Poland Today Business Review+ No. 014 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. 014 / 9th December 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Lotos and Azoty one step closer to PLN 12bn petrochemical project page 2 Economic recovery is gaining traction, PMI data show page 3 BANKING & FINANCE PKO BP repeats bid on Nordea due to lack of regulatory verdict page 4

The transaction makes BNP Paribas Poland's 8th largest bank by assets.

Photo: BNP Paribaa

BNP Paribas acquires BGĹť for EUR 1bn

Dutch Rabobank has agreed to sell its Polish unit BGĹť to France's BNP Paribas for EUR 1bn. The transaction will give the French lender the critical mass it needs in order to challenge other European giants operating on the Polish market. page 3

Montagu sells Emitel to Alinda

European private equity giant Montagu has sold Poland's leading television and radio broadcast infrastructure operator Emitel to US-based Alinda Capital Partners in one of this year's largest M&A deals in the CEE region. page 12

ENERGY & RESOURCES Poland and Slovakia intensify work on gas interconnector page 5 Developer Mostostal Export shifts focus to minerals exploration and mulls London listing page 6 PROPERTY & CONSTRUCTION Kulczyk Silverstein to turn Holland Park into Ethos, add more space page 6 Belgian OKRE gets permit for 2nd office project in Warsaw page 7

tel. +48 881 650 600

SERVICES & BPO P&G to create 500 jobs at new supply chain planning centre in Warsaw page 8 Executive search firm Horton International finds partner in Poland page 9 TRANSPORT & LOGISTICS PESA gets first of many lucrative orders from Deutsche Bahn page 9 Rail frright firm PKP Cargo gets PLN 200m EBI loan for fleet modernization page 10 CONSUMER GOODS & RETAIL British firm McKinlay Development open their first Polish retail park page 11 POLITICS & ECONOMY Sejm approves pension reform bill 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 # 014 / 9th December 2013 / page 2

MANUFACTURING & PROCESSING

Lotos and Azoty one step closer to PLN 12bn petrochemical project

tries in Poland, creating a force that will drive the country's future economic growth," commented PaweĹ&#x201A; Olechnowicz, President of the Grupa Lotos Management Board.

The two firms also inked a preliminary deal with Poland's state investment vehicle PIR as a potential financial investor for the project. 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 563m in Lotos Petrobaltic's B8 exploration project in the Baltic Sea (see PT Business Review+ No. 007 page 5).

Poland's number two oil refiner Grupa Lotos and chemicals conglomerate Grupa Azoty decided to go ahead with full feasibility study for their joint PLN 12bn petrochemical project, with possible participation of Poland's investment vehicle Polskie Inwestycje Rozwojowe (PIR), the companies said in a press release. Following the completion of a prefeasibility study, on 3rd December the two companies signed a deal on establishing an SPV. Upon completion of the feasibility study, an investment decision is expected to be made in 2014. If the project is given the green light and the financing structure agreed, construction of the complex will occur throughout 2016-2018, with operations commencing in 2019. Lotos and Azoty seek to develop a brand new petrochemical plant next to their existing installations. According to the companies, in terms of scale, the planned complex is on a level with the construction of a new refinery. The project's value is estimated at approximately PLN 12bn, making it the largest investment in the Polish industrial sector in recent years. According to the two partners, the complex will help reduce Poland's chemical trade deficit, and will create between 5,000 and 7,000 jobs during the construction stage, and approximately 2,000 new jobs following commencement of its commercial operation. "Together with Grupa Azoty and PIR, we want to forge a link between the refining and chemical indus-

ties for high-margin chemical products, and provide the domestic industrial sector with access to state-ofthe-art technologies from around the world.

Lotos and Azoty are seeking synergies in joint proPhoto: Grupa Lotos duction of chemicals. Currently, Poland imports large volumes of chemical products, with the country's balance of trade at a negative PLN -16.7bn in 2012 (organic chemicals and plastics in primary form). At the same time, Polish refineries are holding a surplus of light fractions from crude oil processing, including raw gasoline and LPG, which are the perfect feedstock for petrochemical production. Lotos and Azoty argue that the integration of their raw materials bases will benefit the entire economy, while the companies themselves will be able to diversify their production and revenue streams by introducing a range of new high-margin products. At the national level, the proposed project is to help improve Poland's trade balance, increase its export opportuni-

"If the undertaken feasibility study yields favorable results in terms of profit and risk, PIR will engage in talks with Lotos and Grupa Azoty on the detailed terms of the planned transaction. PIR may then allocate up to PLN 750m to the project," said Mariusz Grendowicz, President of PIR's Management Board. "In parallel with the feasibility study, we will be conducting negotiations with other potential partners willing to join in this landmark venture, who could be particularly interested in specific products or process units. At that point, a preliminary analysis of the financing structure will also be conducted," added Jacek Socha, Vice-President of PwC Polska, the leader of the advisory consortium working on the preliminary feasibility study for the project. Although the entire undertaking is still at a very early stage, it fits with the action plan adopted by Poland's Treasury Ministry, which is a strong proponent of exploring the potential synergies between the largest Polish companies and creating the so-called "national champions." Grupa Lotos has a solid track record in delivering large industrial projects, as exemplified in its 10+ Program, implemented over the 2007-11 period, which cost roughly a half of the estimated price tag on the new petrochemical complex.

weekly newsletter # 014 / 9th December 2013 / page 3

MANUFACTURING & PROCESSING

Economic recovery is gaining traction, PMI data show Poland's purchasing managers' index PMI moved up to 54.4 points in November, the highest level since April 2011, from 53.4 pts in October, supported by strong demand from both domestic and export markets, a PMI report by HSBC and Markit showed. It was the fifth consecutive month when the indicator remained above the key 50-point threshold, which separates expansion from contraction, indicating improving business conditions in manufacturing. New orders increased at the fastest rate since the start of 2011, and output rose at the strongest pace in over two-and-a-half years as a result. Inflationary pressures remained historically weak, with input prices rising only moderately and output prices declining further.

Purchasing Managers' Index (PMI) The 50 mark separates growth from contraction 55

45 Sep 12 Nov 12 Jan 13

Source: Markit & HSBC

Mar 13 May 13

Jul 13

Sep 13 Nov 13

"The improvement was broad- based while higher new orders and output contributed the strongest. Firms reported improving demand from both domestic and export markets, and higher sales volumes on the back of price cuts. It has been the fifth month running in November when rising input prices were accompanied by falling output prices," commented Agata UrbańskaGiner, Economist, Central & Eastern Europe at HSBC. "Improving activity has sustained a positive growth rate of employment for the fourth month running in November following eleven months of contraction earlier on. Growing new export orders have not been reflected in exports data to date this year with exports growth rates trending sideways. But growth of industrial production has been slowly picking up from -1.2% y/y in Q1, +1.1% in Q2, +3.5% in Q3 and 3.8% y/y in October. The PMI survey as well as the economic sentiment indicators by the Polish statistical office point to continuation of this gradual upward trend in the coming months," she added.

"The acquisition of Bank BGŻ constitutes a major step towards attaining a critical size in Poland. The transaction will establish the BNP Paribas Group as a reference player in Poland's banking sector," commented Jean-Laurent Bonnafé, CEO of BNP Paribas Group. "We are convinced that the combination of Bank BGŻ expertise, notably in the agri & food business and in ebanking, with the existing operations of BNP Paribas Bank Polska will create a unique player among Polish banks with significant growth prospects," added Stefan Decraene, Head of BNP Paribas International Retail Banking and a Member of the BNP Paribas Executive Committee.

BNP Paribas acquires BGŻ from Rabobank for EUR 1bn

The deal offers a 14% premium to the market value of BGŻ, a rural-based Polish lender which ranks No. 11 by assets. BNP, which will buy 98.5% of BGŻ, has said it is looking to expand into faster-growing markets and buying BGŻ could yield benefits from integrating it with the group's existing Polish business BNP. Bank BGŻ is a universal commercial bank, serving retail and institutional clients. With a network of nearly 400 branches, it specializes in financing agriculture, the food economy and regional infrastructure. In the first three quarters of the year BGŻ boosted its net earnings by 73% y/y, reaching PLN 134m. Net lending remained unchanged from the end of 2012 at PLN 26.3bn, whereas deposits dropped 4% and totaled PLN 25.8bn. The bank's solvency ratio stood at 13.1% as of end of September 2013.

Less than a month after we reported on plans by France's BNP Paribas to acquire its Dutch rival Rabobank's Polish subsidiary BGŻ (see PT Business Review+ No. 010 page 3), the two European giants have sealed the deal, in what is the latest example of consolidation in Poland's banking sector. If approved by Poland's regulator KNF, which has been increasingly critical of large bank mergers, the PLN 4.2bn transaction will teleport BNP Paribas to No. 8 position in Poland.

Last year Rabobank increased its ownership in the Polish lender by 40%, reaching the current 98.5% and later boosted the bank's equity by PLN 0.5bn. At the end of October the Dutch bank confirmed plans to merge its Polish unit Rabobank Polska that serves primarily large corporate clients, with BGŻ. Rabobank Polska were to become a separate division of BGŻ focusing on corporations. Rabobank, the biggest Dutch retail bank was recently fined USD 1bn over its involvement in the Libor rigging scandal and did not of-

BANKING & FINANCE

weekly newsletter # 014 / 9th December 2013 / page 4

ficially put BGŻ up for sale, saying instead that it was reviewing its options for the Polish bank. Besides BNP, Italy's UniCredit and Spain's Banco Santander have expressed interest in the unit in recent months. In most of the markets where it operates, Rabobank is among the top three-top five players, but in Poland the only way to achieve such a position would be through acquisitions.

corresponding period of 2012. With 222 retail units and nine business centers, the bank serves 363,000 retail customers and 33,000 small and medium-sized companies. Globally, BNP Paribas has a presence in nearly 80 countries with 190,000 employees, including 145,000 in Europe, focusing on retail banking, investment solutions as well as corporate & investment banking. With combined assets of more than PLN 56bn, the new BNP Paribas-BGŻ will remain far behind the top four lenders (PKO BP: PLN 200bn+Nordea's PLN 30bn; Pekao SA: PLN 150bn, mBank and BZ WBK (each with PLN 100bn in assets), but it will become a worthy rival for the likes of Raiffeisen Bank, Getin Noble, Millennium Bank and even ING BSK. The top ten of Poland's banking sector is therefore looking increasingly well-defined.

biggest M&A transaction this year, but now it seems like it will be booked in 2014. It is hardly a surprise that Polish regulatory bodies are taking their time to review the transaction. Shortly after the Nordea deal had been announced KNF said the current level of concentration in Poland's banking sector was "close to optimal" and therefore it would carefully scrutinize any takeover transaction on that market. "From the point of view of systemic risks and of the safety of the financial system it is important that there are no too large banks in Poland, i.e. such whose potential problems could not be resolved based on domestic instruments of crisis management," the regulator added.

BANKING & FINANCE BNP Paribas will be one of Poland's Top Ten banks. Photo: BNP Paribas

Foreign banks control about 70% of the Polish banking sector, but several have looked for an exit to boost capital positions hit by the global economic crisis, with others being keen to strengthen their foothold in an economy which has outperformed much of the euro zone in recent years. Major recent exits from Poland's banking market included Belgium's KBC and Ireland's AIB which sold their Polish units to Spain's Santander, Greek Eurobank EFG (their Polbank EFG merged with Raiffeisen Polska), and Swedish Nordea (their Polish arm is to be acquired by Poland's largest lender PKO BP for PLN 2.83m – see the next story). The Polish unit of BNP Paribas posted net earnings of PLN 78.2m in Q1-Q3 2013, up from PLN 19m in the

PKO BP repeats bid on Nordea due to lack of regulatory verdict Although exactly half a year has passed since Poland's top lender PKO BP agreed to acquire 100% in Nordea Bank Polska from the Swedish banking group Nordea, the PLN 2.83bn transaction is yet to be concluded due to the lack of green light from the Polish regulator KNF. As the original tender offer placed by PKO BP had since expired, the Polish bank announced a new one on 3rd December, maintaining the price unchanged at PLN 47.99 per share. Subscriptions in the new offer will be accepted from 23rd December 2013 through 25th February 2014. According to Bloomberg, the Nordea deal were to be Poland's

Nordea's exit from Poland is taking longer than expected.

Photo: Nordea

On June 12 PKO BP agreed to buy 99.21% in Nordea Bank Polska for PLN 2.642bn, 100% in life insurer Nordea TUnŻ for PLN 180m and 100% in leasing and factoring firm Nordea Finance Polska for PLN 8m from Nordea AB, which decided to pull out of the Polish market. PKO BP said that it would take steps to acquire the remaining shares from minority shareholders and delist the Nordea unit from the Warsaw

weekly newsletter # 014 / 9th December 2013 / page 5

Stock Exchange. The Nordea Operations Centre in Łódź and its Polish pension fund company will not be affected by the transaction.

owned Pekao SA has 11%. PKO's share in retail loans will increase from 17.5% to 20.7%.

"The Polish banking market is consolidating. The competitive landscape will change in favor of large banks with scale in the market. Nordea Bank Polska is currently the 12th largest bank in the country, and we would have to make large investments in the coming years to be competitive. At the same time the new requirements from the Polish authorities make it increasingly challenging for us to pursue our uniform operating model, and eventually meet our financial targets in the Polish business," Christian Clausen Nordea Group CEO explained the logic behind their exit.

ENERGY & RESOURCES

Only a few years ago Nordea had very ambitious plans for the Polish market. It had a goal of operating 400 branches by 2010 and of doubling its market share to 8%. After poor results in 2012, with operating profit falling to EUR 78m from EUR 95m in 2011 and with net loan losses up from EUR 14m to EUR 37m, the Scandinavian lender had to substantially revise its former targets. In recent years, stricter governance and operational practices have been imposed on Polish banks, including a requirement to list at least 25% of their shares on the Warsaw Stock Exchange. Nordea Bank Polska today has a free float of 0.8%. According to estimates PKO BP published in June, the acquisition were to help the Polish bank increase its assets by 16%. Its profit per share is expected to rise by 10% and the return on investment should be 13%. PKO BP's network in Poland's largest cities will expand by 25% and its portfolio of wealthy customers will expand by 8%, the Polish bank said. In short, the deal seals PKO's position as Poland's number one lender, boosting its share in the banking sector's totals assets from 15% to 18%. The number two player, Italian-

Poland and Slovakia speed up work on key gas interconnector At the end of November the governments of Poland and Slovakia inked a cooperation agreement on the connection of the two countries' natural gas transmission systems. With a estimated price tag of PLN 1.3bn, the planned interconnector will contribute a an important element to the region's gas distribution network, which is being currently being expanded under the umbrella of the European North-South infrastructure corridor. The interconnection is stimulate competition in the region's gas market, among other by providing both countries with more diversified gas sources and transmission routes as well as security of gas supplies, Polish operator Gaz-System said in a statement. The new cross-border pipeline between Poland and Slovakia may provide the Polish market with access to gas supplies from the so-called Southern Corridor, which is to carry natural gas from the Caspian Sea through the Baumgarten gas hub or the recently built Slovakia-Hungary interconnection, therefore further reinforcing the stability of natural gas supplies to Poland. Moreover, it will give Slovak entities access to gas offered in the Polish market, including LNG from the terminal that is to open next year in Świnoujście currently constructed, as well as Poland's gas storage caverns. The project will also potentially enable Poland to export supply gas from unconventional sources, such as shale, to other European countries.

Gaz-System and its Slovakian counterpart Eustream have been working on the project since early 2009, and according to the two partners, a new two-way cross-border pipeline with auxiliary infrastructure, could be operational by the end of 2018, at the earliest. The pipeline leading to Poland will have a capacity of 5.7bn cb.m per annum in phase one to be increased to 9.5bn cb.m in phase two, whereas the one pumping gas in the opposite direction (to Slovakia) will be capable of transmitting up to 4.7bn cb.m.

Gaz-System seeks to improve Poland's energy security by developing cross-border interconnectors. Photo: Gaz-System

The feasibility studies and other analytical work on the project have already been completed and the two operators are hoping to start building the new interconnector next year. In a list of 248 key energy sector projects, published by the European Commission in mid-October, the Poland-Slovakia gas interconnection was assigned a PCI (Project of Common Interest) status under the priority corridor: North-South gas interconnections in Central Eastern and South Eastern Europe, making it potentially eligible for partial EU funding.

weekly newsletter # 014 / 9th December 2013 / page 6

Under its ambitious investment program, Gaz-System seeks to build more than 1,000 km of new gas pipelines by 2014, mainly in north-western and central Poland. Thanks to the ongoing development of Poland's gas transmission network and other recent investments, the country now has technical capabilities to obtain up to 43% of its gas import from suppliers other than Russia, compared to merely 9% back in 2011. So far Poland has built interconnectors to Germany (1.5bn cb.m/year) and Czech Republic (0.5bn cb.m/year; to be increased tenfold in 2017/18) and it is taking advantage of virtual reverse flow services on the Yamal pipeline (to be turned into an actual two-way link with a capacity of 5.5bn cb.m/year). Next year the country is hoping to launch the LNG terminal in Świnoujście (5bn cb.m).

ENERGY & RESOURCES

Developer Mostostal Export shifts focus to minerals exploration and mulls LSE listing Warsaw-listed construction and property development company Mostostal Export has picked a new strategic investor – a mysterious Luxembourg-based fund Tarantoga Capital, which specializes in exploration and development projects in the mineral resources sector and owns a balanced portfolio of copper, coal, gold and other conventional assets across Central Asia and West Africa. Under the new owner, Mostostal Export will shift its focus from construction to mineral prospecting and exploration. According to Mostostal's board, the com-

pany will take up first projects in the new business area in early 2014. "Our intention is to acquire an exploration company in Mongolia that operates on an area of 14,000 sq.km, which corresponds to roughly 5% of the total area of Poland. This is an exploration potential that no other Warsaw-listed company can match at the moment," commented Wielkosław Staniszewski, member of Mostostal Export's board. Mostostal is eyeing the Mongolia's Bayankhongor province, which is particularly rich in copper as well as gold and coal. The planned acquisition of a Mongolian license holder is to be completed by the end of January 2014, Mostostal said. As the world's top exploration and extraction companies are listed either in London, Toronto, or Sydney, Mostostal Export is determined to carry out a listing on the London Stock Exchange in 2014. "Advisors for the process will be chosen in early 2014. Due to the scale of the undertaking we will cooperate with international consultancies and investment banks. If all goes as planned, Mostostal's shares will be listed on the London market in Q3 2014," declared Staniszewski. Established in early 1980s, Mostostal Export has been listed on the Warsaw Stock Exchange since 1992. Todate its key focus was on construction and development, including projects in the Commonwealth of Independent States. The once profitable company was badly affected by the crisis as well as shareholder conflicts. Last year it nearly went bankrupt, following a net loss of PLN 47m on PLN 33m worth of revenues it saw in 2011. The help came from Calatrava Capital, a listed Polish fund which purchased more than PLN 90m worth of Mostostal bonds. Investor reaction to Mostostal plans has been rather lukewarm.

PROPERTY & CONSTRUCTION

Kulczyk Silverstein to turn Holland Park into Ethos, add more space Real-estate investment firm Kulczyk Silverstein Properties (KSP), a joint project of Polish billionaire Jan Kulczyk and New York property mogul Larry Silverstein is gearing up to begin a major makeover of the Holland Park office complex on Warsaw's Plac Trzech Krzyży Square, across the street from the stock exchange building. Built in late 1990s, Holland Park has long housed the Polish offices of Dutch financial group ING, but the latter has moved to the newly-built Plac Unii complex. KSP, which acquired the project in early 2013, has decided to take the opportunity to modernize the property. Holland Park consists of two buildings - a six story tall main building, and a lower one, known as Piano. Total office space of the building amounts to 10,416 sq.m. The building comprises 1,418 sq.m of retail space as well as 106 underground and surface parking spaces. KSP intends to refurbish, extend and reposition Holland Park, which will be known under a new name Ethos. The main repositioning feature of the building will be the reconfiguration of the ground floor retail which will almost double its current size and will amount to approximately 2,500 sq,m. The Plac Trzech Krzyży area has recently evolved into Warsaw's luxury shopping district and KSP is hoping the new, expanded retail section of Ethos to attract some top brands. The works will include BREEAM certification for the existing building and the new build extension that will increase the building's total office GLA to 13,100 sq.m, creating larger floors (up to 3,000 sq.m). Although the investor is yet to apply for all the necessary permits, it

weekly newsletter # 014 / 9th December 2013 / page 7

is hoping to begin the redevelopment in early 2014 and complete the project by the end of 2015.

The Holland Park complex, built in late 1990s, is to Image: KSP be given a major makeover.

Holland Park, which KSP acquired from a fund managed by CBRE Global Investors in March 2013 for an undisclosed amount, is KSP's fourth acquisition in Warsaw. Last year the company purchased two office buildings located in a prestigious part of Warsaw from Germany's Hochtief Development Poland. Following the planned renova-tions and expansion, which is to reach completion by mid-2014, the Malachowskiego Square building will offer 7,600 sq.m of offices and 1,500 sq.m of retail and storage space, as well as 100 underground parking spaces. As for the other property (on Mazowiecka St.), it is also undergoing comprehensive modernization in the coming months with 2,250 sq.m of office and 750 sq.m of class-A retail or service space. KSP's first acquisition in Warsaw was the 10,700-sq.m Stratos Office Center the company bought back in August 2011. KSP is also managing three other office properties in Warsaw: Ufficio Primo, Krucza House, and Warta Tower. Despite some progress on the development front, Kulczyk and Silverstein's other project, the institu-

tional real estate investment management platform KSP Real Estate Investment Management (KSP REIM) they set up jointly last year has been put on a back burner. The two former Heitman executives Otis Spencer and Dennis Dart, who were supposed to drive KSP REIM's expansion, have since jumped ship and fundraising has been suspended, officially due to "unfavorable market conditions." According to original plans, KSP REIM were to become the preeminent real estate fiduciary in Central and Eastern Europe by launching Luxembourg regulated closed-end funds intended for institutional investors seeking exposure to the dynamic and increasingly liquid CEE real estate market. The first closing of the KSP REIM’s initial fund was planned for mid-2013 and the company was hoping its assets under management to reach more than EUR 1.5bn. As for the former KSP REIM executives, Otis Spencer became the managing director of Peakside Group and CEO of Peakside Polonia Management whereas Dennis Dart joined the Olczak-Klimek van der Kroft Węgiełek law firm.

PROPERTY & CONSTRUCTION

Belgian OKRE gets permit for 2nd office project in Warsaw Belgian-owned property company OKRE Development has obtained a valid building permit for Grójecka Offices, its new class-A office project in Warsaw's Ochota district. Designed by the renowned Warsaw's studio Kuryłowicz & Associates, the project will provide 7,400 sq.m of GLA, including eight office stories, ground floor retail space, underground parking

lot with 134 spaces, bicycle storage, as well as a number of energy saving and environmentally solutions that have earned Grójecka Offices an "Excellent" grade under the BREEAM certification system. "In our office buildings nobody is billed for media in relation to rented space, but only for actually used media, precisely measured. This generates savings for every tenant and this is what today's market expects. This type of property development is in the best tradition of our firm and I am happy that it is well appreciated in Poland," commented Ronnie Richardson, CEO of OKRE Development.

OKRE's new Grójecka Offices project will hold a Image: OKRE BREEAM "Excellent" certificate. Grójecka Offices is OKRE's second office project in Warsaw, after the class-A office building GreenWings, which is currently nearing completion on 17 Stycznia Street, merely a stone’s throw from the Chopin airport, close to the LOT Polish Airlines headquarters. The seven-story wing-shaped building will include close to 11,000 sq.m of offices, 270 parking places at an underground lot, and 80 bicycle racks together with dressing rooms and showers for all those brave enough to dodge the Warsaw traffic on two wheels. With a "very good" BREEAM assessment, GreenWings is to welcome its first tenants in May 2014.

weekly newsletter # 014 / 9th December 2013 / page 8

With offices in Warsaw and Poznań, OKRE Development has been operating on the Polish market since 1997. Besides the office projects in Warsaw, its recent developments included the Na Skraju Lasu housing estate in Poznań (139 flats). OKRE Development belongs to a Belgian development and project management company OKRE, which has completed a number of investments in Poland, including Jerozolimskie Business Park in Warsaw (16,500 sq.m of office space), Jutrzenki Business Park in Warsaw (2,738 sq.m), Winogrady Business Center in Poznan (7,330 sq.m), Galeria Indomo in Lubin (9,577 sq.m of commercial space) and Park Residence in Warsaw.

properties. Koramic was established in 1883 as roof tiles factory and nearly a century later a property investment and management unit Koramic Real Estate was spun off from the group.

Warsaw office market

Global consumer products giant P&G has officially launched its Warsaw Planning Service Center (PSC) a completely new unit that will be in charge of development and implementation of innovative solutions across the company's supply chain in 100 countries worldwide. The Warsaw project will create 500 jobs, P&G representatives announced on 5th December at a press conference co-hosted by Poland's investment promotion agency PAIiIZ, which supported the project.

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

OKRE is a joint venture of Otreco NV, a Belgian company with over 30-year experience in the development market, and Koramic Real Estate NV, part of Belgium’s Koramic Investment Group. Otreco has offices in Belgium, France, Poland and Bulgaria with a staff of more than 40 people. The company specializes in turnkey projects, especially in residential and office buildings, shopping centers, warehouses and holiday

SERVICES & BPO

P&G to create 500 jobs at Warsaw supply chain planning centre

"We chose Warsaw and Poland due to P&G's earlier investments in the country, its proximity to other markets, business-friendly climate, and availability of qualified staff," Yannis Skoufalos, Global Product Supply Officer P&G. "Our new planning and supply chain centre in Warsaw is a milestone project, but certainly not our last," added Werner Geissler, Vice Chairman, Global Operations. Recruitment for the centre is currently underway, with open positions for university graduates with technical & science degrees as well as leadership, problem-solving and language skills. P&G currently employs an estimated 3,500 full-time staff in Poland, where it has four factories, exporting

to 100 global markets, as well as a head office with a shares services centre. Its key manufacturing operations in Poland include the Warsaw baby care plants, making Pampers diapers and baby wipes, the Olay body & face care unit in Aleksandrów Łódzki, just outside Łódź, as well as the razor & blade factory in Łódź: the largest producer of Gillette and Venus-branded shaving products worldwide. The US corporation, which employs more than 126,000 people worldwide, has invested more than PLN 4bn in Poland to-date.

Yannis Skoufalos, Global Product Supply Officer, P&G, Werner Geissler, Vice Chairman, Global Operations P&G, and Monika Piątkowska, Deputy Hdead of PAIiIZ at the opening of P&G's Warsaw Planning Service Center. Photo: PAIiIZ

One of the world's largest consumer firms, P&G turned over a massive USD 84.2bn and earned USD 11.31bn in net-profits in financial year 2013. Each of its 25 top brands that include Always, Ambi Pur, Ariel, Bounty, Duracell, Fairy, Gillette, Head & Shoulders, Lenor, Olay, Oral-B, Pampers, Pantene, Tide, Vicks, and Wella, generates more than USD 1bn in annual sales. Its advertising expenditure came to USD 9.7bn last year.

weekly newsletter # 014 / 9th December 2013 / page 9

SERVICES & BPO

Executive search firm Horton International finds partner in Poland Global executive search network Horton International has entered the Polish market by teaming up with a local company Executive People, which recruits managerial staff and senior management. Executive People will from now on operate under the brand Horton International Poland as Horton's exclusive partner on the Polish market. "Both sides were seeking a partner. Executive People wanted to become part of a global executive search integrated firm and we were looking for a long-term partner in the Polish market. We see huge potential in Poland for both the domestic market and for cross border opportunities with our international clients," Ross Eades, CEO of Horton Group International Limited (HGIL), tells Poland Today. Horton International was founded in 1978 in Avon, Connecticut, USA, by Robert Horton. It is an executive search network specializing in the recruitment of senior talent. In the 1980s, the firm began its international expansion into Europe, the Asia-Pacific region and the Americas. HGIL was formed in 1995 by the founding Horton International partners in the US, UK, France, Germany, Italy, Australia and Spain. HGIL continues to serve as the governing body for the firm, establishing global policies, procedures and guidelines for all international partner firms. "We have partners, not subsidiaries, operating in 50 office locations across 27 countries, including Poland.

Horton operates on a long-term basis in all markets based on license agreements," Mr. Eades explains. Clients of the Horton International network include some of the largest companies in the world from the Forbes Global 2000 as well as start-ups. The firmâ&#x20AC;&#x2122;s consultants specialize in such industries as automotive, aviation and defense, maritime, logistics, manufacturing, FMCG, energy and natural resources, finance, technology, healthcare and pharmaceuticals, media and entertainment, retail, fashion and luxury goods, and life science. Executive People (now Horton International Poland) launched operations over 16 years ago as a division of the HR consultancy People, from which it was spun off earlier this year. From an office in Warsaw, its consultants specialize in search and consulting projects for industries that include pharmaceuticals, FMCG and retail, manufacturing, TSL, construction, telecommunications, banking and finance, and IT/technology. Apart from recruitment of executives and managerial staff, the firm's services also include close cooperation at the phase of interviews, negotiations, post-hiring consultations and on-boarding. Its clients include such companies as Sanofi Aventis, Coca-Cola HBC, Perfetti Van Melle, Citi Handlowy, Sodexo Motivation Solutions, Netia, Borg Automotive and Budimex. Horton International Poland will be headed by Paulina Baranowska, Managing Partner, previously managing partner of Executive People. "The executive market in Poland is competitive but not saturated. It is an immature market where we see a gap. We link local knowledge with the global market. Our knowledge and experience and the network of contacts we have built on international markets over the years can contribute significant added value for clients of Horton International in Poland. We are delighted to now have, in Poland, a large established team, larger than the teams of competitors specialized

in recruiting C-suite and senior management," concludes Horton's CEO.

TRANSPORT & LOGISTICS

PESA receives receives first of many lucrative lucrative orders from Deutsche Bahn Deutsche Bahn subsidiary DB Regio has ordered 36 new diesel-multiple units (DMUs) from Polish PESA in the first tranche of a EUR 1.2bn framework contract with the Bydgoszcz-based rolling stock manufacturer. The EUR 120m order includes 20 two-car and 16 three-car LINK model regional trains that will operate on Germanyâ&#x20AC;&#x2122;s Sauerland network and will range in capacity from 100 to 160 seats. DB Regio was selected by Westfalen-Lippe Local Transport, Rhine-Ruhr Transport Association, and North Hessen Transport Association to operate the so-called Sauerland Network from December 2016. In 2012, DB signed a framework contract with PESA for a potential 470 new DMUs. The diesel-powered trains, which will meet the latest crashworthiness requirements and Stage IIIB exhaust emissions standards, are expected to be delivered by the end of 2018. PESA is to build 120 DMUs with 50 to 100 seats each, capable of travelling at maximum speeds of 120km/h as well as 350 DMUs with 50 to 220 seats and top speeds of 140km/h. The PESA deal Deutsche Bahn's first ever order to a non-German manufacturer. Deutsche Bahn's reputation as operator of the lucrative regional railway lines, has been somewhat tarnished in recent years by technical flaws in trains supplied by German units of Siemens and Bombardier, resulting in intensified efforts among public admin-

weekly newsletter # 014 / 9th December 2013 / page 10

istrations to look for private-sector operators to run railway lines. Facing increased competition under new government legislation, DB will have to bid for operating rights contracts on multiple short-distance routes, which are set to expire and be re-tendered in the coming years by Germany's federal states. Until recently, the state-owned rail operator boasted a market share of 80% in German regional rail transport, 75% in freight and remains a virtual monopoly on longdistance travel.

Templin and Berlin-Kostrzyn Wielkopolski lines, PESA also said. The vehicles house 140 and 200 passengers, respectively and their maximum speed is 140 km/h. Besides DB and NEB, PESA's German customers include private carrier Netinera. PESA supplies locomotives for the Italian, Ukrainian and Lithuanian railways as well as trams for municipalities in Poland, Hungary, and Romania. The company employs a workforce of 3,500 at factories in Bydgoszcz and MiĹ&#x201E;sk Mazowiecki, just east of Warsaw. Last year PESA turned over PLN 1.55bn and netearned PLN 137m. The company belongs to a number of Polish investors, including its top management.

According to EIB, which has been supporting rail investments in Poland for more than two decades, by providing new and modernized rolling stock, the project will increase the quality of freight rail services in Poland, enabling more efficient operation, reducing maintenance costs and energy consumption. In EIB's view, this should help railways compete with other modes of transportation, particularly road, so as to maintain or improve its modal share. Shifting freight flows from other modes to rail will result in reduced vehicle operation costs as well as safety and environmental benefits, EIB said. New vehicles will replace the ageing fleet and modernized diesel locomotives will consume less fuel and oil as well as operating with less noise and vibration.

TRANSPORT & LOGISTICS

PESA's LINK trains were an instant hit with German Image: PESA clients. PESA will be working closely with the German railway industry as many components will be sourced from German suppliers. German engine manufacturer MTU will provide the engines, while the braking systems will be offered by Knorr-Bremse, a Germany-based manufacturer of braking systems for rail and commercial vehicles. Deutsche Bahn said the contracts had been drawn up in such a way as to afford the maximum possible flexibility with regard to the size and power of the trains ordered. A couple of weeks ago, PESA secure another order in Germany on the delivery of nine new LINK-type DMUs to NEB (Niederbarniemer Eisenbahn). The Polish firm will supply seven two-car vehicles and two three-car vehicles that will be used to service Berlin-

PKP Cargo obtains PLN 200m EBI loan for for fleet modernization Shortly after the successful listing of Poland's top rail freight operator PKP Cargo on the Warsaw Stock Exchange, the European Investment Bank (EIB) has agreed to lend the company PLN 200m (EUR 47m) to help the company pay for a large-scale fleet upgrade. Thanks to the EIB loan PKP Cargo will be able to purchase and modernize locomotives and rail cars, as part of its ambitious three-year investment program. "It's worth noting that this is the first loan in the history of Polish railways to be granted without Treasury collateral, which shows that we are reliable business partner and confirms our excellent financial situation," says Adam Purwin, PKP board member for finance.

PKP Cargo and its subsidiaries operate a fleet of 2459 locomotives and 63,488 wagons. Photo: PKP Cargo The EIB is the long-term lending institution of the European Union owned by its Member States. It makes long-term finance available at attractive rates for investments that contribute towards EU policy goals. PKP Cargo is the European Union's second largest railway freight company after Deutsche Bahn AG and the first listed one, following its recent PLN

weekly newsletter # 014 / 9th December 2013 / page 11

1.42bn IPO on the Warsaw Stock Exchange, which saw the state-owned Polish railway operator PKP sell 20.9m shares in the business. Foreigners bought 20% of the freight operator with the European Bank for Reconstruction and Development having acquired a 5.27% stake and thus becoming the second-biggest shareholder in PKP Cargo.

directly from the parking lot, which offers 600 spaces. The construction of the scheme started at the end of 2011. Upon the completion of the third, final phase, 11 new tenants have joined the scheme, including Jysk, RTV Euro AGD, Pepco, Deichmann, CCC, Takko, Martes Sport, Hebe and Olewnik as well as Kolporter newsagent’s store, a laundry and a butcher shop.

PKP Cargo saw its revenues drop 9.2% to 2.29bn, in 1H 2013, due to economic slowdown, while its net income slumped 44% to PLN 76.8m. Last year the company carried around 116m tons of freight (mainly hard coal and building materials) 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. 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. market, OBI DIY store and 11 other tenants.

British firm McKinlay Development opens opens its first Polish retail park in Sochaczew British-owned company McKinlay Development has completed the final extension of first Polish project, the 20,000 sq.m Multishop retail park in Sochaczew, some 60km west of Warsaw. Anchored by a Tesco hypermarket and OBI home improvement store, the project has been expanded by 4,500 sq.m to include 11 new outlets. Located near the Warsaw-Poznań road Multishop is a typical retail park, enabling customers to enter stores

DATA BOX: RETAIL WAREHOUSES & RETAIL PARKS IN 1H 2013 Total retail park and retail warehouse stock in Poland stands at 2.4m sq.m, with parks accounting for around 26% of the total. In H1 2013, more than 60,000 sq.m came onto the market. Another 60,000 sq.m is currently under construction and scheduled for completion in 2013–2014, largely in small retail parks. The estimated development pipeline provides for a further 100,000 sq.m of retail park and retail warehouse space by the end of 2015.

Multishop in Sochaczew is home to Tesco hyper-

CONSUMER GOODS & RETAIL

a combined GLA of more than 200,000 sq.m in five years. His target were regional towns such as Żywiec, Jelenia Góra, Bochnia, Iława, Sieradz and Ciechanów, offering an average catchment of 150,000-200,000.

Image: C&W

"Multishop in Sochaczew boasts an excellent location and convenient transport links. New tenants will strengthen the park’s offer and enhance its attractiveness. The last few years have witnessed a growing developers interest in the development of retail parks, which are an interesting alternative to small shopping galleries in cities such as Sochaczew. We are pleased to have such a retail concept in our portfolio," says Aneta Rogowicz-Gała, head of Property & Asset Management department of Cushman & Wakefield, who have been appointed Multishop's. property manager. C&W currently manages commercial properties totaling 500,000 sq.m, comprising modern office, retail and industrial properties. Back in 2011 McKinlay Development's key shareholder and CEO Craig Thomas McKinlay said his company were to build 10 Multshop retail parks in Poland with

Poland’s retail park sector is currently experiencing rapid growth with a dozen or so developers strongly active on the market. Retail parks are planned and developed primarily in small and medium-sized cities, frequently as small schemes with convenience retailing. The vacancy rate in retail parks stands at around 5%. Large-scale, non-food stores are also expanding as standalone schemes. Rents in retail parks are stable at EUR 6-8/ sq.m/month for large units and EUR 9-13/sq.m /month for medium-sized space. Rents for freestanding retail warehouses average EUR 6–8/sq m/month. Source: Cushman & Wakefield

"Our goal at the time was development of regular shopping centers in cities of up to 100,000 inhabitants, albeit with a smaller GLA than in big city malls. Our Sochaczew project is a model example as it combines DIY and grocery retailers with a retail park, petrol station, and a McDonalds," Zbigniew Dymarkowski, board member at Retail Park Sochaczew, the SPV in

weekly newsletter # 014 / 9th December 2013 / page 12

charge of Multishop, tells Poland Today. "Over the past three years we have witnessed a fast paced expansion of discount supermarkets coupled with a slower growth of home improvement retailers in smaller towns, which has affected our plans." The Multishop concept is pretty straightforward: good location near a major intersection, offering good local and regional accessibility, low maintenance costs, plenty of parking and strong grocery/DIY anchors. "The idea is to create a convenient shopping location for local residents, where they are able to quickly access stores straight from the parking lot. We remain interested in building further retail parks in smaller towns, but since the retail property market is becoming saturated relatively quickly, we are now contemplating entry into residential developments as well," adds Mr. Dymarkowski.

go a large-scale reorganization that will see the number of NOMI outlets reduced, among other measures. Parallel to its negotiations with creditors, NOMI will continue to seek investors interested in keeping the business alive. NOMI's management is also contemplating an IPO on the Warsaw Stock Exchange to provide its creditors with a convenient way of exiting the investment in the future.

Poland's key DIY chains

DIY chain NOMI files for bankruptcy

Bricomarche

Castorama*

"Following the 2011 acquisition of Emitel together with the management we devised a five-year investment plan focused on expansion and modernization of its broadcast infrastructure, better signal quality, digitization of terrestrial television and operational optimization. However, we managed to achieve our investment objectives in less than three years," says Michał Chałaczkiewicz, Director at Montagu Private Equity tells Poland Today. "The several hundred million PLN investment program that we implemented gave Emitel solid foundations for further growth."

Leroy Merlin

NOMI

Praktiker

Bricoman

Poland's oldest DIY retailer, NOMI has filed for bankruptcy protection, hoping to settle with its creditors and find new investors in the coming months. The company, which until recently had been the sector's fifth largest player, was badly hit by the decline in demand for home improvement goods at the end of 2012 and in early 2013. Despite cost-cutting efforts, recently NOMI has not been able to pay its bills in a timely fashion, which prompted its board to apply for bankruptcy protection. The management hopes NOMI will pay back all its debts over the next six years, with a portion of its dues to be converted into shares. The company is to under-

Alinda buys broadcast infrastructure firm Emitel from Montagu Two and a half years after it acquired Poland's leading television and radio broadcast infrastructure provider Emitel for EUR 425m, European private equity giant Montagu has sold the business for an undisclosed amount to Alinda Capital Partners, the Americanbased infrastructure investment firm.

Number of outlets as of end of 2012

OBI

CONSUMER GOODS & RETAIL

IT & TELECOM

*) including Brico Depot Source: Cushman & Wakefield

Established in 1993, NOMI used to be part of the UK retail giant Kingfisher (owners of the Castorama chain), which sold the chain to private equity company Enterprise Investors in 2003 for PLN 45m. At the time, NOMI had 39 stores across the country and annual revenues of PLN 0.5bn. Over the 2007-2011 period the business was profitable. In 2012 the company turned over PLN 497m and employed 1,367 staff. NOMI, which has stores in 28 medium-sized towns, belongs to a Polish investment fund i4ventures.

Emitel broadcasts television and radio signals nationwide under long-term contracts with television and radio channels, including the government-owned TV and radio channels. The company is the sole broadcaster of digital terrestrial television signal in Poland, and is leading the introduction of digital radio. Poland completed the switchover to digital TV in mid-2013. With a proprietary network of 377 towers in Poland, Emitel is also actively developing its telecom infrastructure business, utilizing its tower locations for mobile network operators’ equipment.

weekly newsletter # 014 / 9th December 2013 / page 13

"The result of our investment program is a top quality transmission network covering the entire country, which has enabled Emitel to compete for digital terrestrial television broadcasting contracts. Earlier this year Emitel also acquired two complementary businesses extending its portfolio of broadcast and telecom towers. The company currently operates four digital multiplexes and successfully leads the migration from analogue television to a high quality digital terrestrial platform, which is the primary source of television for more than 30% of households in Poland," says Michał Chałaczkiewicz. Back in 2011, when Montagu bought Emitel from the French-owned telecoms group TPSA for a massive PLN 1.7bn (EUR 425m), the transaction raised many an eyebrow among market observers. Some of Montagu's competitors, which reportedly included France's TdF, as well as private equity funds EQT, Macquarie, Advent International, and Doughty Hanson, criticized the buyer for what they called an "irrationally high valuation" it put on Emitel. Everyone seemed to be in agreement, however, that Montagu paid extra for the potential it saw in the company. The deal was Montagu’s first direct investment in Poland, and its second investment in Central and Eastern Europe. International financial institutions, focused on the CEE region: Innova Capital, Value4Capital and the European Bank for Reconstruction and Development, coinvested alongside Montagu. "Our sale of Emitel marks the completion of another successful investment for Montagu. Today, Emitel is the market leader of television as well as radio transmission services in Poland. Following the digitalization process, the terrestrial television platform has become a viable and growing content distribution channel. Moreover, the company is the only operator serving all nationwide radio stations and is also Poland's largest operator of telecoms towers independent from mobile operators," says Michał Chałaczkiewicz.

Emitel's new owner, Alinda Capital Partners, is one of the world’s largest infrastructure investment firms. The company is wholly owned by its seven Partners and has USD 7.8bn in equity commitments to infrastructure investments. Alinda has invested in infrastructure businesses that operate in the United States as well as in Canada, the United Kingdom, Germany, the Netherlands, Austria, Belgium and Luxembourg. These businesses serve 100m customers annually in more than 400 cities globally, and employ more than 15,000 people. Alinda’s investors are predominantly pension funds for public sector and private sector workers. These institutions seek steady investments over the long term, matching their pension liabilities. They include some of the largest institutional investors in the world. As for Montagu, which has an estimated EUR 3.3bn worth of assets under management, it continues to seek new investment opportunities in Europe. The company invests in businesses that operate in stable markets across Europe with transaction values ranging from approximately EUR 100m to EUR 1bn. "We are currently investing from our EUR 2.5bn Montagu IV fund, focusing on sectors and companies with limited exposure to cyclical fluctuations, solid growth potential and an attractive operational profile. We do not specialize in any particular sectors. Our Warsaw team is working on a number of new investments but our policy is to refrain from commenting on ongoing projects. Following the sale of Emitel, our only investment in the region is Euromedic International, Europe's largest provider of advanced diagnostic imaging and cancer treatment services. The company operates in 15 countries, including 10 CEE markets. In Poland, one of Euromedic's key markets, we've recently acquired Numedic, a chain of diagnostic centers," Michał Chałaczkiewicz tells Poland Today.

IT & TELECOM

Polish Asseco Group is Europe's 6th largest software vendor After its revenues from proprietary software solutions had passed the EUR 1bn benchmark in 2012, Polish IT giant Asseco Group moved up in the ranking of Europe's largest software producers, occupying the number six position in the newly released 2013 edition of the prestigious Truffle 100 report. Asseco Group has remained one of Europe's top ten software vendors already for five consecutive years, during which time the company continued to boost sales of proprietary software, one of its key strategic goals. The upward trend is likely to continue also in 2013. In the first three quarters of the year, Asseco Group generated nearly PLN 4.2bn in sales revenues, achieving a 5% increase y/y. Operating profit reached PLN 483m, while net profit attributable to shareholders of the parent company amounted to PLN 262 million. The backlog of orders totals PLN 5.5bnand is 5% higher than in the corresponding period of 2012. Revenues from Asseco's proprietary IT solutions also hit record-breaking levels. In the first nine months of 2013, they came to nearly PLN 3.3bn, an improvement of 7% y/y. During that period Asseco signed 3,326 new contracts, including large agreements with Orange Polska, social security institution ZUS and regional healthcare administration units. In Q3 2013, Asseco Poland acquired a 70% stake in Russian R-Style Softlab, which develops software for the banking and finance sector, specializing in online banking and customer service systems, data warehouses and business intelligence systems, as well

weekly newsletter # 014 / 9th December 2013 / page 14

as core banking systems. The acquisition expanded Asseco's customer pool by approximately 400 active clients. The Truffle 100 ranking discusses the marketplace of Europe’s one hundred major software producers, whose combined software revenues rose by 11% last year. Interestingly, 63% of that turnover was generated by 10 largest market players, mainly Germany’s SAP with EUR 15.9 billion in software revenues, France’s Dassault Systèmes (EUR 1.8bn) and Britain’s Sage (EUR 1.6bn). The ranking is dominated by companies from the UK, France and Germany. Commenting on this year's ranking, Bernard Louis Roques, Partner & Co-Founder of Truffle Capital, emphasized that with 63,000 specialist jobs and high investments in development of new products, the software industry remains an unwavering catalyst for innovation and a key driver of European economic growth.

POLITICS & ECONOMY

Poland's lower lower house of parliament approves pension reform bill Polish lawmakers last week approved the takeover and cancellation of government bonds held by privately managed pension funds, allowing the cabinet to cut state debt and gain leeway for public spending. Lawmakers in the 460-seat Sejm, the lower house of parliament, voted 232-216 in favor of the changes, with one abstention. The draft law must still be approved by the Senate and signed by President Bronislaw Komorowski, who may direct it for legal review to Poland's Constitutional Tribunal.

Under the new law, Poland's state-guaranteed private pension funds (OFE) are to transfer 51.5% of their assets to the state pension vehicle ZUS on 3rd February next year, after which they will be banned from investing in treasury debt and state-guaranteed bonds starting 2016. The state pension institution will be also responsible for distributing the pensions, and therefore the funds will also be required to gradually transfer employee assets to ZUS starting 10 years prior to retirement. According to the draft bill, the changes will lower Poland's public debt by 9.2 percentage points from its current level of 55% of GDP and reduce annual borrowing needs by PLN 20-25bnin the years 20142017. Pension funds in the mandatory system held PLN 303.4bn of assets, including PLN 131.1bn of stocks and PLN 125.8bn of bonds as of 31st October, data from Poland’s financial markets regulator show. The owners of companies running the funds include Dutch Aegon and ING, German Allianz, US MetLife, British Aviva, French AXA, Italian Assicurazioni Generali, and Swedish Nordea Bank. What is more, participation in the OFE system has been made optional. While every OFE account remains in place with its rump equity assets, Poles will have four months to determine if the portion of their future social security premium - 2.9% - should continue to go to the OFE funds. Should they fail to declare, their premiums go to a virtual individual account at the ZUS. They’ll be able to review their decision in 2016. For the past 14 years, Poland has had a hybrid pension system, with part of workers' contributions diverted from the state pay-as-you-go system to private pension funds, known collectively as the second pension pillar. 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. Poland ended up borrowing left and right and its debt skyrocketed as a result, from PLN 273bn in 1999 to PLN 888bn in mid-2013, with the pension system being responsible for roughly a half of the new liabilities. In the end, the government admitted the system was too costly for public finances and failed to deliver additional benefits for future pensioners. The government-sponsored changes to the country’s three-tier pension system have sparked controversy, including concern that canceling bonds would amount to uncompensated expropriation. The overhaul is opposed by 53% of Polish voters, according to a recent poll. The revamp may end up being vetted by the country’s constitutional court after president signs it into law. According to the President, the changes are "necessary for financial safety." The government has already included the pensionfund changes in its 2014 budget, which will run a 4.6% of GDP surplus as a result of the asset transfer, according to a November forecast by the European Commission.

weekly newsletter # 014 / 9th December 2013 / page 15

KEY STATISTICS Consumer Prices Prices

Inflation

-0.1

Alcohol, tobacco +3.6

+0.1 +3.6 +0.2 +3.7 +0.2 +3.6

+0.1

Clothing, shoes

-5.0

-2.7

-4.8

-2.7

-4.7 +0.7

-4.8 +3.5

Housing

+2.0

+1.2 +2.0

+0.1

+1.8

+1.8 +0.2

+0.1

-1.2

+1.1

-1.4 +0.5

-1.4 +0.8

-2.3

Communications -9.7

0.0

-9.7

0.0

-9.7

-7.2 +2.8

+0.3

+1.1

-0.3

Gross CPI

+1.1

0.0

-1.0

y/y

m/m

Jun '13

Aug '13 Sep '13 Oct '13

+1.5

+3.8

-0.7

-0.9

+3.6

y/y (%)

+1.8

+4.3

+3.4

+3.9

+3.2

Year

2008

2009

2010

2011

2012

Turnover in PLNbn

564.7

582.8

593.0

646.1

676.0

+13.3

+4.3

+5.5

+11.6

+5.6

Residential Construction Dwellings

+1.0 +0.1 +0.8 +0.2

Jul '13

m/m (%)

y/y (%) Oct 13

0.0

Aug 13

-1.2 +2.6

Jun 13

2.5

Apr 13

+1.9

Transport

-0.3

Feb 13

+2.5

Dec 12

Food & bev

Month

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

Oct 12

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

Aug 12

Sector

Retail Turnover

Jun 12

Oct '13

Apr 12

Sep '13

Feb 12

Aug '13

Oct 11

Jul '13

Dec 11

Data in (%)

2008 2009 2010

2011

2012 Jan-Oct y/y

230.1

178.8

174.9

184.1

165.1

142.9

158.1

(in '000 units)

Producer Prices Prices

Industrial Output

Permits

2013

(%)

117.0

-17.2

Commenced

174.7

162.2

141.8

111.6

-11.4

m/m (%)

-0.7%

+0.1

+0.7

+0.2

-0.3

+0.1

-0.5

m/m (%)

-2.3

-0.7

+2.6

+1.5

-4.5

+9.6

+6.0

U. construction

687.4 670.3 692.7 723.0

713.1

706.7

-3.3

y/y (%)

-2.1%

-2.5

-1.3

-0.8

-1.1

-1.4

-1.3

y/y (%)

+2.7

-1.8

+2.8

+6.3

+2.2

+6.2

+4.4

Completed

165.2 160.0 135.7

152.5

117.6

-2.1

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

Apr '13 May'13 Jun '13 Jul'13 Aug'13 Sep'13 Oct'13

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

Apr '13 May'13 Jun '13 Jul'13 Aug'13 Sep'13 Oct'13 -0.1 -1.9 2006 +3.2

-0.2 -2.0 2007 +7.4

-0.1

-2.0 2008

-0.2

-1.9

2009

+4.8

-0.1 -1.8

2010

+0.2

-0.1

2011 +1.0

-0.1 -1.7 2012 +0.2

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

Coal mining

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

Period

Apr '13 May '13 Jun '13 Jul '13 Aug '13 Sep '13 Oct '13 +7.9 -23.1 2006 +18.1

+16.1 -27.5 2007 +15.5

+19.1 -18.3 2008 +12.1

+7.8 -5.2 2009 +5.1

-0.8 -11.1 2010 +4.6

+9.4 -4.8 2011 +11.8

+14.3 -3.2 2012 -0.6

Q4 2012

Q1 2013

Q2 2013

Q3 2013

8,427

192 6,060

138 6,290

3,522

154

3,491

152 3,560

155 3,625 158

Energy

6,535

198 6,196

188 5,828

177

Construction

3,829

163 3,556

152 3,693

157 3,766 160

Retail & repairs

3,365

143 3,432 146

Transportation

3,816

135 3,439

IT, telecoms

6,379

Financial sector 6,044 National average 3,878

6,021 183

3,421

146 3,408 145

122 3,547

125 3,589 127

166 6,685

174 6,707

174 6,654 173

136 6,356

143 6,702

151 6,109 137

154

3,741 149

Source: Central Statistical Office (GUS)

3,613

144 3,652 145

GDP in PLN bn current prices

Current account def. in % of GDP

Q3 2013

+1.9%

404,310

-2.0%

Q2 2013

+0.8%

395,657

-2.3%

Q1 2013

+0.5%

377,815

-3.1%

Q4 2012

+0.7%

442,231

-3.5%

+1.9%

1,522,736

-3.5%

2011

+4.5%

1,462,734

-4.9%

Sentiment Indicators

2010

+3.9%

1,416,585

-5.1%

Economic sentiment and consumer confidence indicators

2009

+1.6%

1,344,384

-3.9%

143 6,061 138

Manufacturing

Growth y/y unadjusted

131.7

2012

Source: The Central Statistical Office of Poland, GUS

Gross Wages Sector

Apr '13 May '13 Jun '13 Jul '13 Aug '13 Sep '13 Oct '13

Construction Output

Construction Prices Price s Month

Month

Co nsumer co nfidence (left axis) Eco no mic sentiment (right axis)

120 100

-20

-40

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%

+1.3%

+2.7%

+2.6% +4.3%

+3.7%

+1.0%

+1.9%

+2.1% +7.6%

+3.4%

-1.2%

0.7%

-5.1%

-4.9%

-3.5%

-1.3%

-0.3%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+2.9%

+4.1%

Unemployment**

12.4%

12.5%

13.4%

13.7%

13.2%

3.99

4.12

4.19

4.20

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 # 014 / 9th December 2013 / page 16

56.20 ↓

100 SEK

47.13 ↑

100 NOK

49.79 ↓

10,000 JPY 10,000 HUF

400

USD EUR 350

300

300.21 ↓ 15.26 ↓

100 CZK

138.70 ↓

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

WIG-20 stocks Price Change Change in alphabetical 6 Dec 29 Nov end of order '13 '13 '12

WIG Total index

May '13 Jun '13 Jul '13 Aug '13 Sep '13 Oct '13 5.3%

5.0%

4.7%

4.6%

4.5%

PLN (up to 5 y )

5.7%

5.4%

PLN (over 5 y)

5.6%

5.3%

5.1%

4.9%

4.8%

PLN (total)

5.6%

5.3%

5.0%

↓ Bogdanka

4.9%

4.8%

↓ BZ WBK

EUR (up to 1m EUR) 2.3%

1.9%

2.3%

EUR (over 1m EUR) 3.2%

2.9%

3.5%

1.9%

1.8%

2.0%

↓ Eurocash

3.5%

3.2%

2.5%

↓ Grupa Lotos

↓ Asseco Pol.

↓ GTC

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

1 week

1 month

3 months

6 months

2.58%%

2.58%

2.60%

2.65%

2.70%

↓ Handlowy

Jul '13

Aug '13

Sep '13

Oct '13

Reference

155,767

153,867

166,620

154,967

2.50%

530,666 112,565 921,662

531,124

540,873

114,083

113,223

928,359

931,042

536,237 113,174 935,095

- Time deposits

405,900

412,407 405,703

414,941

945,077

949,988

955,419

947,228

- Net foreign assets 159,749 154,035 147,978 150,517 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

-3%

+10%

135.65

-2%

391

-4%

+62%

46.95

-7%

+7%

37.36

-6%

-9%

8.34

-1%

-16%

115.35

-4%

+17%

2,479 2,479. 479.16

Change 1 week

WIG-20 blue chip index

-6%

-33%

Change 1 week

-4% ↓

-6%

-40%

Change end of '12

-4% ↓

NBP deposit

Rediscount

↓ KGHM

112.8

-5%

-41%

4.00%

1.00%

2.75%

↓ mBank

513.45

-8%

+58%

↓ Pekao

183.15

-3%

+9%

WIG Total closing index last three months

Credit

↓ PGE

17.37

-7%

-5%

57500

The financial sector's net lending in PLN bn,

↓ PGNiG

5.65

-2%

+8%

55000

Type of loan

↓ PKN Orlen Sep '13

Oct '13

Jul '13

Aug '13

Loans to customers

896,635

901,863

908,106

901,288

↓ PZU

- to private companies

261,000

263,491

262,963

559,965

↓ Synthos

↓ PKO BP

45.42

-5%

-8%

52500

39.7

-4%

+8%

50000

453.85

-3%

+4%

47500

5.2

-4%

45000

- to households

552,503

556,027

560,608

260,585

↓ Tauron

4.84

-6%

+2%

Total assets of banks

1,616,221

1,627,182 1,626,489

1,612,836

↓ TP SA

10.15

-2%

-17%

Source: Central Bank NBP

+11% ↑

62.3

Lombard

loan stock at the end of period

-4% ↓

Change end of '12

↓ Kernel

↓ JSW

Central Bank (NBP) Base Rates

52,727. 27.52

49.67

6 Dec 13

100 DKK

as of 6 December 2013

14 Nov 13

342.38 ↑

6 Dec 13

501.68 ↓

100 CHF

27 Sep 13

100 GBP

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations PLN (up to 1 year)

22 Jul 13

419.25 ↓

14 May 13

100 EUR

Key indices

Term / currency

450

4 Mar 13

306.73 ↓

21 Dec 12

100 USD

Stock Exchange

Average weighted annual interest rates

21 Oct 13

as of 6 December 2013

Interest rates

27 Sep 13

100 USD/EUR against PLN

Central Bank average rates

5 Sep 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-Sep 2013

y/y (%)

share (%)

2012

IMPORTS in PLN bn share (%)

Jan-Sep 2013

y/y (%)

share (%)

2012

share (%)

EXPORTS in PLNbn JanNo Country Sep share 2013

*2012

Share No

IMPORTS in PLN bn JanCountry Sep share *2012 2013

49,806

+9.4

10.6

61,694

10.3

34,538

+4.5

7.3

44,287

6.9

1 Germany

Beverages and tobacco

6,405

+6.7

1.4

7,967

1.3

2,995

+1.2

0.6

3,989

0.6

2 UK

30,740

6.5%

40,184

6.7%

2 Russia

59,388 12.5%

Crude materials except fuels

11,947

+9.9

2.5

14,024

2.4

15,917

-7.4

3.4

22,053

3.5

3 Czech Rep.

28,868

6.1%

37,475

6.3%

3 China

44,332

Food and live animals

118,119 25.1% 150,046 25.1%

1 Germany

101,785 21.4% 134,933 21.1% 91,033 14.3%

9.3% 57,235 9.0%

22,200

+0.7

4.7

29,389

4.9

55,502

-11.7

11.6

85,280

13.4

4 France

26,520

5.6%

34,862

5.8%

4 Italy

24,315

5.1% 32,782

1,267

+46.7

0.3

1,342

0.2

1,955

-9.4

0.4

2,887

0.5

5 Russia

25,476

5.4%

32,290

5.4%

5 France

18,262

3.8% 25,303 4.0%

Chemical products

43,903

+7.0

9.3

54,295

9.1

69,490

+1.9

14.6

89,140

14.0

6 Italy

20,214

4.3% 29,067 4.9%

Manufactured goods by material

97,528

+1.0

20.7

126,161

21.1

82,985

-3.2

17.5

110,773

17.4

7 Netherlands

18,714 4.0%

Machinery, transport equip.

176,544

+5.0

37.5

223,646

37.5

156,992

+2.4

33.1

203,718

31.9

8 Ukraine

13,277