Poland Today Business Review+ No. 046 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. 046 / 4th August 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Kirchhoff Automotive expands Polish plants page 2

RETAIL CHAINS Polish operator acquires drugstore chain in Luxembourg page 9

SWM extends Polish production & logistics unit in Stryków page 2

RETAIL PROPERTIES JLL says 0.8m sq.m of retail space is under construction in Poland page 10

ENERGY & RESOURCES Kompania Węglowa teams up with Mitsui to revive PLN 6bn power plant project page 4 The Sierra Gorda mine is located in the Antofagasta region within the Atacama Desert, Chile’s largest copper producing region. Photo: KGHM

KGHM launches production in Chile

Europe's largest copper KGHM Polska Miedz SA, has launched production at its Sierra Gorda mine in Chile, which the stateowned giant acquired two years ago as part of the USD 2.9bn takeover of Canada's Quadra FNX Mining. The Polish giant is hoping the Chilean project will enable it to cut costs and boost production volumes. page 3

Brussels approves state aid for LOT

In a long-awaited decision, the European Commission has ruled that the PLN 804m rescue package received by Poland's flagship carrier LOT is compliant with EU state aid rules. The Commission has also praised LOT's restructuring efforts. page 8

tel. +48 881 650 600

PROPERTY & CONSTRUCTION Korean pension fund to spend USD 800m on Polish assets page 4 Hines acquires Warsaw's Ambassador building for new fund page 5 Real estate investment volume to hit EUR 4m this year page 6 HOSPITALITY Hampton by Hilton to open in Wrocław page 7

FOOD Poles unite in apple consumption as Russia imposes ban on Polish fruit & vegetables page 11 POLITICS & ECONOMY Manufacturing PMI moves back into contraction territory page 12 MEDIA PATRONAGE 5th annual Charity Real Estate Beach Volleyball raises record amount for children's home page 12 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 14-16

weekly newsletter # 046 / 4th August 2014 / page 2

MANUFACTURING & PROCESSING

Kirchhoff Automotive expands Polish plants Germany's Kirchhoff Automotive will invest a total of PLN 70m this year in its two Polish factories in Mielec and Gliwice, creating 20-30 new jobs, the company announced during the recent celebrations of its 15th anniversary in Poland. To-date Kirchhoff has invested more than EUR 150m in Poland where it employs close to 1,500 staff. "In Mielec we are adding some 1,200 sq.m of production space to the existing facilities where a brand new, fully-automated 1,000-ton stamping press will be installed," Kirchhoff Polska Managing Director Janusz Soboń tells Poland Today. The Gliwice unit will likewise be extended and equipped in new assembly stations to take on new orders from Kichhoff's global customers. Kirchhoff's Mielec plant, which makes body and suspension components was established in 1999. Its production buildings have a total floor area of 26,000 sq.m. With a workforce of 900 people it generates annual sales of PLN 500m. The Gliwice plant was opened in 2004 and currently boasts nearly 30,000 sq.m of production space and 500 employees. Its sales total PLN 400m per annum. Kirchhoff's Polish plants supply parts and components to the likes of Volkswagen, General Motors, Ford, Audi, Skoda, Porsche, BMW, and Daimler, exporting them as far as China and the US. "We are getting ready to start producing components for the next generation of GM's best-selling Opel Astra model, VW Transporter, as well as BMW series 5,6 &

7. As a supplier, we need to upgrade our lines approximately two years before a given model goes into production," Mr. Soboń says. "

Automotive exports to grow 8% in 2014

four months of the year Poland shipped out EUR 2.63bn worth of parts and components, EUR 1.72bn worth of passenger cars and light commercial vehicles and EUR 758m worth of diesel engines. The main recipients were Germany, with a 32% share in the total exports, followed by Italy (9.3%) and the UK (8.8%).

Automotive exports in EUR bn

"Overall, the situation in Western Europe's automotive market seems encouraging and this shows Kirchhoff's results. While France and Italy continue to underperform, the UK is booming and Germany is picking up. Our sales increased by approximately 5% in 1H 2014, despite a decline of more than 7% in Russia, which is facing growing economic difficulties," says Janusz Soboń.

20 19 18 17 16 15 14 200 8

200 9

2010

201 1

201 2

201 3

*20 14

Source: AutomotiveSuppliers.pl *) projected

Kirchhoff Automotive GmbH manufactures metal parts for automotive industry. The company offers cross car beams, front ends, and engine cradles for light vehicles as well as chassis components, cab suspensions, chassis/axle components, structures for vans, and chassis hang-on parts for commercial vehicles. It also offers modules and chassis structures. The company was founded in 1984 and is based in Iserlohn, Germany. In addition to four locations in Germany, it has operations in China, France, Ireland, Poland, Portugal, Spain, Romania, Hungary, Canada, Mexico, and the United States. With a global staff of 8,400 people Kirchhoff Automotive turned over EUR 1.2bn last year. The company operates as a subsidiary of Kirchhoff Gruppe. Poland-based automotive manufacturers saw their exports increase by merely 0.6%y/y in January-April, reaching EUR 6.23bn, according to figures from Automotive-Suppliers.pl. In April alone the figure came to EUR 1.57bn, marking a 10% decline y/y. In the first

MANUFACTURING & PROCESSING

SWM extends Polish production & logistics unit in Stryków SWM Poland, subsidiary of US SchweitzerMauduit International, is expanding its production and logistics centre in Stryków near Łódż. The company, which provides engineered solutions for the global tobacco industry, has increased its premises at SEGRO Logistics Park Stryków by 4,200 sq.m, and currently occupies 15,000 sq.m in the complex, located close to the intersection of Poland's key transport corridors: the A1 and A2 motorways. SWM Poland commenced its activity in Poland in 2010 by launching its headquarters at SEGRO Logistics Park Stryków where the company initially leased 6,400 sq.m, used for an innovative production of fine, selfextinguishing papers. As a result of its dynamic development, SWM Poland has extended its warehouse

weekly newsletter # 046 / 4th August 2014 / page 3

space within the complex twice already. The most recent extension has to do with SWM's entry into new markets and introduction of new technology. SEGRO Logistics Park Stryków is situated on an 87ha plot and will eventually provide 0.4m sq.m of modern warehouse and light production space. The project is one of several warehouse projects in Poland developed and managed by the British industrial property company SEGRO. Besides Stryków, SEGRO has logistics centers in Gdańsk, Gliwice, Łódź, Poznań, Tychy, Warsaw and Wrocław. SWM is a leading global provider of highly engineered solutions and advanced materials for a variety of industries. Although SWM primarily serves the tobacco industry, it also manufactures specialty papers for other applications and acquired DelStar, Inc. in late 2013 to further expand its product portfolio and the markets it serves. SWM and its subsidiaries conduct business in over 90 countries and employ approximately 3,000 people worldwide, with operations in the United States, France, Brazil, Canada, Poland and China, including two joint ventures. Their consolidated full year 2013 net sales topped USD 772.8m (0.7% y/y), whereas its net income for the period was USD 76.1m, a decrease of USD 3.7m compared to the prior year.

ENERGY & RESOURCES

Polish giant KGHM launches production at Chilean copper mine Europe's largest copper KGHM Polska Miedz SA, has launched production at its Sierra Gorda mine in Chile, which the state-owned giant acquired two years

ago in what to this day remains the largest investment by a Polish company abroad. The Chilean site will reach full capacity in early 2015 and will produce 120,000 tons of copper, 50m lbs. of molybdenum and 60,000 oz. of gold annually. Once phase II of the project is completed, the annual average production will reach 220,000 tons of copper, 25m lbs. of molybdenum and 64,000 oz. of gold over the mine’s 20 year life, KGHM said. According to the company, the site offers additional production potential in the processing of oxide ore. First copper cathodes have already been produced after initial tests and first copper concentrate will be shipped from Sierra Gorda in September.

ing Ltd. in 2012, as part of its efforts to cut production costs and raise output. The project has been developed at a remarkable speed, with key infrastructure elements, including a mine pit, crushing grinding and flotation plants as well as a 143-km pipeline that feeds seawater to the 750,000 cb.m seawater pond, already up and running. "With production from Sierra Gorda, the weighted average cost of copper production in the KGHM Group will decrease, thereby enhancing the Company's operational security," said Jarosław Romanowski, Executive Vice President and CFO of KGHM. "This cost performance will be influenced by sales of Sierra Gorda's additional products, including gold and molybdenum, whose prices are at the moment almost one fourth higher than originally planned." Sierra Gorda SCM, operated by KGHM International, is a joint venture between KGHM (55%), Japan's Sumitomo Metal Mining (31.5%) and the Sumitomo Corporation (13.5%). The mine is located in the Antofagasta region within the Atacama Desert, which is Chile’s largest copper producing region.

After the mine’s ramp-up, which is scheduled to be completed in early 2015, Sierra Gorda will produce 120,000 tons of copper, 50m lbs. of molybdenum and 60,000 oz. of gold annually. Image: KGHM

"Half of the mine’s copper production will be processed by Sumitomo Metal Mining, our partner in Sierra Gorda, at its smelters in Japan. The remaining copper production will be sold worldwide," said Maciej Ściążko, General Manager at Sierra Gorda. KGHM acquired the Sierra Gorda project under the USD 2.9bn takeover of Canada's Quadra FNX Min-

Since KGHM is still awaiting environmental permits for the Port of Antofagasta project, which the company had intended to use for shipping out the final product, an "alternative solution" for transport routes is to be used for the time being. KGHM produced 666,000 tons of copper in its Polish and northern American sites last year at an average cost of USD 1.85 a pound, which includes USD 0.53-apound impact of Polish copper taxes imposed in 2012. According to KGHM's presentation, production cost at Sierra Gorda is estimated at USD1.13 a pound. The group posted a net profit of PLN 3bn (EUR 721m) on PLN 24.1bn (EUR 5.7bn) turnover in 2013. The respective 2012 figures stood at PLN 4.3bn (EUR1.1bn) and PLN 267.7bn (EUR 6.4bn).

weekly newsletter # 046 / 4th August 2014 / page 4

ENERGY & RESOURCES

Kompania Węglowa teams up with Mitsui to revive PLN 6bn power plant project Europe's largest coal miner Kompania Weglowa (KW) and Japan's Mitsui have inked an agreement on joint development of the Czeczott power plant project in Wola near Pszczyna, southern Poland, the Polish company said in a press statement. With a PLN 6bn price tag, the 1,000 MW unit, if completed, will burn between 2.5 and 3.5 tons of coal per year and produce 5-7 TWh of electricity annually. The deal with Mitsui splits the project into three phases. In the first phase, the parties will negotiate an agreement on supplies of 3m tons of coal to the power plant and on electricity purchases by KW from the power plant, terms of a contract with general contractor Mitsubishi Hitachi Systems and financing terms. Subsequently, parties will sign agreements and set up an SPV. In the third phase, the partners will make a final decision on launching the project. First construction works should start in 2016, KW said. The proposed power plant is to be located on the site of a hard coal mine, which operated until 2000. Kompania Węglowa first sought to develop a power station there in cooperation with Germany's RWE. The two companies even signed a joint-venture agreement in the presence of government officials, but in 2010 RWE pulled out of the project following a strategic shift away from coal-based electricity generation.

Besides environmental concerns that accompany all coal-fired plants, the main risk factor with regard to the Czeczott project is the miserable financial condition of Kompania Węglowa itself. The company, which employs 54,000 workers, posted a massive PLN 250m net loss in Q1. According to its CEO Mirosław Taras, KW is likely to lose solvency in the coming months should it fail to come to terms with borrowers and successfully place new bonds. KW's main problem are its high production costs, which amid dropping prices of coal on global markets make its product too expensive. KW has amassed more than 5m tons of coal, which it has not been able to sell and its mines are beginning to run out of storage space. Despite surplus stocks of domestic coal, many Poland-based customers choose cheaper, imported coal that originates mainly from Russia. In June, KW's management presented a restructuring plan that envisages gradual shutdown of those mines where production is too expensive, mainly due to difficult geology, and relocation of staff and equipment to the most effective ones. According to Mr. Taras, in the long-term, the company should be able to maintain the same level of production with a workforce of no more than 30,000 employees. Since mass layoffs are out of the question, the company hopes to reduce headcount gradually by refraining from new hires (an estimated 18,000 of its miners are to retire by 2020) and offering voluntary redundancies. Asked by reporters who would sponsor the latter, Taras replied:

This time, however, the situation seems particularly desperate with no easy fixes on the horizon.

PROPERTY & CONSTRUCTION

Korean pension fund to spend USD 800m on Polish assets The world's fourth-largest pension fund, South Korea's National Pension Service (NPS) plans to invest about USD 800m (PLN 2.5bn) in real estate assets in Poland, a fund spokeswoman told the Reuters agency last week. According to reports, the fund would invest the money in two shopping malls and a power transmission business. Established in 1988, NPS had invested USD 20.8bn, or 4.9% of its assets under management in overseas alternative assets such as real estate as of Q1 2014. The fund plans to increase investment in alternative assets to more than 10% of its total holdings by end-2019, NPS has previously said. With its total assets being estimated at USD 400bn, NPS holds stakes in the likes of Chevron, Colonial Pipeline, and Gatwick Airport. Its real estate investments include the HSBC Holdings HQ in London.

"The government thinks it should be us, whereas we believe it's them, who should pick up the tab."

South Korean companies have invested in excess of PLN 4bn in Poland to-date. Key investors include appliance maker LG and automotive supplier Mando.

The worsening condition of Poland's coalmining industry is likely to be a major topic this autumn and ahead of the 2015 general election. The miner worker unions have a pretty strong track record of effectively jeopardizing any reforms, no matter how necessary.

Since no final contracts have been signed as of yet, NPS representatives refuse to provide any details of their plans, but Polish media said that the two retail properties in question will be Pasaż Grunwaldzki in Wrocław and CH Galaxy in Szczecin, developed by

weekly newsletter # 046 / 4th August 2014 / page 5

Poland's Echo Investment. Sources said the two centers are to be sold for approximately PLN 1.6bn. Launched in 2007, Pasaż Grunwaldzki offers a total GLA of 52,000 sq.m which is to be extended by a further 10,000 sq.m. CH Galaxy was opened a decade ago and it is likewise facing an extension, by 17,000 sq.m to reach a total leasable area of 60,000 sq.m.

Pasaż Grunwaldzki is one of Wrocław's most popular shopping destinations. Image: Echo Investment

Echo Investment, which to-date has delivered more than 430,000 sq.m GLA in retail centers, 250,000sq.m in office buildings, 245,000 sq.m of usable housing space, and 89,000 sq.m in hotels, has a pretty ambitious development pipeline. Echo's flagship office project at the moment is the 155-metre Q22 office tower in Warsaw the company is building at the intersection of Jana Pawła II Avenue and Grzybowska Street. Estimated at PLN 500m, Echo's new Q22 building is to reach completion in Q1 2016, delivering nearly 50,000 sq.m of class-A office space to Warsaw's central business district. Another major office project in Warsaw, the 34,000 sq.m Park Rozwoju in the Mokotów dis-

trict is currently under construction. Outside of Warsaw, Echo is building offices in Kraków, Katowice, and Wrocław. In recent weeks Echo has acquired a 4.5ha former site of Browary Warszawskie brewery (an entire block enclosed by the Grzybowska, Krochmalna and Wronia streets, across the street from Warsaw's Hilton Hotel and the Platinum Towers complex) for EUR 42m. The Polish developer intends to build mainly offices in this location, with some residential buildings – overall approximately 100,000 sq.m of floor space. According to the company, the capital expenditures will come in excess of PLN 1bn and the project will take some 5-7 years to complete. The recently approved zoning permit allows for the construction of three 120-140m tall towers at the site and obligates investors to preserve the historic brewery cellars located there. The NPS money could come very handy in helping the Kielcebased developer put that project in motion.

land, has made its first acquisition with the purchase of Warsaw's Ambassador office building from Spain's Kronos Real Estate. Hines Poland will represent HISF as asset and property manager in this and further investments in Poland, the company said. Located at the junction of Domaniewska and Pecherska Streets, in Warsaw's highly popular Mokotów district, close to the Galeria Mokotów shopping center and the Chopin airport, Ambassador was completed in March 2013 and it is currently undergoing the BREEAM certification process. The building offers 14,900 sq.m of modern office space and 1,000 sq.m of retail space on the ground floor as well as 298 parking spaces. Its tenants include Coty Poland, Gras Savoye (Pol-Assistance), DSV, Ipsos and CBRE Corporate Outsourcing.

The developer saw its consolidated net income come to PLN 331m last year, down from PLN 373m in 2012, whereas the respective revenue totals came to PLN 528m and PLN 584m. Rumors have it that Echo's founder, billionaire Michał Sołowow is seeking buyers for his 45% stake in the company, which may be worth between PLN 1.2bn and PLN 1.5bn.

PROPERTY & CONSTRUCTION

Hines acquires Warsaw's Ambassador building for new fund Hines Poland Sustainable Income Fund (HPSIF), a comingled fund sponsored by US property giant Hines, targeting office and logistics acquisitions in Po-

Hines will seek to obtain a BREEAM sustainable building permit for Ambassador. Image: Hines

"The purchase of Ambassador is the first transaction completed by the HPSIF fund. The strength of the tenants and the quality of the asset make the Ambassador an attractive acquisition for the portfolio," said Leo Chen, Senior Managing Director and Fund Man-

weekly newsletter # 046 / 4th August 2014 / page 6

ager of HPSIF. “"We intend to continue our expansion on this attractive investment market," Chen added. Asked about the term "sustainable" in the new fund's name, Agnieszka Sabaj, Marketing Manager at Hines Polska, replies: "HPSIF requires its portfolio properties to obtain sustainable building certificates, which means that they don’t need to hold them prior to acquisition. "Sustainable" refers to environmental improvements that will be implemented at its assets." Hines is a privately owned real estate firm involved in real estate investment, development and property management worldwide. Currently, Hines manages 391 properties totaling 15m sq.m. With offices in 115 cities in 18 countries, and controlled assets valued at approximately USD 28.2bn, Hines is one of the largest real estate organizations in the world. The Hines regional office in Poland was founded in 1997 in Warsaw and is 100%-owned by the Houston-based Hines International Real Estate Holdings, which belongs to the Hines family. To-date, the company has built and acquired a total of 16 assets in Poland with a combined space of 0.5m sq.m. Last year alone Hines acquired the New City office complex in Warsaw's Mokotów district (42,000 sq.m) as well as two logistics assets (in Gądki near Poznań and Grodzisk Mazowiecki near Warsaw). On the development front, Hines has just recently broken ground on its latest development in Poland, the class-A Proximo office building, the first phase of which is to reach completion in May 2016 offering 28,385 sq.m of GLA, including 2,000 sq.m of retail space. Located directly by the new subway station Rondo Daszyńskiego in Warsaw's booming Wola district, the entire project, will be developed in two stages to reach a total 48,000 sq.m of GLA.

Hines is probably best known in Poland for its 34,000 sq.m Metropolitan project near the Warsaw Old Town, which remains among the city's most prestigious office locations. The company's latest office development is Centrum Biurowe Neptun, the first high rise office building in Gdańsk, which was completed in Q1 2014 offering close to 16,000 sq.m of GLA. Their development portfolio includes three completed office projects and one under construction (Proximo) with a combined GLA of approximately 150,000 sq.m, as well as three residential projects (including one under construction in Kraków) with a total usable floor space of 100,000 sq.m. "In July we are purchasing an investment site for another office project in Warsaw's Mokotów district," Ewa Borkowska, Marketing Manager at Hines told Poland Today a few weeks ago. "Following the recent completion of Centrum Biurowe Neptun in Gdańsk and the launch of our Proximo project in Warsaw we are actively seeking opportunities to develop further office investments in Warsaw as well as one of Poland's regional cities. As far as our logistics properties are concerned, we are finishing up a new warehouse in Warsaw Annopol and continue to modernize our remaining assets." As for the Spanish-owned dev eloper Kronos Real Estate, it is currently developing a new project Pacific Office Building in the same area as Ambassador, on Domaniewska street, with its completion being expected in 1Q of 2015. Both buildings represent the initial stage of Kronos' "Ocean Business & Residential Park" which includes a number of office and residential buildings at different stages of development.

PROPERTY & CONSTRUCTION

Real estate investment volume to hit EUR 4m this year Poland remains the top destination in Central and Eastern Europe for property investors, with 1H transaction volume hitting EUR 1.43bn, which represented 50% of total investment in the region, reports real estate consultancy JLL. The full year figure for Poland is expected to hit EUR 4bn. According to JLL, the H1 volume recorded in Poland was the best since 2007 and marked a 40% increase on January-June 2013. The twenty-eight transactions concluded in Poland in H1 2014 consisted of EUR 752m in office deals, EUR 368m in retail and EUR 313m in industrial transactions. In Q2 alone, the volume of investment transactions in Poland amounted to EUR 491m(30% increase y/y), with the industrial sector leading the way with EUR 222m, followed by the office segment (EUR 197m) and retail (EUR 73m). So far no mixed use or hotel properties have changed hands this year. The largest office transactions closed in the first six months of 2014 in Poland included the Rondo1 acquisition by Deutsche Asset & Wealth Management (for ca. EUR 300m) from BlackRock, Lipowy Office Park sale by CA Immo to WP Carey (EUR 108m), Atrium 1 sale by Skanska to Deka (for ca. EUR 94m) and the Arka BZ WBK Property Market Fund portfolio deal, which saw six office buildings being transferred to Octava FIZAN. In the retail segment, the largest deals saw Resolution and ECE Fund purchase Poznań City Center bought

weekly newsletter # 046 / 4th August 2014 / page 7

from TriGranit, Europa Capital and PKP and CBRE Global Investors buy Galeria Mazovia from Lewandpol (both for undisclosed price). Major transactions in the industrial sector included: Tristan/AEW selling industrial properties situated on the outskirts of Warsaw, Łódź and Poznań to SEGRO (ca. EUR 100m), and the sale of logistics assets in Mysłowice, Stryków and Robakowo by Standard Life Investments to Blackstone (EUR 118.2m). "We have observed an increased appetite for regional offices amongst investors, already proven with H1 transactions concluded in Kraków, Wrocław, Poznań, Gdynia and Łódź. At the same time, we witnessed new entrants to the office investment scene such as WP Carey and Octava S.A., who successfully concluded large and complex transactions of national reach," commented Tomasz Puch, Head of Office and Industrial Investment, JLL Poland.

CEE property investment volume In EUR million, 1H 2014

According to JLL, the first half of 2014 also brought a number of opportunistic and value-added transactions of a scale greater than in the corresponding periods of previous years. Such types of transactions amounted to over EUR 200m, doubling the H1 2013 result in this respect. With deals in the pipeline, JLL expects this trend to continue throughout 2014. JLL estimates prime office yields to remain stable at around 6.25%, with possible compression for unique assets. Retail yields for best in class products are at 5.50% and truly prime warehouse asset yields are expected at or below 7.25%.

"Hampton by Hilton Wrocław City Center West will be a three-star property located on Sikorskiego St.. At this stage the investor is not disclosing how many rooms will be available at the property," says Hanna Gut, a PR representative for the project.

"Going forward, we expect 2014 to be another very prosperous year with volumes already exceeding the strong figures seen in 2013. In our opinion, 2014 will be the strongest year since 2006 with transaction volumes forecast to reach over EUR 4bn. We expect the highest-ever volumes of industrial investment to come in at over EUR 700m, office investment to hit close to EUR 1.9bn and retail investment to continue its strong performance with approximately EUR 1.5bn worth of deals," Tomasz Puch added.

Poland

Hampton by Hilton Wrocłąw City Centre West will open next year on Sikorskiego Street. Image: Gut PR

HOSPITALITY

Czech Republic

Hampton by Hilton to open in Wrocław

Romania

Hungary

Slovakia

0.0

Source: JLL

eral contractor is to enter the site in the coming weeks to complete the project by the end of 2015.

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Only weeks after Hampton by Hilton opened its largest property outside the US in downtown Warsaw, the US hospitality chain is gearing up to launch another investment in Poland, this time in Wrocław. Polish property company West Real Estate has just confirmed it had obtained financing for the project that will bear the Hampton by Hilton logo under a franchise agreement with Hilton Worldwide. The gen-

West Real Estate is a property and waste management company listed on Warsaw Stock Exchange's alternative platform NewConnect. According to the investor, Hilton Wrocław City Center West will be Hilton's 18th property in Poland, taking into consideration all existing and pipeline projects. The latest addition to the Polish Hilton chain was the 300-room Hampton by Hilton Warsaw City Centre, developed by Austria's S+B Gruppe. The new hotel is the second Hampton by Hilton in Warsaw following the recently completed property near the Chopin airport, and number four in Poland, alongside hotels in

weekly newsletter # 046 / 4th August 2014 / page 8

Gdańsk and Świnoujście. A Hampton by Hilton property is also under construction in Bydgoszcz. Other Hilton brands available in Poland are Hilton Garden Inn (Kraków, Rzeszów), DoubleTree by Hilton (Warsaw, Łódź) and Hilton (Warsaw, Gdańsk). The latest opening, prior to Hampton by Hilton Warsaw City Centre, was the 360-room DoubleTree by Hilton Hotel & Conference Center in Warsaw, developed by Polaris Hospitality Enterprises, which welcomed first guests in May.

Hilton Worldwide – Polish hotels Property Hilton Warsaw

No of rooms

Opening

314

2007

Hilton Gdansk

152

2010

Hilton Wroclaw

255

TBA

Hampton by Hilton Swinoujscie

104

2012

Hampton by Hilton Warsaw Airport

116

2013

Hampton by Hilton Gdansk Airport

116

2013

Hampton by Hilton Bydgoszcz

130

2014

Hampton by Hilton Wrocław

TBA

2015

DoubleTree by Hilton Lodz

200

2013

Doubletree by Hilton Warsaw

365

2013

Hilton Garden Inn Krakow

155

2010

Hilton Garden Inn Rzeszow

102

2012

Hilton Garden Inn Krakow Airport

150

2013

Hilton Garden Inn Wroclaw

150

TBA

Source: Hilton Worldwide / archives

Wrocław has been on Hilton's radar for a number of years now, but the chain's two initial projects in the city (Hilton and Hilton Graden Inn) experienced serious delays due to financing problems on the part of their investors. According to recent reports they are about to take off, however. "Poland continues to be a strategic development market for Hilton Worldwide. In 2013, over 23 million tourists chose to visit Poland. The number of guests booking hotels increased by nearly one million versus

the previous year," said Simon Vincent, president, Europe, Middle East & Africa, Hilton Worldwide. Hilton Worldwide is the leading global hospitality company, spanning the lodging sector from luxurious full-service hotels and resorts to extended-stay suites and mid-priced hotels. Its brands are comprised of more than 4,100 hotels and timeshare properties, with 685,000 rooms in 92 countries and include Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Embassy Suites Hotels, Hilton Garden Inn, Hampton Hotels, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton Grand Vacations.

"This is a very important day for LOT. The Commission’s investigations of our Restructuring Plan confirmed that we are adhering to the provisions of EU law. The measures foreseen in the Plan avoid distortions to the market, and ensure our long-term competitiveness. We have indeed cut our costs dramatically, and have improved our revenues so that, after many years of losses, LOT can finally return to sustainable profitability," commented LOT's CEO Sebastian Mikosz.

TRANSPORT & LOGISTICS

European Commission approves state aid for flagship carrier LOT In a much awaited decision the European Commission has concluded that the Polish government's decision to award PLN 804m (EUR 194m) worth of public aid to the country's flagship carrier LOT Polish Airlines in a move to keep the company from going under had been in line with EU state aid rules. The official decision thereby puts an end to the formal proceedings in Brussels related to the Polish national carrier, giving LOT some breathing space to complete its ongoing restructuring. As for the latter, the Commission found the carrier's restructuring plan, due for completion in October 2015, to be "based on realistic assumptions and should enable the company to return to long-term viability within a reasonable timeframe."

According to LOT, its new B787 Dreamliner fleet has been instrumental in helping the company get back on its feet. Image: LOT

The Commission also reviewed claims LOT received state aid in the form of deferred airport charges at Polish state-owned airports, as well as the sale of real estate, subsidiaries, and the provision of loans from public and private companies, finding "none of these measures involved state aid within the meaning of EU rules, as they either involved no state resources or were carried out on market terms and thus did not confer any undue economic advantage to LOT."

weekly newsletter # 046 / 4th August 2014 / page 9

European Commission VP responsible for competition policy JoaquĂn Almunia said: "LOT has prepared a credible restructuring plan that should make it a viable company in the near future. At the same time, it gives up some profitable routes and slots at several congested airports, which creates opportunities for its competitors and reduces the competition distortions brought about by the aid."

381m) in August 2013, but LOT's management has been doing its best to postpone the acceptance of the latter installment or reduce its scale in order to avoid additional pressure from the EU. The government's long-term objective is to sell the airline to a strategic investor.

LOT applied for state aid in 2012, but in order to get the Commission's green light for the rescue package, it had to implement a far-reaching restructuring plan which involved closure of several profitable routes, capacity reductions and job cuts . The company regained its footing much faster than expected.

RETAIL CHAINS

LOT posted its first net profit in half a decade, which topped PLN 26m, instead of a PLN 200m loss the company had been expecting according to the restructuring plan presented to the European Commission. Crucially, the company posted a small, PLN 4m loss on core operations, against a PLn 142m loss assumed in the plan. The airline successfully transitioned from the old Boeing 767 and 737 fleet to the new fuel-efficient 787 Dreamliner jets. Despite some initial technical problems, the Dreamliners have given LOT a competitive edge over other airlines, as the Polish company had been the first carrier in Europe to receive Boeing's new creation, attracting business travelers on flights to the US and Beijing. LOT planes fly to nearly 60 destinations in Europe, the Middle East, North America and Asia. However, despite the significant progress made it made last year the company is not out of the woods yet. LOT has used up all of the most obvious ways to improve its performance, whereas the restrictions the European Commission had imposed on its business remain in force. LOT received the first tranche of state aid in the amount of PLN 400m in December 2012 and initially expected to get the second tranche (up to PLN

Polish operator acquires drugstore chain in Luxembourg

pansion is to boost its results to EUR 40-50m and 10% respectively in two to three years." Hygienika entered the retail business via the acquisition of some 170 drugstores in Poland that used to belong to the now bankrupt German operator Schlecker. The company is expanding the chain under a new formula and brand Dayli, which is a cross between a drugstore and a convenience store. Under Hygienika, the chain is to open some 25 new Dayli stores in 2014, reaching 200 locations, before its expansion truly picks up pace next year.

In the last issue of BR+ we spoke to Kamil Kliniewski, CEO of the listed Polish personal care products maker Hygienika, about his company's plans for the drugstore chain Dayli. Mr. Kliniewski mentioned that due to shortage of suitable candidates on the Polish market, he would seek acquisition opportunities in Western Europe. Little did we know, that the first deal was about to be sealed only days later. Last week Dayli acquired a chain of 24 drugstores in Luxembourg for an estimated EUR 20m with the intention of doubling their number over the coming 2-3 years. The acquired stores are located in the capital of the Duchy (6 locations) and other cities such as Grevenmacher, Mersch i Bettembourg. Hygienika emphasizes that with the average monthly wage at EUR 4,900, Luxembourg boasts the highest consumption and lowest unemployment in Europe, making it a safe destination in uncertain times. "It's worth pointing out that our drugstores are the only ones that exist in Luxembourg," says Kliniewski. "The chain should reach a EUR 15m turnover next year with an EBITDA margin of 6%. The planned ex-

Polish drugstore operator Dayli seeks to establish presence in Western Europe. Image: Dayli

In November last year Hygienika struck a deal with the private equity fund Innova Capital, regarding joint investments in the drugstore segment. Their joint venture agreement were to be sealed later this year, with Hygienika bringing the Dayli business to the table and Innova contributing another, unnamed Polish drugstore operator. The two partners said their goal is to create a retail business with a PLN 1bn turnover in a few years.

weekly newsletter # 046 / 4th August 2014 / page 10

"The idea behind that project was for Innova Capital to find and subsequently acquire a retail chain in Poland that it would later contribute to Dayli as a new asset via an equity boost. This, in effect, were to boost Dayli's sales revenues and store numbers and support long-term growth of the entire business, which would operate under the Dayli brand, as stipulated in the Letter of Intent. However, so far we have not been able to find a suitable candidate in Poland and that's why we are looking at Western European markets where we see better prospects for growth," Mr. Kliniewski told Poland Today, hinting that the Luxembourg purchase may not be his last Last year the Hygienika group saw its turnover reach PLN 177m, up from PLN 49.4m in 2012, while its net earnings from continued operations rose from PLN 1.2m in 2012 to PLN 6m in 2013. The surge in turnover was mainly due to the acquisition of the Dayli chain, whose results have been part of Hygienika's consolidated financials since March 2012. Hygienika is seeking buyers for its personal care products factory neat Warsaw, hoping to funnel the proceeds into expansion of its retail business.

RETAIL PROPERTIES

JLL says 0.8m sq.m of retail space is under construction in Poland Close to 800,000 sq.m of retail centre space is currently under construction across the country, mainly in shopping centers, reports property consultancy JLL in its recent report on the Polish market. The first six months of the year saw 252,000 sq.m of new retail space enter the market, of which 205,000 sq.m in shopping centers. The biggest completion of the first half of 2014 was Atrium Felicity in Lublin (73,000 sq m of GLA). In Q2 alone ca 88,000 sq.m of new retail space was delivered to the market, including at Galeria Bursztynowa in Ostrołęka (27,000 sq.m GLA), marcredo Center in Kutno (16,000 sq.m) and Pogodne Centrum in Oleśnica (7,700 sq.m) and Gemini Park in BielskoBiała (extended by 13,000 sq.m). In the retail warehousing sector two Karuzela Parks were launched in Lubliniec and Turek, one stand-alone Bricoman DIY unit (8,100 sq.m) in Jaworzno and a E.Leclerc hypermarket (5,000 sq.m) in Szczecin. With the exception of the latter, all new retail assets opened in Q2 were located in cities of less than 100,000 inhabitants. "We observe that smaller markets are attractive locations for developers and retailers. This will become even more pronounced with the arrival of the shopping centers projects currently under construction: 37% of developing pipeline will contribute to the growth of stock in cities of less than 200,000 citizens. Nevertheless major agglomerations remain very active – 44% of future shopping centre floor space will open in these cities, with the remainder in cities of between

200,000 and 400,000 residents," said Anna Wysocka, Head of Retail Agency, JLL. There are 31 shopping centers currently under construction throughout Poland with a combined lettable space of 720,000 sq.m. The largest new projects under construction include Centrum Posnania in Poznań (100,000 sq.m, formerly known as Łacina), Zielone Arkady in Bydgoszcz (50,000 sq.m), Sukcesja in Łódź (45,000 sq.m), Galeria Warmińska in Olsztyn (41,500 sq.m), Tarasy Zamkowe in Lublin (38,000 sq.m), Galeria Metropolia in Gdańsk (34,000 sq.m) and Galeria Galena in Jaworzno (31,000 sq.m). Seven centers are undergoing extensions, including Magnolia Park in Wrocław. The retail supply looks set to grow by 564,000 sq m in 2014, with 455,000 sq m in shopping centers, roughly matching the 2013 completion of 466,000 sq.m in the sector.

POLAND RETAIL MARKET AT A GLANCE The total retail supply as of mid-2014 stands at 12.1m sq.m of GLA, including: shopping centers (8.7m sq.m), retail parks (1.3m sq.m), retail warehouses (1.9m sq.m) and outlet centers (163,000 sq.m). The shopping centre density in Poland currently stands at 226 sq.m per 1,000 inhabitants i.e. above the European average of 191 sq m, but below the Western-European average of 255 sq.m. Source: JLL

"Poland is an attractive market for international retailers. Fashion retailers make up the majority of those who have recently entered the market, including Spanish brand Inside, Olimp Live & Fight from USA and Italian outlet store Gattinoni Roma. Additionally, two fitness clubs, British CityFit and Fitness24Seven from Sweden, have decided to make their mark in Poland. Also, brands already present on the market are searching for expansion opportunities. Some chains

weekly newsletter # 046 / 4th August 2014 / page 11

like Carry, Zara, Reserved, CCC or Rossmann are enlarging their stores, others are expanding their portfolios by introducing new brands. For example, after Sinsay's successful launch, LPP Group is about to introduce two new concepts, selling fashion and household goods, to the market. Fashion chain Kiabi from the Auchan Group is set to open their first stores in Warsaw shortly. It is worth noting, however, that tenants present a selective approach and focus mostly on existing prime assets and projects under extension with short to mid-term delivery," Anna Wysocka added. According to JLL, following the recent tenant mix reshuffle at a number of the city's prime retail assets, prime rents have gone up by 5% and now stand at EUR 105/sq.m/month. The estimate concerns the top prime rents for a prominently located 100 sq.m fashion store in leading shopping centers. JLL expects prime rents in the remaining markets to remain stable in the short to mid-tem. As far as the investment market is concerned, major transactions in H1 included the takeover of Poznań City Center by a consortium of Resolution and ECE Fund from TriGranit, Europa Capital and PKP and the sale of Galeria Mazovia by Lewandpol to CBRE Global Investors. "The total volume of retail transactions concluded in Poland in H1 is estimated at EUR 368m. In Q2 alone, transactions in the retail segment amounted to EUR 73m. Taking into account investor activity and ongoing negotiations, the transaction volume in retail investment market can reach approximately EUR 1.5bn of by the end of 2014," said Agnieszka Kołat, National Director, Retail Investment CEE, JLL.

FOOD

Poles unite in apple consumption as Russia imposes ban on Polish fruit & vegetables vegetables

The Russian ban provoked a nationwide campaign to eat Polish apples in support of Polish fruit growers. It began with the business newspaper Puls Biznesu running an editorial entitled “Stand against Putin: eat apples, drink cider." The idea was quickly picked by the social media, with ordinary people and celebrities posting photos of themselves or others eating apples on Twitter and Facebook.

Poland will seek compensation from the European Union after Russia imposed a ban on Polish fruit and vegetable exports, which according to the Polish agriculture ministry may cost the country as much as EUR 0.5bn. Although the ban was officially due to sanitary reasons, it came a day after the EU and United States imposed a range of economic sanctions against Moscow over its role in the Ukraine conflict. Agriculture Minister Marek Sawicki called the Russian embargo and act of "political repression in response to the restrictions imposed by the European Union against Russia." The issue of compensation for Poland was raised during talks Friday with European Commission and European Parliament officials. Sawicki "wants to prevent a situation in which Polish vegetable and fruit growers are the main victims of EU and US economic restrictions against Russia,” the Polish agriculture ministry said in a statement. According to the ministry, Poland exported over 804,000 tons of fruit and vegetables worth almost EUR 336m to Russia last year. The Russian market accounts for some 7% of Poland's food exports. Apples account for almost three-quarters of the total volume of fruit produced in Poland. Poland is the world’s largest exporter of apples, with EUR 438m worth of exports a year.

Posing with apples was the hottest trend in Polish social media last week. Pictured above is the editorial team of the Polityka magazine "eating apples to annoy Putin." Source: pic.twitter.com/fmBXKlwDR6

According to reports in the Polish media, Moscow is said to be preparing to ban beef and poultry imports from Poland, after Russian officials claimed they had found dangerous bacteria in such meat. This could deliver another heavy blow to the country's meat industry, after the latter seen its exports decline by 20% or by EUR 80m due to the African swine flu cases among wild boars in eastern Poland. Since the disease has been discovered in recent weeks in farm pigs in the same region, the declines might become even deeper in the coming months.

weekly newsletter # 046 / 4th August 2014 / page 12

POLITICS & ECONOMY

Manufacturing PMI moves back into contraction territory The Poles might be eating apples and drinking cider to annoy Putin, but the prolonging crisis across Poland's eastern border seems to be catching up with the country's fragile economic recovery. According to the monthly survey by Markit and HSBC, the Poland Manufacturing PMI in July showed business conditions deteriorate for the first time in 13 months. The index, declined to 49.4 points compared to 50.3 points in June, with 50 points being the threshold that separates growth from contraction. Crucially, July new orders declined at fastest pace since April 2013. New export orders fell at the highest pace since October 2012. Manufacturing production growth slowed down last month, coming close to stagnation, while stocks of inputs and backlogs declined sharply. "An increase in employment index is the only positive note in the July survey but should the activity weakness continue it will of course drag employment down later on. Input prices rose for the first time in six months, but at only a marginal pace while output prices declined for the twentieth consecutive month, albeit at a slower rate than in June," said Agata UrbańskaGiner, Economist, Central & Eastern Europe at HSBC. "On balance this is a very negative result pointing to further weakness in manufacturing. Industrial production growth surprised to the downside in June slowing to just 1.7% y-o-y from 4.9% average in H1 2014 and the PMI survey points to more weakness ahead. This,

combined with looming deflation in the summer months, supports market pricing of interest rate cuts in Poland. "

Purchasing Managers' Index (PMI) The 50 mark separates growth from contraction 60

MEDIA PATRONAGE

5th annual Charity Real Estate Beach Volleyball raises record amount for children's home

45 May 13

Jul 13

Sep 13 Nov 13 Jan 14

Mar 14 May 14

Jul 14

Source: Markit & HSBC

The July PMI reading was much weaker than average projections, as economists had been counting on the figure to reach 50.5 points. "What is particularly worrying is the trend of this indicator. The PMI has dropped below 50 points after a period of recovery that lasted merely a year, signaling a likely slowdown in the near future. While the economic growth may continue to take advantage of a momentum for the remainder of the year, I find the optimistic projections for 2015 increasingly unrealistic," commented Krzysztof Kolany, chief analyst at Bankier.pl.

The east bank of the Vistula river resembled a scene from a Californian beach movie on Thursday afternoon as 224 players representing 33 companies took part in the 5th annual Charity Real Estate Beach Volleyball Tournament organized by JLL - and were then joined by about 1,000 colleagues and friends to party the night away. The event raised almost PLN 187,000 for the Happy Kids Foundation to help finance the construction of a new family-type children’s home in Dąbrówka near Zgierz. A joint TriGranit Development /TPA Horwath team beat warehouse developer ProLogis in a closely-contested final, with MLP – another warehouse developer – claiming third place. "It was pretty hot – some moments we were struggling because of the sun, but we made it," said Agnieszka Turowska, finance director from TriGranit Development, a real estate development company. "We came with high hopes but still we were pretty surprised that we won. The team had only met together once, one month before, and we hadn’t trained. The atmosphere was very friendly, both during the competition and at the party afterwards, but the greatest part of the whole thing was that we raised a lot of money for the orphanage," she said. Tomasz Trzósło, Managing Director of JLL in Poland, said he was very happy with the event.

weekly newsletter # 046 / 4th August 2014 / page 13

Radisson Blu, Salad Story, Sign System, Stewart Title Limited, Stamm Sport Promotion, Tara HR Consulting, Teatr Guliwer, Teatr Kamienica, Top Secret, VALAD, Warszawskie Centrum Atletyki, The Westin Warsaw. Poland Today was a media patron.

"It was a great atmosphere, and we raised the highest amount of money to date. Last year the money went to a clinic in Międzylesie for kids who have cancer and I went there with some of our team to see for ourselves, so we know the good the money can do." Each year a different charity is chosen, but it is always a children’s cause which is supported, he added. "It was also great to see people in the market get together over a few drinks – even at 3am there were still about 300-400 people there. I don’t think that the real estate sector will be very productive today," he joked.

Aleksander Katarasiński, President of the Happy Kids foundation, holds up the cheque for PLN 186,847, which was presented by Tomasz Trzósło, Managing Director of JLL in Poland. Photo: JLL 224 players representing 33 companies took part in the 5th annual Charity Real Estate Beach Volleyball Tournament. Photo: JLL

The winning team, made up of players from TriGranit and TPA Horwath, hold their trophy aloft. Photo: JLL

The players represented both international and Polish companies from the real estate sector, including Adgar Poland, Balmain Asset Management, BlackRock, BNP Paribas Real Estate, Capital Park, CBRE, Colliers, Cushman & Wakefield, Dentons, DTZ, Echo Investment, ECI, Evigo, Ghelamco, HB Reavis, Heitman, JLL, Knight Frank, Kulczyk Silverstein Properties, MLP Group, Multi Development Poland, NAI Estate Fellows, Neinver, Panattoni Europe, Prologis, PZU Inwestycje, Savills, SEGRO, Skanska, TriGranit together with TPA Horwath, Unibail-Rodamco and Warbud.

The winning team celebrates in traditional style. Photo: JLL

The sponsors of this year’s event were: AB FOTO, Batida, Cinnabon, Copy General, Europilot, F1Karting, Flyspot, Fundacja Tesco Dzieciom, Grycan, Helios, House of Tudor, La Playa Music Bar, Medicover, Mielżyński Wine Spirits Specialities, Och-Teatr, Portico Investments, Prime Property Marketing, Prologis,

Around 1,000 real estate professionals joined the afPhoto: JLL ter-party.

weekly newsletter # 046 / 4th August 2014 / page 14

KEY STATISTICS Consumer Prices Prices

Inflation

-0.3

Alcohol, tobacco +3.7

+0.7 +3.9 +0.3 +3.9 +0.2 +4.0

+0.1

Clothing, shoes

-4.3

+0.8

Housing

+1.8

Transport

-4.4 +2.8

-4.6

-0.1

-4.7

-0.8

-0.1

+1.7

0.0

+1.6

0.0

+1.6

-0.1

-0.1 -0.4

-0.6

-0.2

-2.7

+0.1

-2.1

-0.1

Communications -0.3

+0.6

-1.7

-1.5

Gross CPI

+0.1 +0.3 0.0

+0.7

-1.1

-0.1

+0.2 -0.1

+1.3 +2.4 +0.3

Feb '14 -0.6

+12.5

+2.3

-2.7

-1.1

y/y (%)

+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

+4.3

+5.5

+11.6

+5.6

+2.3

Residential Construction Dwellings

0.0

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

m/m (%)

y/y (%) Jun 14

-0.9

Apr 14

-0.8 -0.4

Feb 14

-0.5

m/m

Dec 13

-0.3 +0.3

Oct 13

+1.2

y/y

Aug 13

Food & bev

Month

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

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

Apr 13

Sector

Retail Turnover

Feb 13

Jun '14

Dec 12

May '14

Oct 12

Apr '14

Jun 12

Mar '14

Aug 12

Data in (%)

2009 2010

2011

2012

2013 Jan-Jun y/y 2014

(%)

178.8

174.9

184.1

165.1

138.7

76.5

+12.8

158.1

162.2

141.8

127.4

72.3

+22.5

(in '000 units)

Producer Prices Prices

Industrial Output Outpu t

Permits Commenced

142.9

m/m (%)

-0.1

0.0

-0.1

-0.2

0.0

m/m (%)

-9.7

+2.9

-1.8

+9.4

-2.3

-1.7

-0.1

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

-1.7

y/y (%)

+6.6

+4.1

+5.3

+5.4

+4.4

+1.7

Completed

160.0 135.7

152.5

-2.4

Year

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product

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

-0.2

-0.1

0.0

-1.7

-1.6

-1.5

-1.4

-1.3

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 Q3 2013

Q4 2013

Q1 2014

138

8,615

397,429

-1.1%

455,528

-1.3%

Q3 2013

+2.0%

405,554

-1.9%

Q2 2013

+0.8%

296,314

-2.3%

2013

+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%

+24.2

+3.2

+14.0

+16.9

y/y (%)

+5.8

-3.9

+14.4

+17.4

+12.2

+10.0

+8.0

Year

2007

2008

2009

2010

2011

2012

2013

y/y (%)

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

196 6,333 144

Manufacturing

3,560

155 3,625

158 3,690

161 3,663 160

Energy

5,828

177 6,021

183 6,736 205 6,358 193

-20

157 3,766 160 3,895 145 3,456 3,913

166 3,706 158 147 3,544

151

Transportation

3,547

125 3,589

127

IT, telecoms

6,707

174 6,654

173 6,695

174 6,986

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

Source: Central Statistical Office (GUS)

100

138 3,666 130 181

-40

60 J un 14

3,421 146 3,408

120

Mar 14

3,693

Retail & repairs

Sep 1 1

Construction

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

Dec 13

143 6,061

Sep 13

6,290

Current account def. in % of GDP

+2.7%

+18.7

J un 13

Coal mining

Q2 2013

GDP in PLN bn current prices

66.3

+3.4%

-64.0

M ar 13

Sector

146.1

Q4 2013

+21.5

Source: The Central Statistical Office of Poland, GUS

Gross Gro ss Wages

Growth y/y unadjusted

131.7

Q1 2014

m/m (%)

Dec 12

y/y (%)

-0.2

Period

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

Sep 1 2

Year

-0.1

Month

J un 12

y/y (%)

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

M ar 12

m/m (%)

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

Construction Output

Construction Prices Price s Month

Month

Dec 11

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 # 046 / 4th August 2014 / page 15

100 DKK

56.18 ↑

100 SEK

45.50 ↑

10,000 JPY

USD EUR

350

300

49.74 ↑ 303.96 ↑ 15.14 ↑

100 CZK 10,000 HUF

400

19 Aug 13

100 NOK

as of 1 August 2014

WIG-20 stocks Price Change Change in alphabetical 1 Aug 25 July end of order '14 '14 '13

WIG Total index

133.35 ↓

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%

PLN (total)

4.8%

4.7%

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%

2.67%

2.69%

Central Bank (NBP) Base Rates

in PLN m

Mar '14

Apr '14

May '14

Jun '14

Monetary base

173,213

168,511

162,246

173,096

2.59%

- Currency outside banks

558,954 116,657

548,394

557,651

119,261

119,649

572,376 120,828

964,624

969,754

- Time deposits

422,990

439,137

435,386

975,001 980,090 426,351

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%

-2%

↑ Asseco Pol.

41.58

+3%

-10%

Change 1 week

-2% ↑

→ Bogdanka

113.6

-10%

Change end of '13

-2% ↑

360.8

+1%

-7%

-12%

-22%

36.23

-2%

↓ JSW

41.25

-5%

-22%

2,341 2,341. 341.91

↓ Kernel

28.75

-4%

-24%

Change 1 week

-3% ↑

↓ KGHM

129.7

-1%

+10%

Change end of '13

-2% ↓

7,650

-5%

-15%

↓ LPP ↓ mBank

Credit

↓ Pekao

The financial sector's net lending in PLN bn,

↓ PGE

loan stock at the end of period

↓ PGNiG

Mar' 14

Apr' 14

May' 14

Jun' 14

↓ PKN Orlen

463

-5%

-7%

WIG Total closing index

10.37

+5%

+6%

last three months

171.5

-3%

-4%

54,000

20.95

-1%

+29%

53,000

4.89

-7%

-5%

36.88

-5%

-10%

36.3

-5%

-8% -2%

Loans to customers

923,709

928,450

930,652

940,703

- to private companies

267,553

270,886

273,360

276,709

↓ PZU

442

-2%

- to households

569,334

573,332

574,800

578,639

↓ Synthos

4.5

-2%

-18%

Total assets of banks

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

↑ Tauron

5.11

+1%

+17%

↓ PKO BP

Source: Central Bank NBP

WIG-20 blue chip index

37.1

↓ Grupa Lotos

↑ Orange Pol.

Type of loan

50,390. 390.94

79.45

↓ Alior Bank

Warsaw Inter Bank Offered Rate (WIBOR) as of 1 August 2014

Reference

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

52,000 51,000 50,000 1 Aug 14

344.38 ↑

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

10 Jul 14

526.65 ↑

100 CHF

1 Aug 14

100 GBP

26 May 14

418.87 ↑

17 Mar 14

100 EUR

Key indices

Term / currency

450

8 Jan 14

312.80 ↑

24 Oct 13

100 USD

Stock Exchange

Average weighted annual interest rates

17 Jun 14

as of 1 August 2014

Interest rates

26 May 14

100 USD/EUR against PLN

Central Bank average rates

16 Apr 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

30,403

+10.6

10.9

69,304

10.9

20,794

+5.7

7.5

47,906

7.4

1 Germany

3,667

+10.9

1.3

8,624

1.4

1,612

+1.0

0.6

4,150

0.6

2 UK

Crude materials except fuels

7,057

+3.4

2.5

15,744

2.5

9,065

-1.0

3.3

21,585

3.3

Fuels etc

11,896

-2.0

4.3

30,013

4.7

31,333

+6.0

11.2

75,539

11.7

Food and live animals Beverages and tobacco

Jan-May share 2014

IMPORTS in PLN bn 2013

share No

6.3%

42,138

3 Czech Rep.

16,771

6.0%

40,110

4 France

16,100

5.8%

36,367

Jan-May share 2014

2013

1 Germany

60,238 21.6%

2 Russia

32,634 11.7% 79,578 12.1%

6.2%

3 China

27,284 9.8%

5.6%

4 Italy

14,420

10,418 3.7% 25,409 3.9%

72,954 26.1% 162,548 25.1% 17,615

Country

6.5%

142,161 21.7% 61,127 9.3%

5.2% 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

12,068

4.3% 34,069

5.3%

5 Netherlands

Chemical products

25,517

+5.5

9.1

59,103

9.3

41,641

+8.2

15.1

92,917

14.3

6 Italy

12,888

4.6%

4.3%

6 France

11,021 4.0%

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

7 Czech Rep.

9,420 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

n/a

18,020

2.8%

8 USA

6,645 2.4%

17,431