Poland Today Business Review+ No. 048-49 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. 048-49 / 25th August 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Bus maker Solaris to boost production capacity at Bolechowo page 2

TRANSPORT & LOGISTICS Top automotive parts distributor to expand into outsourcing page 8

July sees continued weakness in industrial production, producer deflation deepens page 3

JLL confirms massive upturn in warehouse sector page 9

ENERGY & RESOURCES Poland hoping to renegotiate gas deals with Russia as new import routes open up page 5 Polish power group Tauron and steel giant ArcelorMittal create energy joint venture page 5

Kraków is one of Europe's top destinations for advanced business services.

Photo: CBRE

BBH to add 400 jobs at Kraków center

Having onboarded 600 professionals in merely two years, the Kraków unit of US financial services firm Brown Brothers Harriman is now planning to boost its headcount in excess of 1,000. "The growth we have experienced since opening has definitely surpassed our expectations," Michael McDonald, Managing Director at BBH Poland, tells BR+. "This achievement is a reflection of the deep talent pool available here in Kraków." page 3

tel. +48 881 650 600

PROPERTY & CONSTRUCTION BBI tears down Sezam to make space for 13,000 sq.m Centrum Marszałkowska page 6 Robyg acquires site for huge new residential project in Mokotów page 7 Ground is broken on first riverfront office building in Warsaw page 8

Goodman to double Polish portfolio this year page 10 New low cost airline to launch this autumn page 11 RETAIL PROPERTIES Brama Mazur shopping mall opens in Ełk page 12 POLITICS & ECONOMY Flash estimate sees Q2 GDP growth at 3.2% page 13 Russian embargo may hit Poland harder than initially expected page 13 Poland sees its first ever deflation page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

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weekly newsletter # 048-49 / 25th August 2014 / page 2

MANUFACTURING & PROCESSING

Bus maker Solaris to boost production capacity at Bolechowo

ing bus and tram bodies, and two plants in the Poznań area, where the final assembly of buses and trams takes place.

Poland's top bus producer Solaris Bus & Coach is embarking on a PLN 45m extension of their factory in Bolechowo near Poznań. The project, which involves redevelopment of existing shop space as well as construction of a brand new 7,500 sq.m assembly hall and 5,000 sq.m of offices, has been partly financed by the European Union's regional development fund. "This investment is meant to boost our production capacity and improve the effectiveness of certain processes. In the newly developed production building we will manufacture a brand new generation of lightweight city buses that will premiere at this year's IAA fair in Hanover," Mateusz Figaszewski, deputy PR director at Solaris tells Poland Today. "Last year the Bolechowo plant made 1,300 vehicles and this year we are expecting to hit 1,400, which is our limit with the existing infrastructure. Since our goal is to continue growing in the coming years, we have to expand our facilities and introduce a number improvements. We are expecting the capacity boost to translate into additional jobs, but it's too early to speak of numbers."

Shrinking domestic bus sales The next generation of Solaris' bestselling city bus range will be unveiled at this year's IAA fair. Image: Solaris

With skilled labor at a fraction of the Western European costs, Poland has emerged as one of Europe's key bus exporters over the past decade, thanks to investors from Germany (MAN) and Sweden (Volvo & Scania), as well as the domestic player Solaris Bus & Coach. In 2001 Polish factories exported merely 373 buses, but in little more than a decade the figure grew nearly tenfold, making Poland number three in Europe after Germany and Sweden.

Buses made in Poland: domestic sales vs. exports Exports

Domestic sales

5,000 4,000 3,000 2,000 1,000 0 2007

2008

2009

2010

2011

2012

2013

Source: JMK Analizy Rynku Autobusow

Polish bus production up 4% in 2013 Leading makers & bus output figures

Established in 1996 by Solange and Krzysztof Olszewski, the family-owned Solaris has produced more than 11,000 buses to-date, which are in use in nearly 600 cities across 28 countries. The company employs 2,300 people in Poland and 500 abroad. Besides buses and coaches, Solaris makes trams and trolleybuses. Last year Solaris produced 1,302 vehicles, including 75 trolleybuses, and turned over approximately PLN 1.5bn. It has two factories in Środa Śląska, mak-

After reaching its lowest level in more than five years in 2012 (3,560 units), Poland's bust production rebounded last year and topped 3,715 vehicles (+4.3% y/y), of which 3,303 were exported, mainly to Germany, Sweden, and Norway according to market researcher JMK Analizy Rynku Transportowego. The two key categories were city buses (3,025 units; +10.6% y/y) and long-distance buses (543; +10.6% y/y). With 1,512 vehicles completed last year Germany's MAN remains the leading bus producer and exporter in Poland, followed by Polish Solaris (1,229), Volvo (699), and Scania (96). In addition to complete buses, Polish factories made 700 chassis and 250 bus bodies as well as 75 trolleybuses.

Maker

2013 Units

2012

Units

2011

Units

MAN

1,512

40.7%

1,343

37.7%

1,566

33.8%

Solaris

1,229

33.1%

942

26.5%

1,140

24.6%

Volvo

699

18.8%

699

19.6%

922

19.9%

2.6%

341

9.6%

500

10.8%

Scania Other TOTAL

179

4.8%

235

6.6%

504

10.9%

3,715

100.0%

3,560

100.0%

4,632

100.0%

Source: JMK Analizy Rynku Autobusow

Domestic carriers purchased 1,389 buses last year, marking an 8.6% improvement over 2012. The number one seller in Poland was Mercedes Benz with 542 vehicles registered in 2013 (including bodies from other manufacturers mounted on Mercedes chassis), marking a 19.6% increase against 2012. Polish Solaris came second with 318 units (+23.7%), followed by MAN (63) and Autosan (62). The latter, one of Poland's oldest companies, has been in receivership since October last year.

weekly newsletter # 048-49 / 25th August 2014 / page 3

POLITICS & ECONOMY

July sees sees continued weakness in industrial production, production, producer deflation deepens Poland's industrial output increased by 2.3% y/y in July vs. 1.9% y/y growth expected in the consensus survey by PAP Polish news agency, and rose by 2.0% from the prior month, the Central Statistical Office (GUS) said. The seasonally adjusted industrial output growth in July stood at 2.2% y/y and 1.1% m/m. "After two months of disappointments, industrial output for July was roughly in line with median market forecast. It confirms weaker growth of industrial sector at the turn of Q2 and Q3 and the outlook for the following months is not bright given external factors," commented BZ WBK analysts. "What is more, output in construction sector in July was a very negative surprise. Our forecast and market consensus pointed to increase by above 5%, while it was at merely 1.1% y/y. It looks like GDP growth slowdown to ca. 3% was not only a temporary phenomenon observed in Q2, but is continued also in Q3 and may persist in the next few quarters." The slowdown of industrial output is being driven mainly by poor performance of the manufacturing sector as well as weaker readings in mining and energy. According to economists, the situation is likely to deteriorate in August on the back of seasonal factors, before rebounding slightly in September, likewise due to statistical effects.

"All in all, given the external situation, with crisis in the East and signs of slowdown in the West, industrial output may continue to grow at a pace close to July's in the following months," BZ WBK's Maciej Reluga said. Producer prices dropped 2% y/y and remained flat from the previous month.

BANKING & FINANCE

US Brown Brothers Harriman creates 600 jobs in Krak贸w, more placements to come

Industrial output & producer prices Global financial services firm, Brown Brothers Harriman (BBH), is expanding its Krak贸w business centre. The office, which opened merely two years ago, is expected to reach a headcount of 700 staff by the end of this year. The company has signed a lease for more than 2,000 sq.m of additional office space in Krak贸w's Orange Office Park, bringing its total floor space up to 6,800 sq.m.

Industry output, y/y change Producer Price Index, y/y change 8%

-4%

-8%

-12% Nov 12

Jan 13

Mar 13

May 13

Jul 13

Sep 13

Nov 13

Jan 14

Mar 14

May 14

Jul 14

Source: GUS, the central statistical office

"Prices in manufacturing have declined each month so far this year and the 12-month deflation is already at 2.4%. Interestingly, this is happening even despite the roughly stable zloty exchange rate. Obviously, there has been no sign of a price pressure on Polish producers already for some time," BZ WBK experts commented, adding that the weak industrial output data combined with no inflation give Poland's monetary policy council considerable room for maneuver.

Back in the summer of 2012, when we last spoke to Michael McDonald, Managing Director of BBH's Krak贸w office, the company sought to recruit 250-350 professionals in the initial two years of operation and gradually increase that number to reach more than 500. Two years later, as of mid-2014, BBH already has 600 staff in Poland and an appetite for more. A privately held financial services firm founded in 1818, BBH employs 4,700 people across seventeen global offices and three business lines: investor services, private banking, and investment management. Investor Services, BBH's largest business line, comprises global custody, fund accounting, fund administration and other services related to asset servicing. With approximately USD 3.8 trillion in assets under custody and administration, BBH ranks among the world's leading global custodians, asset administrators, foreign exchange and securities lending providers.

weekly newsletter # 048-49 / 25th August 2014 / page 4

The Kraków business centre, one of five European BBH offices, is an important part of BBH’s Service Delivery business line providing accounting, administration, global custody operations and client service for asset managers and financial institutions. In addition, the firm has built out a Technology division focused on development initiatives closely aligned with its business in Europe. The office is a wholly owned subsidiary of BBH & Co, and an integral part of the overall BBH organization.

Poland Today talks to: Michael McDonald, Managing Director of Brown Brothers Harriman Polska

• PT: When we spoke in 2012 your target was to onboard some 200-300 employees in Kraków over the first two years. Exactly two years later your headcount is 600. How did that happen? Michael McDonald: Despite the thorough research that led to us choosing Kraków as the ideal location of our new office, the growth we have experienced since opening has definitely surpassed our expectations. We began recruiting around mid-2012, so it's been just over two years and indeed we already have 600 employees onboard and plan for more. This achievement is a reflection of the deep talent pool available here in Kraków, both among university graduates and in general across the talented workforce in the Kraków market. The Kraków office has proven to be an excellent

complement to our global service model, both in terms of servicing our external clients as well as supporting other parts of the BBH organization. • PT: Which services or processes have fuelled this growth to the largest extent? MMD: Our growth in Poland to-date has largely been the result of increased alignment of our operating and servicing models, with the needs of our clients. This meant bringing components of our technology, operations and client services together in a central European location. In doing so, we created a new platform for innovation and collaboration which has helped us further enhance our client service levels globally. We will soon have close to 600 staff in Kraków focusing on Service Delivery and technology. The impressive expansion of our Kraków office is also testament to how quickly it was able to align with BBH’s global organization and take on critical functions. The key benefit of this office has been its ability to grow effectively and support our business and clients around the world. Looking back at our analysis of sites for the new office, I can now say confidently that we chose the right location for BBH. • PT: Can you tells us more about your plans for the coming years? MMD: Our future growth will stem from the organic growth of our clients’ businesses, as well as new business in Europe brought onboard thanks to the improved service model and increased servicing capacity we can now deliver directly from Kraków. We opened this office with the expectations we would have the ability to grow our resource base rapidly if and when needed. We are capitalizing on that flexibility now our long-term staffing target is around 1,000 people. We are in the process of relocating from three different sites in Kraków to our fantastic new offices at Orange Business Park where we should have some 800900 seats available by the end of the year..

Orange Office Park will provide, when completed, 29,000 sq.m of retail and office space and 550 parking places. Phase one of the development was completed in July 2014. The complex is located in Kraków's Zabłocie district on the newly constructed two-level junction of Nowohucka and Klimeckiego streets. The developer behind Orange Office Park is East-West Development Office sp. z o.o. – a company controlled by the Luxembourg-based property holding Chateau Thei SA, which is active in the real estate development industry in the Netherlands, Belgium, Germany, Austria and Poland. CFE Polska is the general contractor. Image: C&W

• PT: One hears a lot about the Kraków market getting saturated, with growing numbers of BPO/SSC firms looking at other Polish cities in search of competitively-priced candidates. Has this been your experience as well?. MMD: Since our Kraków office is a business centre fully integrated within the global BBH platform as opposed to BPO/SSC, we require a variety of different skill sets. Our recruitment efforts have therefore not been affected by any perceived saturation in the market. Surely, wages have been on the rise but they remain competitive from our point of view and cost was definitely not our reason for opening an office in Kraków. I am comfortable with the Kraków market and thanks to its strong demographics I am confident we can achieve our goals. With a hiring strategy that

weekly newsletter # 048-49 / 25th August 2014 / page 5

targets a high percentage of new university graduates, I don’t see that talent pool drying out in the foreseeable future. • PT: Have there been any challenges at all then? MMD: There is room for further development in Poland’s Investment Funds sector which can pose challenges in terms of recruiting highly relevant staff experience in the local market. We have been able to draw on BBH’s global expertise to provide knowledge transfer and development initiatives for our local staff. But importantly, we are committed to professional development programs and promoting internal mobility within this office, so we are seeing employees ramp up their knowledge levels quite quickly. As the sector grows so will the number of experienced candidates, as well as the understanding of how we can grow collectively as a market.

ENERGY & RESOURCES

Poland hoping to renegotiate gas deals with Russia as new import routes open up Despite rising tensions between Moscow and the West, Poland's natural gas monopolist PGNiG will attempt to negotiate both price and volumes in its contract with Russia's Gazprom once the negotiation window opens in November, CEO Mariusz Zawisza told a news conference. To date, the contract included a "take or pay" clause with Poland paying much higher prices for Russian gas than its Western European peers.

"We are conducting studies to get ready for renegotiation," Zawisza said. "Gas prices no longer follow crude oil prices and therefore we want to talk first about a greater correlation with market prices, then about a greater elasticity in volumes purchased," he added.

terminal in Świnoujście next year will boost that figure beyond 100%. PGNiG is currently "in advanced talks" with Qatargas concerning LNG supplies to the new terminal, CEO Zawisza said last week, adding that PGNiG is "on a positive negotiation path." Poland was supposed to accept first shipments in January 2015, but construction of the LNG terminal still has not finished and the facility is expected to become fully operational mid-2015. Lately Poland has built a brand new interconnector to the Czech Republic, expanded an existing pipeline to Germany as well as enabled reverse flow of gas via the Yamal-Europe pipe, which until recently had been used only to pump Russian gas westbound. Further cross-border connections are to be developed to Slovakia and Lithuania.

According to the investor Polskie LNG and government ministers, the construction of the new LNG terminal in Świnoujście was 90% complete as of mid2014 (see BR+ No. 041 for more details on the project). Photo: Polskie LNG

In mid-June Russia suspended direct deliveries of gas to Ukraine, but transit shipments to EU customers via Ukraine have so far continued. However, as hostilities in eastern Ukraine continue, and Russian economy begins to feel the pain of Western sanctions, there are growing concerns about the future of this import route.

More pipelines, more security

Poland consumes an estimated 15 bn. cb.m of natural gas per annum, of which 11bn cb.m is imported, mainly from Russia. Following recent investments in crossborder transmission infrastructure, Poland can now theoretically import up to 70% of its gas from the West, and the much awaited launch of the new LNG

In the unlikely case of Moscow cutting gas deliveries to Poland, the country can receive up to 7bn cb.m per annum from Germany (of which 5.5bn cb.m via the Yamal pipeline) and a further 0.5bn cb.m from the Czech Republic, which together represent some 70% of the country's gas import needs. Poland extracts approximately a third of its gas domestically.

ENERGY & RESOURCES

Polish power power group Tauron and steel giant ArcelorMittal create energy joint venture Power group Tauron has inked a partnership agreement with units of Europe's top steel producer ArcelorMittal under which the two companies are to

weekly newsletter # 048-49 / 25th August 2014 / page 6

establish a 50/50 owned industrial energy joint venture. The new entity, Tameh Holding, will be in charge of operating and modernizing a number of energy assets currently held by both groups. The partnership agreement covers a period of 15 years with a possibility of extension. Tameh's (i.e. Tauron ArcelorMittal Energy Holding) generation assets will include ZW Nowa heat and power plant in Dąbrowa Górnicza, Blachownia power plant, southern Poland, both to be spun off from Tauron group, as well as heat and power plan EC Kraków and heat and power plant in Ostrava, the Czech Republic, to be taken over from ArcelorMittal subsidiaries, the statement reads. The main business objective of the planned venture is long-term, cross-border cooperation of the two companies. Plans also include the development of energy assets by Tauron and supply of utilities (i.a. electric energy, heat, blast furnace wind and compressed air) to ArcelorMittal units. The financial goal of the project is to generate funds for investments planned within the joint venture.

product range encompasses long products such as sections (including sheet piles), rails and railway accessories, and mining supports used respectively in construction, railway transport and mining industry, as well as flat products for the automotive, appliance and construction industries. Last year ArcelorMittal Polska produced 4.3m tons of crude steel. The company also owns the largest coke plant in Europe: ZK Zdzieszowice (30km south of Opole). Tauron is the second largest energy producer in Poland as well as the largest distributor of electricity. In 2013, the company made several investments including a modern power unit using cogeneration at its plant in Bielsko-Biała and two wind parks in Wicko and Marszewo with a combined power output of 122 MW. A 450 MW power unit is also currently being constructed in Stalowa Wola as well as a 413 MW unit in Łagisza. The latter is a PLN 1.5bn investment, of which up to PLN 750m may be contributed by Polskie Inwestycje Rozwojowe (PIR), a state investment vehicle (see BR+ No. 027 page 6).

"Extending our competencies in the field of industrial energy is in line with the groups diversification strategy," commented Tauron's CEO Dariusz Lubera. "It also opens up new perspectives for the two companies and offers an opportunity to lower their operational costs. Moreover, as a result of this undertaking, the working life o f both Elektrownia Blachownia and ZW Nowa will be prolonged."

In recent months Tauron broke ground on a PLN 618m heat & power project in Tychy (see BR+ No. 029 page 4), and signed a long-awaited PLN 4.4bn contract with the consortium of engineering firm Rafako and builder Mostostal Warszawa for the construction of a 910 MW power block at the Jaworzno power plant (see BR+ No. 032-33 page 8). With a total capex of PLN 5.4bn, the new coal-fired unit will replace older, much less efficient facilities at Jaworzno, bringing the site up to date with stricter EU emissions limits.

ArcelorMittal Poland is the country's largest steel producer, employing more than 11,000 people (14,000 including its subsidiaries). Its Polish business includes five plants located in Kraków and the Katowice area (Dąbrowa Górnicza, Sosnowiec, Świętochłowice, Chorzów), which represent some 70% of the total production capacity of Poland's steel industry. Their

Despite its ambitions investment pipeline, Tauron reported an 11% drop in net profit in 2013, with expectations of even weaker results in 2014 due to the statecontrolled utility's struggle with falling energy prices and weak demand caused by the sluggish Polish economy. The group posted a PLN 1.3bn profit on PLN 19.1bn turnover last year. In H1 2014 the respective

figures totaled PLN 9.23bn (-5% y/y) and PLN 734m (18% y/y).

PROPERTY & CONSTRUCTION

BBI tears tears down Sezam to make space for 13,000 sq.m Centrum Marszałkowska Polish property firm BBI Development has began demolition work on the communist-era department store Sezam, located at one of Warsaw's busiest crossroads, at the corner of Marszałkowska and Świętokrzyska streets. The investor seeks to develop a new office & retail project Centrum Marszałkowska with 13,000 sq.m of GLA at the site, which also happens to sit on top of a subway junction, linking the city's existing north-south and the future east-west lines, the second one of which is to launch later this year. One of the subway exits will pass through the basement of the new building, making it Poland's only commercial building integrated with a subway station. Sezam belongs to Warsaw grocery cooperative WSS Społem, which more than half a decade ago struck a deal with a property developer Juvenes to demolish the building and build a brand new project at its 2,920 sq.m site. Juvenes later became part of BBI Development, which was hoping to break ground on the project in 2011. In the end, the developer has decided to wait for the east-west metro line to reach completion before embarking on the construction of Centrum Marszałkowska. The investor is hoping to complete the demolition of Sezam and begin construction in early 2015, with plans

weekly newsletter # 048-49 / 25th August 2014 / page 7

to finalize the project two years later. Floors -1 and 1 of the new will be home to WSS Spolem's retail units and Warsaw's oldest McDonald's restaurant, which occupied parts of the old Sezam. The overground section of the planned building will be ten stories high, to match the surroundings. The lowest underground level will house a parking lot with 106 spaces.

BBI is hoping to complete Centrum Marszałkowska (pictured in the middle) by the end of 2017. Image: BBI

According to earlier plans, the project were to cost some PLN 100m. BBI Development will hold a third of shares in the project, the rest belonging to WSS Społem. The two companies cooperated on another project, Plac Unii, which BBI Delivered a few months ago at a site that had been previously occupied by a WSS Społem flagship store. Plac Unii City Shopping opened in October 2013 just off the Plac Unii Lubelskiej roundabout in the city centre. Developed by Belgium's Liebrecht & wooD (majority investor with a 60% share) and BBI Develop-

ment, the 15,500 sq.m shopping center is part of PLN 600m mixed use development Plac Unii that comprises three buildings with a total GLA of 56,800 sq.m, and includes also 41,300 sq.m of class A+ office. The two partners are currently seeking buyers for the property. BBI and Liebrecht &wooD last year struck a deal on another major office & retail project in Warsaw, the Koneser project in the Praga district. Located on a 5ha site between Ząbkowska, Nieporęcka, Białostocka and Markowska streets, the project will comprise over 300 housing units, 22,500 sq.m of retail and service space and 22,000 sq.m of offices. Liebrecht & wooD joined forces with BBI Development to develop the retail & office section of Koneser, which constitutes around 59% of the total space at the complex. The investment value is set at PLN 450m, and the completion of the project is planned for 2017. The Flemish investor has acquired close to a 50% share in the commercial section of Koneser.

1,000 apartments and 6,000 sq.m on the newlyacquired plot over the coming years. The acquisition is part of Robyg's expansion strategy, communicated last year, under which the developer seeks to spend up to PLN 150m on acquisition of investment sites in Warsaw over the 2014-2016 period. The company has recently bought a 5,500 sq.m site in the Żoliborz district for PLN 10m. "It's one of three largest deals in the Polish land market this year," says Emil Domeracki from Colliers which represented the seller, Landia. Colliers representatives told Poland Today the site bought by Robyg is located somewhere between Puławska St. and Sikorskiego Ave. in what is being seen as the Polish capital's next residential development hotspot.

BBI's other major future undertakings will be a 180metre class A office skyscraper in the very centre of Warsaw, at the corner of Emilii Plater and Nowogrodzka streets. In the residential segment, BBI is developing luxury condos as part of its Rezydencja Foksal project near Warsaw's high street Nowy Świat.

PROPERTY & CONSTRUCTION

Robyg acquires site for huge new residential project in Mokotó Mokotów Property developer Robyg has acquired an 8.5ha site in Warsaw's Mokotów district for PLN 68.5m . The Warsaw-listed firm plans to develop approximately

Polish company Nasze Miasteczko Development was one of the first to invest in this part of Mokotów with its upscale residential complex Potoki Residence. Image: Nasze Miasteczko Development

Two years ago Robyg's competitor Ronson acquired a 12ha site in the same area (Jaśminowa St.) for PLN 65.6m where it plans to develop approximately 700 apartments. Phase one of the project, with 116 units, is to be put up for sale by the end of this year. Jaśminowa St. will be also home to the second Warsaw investment by Skanska Residential Development Poland.

weekly newsletter # 048-49 / 25th August 2014 / page 8

The Swedes acquired some 7ha of land from a group of private owners with plans to build close to 800 apartments. Phase one, with 61 units, will be available for purchase on the coming weeks.

developed at site of WTW's current headquarters on Wioślarska St., on the left bank of the Vistula river at the estimated cost of PLN 100m. WTW's partner in the project is a private investor Villa Natura Por Develop.

Interestingly, thanks to a quite restrictive zoning plan for the area, only low-rise buildings (no more than three stories high) can be built in this part of Warsaw, which combined with the relatively attractive location and abundance of greenery make all developments in the area rather pricey. Housing units at Potoki Residence, a project currently under construction nearby, are being listed at PLN 9,800-12,800 per sq.m, which is steep for Warsaw standards. "This area of Mokotów, alongside the Jana Kazimierza neighborhood in Wola and Miasteczko Wilanów will see the highest concentration of residential projects in the coming years," concluded residential market analyst Katarzyna Kuniewicz from the property consultancy REAS at a recent press briefing. As for Robyg, the company has projects under construction in Warsaw's Wilanów, Żoliborz and Bemowo districts. In the first half of the year the company sold over 1,000 units in Warsaw and Gdańsk, marking a 50% improvement y/y, while its full year target is 2,000, and medium-term annual target - 2,500 units.

PROPERTY & CONSTRUCTION

Ground is broken on first riverfront office building in Warsaw The Warsaw Rowing Association (WTW) has broken ground on the first riverfront office building in the Polish capital. Dubbed "The Tides," the project will be

The Tides, pictured in the center, will occupy a unique location right on the left bank of the Vistula river. Image: WTW

The entire project will comprise of two buildings: the new head office of WTW as well as a six-story office and hotel building with 12,500 sq.m of office space and 112 parking spaces, including 75 in an underground garage. An additional 500 sq.m has been earmarked for a river view restaurant. The Tides, which is to reach completion by early 2016, will include also a small extended stay hotel with 12 suites. Designed by APA Kuryłowicz & Associates, the Tides will apply for BREEAM sustainable building certificate with a 'Very Good' grade. The project does not offer office units smaller than 1,000 sq.m as the investor has decided that all tenants should be able to enjoy a view over the river, which seems to be the project's unique selling point, besides its own marina.

TRANSPORT & LOGISTICS

Top automotive parts distributor to expand into outsourcing Poland's leading car parts distributor Inter Cars seeks to expand into outsourcing with plans for a large investment in Zakroczym, near the Warsaw-Modlin airport, just north of the Polish capital. Inter Cars' subsidiary ILS is to develop a logistics project and shared services centre at the site that a few weeks ago became part of the Warmińsko-Mazurska special economic zone. According to initial plans, the project will create 200 jobs and cost PLN 155m to reach completion. "All I can say at this point is that we remain committed to meeting the investment targets we presented to the special economic zone," Inter Cars spokesperson Zeonon Kosicki tells Poland Today. "We are currently in the process of selecting a general contractor for the project and we should be able to disclose more details once this has been finalized," he adds. According to earlier reports, the facility is to provide logistics, bookkeeping, IT, contact center and R&D services for Inter Cars as well as external clients. The highly automated site is to significantly boost Inter Cars' position on the European market and enable the company to compete for logistics outsourcing contracts from the likes of Amazon, which is reportedly seeking a partner in the region to handle its entire automotive orders division. The investment is of significant importance for the northern part of the Mazowsze region, which remains seriously underdeveloped, despite its proximity to Warsaw. It could also boost cargo operations at the

weekly newsletter # 048-49 / 25th August 2014 / page 9

Modlin airport, whose existence currently depends entirely on the Irish low-cost Ryanair.

Inter Cars Group's key financials Revenues in P LNbn, left axis Net result in PLNm, right axis 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

175 150 125 100 75 50 25 0 2008

2009

2010

2011

2012

2013

Source: Inter Cars

Established in the early 1990s and listed on the Warsaw Stock Exchange at the end of 2004, Inter Cars is currently Europe's 5th largest automotive parts distributor and number 10 globally. With a staff of more than 5,800 the company turned over PLN 3.5bn in 2013, of which more than a third was generated by its foreign units. Its net earnings totaled PLN 148m, up from PLN 100m in 2012.

on the country's industrial property market by real estate consultancy JLL proves that investor confidence in the sector remains very strong. With 811,000 sq.m of warehouse space under construction in Poland as of mid-2014, the market is showing its best performance since 2008. "After a successful 2013, when gross demand for industrial facilities across Poland totaled 1.89m sq.m, the market has not displayed any signs of deceleration in 2014. In the first half of 2014, gross take-up stood at 912,000 sq.m, of which 526,000 sq.m was in new contracts. Assuming that the next two quarters will not experience any major slowdown, a total of 1m sq.m will be leased to new tenants in 2014. Once again the market has been primarily driven by logistics operators. In addition, we also see an increasing share of space being designated for the growing e-commerce sector," says Tomasz Olszewski, Head of Industrial CEE, JLL.

Largest warehouse owners in Poland As of 1H 2014, in % of total stock Prologis 26%

SEGRO 13%

markets are driven mainly by lease renewals, with Poznań and Wrocław taking the lead in terms of new demand with the respective 103,000 sq.m and 87,000 sq.m in new leases. Once again, the highest demand came from logistics operators, whose new leases totaled more than 254,000 sq.m, which is 48% of entire net demand. However, the largest single transaction involved a retail chain for which Goodman will deliver a 40,000 sq m project near Konin. The average transaction in H1 2014 was for 4,700 sq.m. According to JLL's warehousefinder.pl, since the end of 2011, the vacancy rate registered on the Polish market has ranged between 10% and 12%. At the end of H1 2014, it stood at 10.5% (817,000 sq m). Among the five largest markets, the highest vacancy rate continues to be found in Central Poland (17.2% - 203,000 sq m). In the Piotrków Trybunalski area alone tenants can choose from 102,000 sq m of empty industrial space. The lowest availability of warehouse space is to be found in Western Poland. Both in Poznań and Wrocław vacancies are slightly over 50,000 sq.m (4.7% and 6.2%, respectively). Moreover, since this floor space is divided between a number of parks, tenants seeking larger areas often need to consider working with a developer on the delivery of a brand new scheme.

TRANSPORT & LOGISTICS

JLL confirms massive upturn in Poland's industrial property sector with 0.8 sq.m under construction Although recent macroeconomic updates from Poland have been rather disappointing, with slower than expected growth and weak demand, a brand new report

Blackstone 12% Panattoni 5%

Other 44% Source: JLL

With 245,000 sq.m of leased space, the Warsaw Suburbs accounted for 28% of gross demand, followed by Upper Silesia with 18%. JLL points out that the two

During the first half of 2014, developers delivered 298,000 sq.m of new supply, marking an 85% increase on 1H 2013. The largest completions so far in 2014 have involved a BTS for Castorama in Stryków (50,000 sq.m), the extension of Prologis Park Wrocław V (35,000 sq.m), and a BTS project for Polaris completed in Opole. Panattoni was the most active of all developers in the first half of 2014, delivering 108,000 sq.m of space (36% share of total completed stock), and was followed by MLP with 43,000 sq.m (14%), and Prologis (35,000 sq.m - 12%).

weekly newsletter # 048-49 / 25th August 2014 / page 10

"During the last 12 months, construction activity has increased rapidly. At the end of H1 2013, nearly 250,000 sq.m was under construction. Today, developers are in the process of delivering as much as 811,000 sq.m of new market stock. This is the largest amount seen on the market since the beginning of the financial crisis in 2008. The vast majority of space under development will be delivered this year, meaning that the entire supply onto Poland’s industrial market is expected to be more than 8.6m sq.m. Furthermore, another sign of the market's buoyancy is that the number of speculative projects is on the increase. Almost 80,000 sq.m is now being delivered without any binding lease agreement, the highest volume since the end of 2009," Tomasz Olszewski added.

tail sector. Panattoni and Goodman have the largest amounts of construction activity among all developers (315,000 sq m and 282,000 sq.m, respectively). SEGRO is ranked third, with almost 77,000 sq m now at the development stage.

fundamentals of the Polish warehousing market to continue over the next 12 months, which should allow us to continue growing across all of Poland’s key logistics hubs, in which we already have an established presence."

In terms of the ownership structure of the Polish industrial market, more than half of existing floor space is in the hands of the three largest market players and their partners. The largest share of stock is owned by Prologis (26%), followed by SEGRO (13%) and Blackstone (12%). Despite being the most active on the development front, Panattoni owns merely 5% of the existing stock, as the company's strategy is to dispose completed projects.

Asked about the disappointing macroeconomic readings from the pest months and their impact on Poland's booming warehouse market, Mr. Ciesielczak replies:

Effective rents remain stable in 1H Key industrial market indicators as of Q2 2014 *Effective Region

rents EUR /sq.m/month

Warsaw inner city Warsaw suburbs Upper Silesia

TRANSPORT & LOGISTICS

Vacancy

Supply in sq.m

rate

3.5-5.0

15.6%

587,000

2.1-2.8

11.6%

2,064,500

2.4-3.3

9.4%

1,452,500

2.25-3.3

4.7%

1,086,000

Central Poland

2.1-2.8

17.2%

1,180,500

Wrocław

2.5-3.1

6.2%

815,000

Tri-City

2.5-2.9

9.5%

205,000

Szczecin

2.7-3.4

3.2%

61,500

Kraków

3.3-4.0

99,000

Poznań

Goodman to double Polish warehouse portfolio this year

Small Business Units

With 282,000 sq.m of warehouse space under construction, Australian-owned industrial property developer Goodman is soon about to double its Polish portfolio, which currently stands at 271,000 sq.m. Poland remains a key growth market for the company, Goodman confirmed in comments to their financial report for the fiscal year ended June 30, 2014.

The largest project underway in Poland is the Amazon BTS in Wrocław and Poznań, comprising three buildings with a total floor space of 324,000 sq.m. Other noteworthy projects include an 82,000 sq m warehouse for ITM by Goodman near Poznań ,and the previously mentioned building near Konin, which is being developed by Goodman for a tenant from the re-

"The last financial year was a very successful one for us. We signed a record number of contracts with global leaders in their respective markets as well as medium sized Polish and European customers. This has significantly increased our operating scale in Poland," said Błażej Ciesielczak, Regional Director Goodman Central and Eastern Europe. "We expect the good

Source: JLL *) refers to Big Box units except Warsaw inner city with

"Although the economic recovery has indeed slowed in the past months, it is still much higher than last year. An annual growth rate of 3% is sufficient for companies to think of expansion and new investments. The situation on the warehouse market is a testament to that. One can expect most new demand to be generated by logistics operators, which in Poland still have room to grow, as well as retailers, including ecommerce."

At the end of the last year, Goodman signed a deal with supermarket operator The Mousquetaires Group to develop and acquire a total of 127,885 sq.m of warehouse and office space in Poznań. Image: Goodman

During the last financial year Goodman inked prelease agreements for close to 300,000 sq.m of new space, most of which was covered by two huge transactions with Amazon and The Mosquietaires Group. For the US e-commerce giant, Goodman is

weekly newsletter # 048-49 / 25th August 2014 / page 11

constructing a distribution centre in Bielany Wrocławskie, near Wrocław. This 123,500 sq.m warehouse, which is to be ready by the end of September, will be one of the largest logistics facilities in Central and Eastern Europe. At the end of the last year, Goodman signed a deal with supermarket operator The Mousquetaires Group to develop and acquire a total of 127,885 sq.m of warehouse and office space in Poznań. Similar to other key warehouse developers, the upturn on Poland's industrial property market has prompted Goodman to embark on speculative developments, in addition to built-to-suit projects. "We own sites in all of Poland's key logistics hubs," Błażej Ciesielczak, Regional Director CEE at Goodman, tells Poland Today. "We want to continue expanding our main projects: Kraków Airport Logistics Centre, where in June we began a 11,000 sq.m speculative project as well as Pomeranian Logistics Centre where the construction of a new 14,000 sq.m warehouse will be launched in the second half of the year. Poznań and Wrocław remain particularly popular with tenants, due to their proximity to Western European markets and well-developed infrastructure. We have high hopes for our projects in these cities." With total assets under management of EUR 18.4bn and over 400 properties under management, Goodman is the largest industrial listed property group on the Australian Securities Exchange, and one of the largest listed specialist fund managers globally. The company employs more than more than 1,000 staff in 16 countries, which in Europe include Germany, the Netherlands, Belgium, Luxembourg, France, Spain, Italy, Poland, Czech Republic, Hungary, Slovakia and the UK. In the financial year ended June 30, 2014, Goodman posted an operating profit of EUR 414m, marking a 10% improvement on the prior year, while its net earnings came to EUR 452m. At the moment

the company is building 76 projects worth EUR 1.8bn across the globe.

TRANSPORT & LOGISTICS

New low cost airline to launch this autumn A new Polish low-cost carrier 4You Airlines, set up by Alfa Star travel bureau founders Sylwester and Izabela Strzylak in cooperation with entrepreneur Michał Mikołajczak, seeks to launch regular operations this winter season, the company announced. Although the airline is yet to obtain a proper aviation license, it has already launched ticket sales, planning to operate in the initial period as a tour operator. The first batch of 7,000 promotional tickets, priced at PLN 47 one-way, was put up for sale in mid-August.

Rzeszów to Barcelona, Paris, London, Milan, Dortmund, Brussels, Rome and Tel-Aviv. "Our goal as an airline is to bring our passengers closer to the world in a safe and competitive way. We are doing our utmost to make our offer appeal to the broadest group of travelers and we are currently working on our spring/summer 2015 timetable that will include even more destinations," says Michał Mikołajczak, deputy CEO of 4You Airlines.

Low costs control 54% of the market Passengers on routes to and from Poland incl. domestic, in million

Ryanair

LOT*

WizzAir

Lufthansa

EasyJet

Norwegian

SAS

2013 2012

Air France

The 4You Airlines fleet currently includes two Airbus A320 airplanes. Image: 4You Airlines

4You Airlines, which has so far operated as a charter carrier, flying Alfa Star customers to overseas holiday destinations, will start its regular schedule operations from November with connections from Łódź and

KLM 0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Source: ULC *) including Eurolot

So far every attempt to create a functioning Polish low-cost airline has ended in a spectacular flop, with

weekly newsletter # 048-49 / 25th August 2014 / page 12

the 2012 bankruptcy of OLT Express being a prime example. The number one player in Poland's aviation sector is Ireland's Ryanair, which last year beat flagship Polish carrier LOT on routes to and from Poland. According to data provided by the aviation watchdog ULC, Ryanair carried 6.585m passengers in 2013, nearly 2m more than in 2012, which translates into a 30% share in flights to and from Poland. Its main competitor LOT welcomed aboard only 5.858 passengers, some 317,000 fewer than in the prior year, even though the market expanded by 763,000 passengers, reaching nearly 22m. LOT's market share dropped below 27% last year from over 29% in 2012. Hungary's WizzAir ranked as number three in 2013, with 4.06m passengers, which represents a decline by 127,000, and a market share of 18.5%. WizzAir has taken the place of Germany's Lufthansa, which came 4th with 1.5m passengers and a 6.9% share in flights to and from Poland. Of remaining airlines only EasyJet had more than a 2% share in the Polish passenger aviation market. Overall, low cost carriers had a 54.1% market share last year, up from 47.5% in 2012.

"The success of Brama Mazur has exceeded our expectations. In a marketplace where a growing number of commercial properties are being built in mediumsized towns, this has been a huge achievement," says Paul Kusmierz, CEO of MMG. With a total floor area of 43,000 sq.m (ca. 17,000 sq.m of GLA), Brama Mazur includes 65 retail and service units and 500 parking spaces. Key tenants include MarcPol supermarket, RTV Euro AGD electronics store, SMYK kids goods retailer, Hebe drugstore, JYSK home goods shop, and a number of fashion & footwear outlets, including a full portfolio of LPP Group brands, as well as H&M, Deichmann, Carry, CCC, and Orsay. A separate building houses the region's only multiplex movie theater, operated by Planet Cinema. An area of 6,000 sq.m surrounding the centre has been transformed into a public park where various cultural events can be held.

From 2008-2012, MMG was responsible for Marcol Group's EREI Portfolio of 7 retail projects in Poland. In 2009, MMG delivered its first project as a developer, the 15,000 sq.m Galeria Niwa shopping center in Oświęcim, serving over 75,000 nearby residents. Next year, it was involved as a joint-venture partner in the development of Galeria Victoria located in Wałbrzych for a private equity investor. This 43,000 sq.m GLA regional shopping, hotel, and entertainment center was managed by MMG from opening through 2012. In 2011, MMG was mandated by the global private equity giant Blackstone to source, acquire, and manage their Polish retail property portfolio, King's Street Retail. The portfolio comprises 7 retail centers in Poland totaling 250,000 sq.m GLA, with Magnolia Park, Wrocław, currently undergoing expansion by 20,000 sq.m GLA. Since January 1, 2014, MMG has been responsible for the management of CPI's Polish office portfolio, including Orco Tower and Prosta 69.

RETAIL PROPERTIES

Brama Mazur shopping mall opens in Ełk with 17,000 sq.m of GLA Property company Master Management Group (MMG) has launched its newest shopping and entertainment centre in Poland – Brama Mazur. Located in Ełk, a city of 60,000 residents situated some 90km to the north-west of Białystok, Brama Mazur is to welcome its first customers on 13 August. A week before the centre's official launch, as much as 96% of its GLA was occupied.

Portfolio properties from Europa Capital to Balmain Asset Management, the first institutional retail property investment transaction in Poland focused on secondary and tertiary locations. The sale of this portfolio valued at EUR 65m put MMG on the map as a partner for international investors seeking to source investment opportunities in this new market.

Brama Mazur is the largest shopping centre in the northeastern corner of Poland. Image: MMG

Founded in 2006 by property investor Paul Kusmierz, MMG is a retail investment, development, and management company focusing on real estate projects and partnerships throughout Poland. MMG acted as a partner in the acquisition and disposal of the 14 Eagle

"The King's Street Retail portfolio had been under our management until May 1, 2014. This portfolio is being financed by Blackstone, who's also the asset manager. Brama Mazur, on the other hand, is our own project, with MMG acting as an investor, developer and exclusive property manager," Paulina Szymczukiewicz, marketing Manager at Master Management Group tells Poland Today.

weekly newsletter # 048-49 / 25th August 2014 / page 13

"We also recorded good results in trade and transport: their contribution was the same as last quarter," Dmochowska said. "We assess that slightly positive contribution came from the sector of financial and insurance institutions." The impact of the government sector institutions was neutral, as was the case for households, the official added.

POLITICS & ECONOMY

Flash estimate sees Q2 GDP growth at 3.2% Poland's GDP grew by 3.2% in annual terms in Q2 2014 and by 0.6% from the previous quarter in seasonally adjusted terms, according to a flash estimate by the Central Statistics Office (GUS).The result was in line with average projections. GUS will publish a full set of Q2 GDP figures, with a detailed breakdown of growth components, on August 29. The Q2 reading "confirms earlier assessments - we are faced with a stable, although slightly weaker economic growth," commented deputy head of GUS Halina Dmochowska told a press conference. "The growth rate decline was caused mainly by June results of manufacturing and construction," she said, adding that at the same time, the contribution of manufacturing and construction sectors to economic growth was likely positive, although slightly weaker than in Q1.

GDP growth in Poland (y/y)

Poland's Finance Ministry saw the key drivers of Q2 growth in consumption and investments plus inventories, the ministry said in a statement. Net exports, in turn, had a neutral or slightly negative contribution to GDP growth in Q2, the ministry statement reads. The Polish economy is set to double its pace of growth, according to the European Commission, which predicts GDP will rise 3.2% in 2014 and 3.4% in 2015 after last yearâ&#x20AC;&#x2122;s 1.6% expansion. Poland was expected to outperform the European Unionâ&#x20AC;&#x2122;s largest postcommunist members this year and in 2015, but the projections do not yet take into account the impact of the Ukraine crisis and weak recover in the West on the Polish economy.

Russian embargo may hit Poland harder than initially expected; Warsaw asks EU and and WTO to intervene

6% 5% 4% 3% 2% 1%

*) European Commission projections

*2015

*2014

2013

2012

2011

2010

2009

2008

2007

2006

0% 2005

In the case of Hungary and the Czech Republic, even though their economies have less direct exposure to the Russian market, exports overall represents a larger share of GDP than in Poland, which makes them also vulnerable to the Russian sanctions. However, while the chances of interest rate cuts as reaction to the slowing economy are increasing in Poland, their likelihood in Hungary and the Czech Republic is lower.

Key importers of Polish food As % of 2013 food exports Germany 23%

UK 7%

Russia 6%

POLITICS & ECONOMY

Source: GUS, EC

lower by as much as 0.5 percentage points this year, if government projections regarding the embargo's impact on exports prove correct. Economy ministry officials said Polish exports to Ukraine and Russia is likely to drop by the respective 40% and 20% this year. Prior to the ban, Morgan Stanley had estimated Poland's 2014 GDP growth at 3.6% - a figure that seems increasingly unlikely in the view of the recent string of disappointing macroeconomic updates from the country.

Poland is likely to be more severely affected by the Russian imports ban than other CEE economies, argue Morgan Stanley analysts in a recent report. According to the bank, the country's economic growth may be

Other 64%

Source: Ministry of Agriculture

Russia imposed a 1-year imports ban on fruit, vegetables, meat, fish and dairy products from the EU, US, Canada, Norway and Australia on 7 August. The ban was imposed in response to Western economic sanctions against Russia, over its annexation of Crimea from Ukraine, and a pro-Russian rebellion in eastern

weekly newsletter # 048-49 / 25th August 2014 / page 14

Ukraine, which Western capitals accuse Moscow of fomenting. Last year Poland's exported EUR 1.3bn worth of food and agricultural products to Russia, of which EUR 840m were products covered by the new embargo. As the world's biggest apple exporter, Poland is now stuck with some 700,000 tons of the fruit it usually sells to Russia. Poland has asked the European Commission to send a formal complaint to the World Trade Organization (WTO) over the Russian ban on imported EU food products that has hit Poland particularly hard, the Polish Economy Ministry said last week. After a meeting European Trade Commissioner Karel De Gucht, who represents EU members in all WTO cases, Poland's Agriculture Minister Marek Sawicki said that first decisions on the lawsuit could be made as soon as September 12. The WTO, should it rule in favor of any Commission complaint, could fine Russia for violating regulations on open markets. On April 8, the European Commission opened a WTO dispute against the Russian embargo on EU pork imposed earlier this year. The EU has earmarked EUR 125m worth of compensation funds for European fruit and vegetable sector. Brussels will use the money to withdraw a certain amount of produce from the markets in order to keep prices from plunging. These extraordinary measures will be in force until the end of November. Polish producers are well aware, however, that EU emergency handouts are hardly a solution to their troubles. The Polish agriculture ministry estimates that some 15% of the surplus generated by the Russian ban can be redirected to other markets in the European Union and beyond. Polish producers are counting particularly on Arab countries as wells as the US and Belarus. Finding new customers is bound to be an uphill struggle, however, as Polish exporters will be competing with companies from other countries affected by the Russian embargo.

According to a quarterly report by the country's Economy Ministry, Polish exports and imports are expected to increase by the respective 9% and 8% this year, resulting in a trade deficit of just EUR 0.6bn, down by EUR 1.4bn from the 2013 level. Nominally, exports are to reach EUR 168..9bn and imports – EUR 169.5bn in 2014. However, the forecast may require adjustment for the effects of the UE-Russia trade dispute, officials said. Poland's exports in H1 rose 5.4% y/y to EUR 80bn, while imports increased 4.5% to EUR 80.2bn, preliminary data from the Central Statistics Office (GUS) showed.

POLITICS & ECONOMY

Poland sees its first ever deflation deflation as result of Russian sanctions Polish consumer price inflation plunged into negative territory in July for the first time in 32 years, since the country's central statistical office started collecting the data. Thanks to lower cost of food, clothing and fuel, Poland’s consumer-price index edged down to -0.2% y/y in July, reversing its 0.3% annual increase in June, in line with average projections. "This result almost entirely due to positive supply shocks," commented BZ WBK economist Maciej Reluga. "Because of recent sanctions, oversupply of food on the domestic market will be observed also in the upcoming months, prolonging the period of negative CPI to several months. Lower inflation path and the risk of economic slowdown increase the probability of interest rates cuts," he added.

Food prices declined 1.7% in July compared with a year earlier, fuel prices were 1.0% lower and clothing prices dropped 4.9%. "As far as changes of other goods and services are concerned, there were no surprises apart from communication, where prices grew for the second consecutive month, reflecting the introduction of new mobile tariffs. Evidently, the price war between cellular networks has ended," Reluga commented. According to the Economy Ministry, the food embargo introduced by Russia creates a threat that deflation in y/y terms will hold for a longer time than was previously assumed. The deepest price cuts concern fruit and vegetables as they represented more than 50% of the total food exports to Russia. Fruit and vegetable prices are likely to decline even by 10% year on year and by even 20% in the case of apples, Credit Agricole economist Jakub Borowski said. "In August 2014, the price decline should deepen and reach 0.3%, mostly on account of a further decline in food prices," Economy Ministry analysts said. After assessing the situation, the ministry may adjust budget plan for 2015 budget bill, the ministry said. Economists argue that the deflation should strengthen the case for a rate cut in coming months as Poland’s central bank has kept its interest rate on hold at 2.50% since July 2013.

IN BRIEF: Poland's average corporate gross wage stood at PLN 3,964.9 in July, an increase of 3.5% y/y or 0.6% from the prior month, the Central Statistics Office (GUS) said. Poland's corporate employment measured 5.531m persons in July, up by 0.8% y/y and up by 0.1% m/m.

weekly newsletter # 048-49 / 25th August 2014 / page 15

KEY STATISTICS Consumer Prices Prices

Inflation

-1.1

Alcohol, tobacco +3.9

+0.3 +3.9 +0.2 +4.0

+0.1 +4.0

0.0

Clothing, shoes

-4.4

+2.8

-4.6

-0.1

-4.7

-0.8

-4.9

-2.8

Housing

+1.7

0.0

+1.6

0.0

+1.6

-0.1 +0.6

0.0

Transport

-2.1

-0.1

-0.1 -0.4

-0.6

-0.2

Communications

-1.7

-1.5

+0.3

0.0

Gross CPI

-1.1

-0.1

+0.3

0.0

+2.3

-2.7

-1.1

+7.0

+3.1

+8.4

+3.8

+1.2 2013

Year

2009

2010

2011

2012

Turnover in PLNbn

582.8

593.0

646.1

676.0

n/a

-1%

y/y (%)

+4.3

+5.5

+11.6

+5.6

+2.3

-1.0 +0.8

+1.3 +2.4 +2.6

+0.2 -0.1

+12.5

y/y (%)

+1.2

Jul 14

-1.7

May 14

-0.3

Mar 14

-0.9

m/m

Jan 14

-0.8 -0.4

Nov 13

-0.5

Mar '14 Apr '14 May '14 Jun '14

-0.6

Sep 13

+0.3

Feb '14

m/m (%)

y/y

Jul 13

Food & bev

Month

May 13

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

Retail Turnover

Mar 13

Jul '14

Jan 13

Jun '14

Nov 12

Sector

May '14

Jul 12

Apr '14

Sep 12

Data in (%)

Residential Construction Dwellings

-0.2 -0.2

2009 2010

2011

2012

2013 Jan-Jul y/y 2014

(%)

178.8

174.9

184.1

165.1

138.7

92.2

+18.9

158.1

162.2

141.8

127.4

85.5

+18.9

(in '000 units)

Producer Prices Prices

Industrial Output

Permits Commenced

142.9

m/m (%)

0.0

-0.1

-0.2

-0.1

0.0

m/m (%)

+2.9

-1.8

+9.4

-2.3

-1.7

-0.1

+2.0

U. construction

670.3 692.7 723.0

713.1 694.0 700.9

-0.4

y/y (%)

-1.0

-1.4

-1.3

-0.7

-1.0

-1.8

-2.0

y/y (%)

+4.1

+5.3

+5.4

+4.4

+1.7

+2.3

Completed

160.0 135.7

152.5

-2.7

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

Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14

-0.1

0.0

-1.7

-1.6

-1.5

-1.4

-1.3

-1.2

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

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

y/y (%)

+18.7

+24.2

+3.2

+14.0

+16.9

+0.9

-3.9

+14.4

+17.4

+12.2

+10.0

+8.0

+1.1

2007

2008

2009

2010

2011

2012

2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

138

8,615

196 6,333 144

+1.6%

1,635,746

-1.3%

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%

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

158 3,690

161 3,663 160

183 6,736 205 6,358 193

-20

100 80

127

174 6,654

173 6,695

174 6,986

138 3,666 130

Financial sector 6,702

151 6,109

137 6,602

148 6,749 152

National average 3,613 144 3,652

145 3,823

152 3,895 155

181

J ul 1 4

125 3,589

6,707

60 Apr 14

3,547

IT, telecoms

-40 J an 1 4

151

Transportation

Source: Central Statistical Office (GUS)

120

166 3,706 158 O ct 11

3,913

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

177 6,021

147 3,544

-1.1%

2013

y/y (%)

155 3,625

145 3,456

n/a

397,429

-1.3%

5,828

157 3,766 160 3,895

n/a

+3.4%

-1.9%

3,560

3,421 146 3,408

+3.2%

Q1 2014

455,528

Energy

3,693

Q22014

405,554

Manufacturing

Retail & repairs

Current account def. in % of GDP

+2.7%

Construction

GDP in PLN bn current prices

78.8

+2.0%

Oct 13

143 6,061

146.1

Q3 2013

J ul 13

6,290

Growth y/y unadjusted

131.7

Q4 2013

Year

Apr 13

Coal mining

-64.0

Source: The Central Statistical Office of Poland, GUS

Gross Wages Sector

m/m (%)

J an 13

y/y (%)

-0.2

Period

Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14

Oc t 12

Year

-0.2

Month

J ul 12

y/y (%)

Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14

Ap r 12

m/m (%)

Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14

Construction Output

Construction Prices Price s Month

Month

Jan 12

Month

The economic sentiment (1990-2010 average = 100) is a composite made up of 5 sectoral confidence indicators, which are arithmetic means of seasonally adjusted balances of answers to a selection of questions closely related to the reference variable. Source: Eurostat

Key Economic Data & Projections Indicator

2010

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+0.3%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

-1.4%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.6%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.3%

Unemployment**

12.4%

12.5%

13.4%

12.2%

3.99

4.12

4.19

4.20

4.12

EUR/PLN

2011

2012

2013

*2014

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

weekly newsletter # 048-49 / 25th August 2014 / page 16

56.16 ↓

100 SEK

45.77 ↑

100 NOK

51.36 ↑

10,000 JPY

USD EUR

350

300

15.06 ↓

100 CZK 10,000 HUF

400

303.86 ↓

as of 22 August 2014

WIG-20 stocks Price Change Change in alphabetical 22 Aug 8 Aug end of order '14 '14 '13

WIG Total index

133.40 ↓

Money Supply

PLN (up to 1 year)

4.2%

4.5%

4.4%

4.5%

PLN (up to 5 y )

4.9%

4.8%

4.9%

4.8%

PLN (over 5 y)

4.8%

4.7%

↑ Asseco Pol.

PLN (total)

4.8%

4.7%

↑ Bogdanka

EUR (up to 1m EUR) 2.0%

2.0%

1.9%

2.0%

1.9%

↑ BZ WBK

EUR (over 1m EUR) 3.6%

3.4%

3.3%

3.0%

2.7%

3.4%

↓ Eurocash

Overnight

1 week

1 month

3 months

6 months

2.63%

2.60%

2.64%

2.65%

Mar '14

Apr '14

May '14

Jun '14

Monetary base

173,213

168,511

162,246

173,096

2.59%

↓ Grupa Lotos ↓ JSW

Central Bank (NBP) Base Rates

in PLN m

- Currency outside banks

↓ Alior Bank

Warsaw Inter Bank Offered Rate (WIBOR) as of 22 August 2014

Reference

Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

558,954 116,657 964,624

548,394

557,651

119,261

119,649

969,754

572,376 120,828

975,001 980,090

- Time deposits

422,990

439,137

435,386

426,351

980,377

986,142

991,120

996,171

- Net foreign assets 132,849 126,943 142,260 144,033 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

Lombard

NBP deposit

Rediscount

4.00%

1.00%

2.75%

+1%

-4%

52, 52,143. 143.10

43.3

+5%

-6%

Change 2 weeks

+7% ↑

114.55

+3%

-9%

Change end of '13

+2% ↑

364.25

+3%

-6%

34.8

-4%

-27%

WIG-20 blue chip index

29.55

-16%

-17%

31.9

-11%

-40%

2,439 2,439. 439.03

→ Kernel

27.52

-28%

Change 2 weeks

+5% ↑

↑ KGHM

135.2

+6%

+15%

Change end of '13

+2% ↑

8,250

+12%

-8%

↑ LPP

452

+1%

-10%

WIG Total closing index

↑ Orange Pol.

10.89

+9%

+11%

last three months

Credit

↑ Pekao

183.9

+9%

+2%

54,000

The financial sector's net lending in PLN bn,

↑ PGE

22.3

+7%

+37%

53,000

loan stock at the end of period

↑ PGNiG

4.89

+3%

-5%

52,000

39.35

+5%

-4%

51,000

38.8

+5%

-2%

50,000 49,000

Type of loan

↑ mBank

Mar' 14

Apr' 14

May' 14

Jun' 14

923,709

928,450

930,652

940,703

↑ PKO BP

- to private companies

267,553

270,886

273,360

276,709

↑ PZU

470.5

+6%

- to households

569,334

573,332

574,800

578,639

↑ Synthos

4.7

+3%

-14%

Total assets of banks

1,628,519 1,639,359 1,660,583 1,667,783

↑ Tauron

5.23

+2%

+20%

Loans to customers

↑ PKN Orlen

Source: Central Bank NBP

22 Aug 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

8 Jul 14

346.02 ↓

22 Aug 14

523.00 ↓

100 CHF

13 Jun 14

100 GBP

4 Apr 14

418.74 ↓

28 Jan 14

100 EUR

Key indices

Term / currency

450

15 Nov 13

315.20 ↑

6 Sep 13

100 USD

Stock Exchange

Average weighted annual interest rates

30 Jul 14

as of 22 August 2014

Interest rates

13 Jun 14

100 USD/EUR against PLN

Central Bank average rates

22 May 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-May 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-May 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Jun share 2014

IMPORTS in PLN bn 2013

share No

Country

Jan-Jun share 2014

2013

30,403

+10.6

10.9

69,304

10.9

20,794

+5.7

7.5

47,906

7.4

1 Germany

86,686 25.9% 162,548 25.1%

1 Germany

72,536 21.6%

3,667

+10.9

1.3

8,624

1.4

1,612

+1.0

0.6

4,150

0.6

2 UK

20,918

2 Russia

38,637 11.5% 79,578 12.1%

Crude materials except fuels

7,057

+3.4

2.5

15,744

2.5

9,065

-1.0

3.3

21,585

3.3

3 Czech Rep.

20,265

6.1%

40,110

6.2%

3 China

32,589 9.7%

Fuels etc

11,896

-2.0

4.3

30,013

4.7

31,333

+6.0

11.2

75,539

11.7

4 France

19,152

5.7%

36,367

5.6%

4 Italy

Food and live animals Beverages and tobacco

6.2%

42,138

6.5%

142,161 21.7% 61,127 9.3%

17,731 5.3% 34,940 5.3%

811

+33.7

0.3

1,864

0.2

1,071

+1.0

0.4

2,646

0.4

5 Russia

14,707

4.4% 34,069

5.3%

5 Netherlands

12,512 3.7% 25,409 3.9%

Chemical products

25,517

+5.5

9.1

59,103

9.3

41,641

+8.2

15.1

92,917

14.3

6 Italy

15,552

4.6%

4.3%

6 France

13,152 3.9%

Manufactured goods by material

55,193

+3.5

19.8

129,915

20.3

49,473

+8.4

17.7

112,392

17.3

7 Netherlands

13,366 4.0%

7 Czech Rep.

11,451 3.4% 24,054 3.7%

Machinery, transport equip.

107,483

+10.9

38.5

239,434

37.5

91,562

+5.1

32.8

216,608

33.4

8 Ukraine

6,174

1.8%

18,020

2.8%

8 USA

8,142 2.4%

17,431