Poland Today Business Review+ No. 040 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. 040 / 23rd June 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Nexteer Automotive to invest EUR 80m in new electric power steering systems plant in Tychy page 2 PE fund Abris to float aluminum recycler Alumetal in Warsaw page 2

Prime Minister Tusk may be facing the toughest test of his career. Photo: M. Śmiarowski/ KPRM

Snap election looming as scandal unfolds As the eavesdropping scandal involving the country's top officials continues to take its toll, causing the government more embarrassment each day, Poland's president and prime minister admitted last week that an early election was a possibility. page 13

US firm to recruit thousands of IT staff

US software services company EPAM Systems seeks to employ up to 3,000 IT professionals in several Polish cities over the coming years, EPAM representatives tell Poland Today. page 9

tel. +48 881 650 600

HOSPITALITY Poland with room for new hotel developments page 8 TRANSPORT & LOGISTICS PKP sells PLN 580m stake in rail freight giant PKP Cargo page 10

Azoty not for the Russians, government says page 3

Amazon to hire up to 2,000 staff at Polish centers by yearend page 11

Thai Indorama's Włocławek PET plant to boost sales on the Polish market page 4

Major rail engineering firm Torpol heading for Warsaw bourse page 12

ENERGY & RESOURCES State fund PIR teams up with EnerCap to invest in Polish heat & power plants page 4

CONSUMER GOODS & RETAIL Top retailer Biedronka to start accepting card payments at its 2,400+ stores page 12

EDF begins EUR 350m overhaul of Rybnik page 5 Dalkia's heat & power project in Warsaw gaining shape page 6 PROPERTY & CONSTRUCTION Von der Heyden Group getting ready for next installment of flagship Poznań project page 7

POLITICS & ECONOMY Industrial output data below expectations page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

weekly newsletter # 040 / 23rd June 2014 / page 2

MANUFACTURING & PROCESSING

Nexteer Automotive to invest EUR 80m in new electric power steering systems plant in Tychy Nexteer Automotive will invest almost PLN 335m (EUR 81.25m) by the year 2020 in the southern Polish town of Tychy, where it will build a plant producing Electric Power Steering systems (EPS). The construction of the factory, which will be located next to an existing Nexteer plant that has been in operation since 1997, is to start this year and reach completion at the turn of 2015 and 2016. "The decision to locate the new investment in Poland was primarily due to excellent quality of products manufactured in our Polish factories, as well as favorable economic conditions offered by the Katowice Special Economic Zone," said Rafał Wyszomirski, V-ce President Global Operation and CEO Poland at Nexteer Automotive.

cars, EPS has become the technology of choice for fuel-efficient vehicles as manufacturers strive to reduce their CO2 emissions, due to its lower energy consumption than traditional hydraulic systems. Over the past half a decade Nexteer invested approximately PLN 360m in its two Polish plants, which currently turn out nearly 1.5 million EPS units per annum, approximately a half of Nexteer's global output. Its past investments have been related to a number of product launches and a rapid shift from hydraulic to electric power steering systems in the European marketplace. Rafał Wyszomirski, head of Nexteer's Polish business, was named V-ce President Global Operations in September 2013. He is responsible for global manufacturing, common processes, operational metrics, lean manufacturing, health and safety, facilities engineering and manufacturing planning. Image: Nexteer Automotive

"This will be an entirely new plant that will operate alongside the existing units in Tychy and Gliwice," Piotr Dembiński, Communication Manager Europe at Nexteer Automotive tells Poland Today. "We cannot communicate any figures on the expected production volume or employment at the moment as a lot will depend on the contracts we get from our clients." The investment is part of Nexteer's global EPS product offensive that focuses mainly on Single Pinion EPS and Column EPS systems used primarily in compact passenger cars from BMW, Citroen, Fiat, Peugeot or Opel. Once regarded as a niche product for small

Little more than a decade ago EPS represented 4% of Nexteer's sales, but in 2010 the figure was nearly 30% and by 2015 the company was expecting it to pass the 50% mark. According to Nexteer's estimates by 2020 one in two new vehicles will be equipped in the EPS technology, which continues to win market share from hydraulic systems. Nexteer currently has two manufacturing units in Poland, in Tychy in Gliwice, employing a combined 1,150 staff. The Polish Nexteer plants used to be part of US

Delphi Automotive, which sold the business to General Motors in 2009. It was GM that created the Nexteer brand before selling the former Delphi power steering operations to China's Pacific Century Motors a few years ago. Poland is the only country where Nexteer makes EPS systems for the first all-electric BMW model i3. The Hong-Kong listed Nexteer Automotive is is a multi-billion dollar global steering and driveline business solely dedicated to electric and hydraulic steering systems, steering columns and driveline products for original equipment manufacturers. The company has 20 manufacturing plants, five regional engineering centers and 10 customer service centers strategically located in North and South America, Europe and Asia, employing a total of more than 10,000 people. Nexteer Automotive’s customers include BMW, Fiat Chrysler, Ford, GM, Toyota, and PSA Peugeot Citroen, as well as automakers in India, China, and South America.

MANUFACTURING & PROCESSING

PE fund Abris to float aluminum recycler Alumetal in Warsaw Poland-based private equity fund Abris has launched an initial public offering (IPO) of the aluminum parts maker Alumetal on the Warsaw bourse, planning to float a 31% stake in the business, the company said. Abris may additionally offer up to 25.01% of the company, thus fully exiting Alumetal, which is to make its stock market debut at the end of Q2 or beginning of Q3 2014. According to sources cited by Reuters, the offer may be worth between PLN 200m and 500m. UniCredit is the offer's lead manager, aided by brokerages at PKO BP and Banco Espirito Santo.

weekly newsletter # 040 / 23rd June 2014 / page 3

With an annual capacity of 165,000 tons, Alumetal, produces components mostly for the automobile industry. The Alumetal group is the largest manufacturer of secondary aluminum casting alloys and master alloys in Poland and CEE, and the fourth largest aluminum recycler in Europe with a 5% market share in 2013. The group has three manufacturing plants, located in Nowa Sól, Kęty and Gorzyce. The company sells close to a half of its production abroad, with its clients including Germany's Volkswagen. In 2012 Alumetal's production neared 100,000 tons.

shareholder, Russian fertilizer firm Acron, had increased its holdings in the group above the 20% mark. The Treasury Ministry published a statement saying it has no intention of reducing its stake in Azoty, which it considers a strategic asset.

In 2013 Alumetal's revenue rose by about 20% y/y to PLN 1.02bn, while earnings before interest tax, depreciation and amortization (EBITDA) and net profit both rose slightly, to PLN 54m and PLN 36m, respectively. In Q1 2014, sales increased by more than a quarter to PLN 311.4m, EBITDA more than doubled to PLN 23m and net profit nearly tripled and totaled PLN 17m, reflecting improving sentiment in the European automotive market.

Acron, indirectly held by Russian oligarch Vyatcheslav Kantor, began to increase its ownership in Grupa Azoty's legal predecessor ZA Tarnow following a 2012 PLN 1.87bn tender offer for a 66% stake. Following the bid, in which Acron bought just over 12%, Acron has been gradually increasing the stake in the firm.

"Grupa Azoty is well protected against a potential hostile takeover, as guaranteed by the current shareholder structure as well as defense mechanisms included in the articles of association," CEO Paweł Jarczewski added.

Grupa Azoty key figures Turno ver, in PLNb n, lef t axis

Alumetal doubled output at its newest refinery, Nowa Sól, last year, after starting a second aluminum alloy production line, which boosted the plant's annual production capacity to 66,000 metric tons from its previous capacity was 33,000 mt. Nowa Sol started operating in July 2011 and investment in it has totaled about EUR 35m, including EUR 8m for the second line.

MANUFACTURING & PROCESSING

Azoty not for the the Russians, gov't says The Polish government has reaffirmed the "strategic asset" status of the chemicals conglomerate Grupa Azoty, after the latter announced that its minority

Net r esult in PLNm, right axis 10 .0

70 0

8.0

6 00

6.0

50 0

4.0

4 00

2.0

30 0

0 .0

20 0 201 0

201 1

2012

20 13

Source: Grupa Azoty

Facing an increasingly realistic prospect of some of Poland's key industrial assets falling into Russian hands, the government used its decisive say in Azoty Tarnów and another major nitrate producer ZA Puławy to merge the two businesses, creating the

number two fertilizer producer in Europe. Following the merger, in March 2013, Poland capped voting rights at what is now Grupa Azoty to 20% for all shareholders other than the State Treasury as well as gave the firm's CEO a tie-breaking vote on the management board. Now that the Russians have accumulated more than 20% of shares in the Polish group, both Azoty and the State Treasury suspect that Acron may try to install their representative on the supervisory board of Grupa Azoty. According to observers, the Polish government may find ways to keep them out, however. Grupa Azoty has an estimated 80% share in Poland's fertilizer market and being well aware of the way Kremlin likes to blend politics and economy, Polish decision makers have been against Acron's takeover plans from the start. The group's product range encompasses inorganic fertilizers (nitrogenous & multicomponent), caprolactam, structural materials and other highly processed chemicals, such as OXO, plasticizers, titanium white, melamine & AdBlue. The group is also the largest supplier of ammonia and phosphoric acid in Poland. Grupa Azoty is ranked fifth among European producers of polyamides and is the only producer of polyacetal (POM), OXO and titanium white in the country. The group has its own research facilities. Last year Grupa Azoty turned over PLN 9.8bn (up from PLN 7.1m in 2012) and more than doubled its net earnings that reached PLN 714n against PLN 315m in the prior year. Although so far the government has managed to keep Acron at bay, Azoty remains dependent on the Russians to a significant degree due to gas, which, which prior to their merger represented some 30% of raw material costs for Tarnów and as much and 60% for Puławy – the group's two key industrial assets. The company has been actively seeking alternative sources of this key raw material in recent months, resulting in a number of deals with other suppliers.

weekly newsletter # 040 / 23rd June 2014 / page 4

MANUFACTURING & PROCESSING

Thai Indorama's Włocławek PET plant to boost sales on the Polish market Following a PLN 100m upgrade of its Polish factory in Włocławek, 140km northwest of Warsaw, Thailandbased polyethylene terephthalate (PET) producer Indorama Ventures is counting on a substantial sales growth in Poland. PET is a form of polyester that is extruded or molded into plastic bottles and containers for packaging foods and beverages, and many other consumer products.

Indorama employs more than 9,000 people at 42 locations throughout the world. In 2013 its turnover totaled USD 7.5bn. The company acquired the IVL Wloclawek PET facility from South Korean SK Chemicals in March 2011. Following a recent upgrade, it has an installed capacity of 157,000 tons per annum. The main raw material for the facility, purified terephthalic acid (PTA), is being sourced from PKN Orlen's new Włocławek PTA plant, which was officially opened in 2011. Currently Indorama has 83 employees on payroll in Poland. Thanks to a PLN 100m investment program Indorama implemented over the past few years, the company has recently obtained permission to operate under the Pomeranian special economic zone. The program is to reach completion in December 2014 creating a total of 30 new jobs and introducing a number of innovative technologies.

"In 2013 we managed to sell around 70,000 tons of our product in Poland. In 2014 domestic sales will increase to around 85,000 tons and in 2015 to almost 100,000 tons," says Om Prakash Mishra, who heads the Polish unit Indorama Ventures Poland. "Typically half of the sales volume is sold directly to the Polish market, being the only indigenous producer. We expect to achieve this sales growth with the increased production from historically approximately 70,000 tons to 100,000 tons domestic sales." "Business in Poland has been very healthy and has encouraged our expansion. There is a 6% p.a. growth in consumption resulting from applications like PET trays and bottles for fruit juices. At the same time, prices do not differ much from those in other European countries. We have been able to build long term business relations with customers in Poland giving us good visibility and assurance for excellent future business," Mr. Mishra tells Poland Today.

ed a reheat product to their portfolio in addition to the normal grade produced before acquisition, thus expanding their customer access, and obtained ISO9001, ISO_14001, and OHSAS 18001 & 22000 quality certification. A few years ago the company was reportedly mulling a 220,000 ton/year expansion project in Włoclawek. The investment, the cost of which remains undisclosed, would raise the site's PET production capacity in excess of 360,000 tons/year. Asked about further investments in Poland, Mr. Mishra replies: "Poland is our prime market in Europe and upon completion of the current project we would think of future investments aligning our European and global market need and position."

ENERGY & RESOURCES

State fund PIR teams up with EnerCap to invest in Polish heat & power plants Indorama's Włocławek plant can produce up to 157,000 tons of PET per annum. Image: Indorama

As part of its investments in Włocławek, Indorama has debottlenecked continuous polymerization, which makes the basic chip, as well as solid state polymerization, which refines it to transparent bottle grade. Other improvements included installation of an absorption chiller to utilize excess steam and change of electricity vendor to reduce costs. The company also add-

Czech-based private equity company EnerCap Capital Partners has gained a powerful ally in the shape of the state-controlled Polish investment vehicle Polskie Inwestycje Rozwojowe (PIR). Together, the two partners are to finance development of high efficiency cogeneration projects in Poland and the CEE region. "We are opening Poland's infrastructure market to foreign investors. It's a true milestone, as in practical terms it means that international pension funds, insurers and sovereign wealth funds will be able to get in-

weekly newsletter # 040 / 23rd June 2014 / page 5

volved in the process of creating a modern energy sector in Poland," said PIR's CEO Mariusz Grendowicz. PIR has agreed to inject some EUR 30-40m into EnerCap's latest fund E3F that will focus on development of heat & power sources in Central and Eastern Europe. EnerCap intends to raise approximately EUR 100m from global investors for the fund in Q3 2014 and boost the figure to EUR 350m by the end of 2015. According to the two partners, more than a half of the fund's total resources are to be invested in Poland. "Our typical equity investments will be EUR 20-50m, with limited debt, typically less than 50%," Jim Campion, partner at EnerCap tells Poland Today. "Our focus is on gas or biomass-fired projects. We can be the sole investor or co-invest with others in majority or minority position, on a deal by deal basis. We will also invest in aggregators of smaller distributed generation projects providing we can meet our ticket size and the business is predominantly generation asset based. The power generation capacity range is therefore large, from 15MWe+ for biomass up to multi 100 MWe for co-investment deals." Established in 2007, EnerCap manages an extensive portfolio of investments in Poland, Romania, Slovakia, Croatia and the Czech Republic. Its first fund EnerCap Power Fund I, focusing on new renewable energy projects in Central and Southern Europe, has EUR 425m (367 MW) of project assets under management, both completed and under construction. E3F was set up last year as EnerCap's second fund. "We have been engaged in a series of projects and developer relationships in Poland over the last few years, related to the activities of our first fund EPF1. These projects are consistent with our fund investment objectives. Based on a first close in Q3/Q4 this year we would anticipate the first investment in Q1/Q2 next year," says Jim Campion. "There are a few active

independent developers in Poland, with good capability. However a number of developments have been slowed related to the changes and uncertainty in long term support mechanisms for efficient CHP." Since approximately two thirds of Poland's power stations were commissioned more than three decades ago, and 90% rely on coal, the sector is facing a massive overhaul in order to avoid blackouts and meet European emissions quotas. According to PIR, high efficiency cogeneration will play an important role in the modernization of Poland's power sector, particularly in the context of the expected diversification of gas suppliers and increased domestic production.

Energy generation in Poland in 2012 By source, actual data

Other 2%

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

Coal 84%

Gas 4% RES* 11%

Source: Economy Ministry *) renewable sources

"EnerCap currently has a small team of energy specialist based in Poland, working closely with GEO, our EPF1 fund investee company. Some of these people are now also engaging in evaluating CHP projects in the region. We will also be recruiting two or more suitably qualified sector/investment professionals. It is expected the dedicated EnerCap office will be established in Q1 next year, or sooner," Mr. Campion tells Poland Today.

ENERGY & RESOURCES

EDF begins EUR 350m overhaul of Rybnik French utility giant EDF, one of the largest foreign investors in Poland's energy sector, is launching a largescale investment program at its key asset, the Rybnik power plant in Silesia. Estimated at more than EUR 350m (PLN 1.5bn), the "Nowy Rybnik" initiative is aimed at maintaining the power station's current capacity of approximately 1,800 MW for at least another 15 years through modernization and replacement of existing installations and various environmental improvements.

weekly newsletter # 040 / 23rd June 2014 / page 6

Under the "Nowy Rybnik" investment program, EDF will retrofit eight existing power units at Rybnik, extending their life cycles until 2030, improving their operational efficiency and making them compliant with new European requirements on emissions of sulfur oxides and nitrogen oxides (Industrial Emission Directive which enters into force on January 1, 2016). The investments will be implemented over the 20142018 period, providing employment for approximately 600 people, mainly with local subcontractors. Thanks to new desulphurization and denitrification systems, the Rybnik plant will cut emissions of sulfur oxides four times, whereas the amount of nitrogen oxides and dust emitted to the atmosphere will be cut by a half. In March 2014 EDF Polska awarded a contract for implementation of desulphurization systems at four of Rybnik's eight power units to Alstom.

(which besides Rybnik include also plants in Kraków, Wrocław, Gdańsk, and Gdynia) to new environmental standards and modernizing production to ensure longterm energy security in the regions where the group operates. The EDF Group in Poland holds a 10% share in the electricity market, and a 15% share in the district heating market. With 3,300 employees it is the largest foreign investor in the energy sector in Poland. EDF is the country's largest combined heat and power producer, supplying heat to Kraków, Gdańsk, Gdynia, Wrocław, Zielona Gora and Toruń. EDF operates a coal – fired power plant in Rybnik of a capacity of 1,775 MW. Over the last year EDF has been consolidating its Polish business, which used to be divided into many local subsidiaries, into a single entity. The main source of electricity in Poland is coal (over 90%). For its generation purposes, EDF consumes almost 7m tons per year, which makes it one of the three largest recipient of hard coal in Poland. Europe's leading electricity producer, EDF is involved in supplying energy and services to approximately 28.5m customers in France, where 95% of its electricity production is CO2-free thanks to nuclear and hydropower generation facilities.. The group generated consolidated sales of EUR 75.6bn in 2013, of which 46.8% outside of France.

Rybnik is one of the largest baseload power plants in Poland, generating approximately 7% of energy genImage: EDF Polska erated in the country.

Overall, EDF seeks to spend some EUR 800m (PLN 3.3bn) on adapting its Polish power generation assets,

ENERGY & RESOURCES

Dalkia's heat & power project in Warsaw gaining shape French utility Dalkia seeks to build a brand new gasfired heat & power station in Warsaw's Ursus district at the cost of PLN 270m. The investor has already obtained positive environmental assessment for the project and hopes to get the construction permit by early 2015. According to Dalkia, the construction will take 15 months. "'We want to build a cogeneration plant in order to secure heat supplies to Ursus. The latter currently has some 55,000 inhabitants but according to projections their number will reach 90,000 by 2025," said Jacky Lacombe, who will soon take the CEO post at Dalkia Warszawa, the capital city's district heating company. "Our decision about investing in Ursus has to do with the actual needs of the Warsaw metropolitan area, its businesses and inhabitants. A new source of heat and power in western Warsaw will support growth in this part of the city, which currently remains outside the district heating network. Moreover, after 2016 some of the existing energy generation facilities may have to be decommissioned due to environmental regulations. We may be interested in building further small CHPs throughout Warsaw, but there are no detailed plans as of now," Dalkia Warszawa spokesperson Magdalena Kempiński told Poland Today's Lech Kaczanowski last year. Before becoming part of Warsaw, Ursus used to be a separate town with its own heat producer, Energetyka Ursus, located approx. 1km from the Dalkia site in a

weekly newsletter # 040 / 23rd June 2014 / page 7

former industrial cluster that the local councilors seek to transform into residential areas. Energetyka Ursus went bankrupt a few weeks ago but the courtappointed receiver has to keep the plant running until the municipality finds an alternative heat supplier.

with that of Warsaw, putting an end to the area's energy isolation.

Von der Heyden Group getting ready for next installment of flagship Poznań project

Keeping the the capital warm PGNiG Termika's Warsaw heat & power units: capacity Facility

MWt (heat)

MWe (power)

Siekierki

2,081

622

Żerań

1,560

364

Pruszków

186

Kawęczyn (seasonal)

512

465

Wola (seasonal)

PROPERTY & CONSTRUCTION

With its flagship Poznań office development Andersia Business Centre set to be fully leased by the end of June, German-owned developer Von der Heyden Group (VDHG) is shifting focus to its remaining pipeline projects in Poland: a boutique hotel in Gdańsk and a large-mixed use complex in Poznań.

Source: PGNiG Termika

Dalkia operates Warsaw's district heating network, distributing energy provided by the state-controlled PGNiG Termika, which acquired the Warsaw cogeneration business a few years ago from Sweden's Vattenfall. Termika is not particularly happy about Dalkia's attempts to build an independent power source in Ursus, and it has even expressed interest in acquiring the bankrupt Energetyka Ursus, despite the latter's PLN 20m debt, in order to throw a wrench into Dalkia's plans. The French are hoping to reach some kind of an agreement with their supplier shortly. The existing Ursus cogeneration unit has a thermal capacity of 143MW but it can generate a mere 6MW of electricity, whereas the one to be developed by Dalkia will be able to produce 80MW of heat and 107MW of electric power. According to Dalkia, besides obvious environmental advantages of the new plant (it will generate half as much emissions as a coal-fired unit of similar capacity), it will be economically much more feasible. Besides the new heat & power plant, Dalkia will spend some PLN 30m over the coming two years on connecting the Ursus heat distribution network

Dalkia hopes to make money from producing electricity at the new CHP. Image: Dalkia

Once a major manufacturing cluster, Ursus is rapidly transforming into a primarily residential area. Many industrial tenants, including the now bankrupt coalfired heat producer have been unhappy about this trend, which is gradually forcing them out of Ursus, but there seems to be no turning back. The Ursus authorities support Dalkia's investment, which would enable the district to part with its industrial past and become a much more attractive destination for residents and services. As for PGNiG Termika, it is also gearing up for a massive overhaul of its cogeneration assets in Warsaw, including a brand new 450MWe gas-fired unit at the Żerań plant in the north of the city, which is to go online in 2018. Besides the new unit in Żerań, PGNiG Termika seeks to convert one of the existing coal-fired boilers at its Siekierki plant in south of Warsaw into a biomass unit, with commissioning expected in Q4 2014.

The latest- and largest – tenant at Andersia Business Centre is Poland's leading convenience retailer Żabka Polska, operator of Żabka and Freshmarket chains, which will move into the building in December. Żabka's headquarters will take up 4,500 sq.m of Andersia Business Center's total GLA of 11,000 sq.m. Other major tenants in the complex include Mars Polska, Newell Poland Services, and Probuild. Opened in 2012, Andersia Business Centre is a modern A-class office building located in the very centre of the city, along the main thoroughfare Królowej Jadwigi, and near the city's most famous high street, Półwiejska. The building is an integral part of the emerging complex on Plac Andersa (Anders Square) offering office, retail, hotel services and entertainment, which was developed by VDHG in joint venture with the City of Poznań. Besides Andersia Business Centre, it includes Andersia Tower and Poznań Financial Centre, which house a number of renowned tenants such as Bank Zachodni WBK, Polkomtel, Franklin Templeton, Ernst & Young, and IKB Leasing.

weekly newsletter # 040 / 23rd June 2014 / page 8

VDHG is slowly gearing up to break ground on the final installment of the Plac Andersa complex: Andersia Silver. The developer's special purpose company, Andersia Retail, together with the hospitality firm Orbis, which owns the adjacent plot, are currently building a connection road between Tadeusz Kościuszko Street and Królowa Jadwigi Street. The project, which is to reach completion in three months, precedes the next stage of development of Plac Andersa. At the end of 2013, VDHG received the zoning permit for two buildings with office, retail and residential function with a total usable area of app. 67,000 sq.m. Design works for the first of the two buildings have just begun. According to earlier estimates by VDHG, the capex on this 30,000 sq.m edifice were to reach EUR 65m. After Andersia Tower (105,2m), Andersia Silver will be the tallest building in Poznań. VDHG has in place all necessary planning permits to construct up to 116m.

Andersia Business Centre: the latest of the three existing segments of Von der Heyden Group's Plac Andersa complex in Poznań. Image: VDHG

Outside of Poznań, the developer is hoping to secure debt financing for its EUR 11m Długi Targ Hotel project in Gdańsk in order to launch construction by the end of this year. VDHG's new boutique hotel project is based on a refurbishment and conversion of a historical building into a three-star property with a total area of approximately 4,600 sq.m and 84 spacious rooms.

The hotel will be managed by DHG's Spanish subsidiary IBB Hotel Collection, which runs the company's other Polish hospitality projects: IBB Grand Hotel Lublinianka in Lublin (since 2003) and IBB Andersia Hotel in Poznań (since 2007). Founded in 1989 by Sven von der Heyden, VDHG is a niche player on the European and Polish real estate market, focusing on class A office buildings and hotels in central locations of Warsaw, Poznań and Lublin. With a staff of 250 people across 26 subsidiaries the company has completed EUR 300 m worth of investments in Poland, Germany ,and Spain over the past 25 years and plans to invest a further EUR 175m (including equity and debt) during the next four years.

POZNAŃ OFFICE MARKET AT A GLANCE At the end of 2013 Poznań’s total stock amounted to 303,200 sq.m, a rise by a modest 24,100 sq.m compared with 2012, following mainly the delivery of Skanska’s Malta House (15,600 sq m). Smaller schemes included Wechta’s Temida and Piątkowska Office in the city’s Old Town area, which contributed 2,500 sq.m and 2,000 sq.m, respectively. The first phase of SwedeCenter’s Business Garden office complex (four buildings totaling 42,000 sq.m) is still under construction but the complex will not be delivered until 2015. Low new supply in Poznań is due to weak occupier interest and relatively high availability of lower grade space. Transaction volume in 2013 came to just 39,100 sq.m, marking a fall of 7.5% on 2012. At year end the vacancy rate edged down by a little more than 0.1 percentage point to 14.2% compared with the end of 2012. Headline rents stood at EUR 14–16/sq.m/month, with effective rents lower on average by 15–20%. Source: Cushman & Wakefield Marketbeat Spring 2013

HOSPITALITY

Poland with room for for new hotel developments With the tourism industry picking up in Poland, investors see room for new hotel developments in the country, said participants in the Spotlight Hotel Investment Poland conference which Poland Today organized in Warsaw at the beginning of June. More and more people are coming to Poland from abroad and the domestic market has also been robust of late. A number of international hotel chains not yet present in Poland are going to enter the country in the upcoming years, the participants in the conference said. The last few years were a good period for the Polish tourism industry. Approximately 15.8 million foreign visitors came to Poland last year, said Katarzyna Sobierajska, undersecretary of state at the Ministry of Sport and Tourism of the Republic of Poland. Meanwhile, the demand generated by the domestic market has also been rising in recent years, pointed out Sebastien Denier, vice president, Central and Eastern Europe, at Louvre Hotels. What would help the country boost the demand for hotel space even further is the organization of a bigger number of large-scale cultural and sports events, said Ireneusz Węgłowski, vice president of the management board at Orbis. Significantly, the gap between the weekday hotel occupancy and the weekend hotel occupancy in Poland has been closing, said Katy Miller, business development manager at STR Global. Poland remains a country with a relatively low hotel space saturation level, according to Sobierajska. There are just approximately 30 hotel rooms per 1,000 in-

weekly newsletter # 040 / 23rd June 2014 / page 9

habitants in Poland, she said. Hotel investors recognize the growth potential of the Polish market, with around 170-200 building permit applications having been filed in Poland last year. “Investors perceive Poland as a promising market,” Sobierajska said. Astrid Schafleitner from Motel One said that Poland now offers a lot of opportunities for the conversion of old office buildings, dating to the 1960s or 1970s, into modern hotel facilities. According to Andrzej Chełchowski, partner at Miller Canfield, there is also room in Poland for hotels located near hospitals which could be used by both patients and their families. Such facilities already exist in the German market, he said.

Poland continues to offer good investment opportunities, said participants of the investment panel. Photo: Poland Today

Admittedly, like in the other property market sectors, a number of planning- and property claims-related issues are, sometimes, a problem for hotel investors in Poland, Chełchowski said. The uncertainty as to what exactly a hotel investor will be able to build in a given location remains a major challenge, said Przemysław Wieczorek, member of the management board at Puro Hotels.

Adam Konieczny, country head Poland at Christie + Co, said that a number of international hotel chains including InterCityHotel, Motel One and Leonardo Hotels would like to and are expected to enter Poland in the near future. At the moment, Accor/Orbis, Best Western, Louvre Hotels and Hilton, which respectively have 64, 20, 16 and 10 hotels in Poland, are the four largest chains in the country, Konieczny said. The representatives of the particular chains claimed that there is still room for new hotels in Poland. Ralph Steinert, development director, Germany and CEE at LHG, said that there are eight to ten cities in Poland with potential for new Louvre Hotels facilities. There is room for growth through both development and takeovers, he said. Mikhail Kolesnik, senior director of development for the Russia, CIS and Eastern Europe area, at Marriott International, said that the company is actively looking at new sites in Poland. Investors argued that Poland continues to offer good investment opportunities. Warsaw and Kraków are now the most attractive cities, with Wrocław being a difficult market, said Rudolf Grossmayer, an asset manager at UBM. Both he and Stephane Obadia, development director at Algonquin, stressed the attractiveness of branded hotels. It is international brands that bring recognition and value to hotel facilities, they said. Grossmayer pointed out that investment in the Polish hotel market requires patience and long-term commitment. While in Western Europe the company had previously been able to sell hotels right after their completion, this had never happened in Eastern Europe, he stressed. It is now mostly international investors that are investing in business hotels in Poland. Small Polish investors are rather interested in leisure locations, said Wojciech Szybkowski, a partner at CMS Cameron McKenna.

To some extent, securing bank financing remains a challenge for hotel developers and investors, with not many banks granting loans for new developments. Some investors are now thus resorting to alternative sources of financing. Bankers participating in the conference admitted that hotels are seen by their institutions as risky investments whose long-term performance is difficult to evaluate. However, they added that their banks are always ready to finance good hotel projects. by Adam Zdrodowski

SERVICES & BPO

EPAM Systems to hire up to 3,000 IT staff in Poland in 33-4 years US software services firm EPAM Systems, which opened its first Polish delivery center in 2011 in Kraków, is expanding into other regional cities in search of top IT talent. The company has just launched a unit in the northern Polish city of Gdańsk, and it is seeking locations for subsequent centers. "Our goal is to have 3,000 engineers in Poland in 3-4 years' time and we have no choice but to tap into several talent pools to achieve this," Shemek Fedyczkowski, Country Manager of EPAM Systems Poland, tells Poland Today. "In Kraków we currently have an estimated 220 employees between two offices, and our plan for Gdańsk envisages two offices with 500 and 300 employees respectively. We are gearing up to launch operations in another major Polish city but I cannot provide more details on this yet, because we want to surprise our competition." Recruitment for the first office in Gdańsk is currently already underway with EPAM seeking developers pro-

weekly newsletter # 040 / 23rd June 2014 / page 10

ficient in Java, Java Script, .Net, Data Base specialists, as well as business analysts and testers. The company is hoping to onboard some 100 staff by the end of the year. "At the moment our growth is restricted only by the supply of suitable candidates. The Polish market has an enormous potential, but we are also bringing in foreign talent to our Polish centers. Due to the recent unrest in Ukraine, where we have some 3,700 employees, some projects are being moved to Poland, which is considered much safer, yet still very competitive by our international clients."

talents, who will pay their taxes in Poland and help the economy grow. Many may choose to settle here. Naturally, due to our strong presence in Ukraine and Belarus, we get a lot of applications from those countries, but in Kraków this has proven very difficult. The attitude in Gdańsk is totally different. We are getting plenty of support from all parties, and Invest in Pomerania is doing a fantastic job coordinating everything. Of course the majority of our employees in Poland will be Poles, but in order to keep projects going we need some flexibility in terms of recruitment. We are seeing this in Gdańsk, but not in Kraków, which is a shame."

Epam Systems key figures in USDm To tal revenue, left axis Net inco me*, right axis 700

600

500

400

300

200

100

EPAM Systems' Kraków office is located in the Quattro Business Park developed by Buma Group. Image: Buma

0 2009

2010

Source: Epam Systems

2011

2012

2013

*) GAAP

Foreign employees currently represent only a fraction of Epam's workforce in Poland (approximately 5%), and problems with the imports of talents from abroad is one of the reasons why the company decided to expand beyond Kraków. "The Małopolskie region authorities have been very uncooperative when it comes to work permits for foreign employees, which I consider as a rather shortsighted approach. We are bringing in top engineering

Over the past four years the NYSE-listed EPAM Systems has more than doubled its turnover, largely thanks to its unique software delivery platform in Central and Eastern Europe. Epam's customers represent mainly independent software vendors, banks and financial services firms, as well as travel and consumer sector companies, for instance UBS, Microsoft, Oracle, Expedia, Coca-Cola, SAP, Barclays Capital, and Thomson Reuters. "Our Polish teams are developing solutions for a Silicon Valley-based global leader in the 'Big Data' sector, and soon EPAM in Poland will commence cooperation

with a New York-based major US financial institution. Services for the banking & finance sector have been the key growth driver for Epam," says Fedyczkowski. Established in 1993 and headquartered in the United States EPAM Systems, Inc. employs over 9,800 IT professionals at its locations in 17 countries across four continents. In 2013, EPAM was ranked by Forbes as #6 among America's 25 Fastest-Growing Tech Companies and #2 on the list of America's Best Small Companies: 20 Fast-Growing Tech Stars. Epam turned over USD 555.1m (+28% y/y) and posted a net income of USD 62m last year.

TRANSPORT & LOGISTICS

PKP sells PLN 580m stake in PKP Cargo Poland's state-owned railway operator PKP last week sold 7.63m shares (a 17% stake) in the Warsaw-listed rail freight company PKP Cargo via an accelerated book building addressed to institutional investors. PKP Cargo's share price dropped by over 6% early on news - the largest decline since the company's IPO in October 2013 - before recouping some losses. Prior to the sale, PKP had held 50.4% of shares in the freight business. PKP Cargo is the European Union's second largest railway freight company after Deutsche Bahn AG and the first publicly listed one, following its recent PLN 1.42bn IPO on the Warsaw Stock Exchange, which saw the state-owned Polish railway operator PKP sell 20.9m shares in the business. The latter has now decided to further reduce its stake in order to cut its own debt. The 17% stake in PKP Cargo was sold for PLN 580m, making it the country's second-biggest

weekly newsletter # 040 / 23rd June 2014 / page 11

share offering this year after the PLN 1.03bn sale of Vattenfall AB’s stake in power utility Enea SA in January.

pendently operate in Germany, Czech Republic, Slovakia, Hungary, Austria, and Belgium and it is currently seeking a Dutch permit.

PKP Cargo saw its revenues top PLN 4.72bn in 2013, down from PLN 5.16bn in 2012, while its net earnings slumped to PLN 74m from PLN 268m, due to economic slowdown. Last year the company carried around 114m tons of freight, mainly hard coal and building materials. Warsaw-based PKP Cargo had a 60.3% share in the Polish market in 2012 and controlled 8.5% of total rail freight in the EU. That compares with DB Schenker's 28% and 5.4% shares in the EU and Poland, respectively.

PKP Cargo key figures T urnover, in PLNbn, lef t a xis N et result in P LNm, right ax is 6.0

60 0

5.0

50 0

4 .0

40 0

3.0

30 0

2.0

20 0

1.0

10 0

0 .0

are to open later this year. Between July and December the company will be hiring regular personnel for its fulfillment centers, who will take care of sorting, packing, and dispatching customer orders. Overall, by the end of this year, Amazon intends to find some 700 employees for each of the two facilities. A third one will be launched next year. In the long-term, the Seattle-based e-commerce giant is to create 2,000 permanent jobs at each of the three logistics centers in Poland, going up to 3,000 in the run-up to the holiday season – between 6,000 and 9,000 jobs in total.

0 20 10

20 11

2012

201 3

Source: PKP Cargo

TRANSPORT & LOGISTICS

PKP Cargo 's CEO Adam Purwin was one of the panelists at Poland Today's recent conference "PoPhoto: Poland Today land Transformed."

The company has emerged from the brink of bankruptcy caused by the economic crisis at the end of the last decade. In 2008 and 2009 it posted net losses of PLN 179m and PLN 498m, which prompted an indepth restructuring that saw some 20,000 positions cut, and many redundant side businesses and regional units closed down. The overhaul proved effective as the business is back in the black and expanding abroad. PKP Cargo has obtained licenses to inde-

Amazon to hire up to 2,000 staff at Polish centers by yearyear-end The world's top e-commerce provider Amazon has launched a massive recruitment campaign for its Polish logistics centers, two of which are to launch in the second half of 2014. Over the coming months the company will create some 1,600 positions in the Poznań and Wrocław regions. Amazon has been onboarding executives and specialists since the beginning of the year and to-date it has recruited some 40 staff. By the end of July it aims to hire 100 team leaders for each of the two centers that

In Wrocław, where Amazon is developing two distribution centers, the one built by Panattoni will be Photo: Panattoni delivered in 2015.

Amazon's Polish distribution centers are being developed by Goodman and Panattoni. The Australianowned Goodman is working on a 95,000 sq.m facility in Wrocław's Bielany Wrocławskie suburb, some 5km from the city centre. Construction of the center commenced in October 2013 and it is planned that the fulfillment centre will be fully operational in the second half of 2014. US-owned industrial space developer Panattoni Europe is to deliver 201,000 sq.m of modern warehouse space for e-commerce mogul Amazon in what is regarded as the largest ever deal in Central and

weekly newsletter # 040 / 23rd June 2014 / page 12

Eastern Europe's real estate market. The two centers, each with more than 100,000 sq.m of logistics space, will be located near Wrocław and Poznań. The first of the warehouses, with some 92,000 sq.m of warehouse space, is under development in Sady near Poznań and it is to be commissioned in mid-August 2014. Poland's central location in Europe, proximity to Amazon’s European clients and access to a skilled workforce were among the reasons for Amazon's investment decision, Tim Collins, director of retailer's European operations, told reporters at news conference in Warsaw in October last year, adding that. Amazon does not intend to close any of its existing European logistic infrastructure. The three Polish sites will be integrated into the network of 25 centers in Europe as part of an expansion strategy to serve customers in every European country, including Russia and Ukraine, Collins added. Amazon will be the owner of its Polish distribution centers, which are being developed under the built-to-suit formula..

TRANSPORT & LOGISTICS

Major rail engineering firm Torpol heading for Warsaw bourse Torpol, the railway infrastructure subsidiary of the ailing Polish construction group Polimex-Mostostal, launched its initial public offering on the Warsaw Stock Exchange last week, hoping to sell 7.4m shares and raise PLN 52m. Torpol's IPO prospectus has already been approved by the financial regulator with book-building set to reach completion on June 24 and the bourse debut expected to take place on July 8. Besides new shares, the IPO may include an entire stake currently owned by Polimex-Mostostal, worth roughly

PLN 110m. The latter transaction will have to be approved by Polimex-Mostostal's creditors, and their verdict will likely depend on the outcome of the bookbuilding. Torpol is a major player in Poland's railway and tramway infrastructure segment, in which it has a 10% share, and recently it has made successful inroads into the Norwegian market, where its ambition for the coming years is a 5-6% share. The company has a diversified portfolio of contracts for the years 2014-2015, with a total value of over PLN 2.2bn net (excluding consortium partners). Last year Torpol turned over PLN 416m with a gross margin at 5.8%. Its EBITDA came to PLN 21m and net earnings totaled PLN 5m. According to Torpol's projections, its 2014 revenues and profits will nearly double against the prior year. The company employs 400 staff. "The IPO is a milestone step for Torpol. It will boost our credibility vis-à-vis our customers, provide resources for organic growth and make it easier for Torpol to obtain financing for ongoing projects," CEO Tomasz Sweklej said in a statement. Torpol's flagship projects in Poland include the development of a brand new railway station in Łódź as well as modernization of the E75 Rail Baltica line. In Łódź, Torpol is leading a consortium responsible for the design and delivery of a new multimodal Łódź Fabryczna station, together with modernization of the Łódź Widzew-Łódź Fabryczna railway line. The entire projects is worth PLN 1.43bn, of which 40% will go to Torpol. The Rail Baltica project concerns an upgrade of the Warszawa Rembertów-Zielonka-Tłuszcz railway line. In this case, Torpol will cash in PLN 1.1bn of the project's total value of PLN 1.3bn. The company is hoping investors will be attracted by the considerable growth prospects in Poland's rail infrastructure. According to the latest reports, under the

new EU budget some EUR 10.5bn (PLN 44bn) will be spent on railway-related projects. The Polish railway infrastructure operator PKP PLK, Torpol's key domestic client, said its investments over the 2014-2020 period will amount to PLN 58.6bn. A government master plan for the sector envisages PLN 115bn worth of investments between 2007 and 2030. In 2010 Torpol establish a subsidiary in Norway, which has since obtained contracts worth more than PLN 100m worth on this demanding market, with PLN 61m in competed works. According to Torpol, the Norwegian government seeks to invest NOK 168bn (approx. PLN 80bn) in development of railway infrastructure in the country over the 2014-2023 period.

CONSUMER GOODS & RETAIL

Top retailer Biedronka to start accepting card payments at its 2,400+ stores nationwide nationwide In a much awaited move Poland's top grocery retailer Biedronka has finally decided to start accepting card payments at its 2,400+ stores across the country. Point-of-sale terminals have already been installed at 330 Biedronka outlets and by the end of July the entire chain will welcome plastic. Considering the size of Biedronka's turnover (PLN 32bn in 2013, making it one of Poland's top five companies), the decision is big news for the customers, but also for the country's card payment industry. Biedronka had long refused to accept credit cards at its Polish outlets because of the hefty interchange fees Polish banks had been charging retailers. Before a law

weekly newsletter # 040 / 23rd June 2014 / page 13

was passed that cut interchange fees on card transactions, the latter had stood at as much as 1.7%-3% depending on the size of a retailer – the highest level in Europe. Card transactions at Biedronka stores will be handled by Bank Pekao SA, the Polish arm of Italy's Unicredit.

Jeronimo Martins, hopes to have 3,000 Biedronka stores in Poland next year.

Image: JMP

Jeronimo Martins Polska is Poland's 4th largest company by revenues. It operates more than 2,400 Biedronka groceries and 100 Hebe drugstores in 900 towns and cities and employs in excess of 45,000 people. According to preliminary estimates by its Portuguese owner Jeronimo Martins, Biedronka's sales rose by approximately 15% y/y in 2013 and came to EUR 7.7bn (PLN 32bn), representing two thirds of the company's global business, which turned over EUR 11.8bn (+11%). The like-on-like sales growth in Poland came to 4.2%. Biedronka opened 290 new locations last year and plans to maintain a similar pace of growth in 2014. "We stick to our plan of reaching 3,000 Biedronka locations in 2015. As for the Hebe chain, we are expecting its dynamic expansion to continue this year," Anna Papka, external relations manager at Jeronimo Martins Polska, told Poland Today earlier this year.

POLITICS & ECONOMY

Early elections increasingly probable as eavesdropping scandal unfolds A week after the Wprost magazine released a secretly taped conversation between a government minister and the head of Poland's central bank the prospect of early elections in the country is becoming increasingly realistic. The journalists, who claim to have received from an anonymous source more than 900 hours of recordings featuring some of Poland's top officials, continue to release bits and pieces of conversations that in addition to causing a major domestic crisis are also likely to undermine Poland's international position. The first tape that Wprost made public involved a restaurant conversation last July between central bank governor Marek Belka and Interior Minister Bartłomiej Sienkiewicz, in which they discussed how the central bank might use its power to help the ruling party win re-election in 2015. In the obscenity-laced tête-à-tête Belka, whose institution is required by law to remain independent, implied that he might be of some use provided that Finance Minister Jacek Rostowski leaves the government. Although Rostowski did get replaced a few months later, the cabinet does not seem to have received any form of backing from the NBP so far.

Crawling coup d'état In a news conference, Prime Minister Donald Tusk tried to divert attention from the content of the recordings to their authors, calling the tape scandal "an attempt to bring down the government by illegal

means." He hinted, however, that early elections within weeks may be necessary to calm the situation, but he vowed not to step down now. Polish President Bronisław Komorowski said the government was facing a crisis and urged its leaders to consider in their consciences whether to resign over the scandal. The opposition called for Mr. Tusk and his government to step down, but the prime minister defended Belka and Sienkiewicz, saying their conversation was in state interest and showed no indication of any criminal activity. Deputy Prime Minister Janusz Piechociński, representing the junior coalition member Polish People's Party (PSL) confirmed on Wednesday that he had discussed with Tusk the possibility of holding an early election to help calm the political turmoil.

Donald Tusk is facing one of the biggest challenges Photo: KPRM of his political career.

However, it looks like the Belka-Sienkiewicz talk may be just the tip of an iceberg as other recordings continue to emerge. Considering the amount of material that Wprost claims to have received, Poland is facing weeks of revelations, or "a crawling coup d'état" as one commentator put it. As this issue of BR+ was going to the press, another conversation was made public, this one involving former Finance Minister Jacek Rostowski and Foreign Minister Radosław Sikorski, in which the latter calls the Polish-US alliance "useless" and "harmful" because it gives Poland "a false sense of

weekly newsletter # 040 / 23rd June 2014 / page 14

security." In order to illustrate Warsaw's position visà-vis Washington, Mr. Sikorski uses a number of vulgar metaphors, even though for many years he himself used to be one of the staunchest supporters of a strong Poland-US bond.

Attack on free press?

On Wednesday state prosecutors and the Internal Security Agency raided the premises of the Wprost magazine in a failed attempt to seize the "proof" of the recordings, causing an outcry among journalists from other media organizations, who condemned it as an attack on free speech. A spokeswoman for the state prosecutors said the search was ordered after Wprost editor-in-chief Sylwester Latkowski refused to hand over the recordings. She said the aim was to obtain evidence, not violate journalist secrecy. In Poland, bugging or wiretapping to get unauthorized access to information is punishable by up to two years in prison, but at the same time journalists are obliged to protect their sources if they request anonymity. Latkowski was asked to surrender his laptop, which he refused to do. The raid was unsuccessful, but it put Prime Minister on the spot, even though in Poland state prosecutors are independent from the government. Following the embarrassing (and failed) attempt by the authorities to seize evidence from the Wprost headquarters, Donald Tusk called for Wprost and other media to release all of the secret recordings of politicians' private conversations that might be in their possession. He said Poland was facing a "serious crisis" and that until all the materials are out in the open the country will be far from stable and officials may be vulnerable to blackmail. Regardless of the content of the tapes, the fact that someone was able to obtain secret recordings of the country's top officials is a major embarrassment for Polish security and intelligence agencies. The Wprost magazine suggested that past or current secret agents,

businessmen or Tusk's political opponents could be behind the recordings. A number of defense analysts have hinted that foreign powers may have played a role in the scandal, pointing mainly to the Kremlin, despite lack of any evidence. Polish-Russian relations have been tense for many years and they worsened even further due to the two countries' roles in the Ukraine crisis. So far only one suspect has emerged in the criminal investigation of the case: the manager of the restaurant where the talks took place, identified only as Łukasz N.

possibly due to the negative impulse from situation in Russia and in Ukraine. In our opinion, pace of the GDP growth in the second quarter of the year should be close to the one recorded in first quarter and even if it slides marginally, it should remain above 3% y/y. We expect the second half of the year to bring an improvement of results in industry due to further recovery of foreign trade with other euro zone countries," Bank Zachodni WBK analysts commented on the figures.

According to a June 17 survey by Millward Brown for TVN, nearly one in two adult Poles (48%) want the government to resign immediately due to the eavesdropping scandal, with 30% expecting Tusk to remain in power. A CBOS poll conducted shortly before Wprost first revealed the transcripts, saw Poland's ruling party Civic Platform (PO) record a 5 pps increase in voter support to 32% in June, while the main opposition party, conservative Law and Justice (PiS), gained 1 point to 24%, the latest survey from the CBOS institute shows. . The next general election in Poland isn't scheduled until late 2015.

Industrial output & producer prices Industry o utput, y/y change P ro ducer Price Index, y/y change 8% 4% 0% -4% -8% -12% Sep No v 12 12

MANUFACTURING & PROCESSING

Industrial output data below expectations Poland's industrial output increased by 4.4% y/y in May vs. 6.3% y/y growth expected in the PAP (Polish news agency) consensus survey, as output fell by 1.7% from the prior month, the Central Statistical Office (GUS) said last week. "Weaker growth of output may be a signal of decelerating pace of economic recovery in the second quarter,

Jan 13

M ar M ay 13 13

Jul 13

Sep No v 13 13

Jan 14

M ar M ay 14 14

Source: GUS, the central statistical office

According to the Economy Ministry projections, the industrial production figure is likely to reach approximately 4% in June. "Industrial output grew by 4.7% in the first five months of 2014, in line with earlier expectations, while construction also recorded an 11.3% growth in the period," the ministry analysts said in wrote in a comment to May output data."We expect these favorable tendencies to continue also in the coming months."

weekly newsletter # 040 / 23rd June 2014 / page 15

KEY STATISTICS Consumer Prices Prices

Inflation

+3.7 +0.7 +3.9 +0.3 +3.9 +0.2

-4.7

-1.7

-4.3 +0.8

-4.4 +2.8

-4.6

-0.1

Housing

+1.9

+0.1

+1.8

-0.1

+1.7

0.0

+1.6

0.0

-0.1 -0.4

Transport

-1.1

+0.4

-2.7

+0.1

-2.1

-0.1

Communications -3.2

+0.4

-0.3 +0.6

-1.7

-1.5

Gross CPI

+0.1 +0.7 +0.1 +0.3

0.0

+0.7

-0.8 -0.4

-1.1

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 (%)

-0.1

+0.2 -0.1

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 (%) May 14

+1.4

Clothing, shoes

-0.5

Mar 14

Alcohol, tobacco +2.2

-0.3 +0.3

Jan 14

+1.2

Dec '13

m/m (%)

m/m

Nov 13

-0.2

Sep 13

+1.6

y/y

Jul 13

Food & bev

Month

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

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

Mar 13

Sector

Retail Turnover

Jan 13

May '14

Nov 12

Apr '14

Sep 12

Mar '14

Jul 12

Feb '14

May 12

Data in (%)

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-May y/y

178.8

174.9

184.1

165.1

138.7

Commenced

142.9

158.1

162.2

141.8

127.4

U. construction

670.3 692.7 723.0

713.1 694.0

Completed

160.0 135.7

152.5

(in '000 units)

Producer Prices Prices Month

Industrial Output

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

Month

Permits

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

m/m (%)

-0.3

-0.1

0.0

-0.1

-0.2

m/m (%)

-6.2

-9.7

+2.9

-1.8

+9.4

-2.3

-1.7

y/y (%)

-1.5

-1.0

-1.4

-1.3

-0.7

-1.0

y/y (%)

+2.9

+6.6

+4.1

+5.3

+5.4

+4.4

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

Construction Output

Construction Prices Price s -0.2

-0.1

0.0

-1.7

-1.6

-1.5

-1.4

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

n/a

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 (%)

+14.0

-8.9

+5.8

-3.9

+14.4

+17.4

+12.2

+10.0

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

Manufacturing

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

3,556

Retail & repairs

3,432 146

157 3,766

160 3,895 166

3,421 146 3,408

145 3,456 147

152 3,693

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

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+0.5%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.8%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.5%

Unemployment**

12.4%

12.5%

13.4%

12.2%

3.99

4.12

4.19

4.20

4.11

60 Aug 1 1

Construction

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

M ay 1 4

Q4 2013

Current account def. in % of GDP

-1.5%

+3.2

Feb 14

Q3 2013

-3.0

455,528

+24.2

No v 1 3

Q2 2013

-1.0

55.8

397,429

+18.7

Aug 1 3

Coal mining

Q1 2013

+23.8

+2.7%

-64.0

M ay 13

Sector

58.7 693.2

+3.4%

+21.5

Feb 13

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

GDP in PLN bn current prices

+14.9

Q4 2013

-2.9

Source: The Central Statistical Office of Poland, GUS

Gross Gro ss Wages

Growth y/y unadjusted

146.1

(%)

61.9

Q1 2014

m/m (%)

N ov 12

y/y (%)

-0.2

Aug 1 2

Year

-0.1

Period

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

M ay 12

y/y (%)

-0.1

Month

Feb 1 2

m/m (%)

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

Nov 11

Month

131.7

2014

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

2013

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

*2014

weekly newsletter # 040 / 23rd June 2014 / page 16

55.67 ↑

100 SEK

45.39 ↓

100 NOK

49.60 ↓

10,000 JPY

USD EUR 350

300

15.11 ↑

100 CZK 10,000 HUF

400

298.99 ↑ 135.64 ↑

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

as of 20 June 2014

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

WIG Total index

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

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%

→ BZ WBK

EUR (over 1m EUR) 3.0%

2.9%

3.6%

3.4%

3.3%

3.0%

→ Eurocash

161,544 546,487 113,455 947,443

Feb '14

Mar '14

Overnight

1 week

1 month

3 months

6 months

2.62%%

2.60%

2.68%

2.70%

158,330 548,033

173,213 558,954

114,680

116,657

954,284 964,624

Reference

Apr '14

2.59%

168,511 548,394 119,261 969,754

- Time deposits

418,259

423,296

422,990

439,137

962,416

968,442

980,377

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

4.00%

+3%

52,923. 923.26

↑ Asseco Pol.

+1%

-9%

Change 1 week

↑ Bogdanka

123

+2%

-2%

Change end of '13

↑ JSW

-3%

42.8

-10%

WIG-20 blue chip index

38.45

+8%

+2%

-12%

2,638 2,638. 638.01

33.68

-12%

Change 1 week

125.9

+5%

+7%

Change end of '13

→ Orange Pol.

Credit

↓ Pekao

The financial sector's net lending in PLN bn,

↑ PGE

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

↑ PKN Orlen

+7% ↑ +10% ↑

8502.5

+2%

-6%

519.55

+4%

WIG Total closing index

10.35

+6%

last three months

179

-7%

54,000

21.87

+1%

+34%

53,000

5.17

+1%

52,000

41.15

+1%

51,000

39.08

-3%

-1%

50,000 49,000

- to private companies

263,063

263,941

267,553

270,886

↓ PZU

449.65

-2%

- to households

567,984

567,257

569,334

573,332

→ Synthos

4.56

-17%

Total assets of banks

1,628,197

1,616,891

1,628,519 1,639,359

↑ Tauron

5.55

+3%

+27%

Source: Central Bank NBP

+3% ↑

376.35

↑ KGHM

↑ mBank

2.75%

0% →

→ Kernel

↑ LPP

Rediscount

1.00%

+1%

→ Grupa Lotos

Warsaw Inter Bank Offered Rate (WIBOR) as of 20 June 2014

Central Bank (NBP) Base Rates Jan '14

↑ Alior Bank

20 Jun 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

22 Apr 14

341.09 ↑

20 Jun 14

520.22 ↑

100 CHF

10 Apr 14

100 GBP

3 Feb 14

415.06↑

21 Nov 13

100 EUR

Key indices

Term / currency

450

12 Sep 13

304.95 ↑

5 Jul 13

100 USD

Stock Exchange

Average weighted annual interest rates

28 May 14

as of 20 June 2014

Interest rates

27 Mar 14

100 USD/EUR against PLN

Central Bank average rates

5 Mar 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-Apr share 2014

IMPORTS in PLN bn *2013

share No

Country

Jan-Apr 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

47,765 21.7% 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

14,109

6.3%

41,503

6.5%

2 Russia

26,387 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.

13,475

6.0%

39,421

6.2%

3 China

21,405 9.7% 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

13,093

5.9%

11,303

490

+43.6

0.3

1,864

0.2

628

-0.3

0.4

2,646

0.4

5 Russia

9,809

Food and live animals

Animal and vegetable oils

58,734 26.3% 159,622 25.0%

79,601 12.3%

5.1% 33,703 5.2%

35,745

5.6%

4 Italy

4.4% 34,058

5.3%

5 Netherlands

10,033

4.5%

27,450

4.3%

6 France

9,048

4.1%

25,292 4.0%

7 Czech Rep.

7,648 3.5% 23,778 3.7%

8,172 3.7% 25,005 3.9% 8,705 4.0% 24,533 3.8%

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

5,028 2.3%

17,350