira plant in Świecie as well as a small team in Ostrołęka "Kemira's support functions in EMEA today are scattered across several locations and are expected to benefit from process optimization, centralization, and improved cross-functional collaboration. The functions in scope of the planned Business Service Center currently operate out of six hubs and several other smaller locations in Europe. The planned service center will support Kemira's targets of cost effectiveness, enable us to serve all our customers in EMEA in a unified way, and form a scalable base for profitable growth in the future", said Antti Salminen, EVP, Supply Chain Management.

Tri-City office market Key indicators as of end of 1H 2013 12 H1 2013

y/y

month outlook

Gross take-up* (sq.m)

22,400 -24,300

→

Net take-up (sq.m)

16,000 -30,700

→

Vacancy (sq.m)

56,000 +22,400

↑

Vacancy rate (%) Completions (sq.m)

13.1

+4.0

↑

52,000

+31,800

↑

71,200

-16,100

→

12-14

→

"We have so far recruited 30 employees and starting from October 1st we will add another 20. Our year-end goal is 100 staff," Maja Paradecka, HR, Kemira Business Center EMEA, tells Poland Today.

Source: Jones Lang LaSalle

Kemira is a global chemicals company serving customers in water-intensive industries, such as pulp & paper, oil & gas, mining and water treatment. Last year

The plan to establish a Business Service Center impacts up to 210 current positions in the EMEA region, of which up to 80 are in Finland, Kemira said.

Under construction (sq.m) Prime headline rent (EUR/sq.m/month)

weekly newsletter # 002 / 9th September 2013 / page 9

Due to its location on Poland's Baltic coast and the resulting cultural proximity to Scandinavia, the Gdańsk region offers a larger pool of employees with Nordic language skills than other Polish cities. This is one of the reasons why other Nordic companies (Finnish Metsa Group, Danish Flugger, Danish-Swedish Arla Foods, to name just a few) have chosen the Tricity region for their offshoring projects. Moreover, although Gdańsk is no stranger to Business Process Outsourcing, the local labor market is not as competitive as in other Polish outsourcing hubs, most notably Warsaw, Kraków, and Wrocław, and the cost level remains competitive. "The Tri-City market offers a very rich and diverse pool of candidates and the competition between BPO employers is not yet as tough as in Wrocław or Kraków," says Ms. Paradecka. "One of the challenges we face is finding candidates who represent an optimal mix of all the desired factors: personality, attitude to work, language skills, and experience, but this is a universal issue. This is why our recruitment efforts are multifaceted, focusing both on the local market as well as other regions of Poland and abroad. For instance, our team includes Dutch, Spanish and Finnish nationals, and we are targeting also Poles living abroad, whom we encourage to return to Poland and grow together with Kemira." Kemira is currently in talks with landlords regarding the final location of the centre. Since Gdańsk has seen a stable supply of quality office space, finding the right building should not pose much of a problem. Besides skilled employees and competitive wages, availability of modern office space is one of the key factors for BPO/SSC investors. "According to our analyses, office sector developer activity remains high with 71,200 sq.m under construction within the agglomeration. Gdańsk, where 75% of Tri-City's office sector construction is located, is a

leader in this respect. Despite high-level developer activity, the vacancy index remains stable, which confirms that both companies seeking to expand their operations as well as new market players continue to show interest in the region," commented Magdalena Reńska, Head of Tri-City Office, Jones Lang LaSalle.

DATA BOX: TRI-CITY OFFICE MARKET IN 1H 2013 • With a total supply of 430,250 sq.m, Tri-City is the fourth largest office market in Poland, behind Warsaw, Krakow and Wrocław. In H1, new completions added 52,700 sq.m to the region's office stock, including two buildings within the Olivia Business Centre: Olivia Tower (14,240 sq.m and Olivia Point (9,600 sq.m.), BPH Office Park A&B (9,150 sq m), the G-330 building (6,350 sq.m.), Oliva Business Park – Alfa (5,000 sq.m), and Port Gdynia office building (4,800 sq.m). • At the moment, there is 71,200 sq.m of office space under construction in Tri-City, the majority of which – 54,200 sq.m – is being developed in Gdańsk. Almost 23,100 sq.m will be delivered to the market by the end of 2013. • Supply: In H1 2013, companies leased a total volume of 22,400 sq m of modern office space. New contracts, pre-let agreements and relocations (net demand) accounted for 71% of the leased space. • Vacancy rate: At the end of Q2, more than 56,000 sq m (13,1%) of Tri-City office space remained vacant. The vacancy rate is stable. • Rents: At the end of Q2 headline rents remained stable at the level of €12-14. However, effective rents are lower because of incentives offered by the landlords.

OUTSOURCING & BPO

Avallon fund acquires e-procurement firm from Orange Polska As part of its efforts to focus on core operations in Poland, the France Telecom-controlled mobile telecommunications firm Orange Polska has sold 100% of shares in its business process outsourcing (BPO) subsidiary Otwarty Rynek Elektroniczny (ORE) to the Łódz-based management buyout specialists Avallon MBO Fund. ORE specializes in e-procurement solutions. Its key product and best-known brand is the MarketPlanet purchasing platform, which covers purchase planning, supplier selection, eRFX-electronic invoicing, electronic auctions, contracts management, reporting and a range of additional administrative functions. A part of MarketPlanet's popularity lies in the fact that the platform can be easily tailored to the needs of individual companies. Avallon MBO Fund representatives said they would actively support ORE's expansion plans, including cooperation with top global suppliers of IT solutions, foreign expansion, and dynamic development of the MarketPlanet portal. Established in 2011, ORE has a status of OJS eSender which enables the company to participate in European public tenders. Since 2012 the company has been a partner of a leading European suppliers of spend management software – Ivalua. "This has been our second transaction since we set up the second fund - Avallon MBO Fund, dedicated to supporting management buyouts. Otwarty Rynek Elektroniczny has a solid basis for value creation: it

weekly newsletter # 002 / 9th September 2013 / page 10

operates in a growing market segment – outsourcing, boasts a precise growth strategy for the coming years and has a very good, dedicated and united management team who have been building this company together for over seven years," says Michał Zawisza, Partner of Avallon. "The restructuring of large holdings through sale of non-core subsidiaries is one of the key sources of buy-out transactions. We hope to be able to close a further 2-3 transactions in this area," he adds. Avallon is one of the pioneers in management buy-outs in Poland and has been operating in this area since 2001. The fund's investors include international financial institutions, for example: European Bank for Reconstruction and Development as well as funds managed by a Swiss company Akina Partners. Avallon invests in various businesses, mainly in companies with turnover from PLN 50 to 250m.

TRANSPORT & LOGISTICS

Rail firm PKP Intercity embarks on PLN 5.5bn shopping spree Polish state-owned rail carrier PKP Intercity has awarded a PLN 1.62bn (CHF 350m) contract for the delivery of 20 long-distance passenger trains to a consortium of Swiss Stadler Rail and Polish Newag. The result of the tender is good news for the estimated 700 staff at Stadler's Polish factory in Siedlce (90km east of Warsaw), which together with Newag plants will be responsible for production of the trains, as well as passengers, who had to endure travels on its dated fleet for way too long.

The new trains will be an advanced version of Stadler's flagship eight-carriage FLIRT model, which can already be found on a number of routes in Poland. They will be fitted with a high-quality interior, spacious seating arrangements, buffet cars and toilets to ensure comfortable journeys across long distances. In first class, the seats will be installed in a 2 + 1 configuration (three seats across the width of the carriage. The trains operate with 3 kV direct current and are equipped with the modern European train control system ETCS Level 2. So far, Stadler is the only company that supplies trains with this high-quality train control system in Poland. The trains can reach speeds of up to 160 km/h and PKP Intercity seeks to introduce them on a number of key long-distance routes (WarsawBydgoszcz, Olsztyn-Warsaw-Kielce-Kraków, GdyniaŁódź-Bydgoszcz-Katowice, and Kraków-Łódź-KutnoPoznań-Szczecin). As far as the division of responsibilities within the consortium is concerned, Stadler is to deliver the two end vehicles along with the entire drive system as well as supply the bogies and the aluminum bodies for all cars. This lightweight aluminum technology allows the trains to accelerate faster, thus significantly reducing energy consumption and operating costs in comparison to conventional vehicles. Newag, one of Poland's leading rail stock production and maintenance firms, is responsible for planning the interior fittings and will take care of the final assembly of all intermediate cars. Newag will also be in charge of the composition of the trains (joining the two end vehicles with the intermediate cars) and the entire commissioning process. Newag employs some 1,300 across two factories, in Nowy Sącz and Gliwice. Although the trains themselves are to be made in Poland by Stadler and Newag, certain parts, such as the bogies and the drive components, will be produced in Stadler's Swiss factories. All EMUs (electric multiple

units) are to be delivered by the end of 2015. In addition, Stadler will ensure the technical maintenance of the trains for 15 years.

PKP Intercity is to put its 40 new trains into service on key routes by 2015. Photo: PKP Intercity

More tenders on the way The order of 20 EMUs from Stadler & Newag deal is part of a larger PLN 5.5bn, EU-supported investment program aimed at improving quality of services and making the carrier more competitive ahead of its future privatization. At the end of August PKP Intercity launched a tender for a further 20 MTUs that by the end of 2015 will be introduced on the Jelenia GóraWrocław-Łódź-Warszawa-Białystok/Lublin and Białystok/Lublin-Warszawa-Koluszki-CzęstochowaKatowice-Bielsko Biała routes. Another tender, for the supply of 10 double-decker trains for the WarsawŁódź service, was announced in the first week of Sep-

weekly newsletter # 002 / 9th September 2013 / page 11

tember. In both tenders, interested parties can place their offers by the end of the month. To-date, Stadler has sold more than 930 trains of the FLIRT family to 14 countries. The company has been operating in Poland since 2007. A number of railway sector analysts have praised PKP Intercity's decision to choose a model that has already proven its worth on Polish tracks, unlike Alstom's high-speed train Pendolino, which the company ordered back in 2011.

The first Pendolino set for PKP Intercity was presented to the public and the media in Wrocław in midAugust, while en route from Alstom's Savigliano plant in Italy to the test centre at Żmigród, Poland. Following the completion testing at Żmigród, mainline trials will begin on the Central Main Line (CMK) between Warsaw and Zawiercie in Silesia. The 250km/h trains will enter service on Warsaw – Gdańsk, Warsaw – Wrocław and Warsaw – Kraków/Katowice EIC Premium services in December 2014. These routes are currently being modernized to allow the new trains to operate at higher speeds. Following the completion of the CMK upgrade in 2015, which includes the installation of ERTMS Level 2, it is likely the trains will be able to operate at up to 230km/h on this route.

TRANSPORT & LOGISTICS

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

PKP Intercity ordered 20 of the seven-car Pendolino EMUs at a cost of EUR 400m, and the trains will be maintained by the manufacturer under a 17-year deal worth a further EUR 265m, which includes the construction of dedicated maintenance facilities for the fleet. The Polish company faced a great deal of criticism for having chosen a non-tilting version of the Pendolino, thus abandoning one of its key features, due to limitations of the Polish railway infrastructure. According to some observers, the carrier should have purchased more regular EMUs of the FLIRT class, instead of splurging on pricey equipment the full benefits of which they simply won't be able to enjoy.

PKP Cargo to hit the bourse in Q4 with a trade union blessing

the right to designate one member of the management board and three members of the supervisory board of PKP Cargo, and 15% of the proceeds from the initial public offering (IPO) will go into an employee ownership fund. PKP Cargo employs some 24,000 staff. PKP Cargo, fully owned by Polish railways PKP, has around half the local market, Europe's second biggest after Germany. The number two player is Deutsche Bahn's DB Schenker with around 20%, but on a European scale the latter is three times PKP Cargo's size. The sale of PKP Cargo is to help the ailing state-owned giant PKP reduce its mountain of debt. The freight unit has almost no debt and hence it does not intend to issue new shares as part of the IPO. Last year PKP Cargo carried around 116m tons of freight and generated net profits of PLN 267m on PLN 5.2bn worth of revenues, down from its record net result of PLN 400m in 2011.

Poland's top rail freight operators 2012 market shares based on freight volume Other, 13.8% PKP LHS, 4.5%

Poland's largest rail freight operator PKP Cargo has moved a step closer to its long-planned floatation after reaching an agreement with trade unions at the end of August on the proposed sale of 50% plus one share in the company on the Warsaw Stock Exchange. Scheduled to take place in Q4, PKP Cargo's IPO is likely to be this year's largest on the Warsaw bourse as it may reach an estimated PLN 2bn. PKP Cargo submitted a prospectus to the Polish Financial Supervision Authority (KNF) on July 25.

Source: Rail Market Regulator UTK

In a statement, PKP Cargo said union negotiators had accepted its offer of PLN 165m in staff bonuses, which will be paid in shares, together with a four-year employment guarantee for all staff, and a more favorable employee benefit package. The unions will also have

Although in terms of freight volume, PKP Cargo currently ranks as number two in Europe, only 2% of its revenue comes from outside Poland. CEO Łukasz Boroń told reporters earlier this year that his company might be interested in selective acquisitions of smaller

Lotos Kolej, 4.5%

PKP Cargo, 50.5%

CTL Group, 6.5% DB Schenker, 20.2%

weekly newsletter # 002 / 9th September 2013 / page 12

carriers in the region, particularly in countries where PKP Cargo already operates – Czech Republic, Slovakia, Hungary, Austria, Germany and Belgium. "I would like PKP Cargo to become a central European champion in a few years, with a strong position in the region," PKP Cargo CEO told Reuters. "We want the income from freight business beyond Poland to be a significant part of our revenue." This seems like a natural move as due to its dominant position on the Polish market, regulators are unlikely to approve any attempts by PKP Cargo at taking over other local competitors. Besides PKP Cargo and DB Schenker, the Polish rail freight market is divided among several dozen smaller players, including carriers owned by oil refiners PKN Orlen and Grupa Lotos as well as copper giant KGHM.

and medium-sized towns, where competition has been weak and existing retail properties – outdated or nonexistent. A typical Czerwona Torebka project includes a handful of prefab, standard-sized 60-sq.m retail units which generate natural customer traffic due to location, available parking, and a smart tenant mix, combining all the essentials: a bakery, pharmacy, butchers, bank, post office, hairdresser, and the like. To-date, the company has launched some 80 strip malls and its original plan was to reach 1,900 locations by 2021, with the capex on the entire pipeline seen at some PLN 4.5bn.

Biedronka founders to challenge retail majors with new formats

A brainchild of Mariusz Świtalski, the creator of Poland's most successful retail concepts (Biedronka discount groceries, Żabka convenience stores, and Eurocash wholesale warehouses), Czerwona Torebka started up as a developer of neighborhood shopping plazas, focusing mainly on high traffic areas in small

"We have nearly two decades of experience in building and running retail chains, both on the property development side as well as in operational management," Przemysław Schmidt, Member of Czerwona Torebka's Supervisory Board tells Poland Today. "With Czerwona Torebka we initially set off to build neighborhood shopping plazas but since the banks are not very keen on financing real estate at the moment, we changed our business model from asset-heavy to assetlight. This is a natural reaction to market conditions and since we have expertise in both fields, we can focus on the one that generates better returns for shareholders at a given moment." Małpka Express was established by Świtalski's son Mateusz, who will receive 21.8m new shares in Czerwona Torebka in return for his business, with the value of the entire transaction being estimated at PLN 281.5m (subject to possible corrections based on the chain's financial performance). Małpka's network of 135 outlets is to be expanded to 200 locations by the end of the year. In 2014 a further 200 stores are to be launched and starting from 2015 the company is planning 300 openings per annum.

CONSUMER GOODS & RETAIL

Less than half a year after the takeover of Poland's leading online book and multimedia store Merlin.pl, retail and property group Czerwona Torebka has acquired a rapidly expanding convenience store chain Małpka Express and announced plans for a new retail concept to be unveiled by the end of the year.

new discount supermarket chain by the end of the year.

Ready to challenge the leaders

The era of hypermarkets is ending as more and more Poles choose the convenience of neighborhood groceries and discount supermarkets. Photo: Małpka Express

However, in August 2013 the company officially shifted its focus from shopping centre development to retail, with the acquisition of Małpka Express being merely the first step, to be followed by the launch of a

"We probably won’t be able to catch up with Żabka, but we are certainly ready to give them a good chase as a strong vice-leader. The same goes for the new discount grocery chain, which we plan to launch by the end of the year. Here too, we are envisaging 300 openings per annum once the business reaches a momentum in a year or so. Our people know this business like no-one else and we are confident there is plenty of space on the market for another discount chain. The retail segment remains largely fragmented. Should the top player, Biedronka, be afraid? Let me just say that

weekly newsletter # 002 / 9th September 2013 / page 13

we intend to be a worthy rival and keep growing at least as fast as them." Competitors should certainly pay attention to what the Świtalskis are up to, as their earlier creations Biedronka and Żabka have proven more effective on the Polish market than any foreign chain. Their renewed focus on convenience stores and discount supermarkets clearly looks like an attempt to repeat those previous successes.

Our people know this business like no-one else and we are confident there is plenty of space on the market for another discount chain. "Portugal's Jeronimo Martins, which acquired Biedronka and Eurocash from us years ago, have since implemented a lot of the procedures and solutions we developed in Poland at their Portuguese outlets. I'd say our secret lies in a careful mix of solid corporate procedures, which are more or less the same globally, with top local expertise. Moreover, one needs a wellfunctioning local HQ to drive a large-scale store rollout and our Poznań office is exactly this type of a well-oiled retail machine. The one mistake many foreign newcomers make is that they try to grow shop by shop, lacking an actual corporate organization on the ground. At Czerwona Torebka, we joke that our people have Google maps in their heads, because they know every corner of this country so well. And our head office, on its part, is capable of reacting quickly to any new opportunity they identify."

With the recent acquisition of Merlin.pl, Czerwona Torebka has added a multimedia retailer and ecommerce expert to its growing empire that will soon include strip malls, convenience stores, discount supermarkets, and online shops. "We all agree that e-commerce is the way of the future but true synergies can be achieved in conjunction with a well developed brick and mortar business. For instance, our convenience stores make perfect locations for customers to pick up their online purchases. Moreover, using the joint purchasing power of all our businesses, we can get even better deals from producers. We continue to look for acquisition opportunities, interesting formats that could be added to our portfolio, generating even more synergies. Our operations managers have enough experience to look at a business and assess whether with some simple tweaks its EBITDA can be improved. As for Merlin.pl, merely four months after we bought it, the business is clearly gaining traction." Based in Poznań, Czerwona Torebka employs some 200 staff at the head office. In 2012 the company turned over PLN 75.8m and net-earned PLN 30.1m (31.8m gross). In 1H 2013 the revenues came to PLN 52m (+37% y/y), while the net result was a PLN 15m loss, reflecting investment costs. Czerwona Torebka debuted on the Warsaw Stock Exchange on 28 December last year, raising merely 19m instead of the PLN 280m it had been hoping to get. Despite the disappointing IPO, the business attracted a strong minority shareholder in the shape of private equity fund Pinebridge. "Our founders say Czerwona Torebka is not for sale, as they treat is a family business, but being listed on the WSE has its perks. For one, it gives Pinebridge a natural way to exit the investment once their goals have been met. Secondly, it enables us to easily seal acquisitions via share swaps, and, last but not least, the stock

market is of course a source of cheap capital, should we ever need more of it. For now, however, we have sufficient resources and credit lines to finance our medium-term expansion goals," Mr. Schmidt tells Poland Today.

FOOD & AGRICULTURE

Private equity funds to merge Polish biscuit manufacturers Backed by its shareholders, AXA Private Equity and Resource Partners, Polish biscuit maker Delicpol has acquired a local competitor Cuprod, strengthening its position as one of the key players in Central and Eastern Europe's confectionery market. Completed exactly a year after the two financial investors entered Delicpol, the merger marks a further step in consolidation of this sector. "Consolidating this fragmented market is an important part of our investment strategy. We are open to further acquisitions in Poland or the entire CEE region," commented Ryszard Wojtkowski, Managing Partner of Resource Partners. "The transaction will significantly strengthen the market position of the merged companies and enable the sharing of best practices to generate significant revenue synergies, broaden product offerings and further improve customer service. We look forward to supporting the company as it continues to grow," added Dominique Gaillard, Member of the Executive Board Managing Director of AXA Private Equity. Established in 1992, Delicpol is one of Poland's top biscuit makers. Since its inception, the company has grown from a small business to a significant regional

weekly newsletter # 002 / 9th September 2013 / page 14

player with over 700 employees. Its product range spans biscuits, jaffa cakes, cookies, wafers and gingerbread. The company markets this range of products under its own brand as well as the private labels of leading retail chains in Poland and Europe. Established in 1988, Cuprod is one of the leading Polish manufacturers of biscuits with jelly and chocolate. The company has recently initiated a large-scale investment program to introduce innovative products such as gluten free cakes and dark jelly biscuits. The merged companies will be managed by the current CEO of Delicpol, Mr. Tomasz Grzybowski. Founders and board members of Cuprod will remain as managers in the group.

Jaffa cakes are Delicpol's key specialty..Photo: Delicpol

Resource Partners specializes in growth financing of consumer goods and services companies in Central and Eastern Europe. The private equity company manages funds provided by leading international financial institutions such as: AXA Group, European Bank for Reconstruction and Development, European Investment Fund and Rabobank. Besides Delicpol, its portfolio includes rice waffle maker GoodFood, producer and distributor of groats, rice, cereals and flour Melvit, food distributor and retailer SPS Handel and healthcare provider Mavit. In 2010 Resource Partners formed a strategic partnership with AXA Private Equity, one of Europe's top diversified private equity players. With offices in Beijing, Frankfurt, Jersey, London,

Luxembourg, Milan, New York, Paris, Singapore, and Zurich, AXA Private Equity has USD 32bn in assets managed or advised in Europe, North America and Asia.

IT & TELECOM

Deutsche Telecom may acquire Polish Netia Germany's Deutsche Telekom is considering an overhaul of its activities in Central and Eastern Europe, which may lead to acquisition of fixed-line operators in Poland, reported The Wall Street Journal, citing unnamed sources. The company's management and supervisory boards met in Poland last week to discuss strategy and Deutsche Telekom's potential investment in Polish Netia or GTS Central Europe, may have been among the topics covered. As the German giant gears up to streamline its CEE business, one of the key questions is said to be whether Deutsche Telekom should exit markets in which it has mobile-only operations or acquire fixed-line and broadband assets to shore up its position, WSJ said. This applies chiefly to the Czech Republic, where the Germans may choose to sell their 61% stake in the local T-Mobile unit, as competition on the market intensifies and the regulator is pushing for newcomers to grab an LTE spectrum capacity at an auction expected later this year. Deutsche Telekom valued its stake in T-Mobile Czech at EUR 1.75bn at the end of last year. In Poland, Deutsche Telekom is likely to bundle up its fully-owned subsidiary PTC (T-Mobile), one of the country's top three mobile operators, with a fixed-line operator. GTS Central Europe and Netia are said to be the strongest candidates.

GTS Europe has operations in Poland, the Czech Republic as well as Romania and Hungary and according to reports it may be worth up to EUR 0.5bn. The Warsaw-listed Netia focuses solely on the Polish market. Two of Netia's key shareholders, financial investors Third Avenue Management LLP and Sisu Capital Ltd., together holding some 25% of shares in the operator, have recently hired Morgan Stanley to sound out interest from potential buyers for Netia. Netia's revenues came to PLN 968m in 1H 2013 and the company posted a net profit of PLN 21.7m, up from PLN 11.2m in the corresponding period of 2012. It customer numbers declined from 2.65m RGU (revenue generating units) in December last year to 2.59m in June and according to the company's most recent forecast the figure will go down to 2.52m by the end of this year. Full-year turnover is to shrink from PLN 1.925bn in 2012 to 1.9bn this year, with net earnings expected to reach PLN 100m. Earlier this year, Vodafone Group offered about 7.7bn to take control of Germany's largest cable operator, Kabel Deutschland Holding AG, enabling it to offer bundled telecommunications and use the cableoperator's network to cope with the increasing data traffic. Deutsche Telekom's strategy for Eastern Europe is likely to follow a similar path.

POLITICS & ECONOMY

Government outlines details of Poland's pension overhaul In a much awaited announcement, Polish Prime Minister Donald Tusk has unveiled details of a plan to overhaul the country's pensions system, which over

weekly newsletter # 002 / 9th September 2013 / page 15

the past decade has become too heavy a burden for Poland's state coffers. The government has decided to nationalize an estimated PLN 120bn in sovereign bonds held by 14 privately managed local pension funds (OFE) by transferring them to the state social security institution (ZUS), thus cutting public debt by about eight percentage points from its current 55% of GDP. By lowering its debt -to-GDP ratio Poland is hoping to significantly cut borrowing costs. As a result, according to ministers, government deficit is expected to fall by about 1% of GDP to just under 3%.

Debt & deficit-to-GDP ratios Official figures according to Eurostat methodology

GDP (PLN bn) General gov't deficit in % of GDP Public sector debt in % of GDP

2009

2010

2011

2012

1,345

1,417

1,528

1,595

-7.4%

-7.9%

-5.0%

-3.9%

50.9%

54.8%

56.2%

55.6%

Source: GUS, the central statistical office

Although long-anticipated, the news sent shockwaves across the financial markets. The Warsaw Stock Exchange's blue-chip WIG20 index closed 2.5% lower on the day the announcement was made before losing a further 4.6% the following day. Although the funds will keep the PLN 111bn that they invested in stocks and will be encouraged to increase their exposure to equities as the current caps are lifted, many investors fear pension funds managers may eventually reduce their stakes in Warsaw-listed companies. The yield on 10-year bonds rose above 4.8% on from some 4.55% before the plan was made public. Poland, with one of Europe's fastest aging populations, reformed its pension system in 1999, following a World Bank and USAID-backed campaign which

promised the Poles a happy and wealthy retirement under palm trees. Moving away from a classic pay-asyou-go system (PAYG), where todayâ&#x20AC;&#x2122;s workers pay for the pensions of todayâ&#x20AC;&#x2122;s retirees, the new pension scheme was designed as a three-pillar-defined contribution system. The first pillar, managed by ZUS, was PAYG and the other two (open pension funds and occupational pension schemes) were fully funded. The PAYG component as well as open pension funds were mandatory, and occupational pension schemes (which have never really taken off) were voluntary. Shortly after the new system was introduced, the government found itself in a pickle, forced to finance payouts for pensioners covered by the old system at the same time contributing to OFE accounts for would-be pensioners belonging to the new system. The resulting gap was to be covered from privatization proceeds, but the latter have proven to be gravely insufficient, thus boosting the country's debt. According to Professor Leokadia OrÄ&#x2122;ziak of the Warsaw School of Economics, between 1999 and 2010, the OFEs generated some PLN 270bn worth of liabilities, representing roughly 43% of Poland's public debt. The annual debt servicing costs associated with the OFE alone totaled some PLN 13bn or 1.1% of the GDP in 2011 and kept growing.

The privately run pension system rests, in part, on expanding debt and that has proven very costly. Noble prize winner and Columbia University professor Joseph Stiglitz predicted the problem back in 2005, commenting on plans by the Bush administration to privatize the US social security system: "Privatization would not protect retirees against the social

security system's insolvency; it would merely add enormously to today's fiscal deficit, because partial privatization entails diverting money to private funds that would have been used to close the gap between government expenditures and revenue," he wrote in The Guardian back in 2005. In short, Poland has been borrowing heavily on the financial markets only to transfer the money to the OFEs which in turn invested it into government bonds and (to a much smaller degree) stocks that were to generate returns for future retirees. The gains have been rather mediocre, while the country's debt started spiraling out of control, particularly in the wake of the global financial crisis. Other countries with similar systems (for instance Estonia) have since frozen payments to private funds, while Hungary scrapped its scheme. Meanwhile, the deepening economic slowdown has forced the Polish government last month to widen the budget deficit by PLN 16bn and suspend thresholds limiting increases in public debt (see No. 001 page 15). "The privately run pension system rests, in part, on expanding debt and that has proven very costly," Mr. Tusk said in a press conference. "The system's impact on public debt is crushing and has effectively prevented us from making another civilizational leap."

Dissolving private pension funds

Besides redeeming all of the government bonds that pension funds held as of September 3rd, the government has also made membership in the private pension fund scheme (now reduced to equities only) voluntary. Those wishing to keep their pensions in the private funds will have to explicitly say so, as the default course of action will be to transfer all pensioners back to the state-run system. Data from Hungary show that a vast majority of people end up opting for stateguaranteed stability.

weekly newsletter # 002 / 9th September 2013 / page 16

The Economic Chamber of Insurance Companies, which lobbies on behalf of the pension funds, said it was "deeply disappointed" and that the government's plan raises "serious legal concerns" and violates the constitution, which protects private property. The three largest private pension funds are companies are the local subsidiaries of ING Bank NV, Aviva International Insurance Ltd, and Polish PZU SA, servicing a total of nearly 8m future pensioners. "Those who believe the customer should be brought into the store in handcuffs don't have a lot of faith in the quality of services they offer," commented finance minister Jacek Rostowski, admitting if less than 15% of current participants of the system choose to stay in the private funds, that segment of the system is bound to wind down.

PT EDITOR COMMENT: It will take a lot of guts for the liberal-minded members of the Polish middle class to come to terms with the realization that the OFEs may have been nothing but an empty promise. Facing up to the truth that the retirement income one can hope for a few decades from now will almost certainly prove insufficient, regardless of who pays it out, may be too much for some people to stomach. Hence some (albeit surprisingly weak) protests in defense of the existing pension system. The argument is that Poland should first cut public expenditures and privatize the remaining state-owned enterprises. Indeed, this is something the government is yet to tackle, but unfortunately we have not seen any credible studies proving that whatever austerity measures the country implements, would suffice to close the OFE-related gap. Poland simply cannot afford to keep borrowing money to buy its own T-bonds, paying hefty commissions to financial giants somewhere along the way. There are no free lunches in economics, but some lunches simply cost way too much.

POLITICS & ECONOMY

Budget deficit deficit to drop slightly next year Finance Minister Jacek Rostowski and Prime Minister Donald Tusk explaining details of the pension system revamp at the Economic Forum in Krynica. Photo: KPRM

Although the reform, to be introduced in January 2014, should improve Poland's debt position in the long run, it makes Poland's more susceptible to shifts in global sentiments (as the share of bonds held by foreign investors increases) and raises questions about the future growth of the Warsaw Stock Exchange, where the OFE have been some of the key players.

Poland's government has adopted provisions for the country's 2014 budget which envisages the deficit narrowing after a revamp of the countryâ&#x20AC;&#x2122;s privately managed pension funds. The Parliament and President Bronislaw Komorowski still need to approve the draft, which means that some cosmetic changes are still likely to be implemented. The gap is to shrink to PLN 47.7bn from PLN 51.6bn estimated for this year, Finance Minister Jacek Rostowski announced Friday after a two-day govern-

ment meeting. Revenue will reach PLN 276.bn, while spending will be PLN 324.2bn. The centrist government of Prime Minister Donald Tusk, which trails in polls before 2015 elections, wants to spur recovery in Poland with this yearâ&#x20AC;&#x2122;s growth forecast at the weakest pace since at least 1997. "Itâ&#x20AC;&#x2122;s a cautious budget," Tusk told reporters. "Hence we will avoid any negative surprises and maintain our reputation with financial markets." Tusk said that his Cabinet will have to seek new sources of income, after it had to raise the 2013 deficit by 45% (PLN 24bn) this year. This means a that Poland's promise to reduce its Value Added Tax rate back to 22% is unlikely to materialize anytime soon. Moreover, excise duty on alcohol and tobacco are to be increased next year. The Polish VAT rate was raised by one percentage point to 23% in 2011 on the back of the worsening economic conditions in Europe. Whilst Poland was one of the few countries to avoid a technical recession, its government finances did suffer considerably. Poland's ambition to join the single currency pushed the government to raising VAT temporarily to ensure it complied with the 3% government deficit target for euro entry. The government is still hoping for an improvement in its finances, but a drop in the VAT rate may not come before 2016. The Premier has said that Q1 2014 growth is expected at 3%, compared to just over one percent for all of this year. Next year's draft budget assumes economic growth will recover to 2.5%. To trim public debt and allow higher spending, the government said last week that it will assume control of 51.5% of pension-fund assets, including bonds, stopping short of fully nationalizing the system.

weekly newsletter # 002 / 9th September 2013 / page 17

KEY STATISTICS Consumer Prices Prices

Inflation

-5.1

Housing

+1.1

Transport

-0.3

+3.5 +0.2

+3.7 +0.2 +3.6

+0.1

+3.3

-4.8

-4.7

-5.0

-2.7

+0.1

+1.1

0.0 +2.0

+1.2

-2.2

-0.6

-4.2

-2.3

-3.5 +0.4

-1.2

+1.1

Communications -7.3

10.0

-9.7

-2.6

-9.7

0.0

-9.7

0.0

+0.8 +0.4 +0.5 -0.1

+0.2

0.0

+1.1

+0.3

Gross CPI

+0.1

+0.1 +0.9

-0.8

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 Output

Jul '13

+16.8

Year

y/y (%) Jul 13

Clothing, shoes

2.5

May 13

+0.1

-0.3

Mar 13

Alcohol, tobacco +3.6

+1.6 +0.7 +0.7

Jan 13

+0.4

Nov 12

+1.7

Mar '13

m/m (%)

Sep 12

Food & bev

Month

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

Jul 12

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

May 12

Sector

Retail Turnover

Mar 12

Jul '13

Jan 12

Jun '13

Nov 11

May '13

Jul 11

Apr '13

Sep 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 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%

Cons umer c onfidence (left axis) E c onomic s entiment (rig ht axis )

120 100

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

Jul 13

60 A pr 1 3

-40 J an 13

146

Oc t 1 2

152 3,693 157

143 3,432

J ul 1 2

163 3,556

142 3,365

Apr 12

158 3,829

3,322

J an 1 2

3,709

Retail & repairs

Oc t 11

Construction

J ul 1 1

Apr 11

-20

Jan 11

152 3,560 155 188 5,828 177

O ct 10

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

Key Economic Data & Projections Indicator

*2010

*2011

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

GDP change

+3.9% +4.5%

Consumer inflation Producer inflation CA balance, % of GDP

EUR/PLN

*2012

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

weekly newsletter # 002 / 9th September 2013 / page 18

100 DKK

57.62 ↑

100 SEK

49.27 ↑

100 NOK

53.73 ↑

10,000 JPY

350 300

16.68 ↑

100 CZK 10,000 HUF

400

328.33 ↓ 142.67 ↑

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

as of 6 September 2013

WIG-20 stocks Price Change Change in alphabetical 6 Sep 30 Aug 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%

6.0%

4.7%

5.9%

5.7%

5.4%

5.1%

5.7%

5.6%

5.3%

↓ Bogdanka

5.8%

5.6%

5.3%

4.9%

↓ BRE

↓ Asseco Pol.

EUR (up to 1m EUR) 2.1%

2.3%

2.1%

2.3%

1.9%

2.3%

↓ BZ WBK

EUR (over 1m EUR) 2.8%

3.6%

2.9%

3.2%

2.9%

3.5%

↓ Eurocash

150,295 493,721 107,468

May '13 150,475 508,299

Jun '13 144,260 523,783

109,312

914,732

920,112

433,840

425,740

935,231

941,791

112,815 927,345

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

108.7 417.65

-6%

28%

46,717. 717.04 Change 1 week

-4% ↓

Change end of '12

-2% ↓

-3%

26%

-12%

+4%

6.75

-12%

-32%

100

-2%

↓ JSW

66.2

-3%

-28%

Change 1 week

→ Kernel

47.2

-29%

Change end of '12

Rediscount

↓ KGHM

120

-2%

-37%

2.75%

↓ Lotos

-5%

-13%

↓ Pekao

163.5

-6%

-2%

Credit

↓ PGE

16.04

-6%

-12%

52000

The financial sector's net lending in PLN bn,

↓ PGNiG

5.72

-7%

+10%

50000

↓ GTC

Warsaw Inter Bank Offered Rate (WIBOR) as of 6 Sep 2013 Overnight

1 week

1 month

3 months

6 months

2.56%%

2.59%

2.61%

2.70%

2.73%

Reference

Lombard

2.50%

155,767 112,565

-1% -20%

304

Jul '13 530,666

-2% -4%

45.49

↓ Handlowy

Central Bank (NBP) Base Rates Apr '13

45.00

NBP deposit

4.00%

1.00%

loan stock at the end of period Type of loan

May '13

Jun'13

Jul '13

2,238 2,238. 238.98

last three months

41.2

-8%

-17%

48000

35.22

-8%

-5%

46000

Loans to customers

880,213

887,960

900,999

896,635

↓ PZU

399.9

-9%

-8%

44000

- to private companies

257,956

259,593

263,453

261,000

↓ Synthos

4.4

-1%

-19%

42000

- to households

542,130

549,117

553,055

552,503

↓ Tauron

4.22

-1%

-11%

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

1,616,221

↓TP SA

7.28

-5%

-40%

Total assets of banks

Source: Central Bank NBP

-6% ↓ -13% ↓

WIG Total closing index

↓ PKO BP

↓ PKN Orlen

Apr '13

WIG-20 blue chip index

6 Sep 13

346.73 ↑

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

14 Aug 13

100 CHF

450

6 Sep 13

509.70 ↑

1 Jul 13

100 GBP

19 Apr 13

429.75 ↑

Key indices

Term / currency

USD EUR

11 Feb 13

100 EUR

500

30 Nov 12

327.32 ↑

24 Sep 12

100 USD

Stock Exchange

Average weighted annual interest rates

1 Jul 13

as of 6 September 2013

Interest rates

23 Jul 13

100 USD/EUR against PLN

Central Bank average rates

7 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-Jun share 2013

IMPORTS in PLN bn *2012

Share No

Country

Jan-Jun share 2013

*2012 Share

65,564 21.2% 134,933 21.1%

32,226

+9.7

10.5

61,694

10.3

22,938

+3.1

7.4

44,287

6.9

1 Germany

76,679 25.0% 150,046 25.1%

1 Germany

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

19,554

6.4%

40,184

6.7%

2 Russia

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.

18,684

6.1%

37,475

6.3%

3 China

27,937

14,708

+1.4

4.8

29,389

4.9

35,257

-16.4

11.4

85,280

13.4

4 France

17,858

5.8%

34,862

5.8%

4 Italy

15,804

5.1% 32,782

739

+54

0.2

1,342

0.2

1,247

-12.2

0.4

2,887

0.5

5 Russia

16,328

5.3%

32,290

5.4%

5 France

12,035

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

13,878

4.5%

29,067 4.9%

6 Netherlands

11,885

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

11,940

3.9%

26,678 4.5%

7 Czech Rep.

11,479

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

8,321

2.7%