Poland Today Business Review+ No. 005 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. 005 / 30th September 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING ATV maker Polaris Industries breaks ground on PLN 100m factory in Opole page 2

Inter IKEA Centre Group operates seven large retail centers in key Polish cities.

Photo: IKEA

Swedish giant expands Polish portfolio

Inter IKEA Centre Group, the Swedish furniture giant's retail property arm, have extended their Franowo mall in PoznaĹ&#x201E; and taken over one of Warsaw's largest shopping centers - Wola Park. The Swedes are eyeing more targets in Poland. page 10

WIG index at highest level since Feb '08

Warsaw Stock Exchange indices have returned to their precrisis glory on the back of better-than-expected performance of listed companies and encouraging macroeconomic data. page 3

tel. +48 881 650 600

TRANSPORT & LOGISTICS Gov't to speed up completion of Warsaw ring road page 9

BANKING & FINANCE Another year of "wait & see" ahead of CEE's M&A and private equity market page 4

CONSUMER GOODS & RETAIL Austrian EYEMAXX opens first MyBox shopping center, more to come page 12

ENERGY & RESOURCES State-controlled power utility Energa eyeing November listing on WSE page 5

IT & TELECOM Orange Polska bundles mobile and fixed line assets under one roof page 13

PROPERTY & CONSTRUCTION Investment trust Meridian Properties to raise EUR 170m from Warsaw IPO page 6

British Truphone launches Polish unit page 13

Mobile firm Polkomtel secures 23,000 sq.m in this year's largest office deal page 7 SERVICES & BPO ING Services picks new ecofriendly office location for Katowice center page 7 Hospitality chain Best Western on track to have 50 hotels in Poland by end of 2015 page 9

POLITICS & ECONOMY Final terms of pension reform may be less restrictive, Prime Minister says page 14 GUS & NBP confirm Polish economy on slow-growth track page 15 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 16-18

weekly newsletter # 005 / 30th September 2013 / page 2

MANUFACTURING & PROCESSING

ATV maker Polaris Industries breaks ground on Opole plant Polaris Industries, a US manufacturer of all-terrain vehicles (ATVs), broke ground in mid-September on its first foreign assembly plant in the Opole section of the WaĹ&#x201A;brzych special economic zone, in south of Poland. The project is to total PLN 100m and create 350 new jobs next year, according to information provided by the zone, but the final figures are likely to be much higher. "Opole, Poland was chosen due to the availability of skilled labor, location near the A4 motorway, and close proximity to the existing automotive supply base," Matthew Homan, Vice President Europe/Middle East/Africa (EMEA) at Polaris told Poland Today's Lech Kaczanowski earlier this year. "Despite a difficult economy, our EMEA business gained market share and recorded 5% sales growth, demonstrating that our team finds ways to win regardless of conditions. We're confident in the future of our European business. To better serve those customers, in 2013 we'll break ground on our first overseas assembly facility," top Polaris executives Scott W. Wine and Bennett J. Morgan explained the rationale behind the European investment in a letter to shareholders. "At full capacity we expect to employ over 500 employees in Opole. The plant will produce Polaris ATVs, and the Polaris Ranger and RZR side-by-side vehicles. Chassis welding, painting, and finished good assembly are the major processes that will occur within the

plant," Mr. Homan said. The plant's annual output, according to local authorities will top 250,000.

ence in the heavyweight cruiser and touring motorcycle market with the Victory brand.

"The figure will vary according to market and customer demands and is not determined at this time. Consistent with our other operations we will utilize a degree of local suppliers. Besides assembly, a product engineering and testing team, with the focus of meeting the needs of the European market, will be located in Opole," adds Matthew Homan.

The value of Europe's ATV sector was estimated at some EUR 2bn in 2010. There are no official figures on the number of quads in Poland, but some industry representatives speak of 80-100,000 units. These off-road vehicles (mainly inexpensive Chinese imports) used to be popular a couple of years ago, but a number of wellpublicized accidents and the resulting tightening of regulations, accompanied by economic downturn, have brought that boom to a halt.

MANUFACTURING & PROCESSING

Peixin machinery firm to make first Chinese IPO in Warsaw Polaris is one of the world's top producers of allterrain vehicles

Photo: Polaris Industries

The NYSE-listed Polaris is a recognized leader in the powersports industry with annual 2012 sales of USD 3.2bn and net income of USD 312m. Polaris revenue rose 21% last year, while over the past three years its sales doubled and its net income tripled. With 4,600 employees worldwide, Polaris seeks aims to become a "highly profitable, USD 5+ bn global enterprise," according to its management. The company designs, engineers, manufactures and markets off-road vehicles, including all-terrain vehicles (ATVs) and its trademark Ranger and RZR sideby-side vehicles, snowmobiles, motorcycles and onroad electric/hybrid powered vehicles. Polaris is among the global sales leaders for both snowmobiles and off-road vehicles but it has also established a pres-

Chinese machinery manufacturer Peixin International Group seeks to debut on the Warsaw Stock Exchange in October and raise EUR 21.35m net to finance a part of its investment program for years 20132015, which the company values at EUR 70m. Peixin International will be the first Chinese company traded on the Warsaw exchange. Peixin makes equipment and production lines for hygiene products (sanitary napkins, diapers, facial tissue), with exports (mainly to Asia, Africa, and South America) representing some 47% of its sales. The company has been on the market for more than two decades and it posted sales revenues of EUR 46.5m and a EUR 11.4m net profit in 2012. Its long-term strategy is to maintain a 50/50 ration between exports and domestic sales.

weekly newsletter # 005 / 30th September 2013 / page 3

The maximum price of Peixin's shares was set at PLN 25, and book-building for the issue was completed last week. Some 20% of shares will be go to retail investors, the rest to institutional investors in Poland, the prospectus showed. The company expects to debut on the WSE around October 10th, 2013.

reached this level was some seven months before the Lehman Brothers collapse and the global financial crisis that came in its wake. The recent rally on the Warsaw bourse began at an unusual time, during the summer, when trading is usually weaker than throughout the remainder of the year. This year, however, investors kept busy over the summer, encouraged by the first timid signs of recovery in Western Europe, with August trading volume reaching PLN 17.2bn, some 20% higher than in the corresponding month of 2012.

BANKING & FINANCE

WSE's main market index WIG in 2012-2013

Another year of "wait & see" see" ahead of CEE's corporate finance and private equity players

52,000 50,000

BANKING & FINANCE

Warsaw bourse's key index WIG rallies to more than 55-year high The Warsaw Stock Exchange's main index WIG passed the 50,600 points mark on Thursday, reaching the highest level in nearly six years. The last time WIG

42,000 40,000 38,000 27 Sep 13

12 Aug 13

9 May 13

26 Jun 13

18 Mar 13

30 Jan 13

7 Dec 12

5 Sep 12

22 Oct 12

19 Jul 12

1 Jun 12

36,000 13 Apr 12

Peixin seeks to take advantage of the outstanding growth opportunities China and India, where the market for hygienic products is booming thanks to a rapidly expanding middle class. With its EUR 70m investment program the company aims to increase its production capacity, focusing on high margin segments (such as sanitary napkins and diapers) and more advanced machines. A portion of the proceeds will be put towards R&D. Currently Peixin employs some 460 staff including 23 R&D engineers.

44,000

23 Feb 12

Photo: Peixin International Group

48,000 46,000

2 Jan 12

One of Peixin's production lines for baby diapers.

"The current surge in exports, particularly to emerging markets, should soon translate into solid quarterly financial results of Polish companies. It should become very clear already in final three months of this year. The two large IPOs, Energa and PKP Cargo, which are being currently prepared by the government, will further contribute to the positive trend," commented Piotr Lonczak, financial analyst at Bankier.pl.

Source: Warsaw Stock Exchange

Besides improvement on the macroeconomic front, Warsaw-listed companies were themselves a source of positive news. Many businesses, especially banks, posted much better results than could be expected in the context of the record low interest rates. Consequently, between early July and the end of August Citi Handlowy shares gained some 25%, BRE stock rose 20% and Pekao SA was up by 15%. The market took a momentary plunge at the beginning of September, after the Prime Minister announced details of the pension reform that will significantly weaken the position of the OFE funds, key investors on the Warsaw Stock Exchange. Looking back, it seems like many investors used this as an excuse to cash in on their summer gains, but the indices have fully recovered by now, reaching the best result since February 2008.

Although the 2012 & 2013 dealflow figures in Central & Eastern Europe have avoided the downturn seen in major eurozone markets, those hoping for a sudden boom in M&A activity across the region may need to exercise some more patience. This seems to be the message of Mergermarket's Central & Eastern European M&A and Private Equity Forum 2013, which last week in Warsaw brought together the region's corporate finance and private equity community. Poland Today was a media sponsor of the event, which saw M&A practitioners, investment bankers, heads of corporate development, private equity investors assess the current state of the CEE M&A market and discuss their projections for the near future. The general mood was that of "cautious optimism," with the "wait & see" approach dominating most discussions. Although the European economy seems to have avoided the worst-case scenario, drifting onto somewhat calmer waters, and despite an abundance of liquidity on the financial markets, private equity inves-

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CEE scores high on demographics

This year's edition of the Central & Eastern European M&A and Private Equity Forum, was held on 24th September at Warsaw's Westin Hotel Photo: Mergermarket

As far as investor origin is concerned, they represent mainly European capital, with very few overseas buy-

The one word that came up in many discussions and in various contexts was "demographics." For one, Central Europe remains an attractive destination for buyouts because it continues to offer the type of growth prospects the "Old Europe" can no longer sustain. Although far from the mind-blowing scale of the economic convergence one can witness in China or India, countries like Poland or the Czech Republic still have a great deal of catching up to do before they reach the living standards of their European peers. This explains why the consumer goods & retail sector attracts so much attention from private equity buyers - the growth scenarios and metrics are much clearer than elsewhere. Another key issue, also demographic in nature, is the fact that many CEE entrepreneurs who es-

Private equity investment in CEE in EURm 3,000 2,500 2,000 1,500 1,000 500 2012

2011

2010

2009

2008

2007

2006

0 2005

That explains why a vast majority of deals that do get done are the so-called "familiar transactions" that typically involve investors increase their stake in a business they know and understand. A good example of this trend was Generali's takeover of the central European insurance group PPF. The Italian group had been involved in the business for years and hence the transaction risk was low. So far this year as many as 82% of all CEE M&A deals were strategic buyouts with financial investors representing the remaining 18%.

The 2012 year saw a number of high profile M&A deals in Poland, mainly from the financial sector, such as the acquisition of Kredyt Bank by Santander and TUiR Warta by Talanx. The largest private equity transaction in Poland in 2012 was the EUR 400m sale of LuxMed, the leading provider of healthcare services in Poland to UK's BUPA. Nevertheless, compared to a record-breaking 2011, the value and volume of transactions in 2012 was significantly lower and Poland did not attract as many leading global funds. Regional private equity players remained active, however, and the M&A market observed a reasonable number of deals, including by Abris Capital, Enterprise Investors, Mid Europa Partners, Advent, Innova Capital, Value4Capital and MCI Management.

tablished their businesses shortly after the fall of Communism, are now nearing retirement, which makes the question of succession increasingly relevant. The panel on family business and M&A, where with PE practitioners and entrepreneurs discussed the challenges and opportunities involved in such projects, was one of the highlights of the forum.

2004

Playing it safe

ers. One big question seems to be how to attract Asian and American investors to the region, and according to experts, a period of sustained stability in the market and series of successfully finalized, large transactions, are needed to set the stage for big buyouts. Meanwhile, the few opportunities available across the region are there for local private equity buyers and strategic investors to grab.

2003

tors and corporate buyers are still iffy about acquisitions, whereas the potential sellers are not particularly eager to sell. "There is still a lot of uncertainty in the boardrooms, CEO confidence is low, and the occasional noise about certain transactions falling through tends to get blown out of proportion," is how one senior investment banker described the situation on the buyer side. As for the sellers, amid record low interest rates, many seem to be lacking a clear idea what to do next with the potential proceeds.

Source: EVCA/PEREP_Analytics for 2007-2012 data; ThomsonReuters/PriceWaterhouseCooper for previousâ&#x20AC;&#x2122; years data.

Opportunities in TMT, healthcare

In telecommunications, a sector that saw some major deals in Poland not so long ago, market insiders are not expecting much M&A action in the coming two years simply because few can make sense of it at the moment. Amid persisting uncertainty with regard to the dominant technology, business model, profitability, and regulatory environment, big buyers prefer to wait for the LTE and fiber network rollouts in key markets, such as Poland, to reach a critical mass, before making any further moves. The potential is certainly there, however, as Europe's TMT market still remains very fragmented vis-Ă -vis the US, and consolidation seems inevitable, with only a handful of TMT conglomerates being expected to remain on the market in the longterm. Another sector that received some extra attention at this year's event, was healthcare, put in the M&A spot-

weekly newsletter # 005 / 30th September 2013 / page 5

light by the Lux Med deal. One of CEE's most active buyers in the segment at the moment is the CzechSlovak private equity company Penta Investments, which is building regional healthcare and pharma retail businesses. Penta's representatives shared their insights on the challenges involved in healthcare projects, but their overall message was rather encouraging. Investors interested in CEE's healthcare sector should certainly be prepared to adopt a longer than usual investment horizon, with 7-10 years in Penta's case being the necessary minimum, but the long-term rewards can be worthwhile. However, the regulatory risk remains very high in CEE, even if longer time frames as well as geographic diversification help to reduce it, to some degree. When it comes to the most attractive segments of the healthcare market, hospitals seem to be the number one target, with some 30-40% of them being in the red and public owners running out of ideas on how to subsidize them for much longer. A significant portion of CEE's hospital segment, which receives roughly a half of the region's total healthcare spending, seems bound to be privatized in the coming years, so huge opportunities certainly exist, for the more daring and for the patient.

Lots of liquidity, lots of questions

One the financing front, things are said to be looking up, with banks being "back in lending mood," as one senior banker put it. There is, however, much less appetite for risk, with certain industries facing difficulty raising capital for strategic projects. The energy sector for instance, including renewables, which used to be the hottest thing only a few years ago, has lost its appeal, as the US shale gas revolution and dropping prices of green certificates made bankers allergic to financing development of power industry projects. Difficult access to bank credit in recent years has fuelled spectacular growth of the high-yield debt market. The latter remains reserved, however, only for the largest transactions. With Polish banks sitting on piles of cash, PLN-denominated high-yield bonds would be a wel-

come development, according to some panelists, but for now this still seems to be a song of the (perhaps not so distant) future. With printing presses at central banks in the US and Japan still working at full capacity, the markets remain over-liquid, but the question on everyone's mind is when this global experiment in quantitative easing will end and what impact will that have on financing. The good news for Poland is that there should be more than enough domestic funding to keep local investors busy, but some uncertainty remains, as the markets are yet to make sense of the planned changes to the country's pension system. Some market insiders argue that the Polish government's decision to nationalize treasury bonds held by the OFE pension funds, at the same time encouraging the latter to invest more aggressively in stocks and corporate bonds, may in fact stimulate M&A activity, while others fear stagnation.

ENERGY & RESOURCES

StateState-controlled power utility Energa eyeing November listing State-controlled power group Energa has filed its prospectus with financial market regulator KNF, as the Treasury prepares to float the company on the Warsaw Stock Exchange by the end of the year. Deputy Treasury Minister Pawel Tamborski said the IPO, which could raise up to PLN 2bn based on analysts' estimates, would take place in November. Energa is the country's biggest seller of energy produced from renewable sources such as wind farms and hydro-electric plants. Poland had earlier declared it wanted to keep a 50% stake in the company to retain corporate control. Thanks to changes to Energa stat-

utes turning 35% of company shares into privileged ones the Treasury has a greater flexibility in shaping the size of the offer.

Energa's HQ at GdaĹ&#x201E;sk's Oliva Gate office building. Photo: Energa

In 1H 2013 the group saw its revenues come in at PLN 5.8bn, marking a 3% improvement y/y, resulting mainly from a higher distribution tariffs. Its EBITDA rose 6% y/y, to PLN 1.127bn (a margin of 19%), whereas the consolidated net profit topped PLN 533m (up 4% y/y). Electricity sales were 15.44 TWh, up 9% over the same period last year, whereas the Groupâ&#x20AC;&#x2122;s gross electricity generation came to 2.5 TWh in 1H 2013. Energa has recently embarked on an ambitious investment program which envisages PLN 12.5bn worth of capital expenditures in the distribution segment alone by 2021. In January-June 2013 the group invested PLN 1bn, some 28% more than in 1H 2012. In line with Energa's strategic focus on development and modernization of the grid, its distribution subsidiary Energa-Operator received the largest share of that amount (PLN 553m). Thanks to these ongoing investments, the GdaĹ&#x201E;sk-based company is steadily enhancing energy security and the reliability of supply. In 1H 2013 the group supplied more than 10 TWh to more than 2.9m clients.

weekly newsletter # 005 / 30th September 2013 / page 6

In a move to diversify the sources of financing for its investments, in June Energa signed an agreement with the European Bank for Reconstruction and Development (EBRD). Pursuant to this agreement EnergaOperator is to receive PLN 800m, which will help the distribution unit commission a sophisticated metering system forming part of the smart grid solutions being implemented by the Group. Besides investments in the distribution segment, Energa is concentrating on expanding its renewable energy capacity. Earlier this year Energa and Poland's top power utility PGE jointly acquired wind farms from Denmark's DONG Energy. This deal expanded Energa’s generation portfolio to include the Karcino Wind Farm with a capacity of 51 MW in the Western Pomeranian Region and a project pipeline with a capacity of roughly 252 MW. As a result, the group’s installed RES capacity grew to more than 0.4 GW and in 1H 2013 it generated 0.92 TWh worth of electricity from renewable sources. In addition to the DONG deal, Energa and PGE, backed by EBRD, to acquire the Polish wind energy assets of Spain's Iberdrola Renewables Polska. This agreement enabled Energa to acquire two wind farms with a total installed capacity of 114 MW, namely Karścino in the Western Pomerania and Bystra in Pomerania and a bundle of projects with a capacity of roughly 1,186 MW.

DATA BOX: UNEMPLOYMENT Polish registered unemployment rate decreased to 13.0% in August from 13.1% in July, Central Statistical Office (GUS) said. The number of registered jobless at end-August measured 2.843m. In August, 203,600 persons registered as unemployed, down by 32,700 from July level, while 213,300 came off the rolls, down from 252,300 in July.

PROPERTY & CONSTRUCTION

Investment trust Meridian Properties to raise EUR 170m 170m from Warsaw IPO Meridian Properties, a Real Estate Investment Trust (REIT) registered in the Netherlands and backed by CEE-focused private equity group Bluehouse Capital, has revived its plan for a listing on the Warsaw bourse, having reduced the offering size by 15% to EUR 170m due to changes in its real estate portfolio, the company said. Meridian first announced the IPO in mid-July only to put the project on hold due to difficult market conditions. Now the date has been set for mid-October, with Citi is the sole bookrunner, and Alpha Bank, Erste Bank and Raiffeisen acting as co-lead managers. The IPO targets retail and institutional investors in Poland as well as institutional investors abroad. The European Bank for Reconstruction and Development has been mentioned among the potential institutional buyers. The company said it wanted to spend almost EUR 88m from the IPO proceeds to acquire a portfolio of nine properties – six office buildings and three retail parks in Bulgaria, the Czech Republic, Hungary and Romania, with a combined GLA of 104,000 sq.m and 97%leased to quality tenants Kraft, Eurohold, Lufthansa, Citibank and Eureko, among others, in office buildings as well as leading grocery & DIY chains (Spar and Baumax) in the retail parks. The rest will be put towards other acquisitions in the region (EUR 57m) and loan repayments (EUR 17m).

Meridian's target markets.

Image: Meridian Properties

Meridian Properties will be the first REIT listed on the Warsaw Stock Exchange. Its core business focuses on investing in and actively managing a diversified property portfolio within emerging Europe, comprised of stabilized, income producing real estate assets with international tenants and institutional quality leases. On the WSE, Meridian will join the likes of Israeliowned developer GTC, which is likewise present in Eastern Europe and the Balkans. As far as Meridian's investment objectives are concerned, the company said it intends to provide regular cash distributions to its shareholders and achieve inflation-indexed risk-adjusted returns based on longterm contracted rental revenues producing income visibility, substantial capital growth, low leverage and no development risk. Meridian is planning to distribute 100% of its funds from operations on a quarterly basis as dividends, whilst maintaining prudent longterm leverage with a target LTV of 35% - 45%. With regards to Meridian’s property investment strategy, it said it would seek to further acquire newly constructed real estate assets in emerging Europe including Po-

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land, generally less than five years of age, which are income producing, have an occupancy rate of at least 95%, a weighted average remaining lease duration of at least five years and an international tenant base with institutional quality lease agreements. The company will not invest in developments or land acquisitions and will not undertake any zoning, permitting or construction-related risk. The team behind Meridian Properties are Greek entrepreneurs who back in 2004 founded the Bluehouse group, a private equity real estate investment management firm focused in emerging Europe. With offices in Bulgaria, Czech Republic, Romania, Croatia, Serbia and Greece, Bluehouse is managing capital across three funds, investing on behalf of a high-quality institutional investor base, including financial institutions, pension funds, endowments, multimanager funds and family offices. Bluehouse has invested in over 26 property transactions and has completed several successful exits.

known for its upscale residential project Eko Park in Warsaw. Polkomtel’s new head office is being constructed at Konstruktorska street, in Warsaw's sprawling Mokotów business district. This seven-storey building was designed by Kuryłowicz & Associates, according to the Tenant’s technical requirements. Polkomtel will move to the new location in September 2015. "We are honored that Polkomtel entrusted CBRE with securing a new location for its headquarters and the negotiation process of lease terms. This is the largest lease transaction in the Polish office market in 2013 and we are proud that CBRE is a business partner of such a prestigious company. We believe that this build-to-suit building will fulfill all of our client’s requirements and improve their working environment," said Daniel Bienias, Director of Office Agency at CBRE, which brokered the deal.

As for the the France Telekom-owned Orange Polska, the company has just moved into its newly completed Miasteczko Orange complex in the Ochota district. Developed by France's Bouygues Immobilier Polska, the class-A development was acquired two years before its completion by the Qatar Investment Authority, through the sovereign wealth enterprise's Qatar Holdings LLC. With a GLA of 45,000 sq.m, the built-to-suit complex houses offices for 3,300 staff, a canteen with 300 seats, parking lots for 1,050 vehicles and 120 cars, and a number of additional class-A amenities. Although each of the three operators holds a very similar share in the Polish mobile sector (slightly less than 30%, see page 13), Orange Polska encompasses also the fixed-line operations of the former monopolist TPSA, which explains why its needs almost twice as much office space as its competitors.

PROPERTY & CONSTRUCTION

Mobile firm Polkomtel secures 23,000 sq.m in this year's largest office deal Shortly after Orange and T-Mobile moved into their brand new offices in Warsaw, the country's third leading mobile operator Polkomtel likewise picked its new headquarters in the Polish capital. Polkomtel, operator of the Plus mobile network, agreed to take up 23,000 sq.m in a brand new building to be developed by White Stone Development and asset managed by MF Capital. White Stone Development is best

GLA. T-Mobile Office Park has received BREEAM Excellent certification of energy efficiency and environmental performance. According to Ghelamco Poland, the project is the first existing office scheme in Poland to have been granted such certification. There are 34 BREEAM Excellent-certified buildings in Europe, of which only five have already been completed.

SERVICES & BPO Polkomtel will move into the new building in September 2015.

Photo: White Stone Development

Polkomtel's competitor, the Deutsche Telekom-owned T-Mobile, it has just recently finished relocating to the shiny and new T-Mobile Office Park, delivered in May in Warsaw's Mokotów district by Flemish developer Ghelamco. As the anchor tenant, the operator has taken up 27,000 sq.m of the park's total 40,000 sq.m

ING Services picks new office location for Katowice center ING Services Polska, the Katowice-based shared services unit of Dutch financial giant ING, has leased 5,600 sq.m in GPP Business Park - the city's first project boasting a BREEAM sustainability certificate

weekly newsletter # 005 / 30th September 2013 / page 8

at the highest, "outstanding" level. The company will occupy the second building in GPP Business Park, which is to reach completion in Q2 2014.

bank ING Bank Śląski and pension fund company ING Nationale-Nederlanden. Over time, its geographical scope expanded.

Located on Konduktorska St., in the Katowice special economic zone, GPP Business Park will have a total GLA of 30,000 sq.m in four buildings, the first of which (7,800 sq.m) has already been completed. The developer offered ING temporary accommodation before the outsourcing company moves into its brand new offices in May next year.

"We are currently serving some 40 ING group companies from 15 European countries as well as Singapore," Kamila Heitzman of ING Service Polska's head office told Poland Today's Lech Kaczanowski earlier this year. Asked what will constitute the bulk of the PLN 80m capex, which seems somewhat steep as for an outsourcing operation, Ms. Heitzman explained: "Our main objective is to recruit highly qualified IT and R&D staff whose remuneration represents a substantial portion of the qualifying costs. Other expenditures will include purchase of hardware, soft-ware, and office equipment and office rents."

We are serving some 40 ING Group companies from 15 European countries and Singapore. Once completed, the new, GPP Business Park in Katowicewill offer 30,000 sq.m of class-A, BREEAMPhoto: EDPR certified office space.

At the beginning of the year ING Services confirmed plans is to create 156 IT and R&D jobs in Katowice. The project, estimated at PLN 80m and supported by a PLN 12m grant under the EU's operational program Innovative Economy, is to reach completion in June 2015. Over the past five years the center's workforce has grown from 215 to 450 and the figure keeps increasing. Since the beginning of the year already some 30 new staff members have been recruited.

So far, ING's data center in Katowice has been responsible mainly for hosting system resources to maintain customer databases and applications. Additionally, the center offers services related to database administration, backup and restore, security administration as well as network connection hosting. As part of its ongoing expansion ING Service Polska's competences will expand to include also software development, testing and application management, as well as data security issues. The R&D unit, with a planned staff of 21 engineers, is to focus on development of ING's IT tools and process solutions.

Established in 2003, ING Services Polska was initially providing IT support to ING operations in Poland: the

"In short, the expansion will bring about a significant improvement to our hosting division and Security Op-

erations Center. Besides making our services more competitive in terms of both price and quality, ING will create the first knowledge center in Poland specializing in hosting and security operations." Apart from ING Bank Śląski, one of Poland's leading banks with 434 branches, 3.2m retail customers, and PLN 73.6bn worth of assets, the Dutch giant owns a number of businesses in Poland, from pension and investment funds, insurance, leasing, factoring and stock brokerage, to property development.

DATA BOX: KATOWICE OFFICE MARKET IN 1H 2013 Leasing volume in Katowice’s office market reached 27,500 sq.m in H1 2013, with pre-lets accounting for 51% of the total. The largest deals involved owner occupation of space. Polski Koks took up over 6,150 sq.m in the office building in Paderewskiego Street, while the companies from group Getin Bank and LC Corp signed a lease for 6,000 sq.m in phase one of the LC Corp Tower project. At the end of Q2 2013, Katowice’s office stock exceeded 300,000 sq.m, largely following the completions of Nowe Katowickie Centrum Biznesu (13,000 sq.m) and Polski Koks’ head office (6,150 sq.m). Under construction are the passive office building (6,000 sq.m) developed within the Euro-Centrum Science and Technology Park and the first two phases of Skanska’s Silesia Business Park totaling more than 20,000 sq.m. The vacancy rate in Katowice was up by over 1.5 pps to 8.3% from the rate at the end of 2012. Asking rents stood at EUR 13–14/sq.m/month in Q2 2013, with effective rents at EUR 11–12/sq.m/month. Source: Cushman & Wakefield

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TRANSPORT & LOGISTICS

Government to speed up completion of Warsaw ring road A program to close the ring of expressways around Warsaw is to reach completion in 2019 announced Prime Minister Donald Tusk, confirming that tenders for the subsequent sections of the project in the south of Warsaw will be announced by the end of the year. This sudden surge of interest in Warsaw's traffic woes on the part of ministers seems to be directly related to the upcoming referendum on the recall of the city's mayor Hanna Gronkiewicz-Waltz, who is one of Mr. Tusk's long-time allies. Politics aside, the ring road is of strategic importance for the Polish capital and its completion is vital to reducing congestion in certain key areas. The first southern section of the beltway (S2), linking the Konotopa junction (where the A2 highway from Berlin reaches Warsaw) with the Chopin airport and Ursynów (Puławska) was opened earlier this month. Although its completion brought relief to many commuters and helped distribute some through traffic, it also created massive congestion on Puławska street, one of Warsaw's key arteries. This is where the ring road ends at the moment, although according to plans it should be extended further east, cutting though the residential areas of Ursynów and Wilanów and across the Vistula river to connect with the S17 WarsawLublin road. While the recently completed section cost approximately EUR 1.03bn (PLN 4.3bn) to build, including a EUR 601m (PLN 2.5bn) EU grant, the next piece (encompassing a tunnel under Ursynów and a new bridge

on the Vistula) is being estimated at some PLN 9bn. With the state coffers already stretched to the limit, government representatives have been rather reluctant to finance the project, but the traffic jams on Puławska and the looming referendum prompted the ministers to reassess their priorities. The ring road has been given precedence over two other major road investments in the Warsaw area: the S7 expressway from Bemowo bound for Gdańsk, bypassing the jammed suburb of Łomianki, and its extension in the south of Warsaw, towards Kraków and Radom. The funding that was earmarked for these two projects will now be put towards the completion of the ring road.

road; construction: 2016-2019), March 2015 and Q1 2016 (eastern sections of the ring). The latter two projects are yet to obtain environmental permits. A tender is currently underway for a road bypassing the notoriously congested suburb of Marki in the north east of Warsaw. In approximately three years, once the Marki bypass as well as the S8 fork near Raszyn and Janki in the south west reach completion, drivers should be able to easily get around the western and northern outskirts of the Polish capital. Although the completion of Warsaw's ring road is still half a decade away, the government's newly found enthusiasm for the project is good news both for the Warsaw drivers, who according to car navigation company TomTom waste more time due to bad traffic than in any other European capital, as well as for Poland's construction industry, which is yet to recover from its post-credit crunch malaise.

SERVICES & BPO

Best Western on track to have 50 hotels in Poland by end of 2015 The planned sections of the Warsaw beltway are marked with dotted lines, whereas green and red lines indicate sections that are opened to traffic. Image: Wikipedia CC

As far as the timeline is concerned, the first tender, for the Puławska-Wał Miedzeszyński section, including a 2.7km tunnel and a brand new bridge, is to be announced by the end of the year, with completion expected in 2018. The subsequent tenders are expected in May 2014 (connecting with the S17 Warsaw-Lublin

The global hospitality chain Best Western has secured its fourth location on the Polish coast with the three-star Best Western Plus Business Faltom in Gdańsk as well as its second hotel in Wrocław with Best Western Plus Q Hotel Wrocław. Both are threestar properties aimed primarily at business travelers and both a part of Best Western's mid-range "Plus" segment, which is being represented in Poland by six hotels. As of September 2013, there are 21 hotels operating under the Best Western logo in Poland with a handful of others being under construction.

weekly newsletter # 005 / 30th September 2013 / page 10

"BW Faltom is one of three hotels we have opened so far this year, the other two being BW Galicya in Kraków and BW AGIT Congress and Spa in Lublin. We are planning a further three openings by the end of the year in Opole, Piotrków Trybunalski and Modlin. Besides that, we have another eight contracts signed with different investors for openings in 2014 and also 2015, including four properties under construction and four conversions," says Gheorghe Marian Cristescu, Best Western country sales director for Poland. "Our initial target set in 2011 was to have 30 contracts signed by the end of 2013. At this stage we are happy to announce that we have already surpassed that goal and we are far from done this year," Mr. Cristescu tells Poland Today. Prior to joining Best Western in April last year, Mr. Cristescu had been working in the Polish hospitality market for over a decade, previously as a national sales director in Poland's leading hospitality group Orbis, subsidiary of France's Accor. Built at the cost of PLN 15m by Tomasz Falkowski, a local entrepreneur and owner of the Faltom group, the Gdańsk hotel is located 2km from the Tricity ring road and 25km from the airport. It includes 40 double rooms, 6 suites, two conference rooms, and a wellness centre. As for the Wrocław property, it has 127 rooms, one suite, and five conference rooms and it is situated within a 10 minute walking distance from the central railway station. It belongs to Polish Grupa Dobry Hotel, which has so far launched three properties under the Best Western logo in Poland and seeks to build another two over the two coming years. The chain's expansion in Poland is being managed by BW Hotels Osuuskunta, also known as Best Western Hotels Finland, Baltic States and Poland - the affiliate office of Best Western International responsible for the brand and hotel services in the region. Although until last year Finland, with 16 hotels, had been

the largest market for BW Hotels Osuuskunta, the balance has shifted to Poland, which will continue to fuel the chain's growth in the region for years to come.

will manage to seal more agreements in 2013, for openings in 2014 and 2015," says Mr. Cristescu.

CONSUMER GOODS & RETAIL

Inter IKEA Centre gets green light for Wola Park deal and launches Franowo extension

Best Western Plus Business Faltom is the chain's 4th Photo: EDPR hotel in the Pomerania region.

Founded in 1946 Best Western is the world's biggest hotel chain. All of its hotels are independently operated and owned by private investors. All facilities operating within the chain share the same quality and standards of customer services as well as sales and marketing programs. Best Western, which received a number of industry awards on the Polish market last year, had been planning to announce eight new member hotels in Poland in 2012, but eventually the chain signed 13 new agreements with some hotels to open in 2013 and some in 2014. "Our target for the end of 2015 is to have 50 contracts signed in Poland, and based on our progress so far, we are very likely to go beyond that. Let me also add that the activity of our main competitors in the market is really helping our efforts, as it enables investors to better understand the value for money factor of our offer. We are in advanced talks for further contracts to be finalized by the end of the year, so it is possible that we

Inter IKEA Centre Group Poland, the shopping centre arm of Sweden's flat pack furniture giant IKEA, has received regulatory clearance to acquire the Wola Park mall in Warsaw from European property investor IXIS AEW Europe (AEW). A preliminary agreement was signed in mid-July and the final deal, the value of which has not been disclosed, should be signed in 1-2 months if all goes as planned. Built in 2002, Wola Park was sold to AEW by Ivanhoe Cambridge back in 2007 for EUR 140m. The centre is located in the western part of Warsaw, on Górczewska street. It comprises 58,100 sq.m (including an 18,100 sq.m Auchan hypermarket, which is a separate property), which is let out to 197 tenants, mostly in the apparel industry. The property includes ample space for expansion, which is a major asset, considering its location near many densely-populated residential areas. The previous owners had plans for an 18,000 sq.m extension. "We intend to execute the extension according to AEW's plans, but we may take the opportunity to partly change the content and function of the extension in the way we consider better suited to our idea of the product. A portion of this extension is already under signed lease agreements," Mikael Andersson, Manag-

weekly newsletter # 005 / 30th September 2013 / page 11

ing Director of Inter IKEA Centre Group Poland, tells Poland Today. It should perhaps be noted that in a couple of years Wola Park will be the only retail centre in Warsaw (except Tesco Kabaty, which is yet to be transformed from a drab hypermarket-anchored property into a modern mall, and Arkadia, which is some 700m from the Dworzec Gdański station) to be located right by a subway station.

have been given the possibility to acquire an existing centre, which supports our expansion plans as a shopping centre developer and operator, even if we cannot guarantee the presence of an IKEA store there."

More projects in the pipeline

On 25 September Inter IKEA Center Group launched its newest project in Poland, a 14,000 sq.m extension of the Franowo shopping center in Poznań, with new tenants that include Smyk, Sport Direct, RTV Euro AGD, Jysk, and Bel-Pol. Including the outlets that had been already present at the site, the expanded Franowo park totals some 80,000 sq.m of retail space and houses 35 outlets, including an impressive range of home improvement/DIY stores. Located some 7km south east of Poznań, near the A2 motorway, Franowo offers 1,600 parking spaces.

In the latter case, Inter IKEA Centre Group has recently received a building permit that will enable the investor to transform the existing 80,000 sq.m complex (already the largest in Lower Silesia) into the biggest shopping centre in the country with a GLA of 145,000 sq.m and some 200 outlets. The company is planning to take down a former IKEA store building in Bielany and erect the new section of the shopping centre on its site. The development is scheduled to be completed in 2015.

According to plans, the new east-west line of the Warsaw subway may reach Wola Park sometime by the end of the decade. Photo: Wola Park

Anchored by an IKEA store, the new centre in Lublin is to open in Q4 2014 with a GLA of 80,000 sq.m.

"Wola Park has a very attractive tenant mix and location, while the expansion of the local transport infrastructure will make it more accessible for a significant part of Warsaw's population. The mall will be an important part of our portfolio, enhancing its attractiveness and significantly diversifying our offer," Mikael Andersson says. Since so far the group has developed all of their Polish projects on their own, anchoring them by IKEA stores, we asked Mr. Andersson whether the Wola Park investment marks a break with that tradition.

"As part of our long term plan for Poland we are considering further acquisitions of existing shopping centers. As we intend to stay and grow on the Polish market, they should be well established shopping centers in good locations, with good sustainable offers. At this stage we are only looking at a limited number of larger regional capitals, where we believe it is important for us to be present. On the development side, besides the aforementioned projects, such as Franowo, we will continue with more extensions in all our existing retail centers as well as keep working on increasing commercial and non-commercial offers in these locations. Regarding new developments, we are looking at 4-5 new locations around Poland and this includes new enclosed shopping centers as well as retail parks with strip-malls and big box tenants."

"That model remains valid for our new developments, either as an IKEA store directly integrated into an enclosed shopping center or a free standing unit in a retail park. It is a very unique retailer to have present at our centers. However, in the case of Wola Park, we

Image: Inter IKEA Center Group

Following its recent expansion, the Franowo park totals 80,000 sq.m. Photo: Inter IKEA Center Group

As part of the IKEA group, Inter IKEA Center Group Poland is responsible for preparation, implementation and management of commercial property projects. In Poland, the group owns seven shopping centers, which are situated in Gdańsk, Łódź, Poznań, Wrocław, Katowice and Warsaw (two centers, Janki and Targówek). The company is working on a new shopping center in Lublin, adjacent to a new IKEA store in the southeastern city, as well as a major expansion of their Bielany Park in Wrocław.

weekly newsletter # 005 / 30th September 2013 / page 12

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. 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 highlight of H1 2013 was the opening of the retail park in the Europa Centralna scheme in Gliwice offering 40,000 sq.m and stores of Castorama, Saturn, Jula, Sports Direct, RTV EURO AGD, Jysk, Ski Team and Reserved. The largest retail park now under construction is the next phase of the IKEA Franowo complex totaling 14,000 sq.m. Large retail parks include mainly stores with DIY products, household appliances and electronics, furniture, sports goods and homeware. Smaller schemes accommodate household appliances and electronics, multimedia, accessories, drugstores, discount fashion and footwear tenants. 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

CONSUMER GOODS & RETAIL

Austrian EYEMAXX completes first MyBox shopping center, more to come next year Austrian developer EYEMAXX Real Estate Group has launched its first Polish retail park, MyBox Oława. Built by Sweden's Skanska at the cost of over EUR 2m, the 2,000 sq.m GLA development is part of a broader pipeline of retail projects the Austrians began to roll out across Central and Eastern Europe last year.

Q4 2014 in the western part of the historic town, near an existing shopping centre anchored by Tesco. "A few days ago we secured our most recent project in Namysłów, for which a building permit is already in place. It is perfectly located between two food operators: Kaufland and LIDL. The MyBox retail park in Namysłów will offer a GLA of 4,000 sq.m with a very attractive tenant mix, consisting of international tenants as well as several well- known Polish brands offering sport goods, electronics, shoes, drugstore a fashion. We have experienced very good tenant interest and are proud to say that the first lease agreements have already been signed. The opening is planned for Q3 2014," Mr. Dębowiak tells Poland Today.

"Poland is one of our key markets in the coming years. In general, our plan is to open 3-5 properties a year here," says Jaroslaw Debowiak, head of Retailcenter Management GmbH, EYEMAXX's Polish unit. "When choosing Oława for MyBox we took into consideration the town's population, purchasing power, and development potential. We selected a location in the fastest-growing part of the city, with many new residential projects." Located near an existing Biedronka discount grocery, MyBox Oława has attracted a number of major chains: shoe retailer Deichmann, clothing outlet KiK, electronics store RTV Euro AGD, and sports goods shop Martes Sport. Oława is a town of 27,000 situated some 30km from Wrocław. Based in Warsaw, Retailcenter Management GmbH is responsible for acquisition of sites, permits, and tenants, project management and implementation. The company is working on another MyBox project in Malbork. With 15 retail and service outlets and more than 200 parking spaces, MyBox Malbork will open in

The newly opened MyBox centre in Oława was an inPhoto: EYEMAXX stant hit with the locals..

Strip malls or small retail parks such as MyBox have been the hottest thing in Poland's retail property segment in recent years. Such low-cost neighborhood developments with store access directly from the parking lot, and aiming at popular non-food retailers that favor larger units are mushrooming throughout the country. Many international chains prefer this format as a way of entering small towns, where uniform quality, modern retail space is otherwise unavailable.

weekly newsletter # 005 / 30th September 2013 / page 13

"This is an attractive niche for us and we do not wish to compete with the big players who build giant retail centers. We are going to focus on the MyBox format for the time being as it gives people in smaller towns access to a broader selection of retail outlets without having to travel to big city shopping malls. In short, it is a tried and tested formula that does not require substantial capital expenditures."

Objective: 20 MyBox retail parks

The company believes the Polish market can fit up to 200 centers of the MyBox format. EYEMAXX itself has a pipeline worth some EUR 100m, although it has so far secured permits for projects that represent roughly a quarter of the total amount. "It is our stated goal to achieve a market share of approx. 10% with respect to the quoted figure of 200 centers. This corresponds to roughly 20 MyBox retail parks with an average GLA of 3,000-5,000, excluding the adjacent food operator. The actual size of a project strongly depends on its particular location and already existing competition." In addition to the MyBox centers, EYEMAXX is cooperating with Austrian-Polish developer Tradeland on a 6,200 sq.m FamilyPoint shopping center in Ełk, in the north east of Poland. The two partners have just broke ground on the project, which has been 75% preleased to the likes of Avans, Marcpol, CCC, Deichmann, Takko Fashion and Kolporter. Located right by a newly completed ring road, FamilyPoint Ełk will welcome its first customers in Q1 2014. "At the moment, our cooperation with Tradeland is focused only on the project in Ełk. As one of the biggest players in the CEE region in the field of retail park development, we profit in some particular cases from joint venture synergies and therefore cannot exclude further future cooperation with already existing or new partners," says Jarosław Dębowiak.

The Vienna-listed EYEMAXX acquires, develops, runs and builds commercial properties in Central Europe, in particular in its established markets of Austria and Germany as well as the neighboring emerging markets of Poland, Slovakia, Serbia and the Czech Republic. As far as its investment policy is concerned, EYEMAXX seeks to either sell its completed projects in open tenders or keep them within the group to generate stable profits from rents, depending on the market situation. EYEMAXX has particularly good relations with German and Austrian retailers, such as C&A, Intersport, Rewe, Bauhaus, Takko, Deichmann and Rossmann, which are the company's key tenants. Over the past five years the company has developed a total of 20 projects under the Stop.Shop and BIGBOX brands throughout the CEE, at the cost of some EUR 200m. In addition to its core retail center business, the company is involved also in other projects such as logistics centers and built-to-suit solutions.

IT & TELECOM

Orange Polska bundles mobile and fixed line assets under one roof, roof, appoints new CEO

Maciej Witucki, who has led the business for more than half a decade, has stepped down from the position of CEO to be replaced by Bruno Duthoit. Both decisions were approved by TPSA's shareholders in late September. Mr. Duthoit has 35 years of broad international experience in the telecom industry, gained in various countries, and has held several management positions in the Orange Group, including positions of Chief Executive Officer (most recently – in Ethiopia). As for Mr. Witucki, he will take over the chairman position at Orange Polska's supervisory board from Professor Andrzej K. Koźminski, who has announced his intention to resign as chairman.

Poland's mobile market in mid-2013 Market share based on declared & estimated user numbers

Orange 27%

T-Mobile 29%

Polkomtel (Plus) 25%

P4 (Play) 17% MVNOs 2%

Source: GUS, Operators

It's a busy time at France Telecom's Polish subsidiaries, with a new corporate structure, new CEO, and new offices all being introduced this autumn. The company decided that its fixed-line operator TPSA and its mobile arm PTK Centertel will merge by the end of this year, under the new name Orange Polska. TPSA already adopted the Orange brand name last year for its fixed activities. The organizational changes will be accompanied by a major reshuffle at the top.

"We acknowledge and understand the decision of Maciej Witucki to step down, after serving nearly seven years as the CEO of Orange Polska. We will propose Bruno Duthoit as the new CEO in Poland as his broad international experience, as well as good knowledge of Poland and its telecom market, make him the best candidate to become Maciej’s successor. We are fully confident that Bruno and the management team in Po-

weekly newsletter # 005 / 30th September 2013 / page 14

land will successfully execute the strategy of Orange Polska," commented Benoit Scheen, Orange Group’s Executive Vice President for Operations in Europe (excluding France). On the business front, in mid-September Orange Poland launched its first LTE transmitters in Warsaw. Its competitors Polkomtel (network Plus) and Cyfrowy Polsat are already offering LTE in Poland, and P4 (Play) has just announced its plans to launch LTE. Following Warsaw, Orange Poland plans to launch LTE in other locations in Pomerania, Silesia and Greater Poland, for in total 900 base stations. The LTE network is still in testing, and Orange plans to start full commercial services in 2014. Orange provides LTE on the 1800 MHz band, thanks to its cooperation agreement with T-Mobile Poland and network infrastructure sharing. Orange aims to acquire frequencies from the digital dividend in the auction planned later this year. The aim of Orange Poland is to offer LTE services on the bands 800/1800 MHz at 150 Mbps for 99% of population. Once a monopolist in Poland, with net profits of PLN 4bn in 2004, TPSA has seen its position gradually erode, due to bold measures imposed by Polish and European competition authorities, as well as evolution of the telecoms market itself, with rapid shift from landline to mobile services. The group turned over PLN 14.15bn last year (5.2% down y/y) and earlier this year it signaled a deep fall in 2013 revenue and another dividend cut, causing its share price plunge down to the lowest level since 2003. Financing a costly 4G (LTE) investment program one the one hand, and faced with shrinking revenues and profits from voice services, the group decided to shed some 1,700 employees this year and divest and/or outsource its noncore assets and operations. It is currently seeking buyers for Wirtualna Polska, one of Poland's top three online portals by user numbers.

IT & TELECOM

British Truphone launches in Poland British telecoms operator Truphone, which targets primarily frequent business travelers, has just launched operations in Poland, as part of the company's international rollout, financed by a substantial cash injection from Russian billionaire Roman Abramovich. Truphone's technology currently allows travelers in eight countries, including the US, UK and Australia, to use a mobile to call, text and access the web at local rates without having to change handset or SIM card. Truphone was founded six years ago by James Tagg, a British inventor who remains with the company as chief technology officer. The company is led by chief executive, Steve Robertson, who created and ran BT's network division, Openreach, until 2011. "Ours will be a small organization, less than 20 staff, with outsourced customer service and the London office playing a key executive role," Joanna Pędzińska, marketing manager at Truphone's Polish arm told Poland Today's Lech Kaczanowski earlier this year. Asked what sets Truphone apart from other Mobile Virtual Network Operators (MVNOs), Ms. Pędzińska replied: "Although in purely technical terms we can be regarded as a virtual operator, since we lack our own infrastructure, we do not really want to be associated with the MVNO concept. Our strength is the innovative technology that enables users to call anywhere in the world at local rates with a single SIM card. We believe this is something business customers have been waiting for and it is the B2B market that we are targeting.

With Poland's leading operators offering unlimited domestic calls at a flat rate no MVNO can compete with them on their home turf. But Truphone covers a particular niche where we believe we have an attractive product to offer." At the beginning of the year, Abramovich's investment vehicle, Minden, took the stake in Truphone's latest round of fundraising. In paying GBP 70m for a 23% holding, the deal valued the company at about GBP 300m. An additional GBP 5m was raised from another, undisclosed investor. Following that founding round, the current main shareholder in Truphone, Alexander Abramov, chairman of the mining and metal group Evraz, saw his stake shrink from 80% down to 60%. The funding were to enable Truphone to double the headcount, employing 500 extra staff over the subsequent 18 months, and expand its coverage to the Netherlands, Hong Kong, Germany, Spain and Poland. Truphone's infrastructure partner in Poland is P4 (Play).

POLITICS & ECONOMY

Final terms terms of pension reform may be less restrictive, restrictive, PM says The final shape of Poland's pension reform, to be implemented next year, may be slightly different from the initial proposals announced by the government earlier this month (see PT Business Review+ No. 002 page 14). A new initiative, put forward last week by Prime Minister Donald Tusk, may allow the Poles to redirect a portion of their social security contributions back to private pension funds down the road.

weekly newsletter # 005 / 30th September 2013 / page 15

The original idea was to force Poles to choose between private pension funds OFE and the state social security fund ZUS for the final portion of their social security contribution, but the ministers are now of the opinion that a single, final, one-way transfer would be too restrictive. In the evolving plan, Poles would be allowed to shift the flow of premiums back from OFE to ZUS or ZUS to OFE, once every two-three years, Tusk said. A move will only redirect the premium, not shift capital from ZUS to OFE. In early September, the Polish government said it will roll back its 1999 partial privatization of the social security system, sending the portion of the private pension funds (OFE) invested in Treasury bonds (estimated at 51.5% of OFE assets) back to the social security system and making further participation in the system optional. According to that plan, the Poles will have a three month period to declare their desire to remain in the rump system and will be switched to a ZUS-only system if they fail to declare. Should they stay in the OFE fund, the portion of their earnings to be sent to OFE will be at 2.92%.

changes in the pension system will certainly improve the state of public finance and its perspective in the nearest future."

POLITICS & ECONOMY

GUS & NBP confirm Polish economy on slowslow-growth track The Polish economy continues to show indications of gradual recovery across numerous sectors, but it remains quite dependent on net exports for overall growth and pending data remains critical to that outlook, deputy head of Poland's central statistical office GUS, Halina Dmochowska, told a press conference last week.

A draft bill on the changes to the pension system is to be ready in the coming weeks, Finance Minister Jacek Rostowski told reporters last week following his meeting with the ruling Civic Platform (PO) parliamentary caucus.

While net exports "is a significant factor generating growth," she said, the statistical office sees "certain symptoms showing improved domestic demand," including recent readings of retail sales. Polish retail sales increased at an annual rate of 3.4% in August, on a 0.7% monthly decline, according to GUS, beating the Polish news agencyâ&#x20AC;&#x2122;s (PAP) consensus estimate for 2.8% annual growth.

Although all credit agencies had said that Poland's creditworthiness will remain unaffected by the planned restructuring of the pension system, the country could see chances for an upgrade of its rating from the current A2 level "slightly" limited, Moody's senior analyst Jaime Reusche told financial portal Obserwator Finansowy.

Dmochowska's view was mirrored by central bank governor Marek Belka, who told reporters later that week that Poland was entering the stage of "a slow, gradual" economic recovery, based on a number of small positive signals coming from the economy and is thus unlikely to face any major inflationary impulses in the coming period.

"This is an aspect, which slightly limits the possibility of an advancement of the Polish rating from the current A2 level," Reusche said. "On the other hand,

"This recovery will be gradual," Belka said at the sidelines of a business forum in Sopot. "Gradual does not mean impetuous or fantastic but still, based on all the

signals inflowing from the economy it seems that a slow, gradual but still a recovery is not threatened." Among positive signals coming from the economy, Belka named faster growth of industrial output, acceleration of retail sales growth as well as an unexpected drop in the August unemployment rate. According to the NBP chief, "the worst in Poland is over." As the recovery will be gradual, no large inflationary impulses should appear soon, Belka said, adding that no further changes to interest rates should be expected this year. Poland's ten-member Monetary Policy Council last cut rates at the July sitting, concluding an easing cycle that took 225 basis points from official interest rates in eight cuts starting in November 2012.

DATA BOX: RETAIL SALES Polish retail sales increased at an annual rate of 3.4% in August, on a 0.7% monthly decline, Central Statistical Office (GUS) said. The analyst survey by PAP Polish news agency had shown consensus expectations for a 2.8% y/y increase on a 1.3% m/m decline. In real terms, Polish retail sales were up by 3.5% y/y in August after 4.3% y/y increase in July, GUS added.

Retail sales in Poland (y/y) 20% 15% 10% 5% 0% -5% Feb 11

Source: GUS

Aug 11

Feb 12

Aug 12

Feb 13

Aug 13

weekly newsletter # 005 / 30th September 2013 / page 16

KEY STATISTICS Consumer Prices Prices

Inflation

2.5

-1.2

Alcohol, tobacco +3.5

+0.2

+3.7 +0.2 +3.6

+0.1 +3.6 +0.2

Clothing, shoes

+0.1

-4.7

-2.7

Housing Transport

-4.8 +1.1

+0.1 +0.9

-0.8

-5.0

0.0 +2.0

-4.8

-2.7

+1.2 +2.0

+0.1

-4.2

-2.3

-3.5 +0.4

-1.2

+1.1

-1.4 +0.5

Communications -9.7

-2.6

-9.7

0.0

-9.7

0.0

-9.7

0.0

Gross CPI

-0.1

+0.2

0.0

+1.1

+0.3

+1.1

-0.3

+0.5

y/y

m/m

Apr '13

May '13

Jun '13

Jul '13 Aug '13

m/m (%)

-2.7

+1.6

+1.5

+3.8

-0.7

y/y (%)

-0.2

+0.5

+1.8

+4.3

+3.4

Year

2008

2009

2010

2011

Turnover in PLNbn

564.7

582.8

593.0

646.1

n/a

+13.3

+4.3

+5.5

+11.6

+5.6

y/y (%) Aug 13

-0.3

Jun 13

2.5

Apr 13

-0.3

Feb 13

+0.7 +0.7

Dec 12

+1.6

Oct 12

Food & bev

Month

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

Aug 12

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

Jun 12

Sector

Retail Turnover

Apr 12

Aug '13

Feb 12

Jul '13

Dec 11

Jun '13

Oct 11

May '13

Aug 11

Data in (%)

Residential Construction Dwellings

2008 2009 2010

2011

2012 Jan-Aug y/y

230.1

178.8

174.9

184.1

165.1

142.9

158.1

(in '000 units)

Producer Prices Prices Month

Industrial Industrial Output

Feb '13 Mar '13 Apr '13 May'13 Jun '13 Jul'13 Aug'13

m/m (%)

+0.3

-0.3

-0.7%

+0.1

+0.7

+0.2

-0.3

y/y (%)

-0.4

-0.7

-2.1%

-2.5

-1.3

-0.8

-1.1

Year

2006

2007

2008

2009

2010

2011

2012

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

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

Feb '13 Mar '13 Apr '13 May'13 Jun '13 Jul'13 Aug'13 -0.2

-0.2

-0.1

-0.2

-0.1

-1.6

-1.8

-1.9

-2.0

-1.9

2006

2007

2008

2009

2010

2011

2012

+3.2

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

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

Coal mining

Q3 2012

Q4 2012

Q1 2013

Q2 2013

5,920

135 8,427

192 6,060

138 6,290 143

Commenced

174.7

162.2

141.8

85.4

-18.2

-2.3

-0.7

+2.6

+1.5

-4.5

U. construction

687.4 670.3 692.7 723.0

713.1

707.0

-3.9

y/y (%)

-2.7

-0.6

+2.7

-1.8

+2.8

+6.3

+2.2

Completed

165.2 160.0 135.7

152.5

91.1

-1.7

Year

2006

2007

2008

2009

2010

2011

2012

Source: Central Statistical Office (GUS)

y/y (%)

+11.6

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

Gross Domestic Product

Month

Period

Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13 Aug '13

m/m (%)

-0.3

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

+20.9

+7.9

+16.1

+19.1

+7.8

-0.8

-11.4

-18.5

-23.1

-27.5

-18.3

-5.2

-11.1

2006

2007

2008

2009

2010

2011

2012

+18.1

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-2.8%

Q4 2012

+0.7%

442,231

-3.5%

Q3 2012

+1.3%

393,792

-4.1%

2012

+1.9%

1,522,736

-3.5% -4.9% -5.1%

Economic sentiment and consumer confidence indicators

2009

+1.6%

1,344,384

-3.9%

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

120

Transportation

3,543

125

3,816

135 3,439

122 3,547 125

IT, telecoms

6,493

169 6,379

166 6,685

174 6,707 174

Financial sector 5,875

132 6,044

136 6,356

143

Key Economic Data & Projections

100

Indicator GDP change

+3.9% +4.5%

Consumer inflation Producer inflation CA balance, % of GDP

Sep 13

60 Jun 13

-40 M ar 13

146

Dec 1 2

152 3,693 157

143 3,432

S ep 12

163 3,556

142 3,365

J un 1 2

158 3,829

3,322

M ar 1 2

3,709

Retail & repairs

Dec 1 1

Construction

S ep 11

J un 11

-20

Mar 11

152 3,560 155 188 5,828 177

Dec 10

3,491

Source: Central Statistical Office (GUS)

-1.9%

377,815

1,416,585

198 6,196

3,613 144

395,507

+0.5%

1,462,734

154

149

+0.8%

Q1 2013

+3.9%

151 3,522

3,741

Q2 2013

+4.5%

176 6,535

154

Current account def. in % of GDP

2010

3,463

147 3,878

GDP in PLN bn current prices

2011

5,790

National average 3,690

Growth y/y unadjusted

131.7

Sentiment Indicators

Energy

151

-20.6

-0.2

Manufacturing

6,712

(%)

91.6

+0.3

Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13 Aug '13

3,421 146

2013

m/m (%)

Month

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages Sector

Permits

Construction Output

Construction Prices Price s

2012

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

2013

2014

+1.9%

+1.2%

+2.7%

+2.6% +4.3%

+3.7%

+1.2%

+2.2%

+2.1% +7.6%

+3.4%

-1.2%

0.6%

-5.1%

-4.9%

-3.5%

-0.6%

0.3%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.2%

+4.5%

Unemployment**

12.4%

12.5%

13.4%

13.7%

13.2%

3.99

4.12

4.19

4.20

4.06

EUR/PLN

*2010

*2011

*2012

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

weekly newsletter # 005 / 30th September 2013 / page 17

56.73 ↑

100 SEK

48.83 ↓

100 NOK

52.31 ↓

10,000 JPY

USD EUR 350

300

16.49 ↑

100 CZK 10,000 HUF

400

317.58 ↑

as of 27 September 2013

WIG-20 stocks Price Change Change in alphabetical 27 Sep 20 Sep end of order '13 '13 '12

WIG Total index

141.07 ↓

Money Supply

PLN (up to 1 year)

5.9%

PLN (up to 5 y ) PLN (over 5 y) PLN (total)

6.0%

6.3%

6.0%

920,112 941,791

927,345

921,662

928,359

418,252 405,900

412,407

946,586

945,077

949,988

- Net foreign assets 176,278 160,267 159,749 154,035 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

+6%

+45%

-4%

+12%

WIG-20 blue chip index

7.24

+1%

-27%

113

+5%

+15%

2,4 2,422. 22.46

↓ JSW

75.9

-6%

-18%

Change 1 week

+1% ↑

↓ Kernel

50.2

-3%

-25%

Change end of '12

-6% ↓

124

-2%

-35%

4.9%

↑ BRE ↑ BZ WBK

3.5%

↓ Eurocash ↑ GTC

Warsaw Inter Bank Offered Rate (WIBOR) as of 27 Sep 2013 Overnight

1 week

1 month

3 months

6 months

2.58%%

2.57%

2.60%

2.67%

2.70%

2.50%

425,740

350

5.3%

2.3%

Aug '13

114,083

+7% ↑

5.6%

1.9%

153,867

112,565

Change end of '12

↓ Bogdanka

5.8%

↑ Asseco Pol.

2.9%

Jul '13

112,815

+1% ↑

+43%

5.3%

3.2%

155,767

109,312

Change 1 week

+8%

5.1%

5.3%

2.3%

Jun '13

531,124

110 467.75

5.4%

5.6%

2.1%

144,260

523,783 530,666

50, 50,819. 819.81

-19%

5.7%

↑ Handlowy

Central Bank (NBP) Base Rates

508,299

+8%

-1%

5.9%

2.9%

May '13

6.2%

6.3%

+3%

5.0%

2.3%

150,475

- Time deposits

6.4%

4.7%

48.85

5.3%

3.6%

in PLN m

5.4%

EUR (over 1m EUR) 2.8%

Monetary base - Currency outside banks

5.6%

EUR (up to 1m EUR) 2.1%

Reference

Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13

Lombard

NBP deposit

Rediscount

↓ KGHM

4.00%

1.00%

2.75%

→ Lotos

37.01

-10%

WIG Total closing index

↑ Pekao

182

+3%

+9%

last three months

17.05

-3%

-6%

52000

6.07

-2%

+17%

50000

-9%

+3%

+1%

Credit

↓ PGE

The financial sector's net lending in PLN bn,

↓ PGNiG

loan stock at the end of period

→ PKN Orlen

Type of loan

48000

May '13

Jun'13

Jul '13

Aug '13

↑ PKO BP

37.29

Loans to customers

887,960

900,999

896,635

901,863

↓ PZU

431.9

-2%

-1%

46000

- to private companies

259,593

263,453

261,000

263,491

↓ Synthos

4.85

-6%

-10%

44000

549,117

553,055

552,503

556,027

↓ Tauron

4.79

-1%

+1%

1,622,666 1,634,587

1,616,221

1,627,182

↑TP SA

8.36

+7%

-32%

- to households Total assets of banks

Source: Central Bank NBP

27 Sep 13

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

5 Sep 13

345.06 ↑

27 Sep 13

503.33 ↑

100 CHF

22 Jul 13

100 GBP

14 May 13

423.10 ↑

4 Mar 13

100 EUR

Key indices

Term / currency

450

21 Dec 12

313.28 ↑

15 Oct 12

100 USD

Stock Exchange

Average weighted annual interest rates

22 Jul 13

as of 27 September 2013

Interest rates

13 Aug 13

100 USD/EUR against PLN

Central Bank average rates

28 Jun 13

Currency

Source: Warsaw Stock Exchange

T rade Poland's ten largest trading partners, ranked according to 2012

Poland exports and imports according to commodity groups, according to SITC classification EXPORTS in PLN bn Jan- Jul 2013

y/y (%)

share (%)

2012

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan- Jul 2013

y/y (%)

share (%)

2012

share (%)

No Country

Jan-Jul share 2013

IMPORTS in PLN bn *2012

Share No

Country

Jan-Jul share 2013

*2012 Share

37,974

+9.9

10.5

61,694

10.3

26,750

+3.6

7.4

44,287

6.9

1 Germany

89,862 24.9% 150,046 25.1%

1 Germany

77,335 21.3% 134,933 21.1%

Beverages and tobacco

4,910

+5.9

1.4

7,967

1.3

2,271

-0.1

0.6

3,989

0.6

2 UK

23,427

6.5%

40,184

6.7%

2 Russia

45,944 12.6%

Crude materials except fuels

9,077

+5.1

2.5

14,024

2.4

12,302

-7.6

3.5

22,053

3.5

3 Czech Rep.

21,951

6.1%

37,475

6.3%

3 China

32,785 9.0% 57,235 9.0%

Fuels etc

17,106

+0.1

4.7

29,389

4.9

41,400

-14.3

11.4

85,280

13.4

4 France

21,017

5.8%

34,862

5.8%

4 Italy

19,010

5.2% 32,782

920

+62.1

0.3

1,342

0.2

1,492

-8.7

0.4

2,887

0.5

5 Russia

19,345

5.4%

32,290

5.4%

5 France

14,267

3.9% 25,303 4.0%

Chemical products

33,929

+6.5

9.4

54,295

9.1

53,686

+0.3

14.8

89,140

14.0

6 Italy

16,368

4.5%

29,067 4.9%

6 Netherlands

13,837

3.8% 24,543

Manufactured goods by material

74,733

-0.5

20.7

126,161

21.1

63,760

-6.0

17.5

110,773

17.4

7 Netherlands

14,129

3.9%

26,678 4.5%

7 Czech Rep.

13,374

3.7% 23,327

3.7%

Machinery, transport equip.

136,236

+3.3

37.7

223,646

37.5

120,298

-0.5

33.1

203,718

31.9

8 Ukraine

9,940

2.8%

10,628

2.9%

16,436

2.6%