Poland Today Business Review+ No. 011 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. 011 / 18th November 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Spanish appliance maker Fagor goes bankrupt, Polish plants seeking new owners page 2 Imperial Tobacco completes major plant extension page 2 BANKING & FINANCE Austria's VIG acquires life insurer Skandia page 3

With GTS' networks Deutsche Telekom seeks to expand its footprint in Poland.

Photo: T-Mobile

Huge deals in Poland's telecom sector

In a move to expand its business in Poland beyond mobile services, Deutsche Telekom has taken over fiber optic network operator GTS Central Europe for EUR 546m. Another large transaction will see listed Polish pay TV firm Cyfrowy Polsat acquire mobile firm Polkomtel in a EUR 1.23bn deal. pages 13-14

Q3 GDP growth beats forecasts at 1.9%

Poland's economy expanded 1.9% y/y in Q3, its fastest growth in more than a year, according to preliminary estimates. Experts say Polish economic recovery is beginning to gain pace. page 15

PROPERTY & CONSTRUCTION Skanska sells Warsaw office project Atrium 1 to Deka for EUR 94m page 5 IVG pays EUR 70m for two office buildings in central Warsaw page 6 HB Reavis breaks ground on third office project in Warsaw page 7 SERVICES & BPO French giant Veolia to employ 80 staff at new SAP offshoring centre in Łódź page 10

tel. +48 881 650 600

TRANSPORT & LOGISTICS Automotive industry on slow recovery track, says new report page 9 CONSUMER GOODS & RETAIL Ghelamco unveils plans for three retail projects in Warsaw page 9 Warsaw needs more retail space, says JLL in new market report page 10 Tradeland completes its second shopping center in Poland page 11 IT & TELECOM Polish Medort acquires top German wheelchair maker Meyra Ortopedia page 12 POLITICS & ECONOMY Independence Day march turns violent, rioters attack Russian embassy page 16 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 18-20

weekly newsletter # 011 / 18th November 2013 / page 2

MANUFACTURING & PROCESSING

Spanish appliance maker Fagor goes bankrupt, bankrupt, Polish plants seeking new owners owners Fagor Electrodomésticos, Europe's fifth-largest maker of household appliances and key shareholder in the Wrocław-based Fagor Mastercook, filed for bankruptcy last week, becoming the latest casualty of Spain's economic crisis. This is bad news for the estimated 1,300 employees at the Polish unit, which turned over PLN 900m last year, up from PLN 883m in 2011. In a press release, Fagor said the filing came after it was unable to reach a financing plan that would allow it to carry out a restructuring. "We regret not having been able to count on sufficient financing to continue with productive activity and thus protect the interests of workers, partners and creditors," Sergio Trevino, Fagor's chief executive, said in the statement. The filing, reported in a three-sentence statement to Spain's stock exchange, follows recent moves by Fagor's French and Polish units to seek bankruptcy protection. The statement said other affiliates would make bankruptcy filings in the coming days. Fagor, which makes appliances such as washing machines and stoves, was hit hard by slumping consumer demand and had been scrambling to secure financing to continue operations and pay down a debt of EUR 850m. The white-goods maker is the flagship industrial member of the Mondragón network of self-managed cooperatives, the largest of its type in the world. Mondragón, which is based in Spain's Basque country,

said it has injected a total of EUR 300m into Fagor in recent years, and that pouring any more money into the business would not improve its situation.

FagorMastercook's three Polish production plants in Wrocław are now seeking new owners. Image: Fagor Fagor employs 5,630 workers, operates factories in Morocco and China, and has several other affiliates in Spain, where it sales have been badly hit by the prolonging slump on the housing market. An attempt by Fagor to boost international sales couldn't compensate for the deep consumer slump in Spain, and the company was eventually forced to seek financial help from the Mondragón network of 110 cooperatives. Most production lines at Fagor's three Wrocław plants are reportedly sitting idle at the moment and their Polish customers are experiencing difficulties enforcing manufacturers' warranties. Even the PR company that used to work for the Spaniards in Poland has discontinued cooperation with Fagor. The Spanish company acquired the Wrocław business (then known as Wrozamet) in 2002 where it has since been producing a range of white goods (ovens, hobs, hoods, dishwashers, washing machines, and fridges) under three brands: Mastercook, De Dietrich, and Fagor.

Poland is Europe's top producer of household appliances alongside Italy. A number of top global white goods makers, including Electrolux, Whirlpool, BSH, LG and Samsung, have established factories in Poland. In the first seven months of 2013 production of large appliances rose 13% y/y reaching 12m units and according to projections the full-year figure is likely to come in excess of 20m units. Production of small appliances increased 17% y/y and totaled 3.3m units in January-July. Last year Poland exported some PLN 14m worth of home appliances, some 10% more than in 2011. According to observers finding a new owner for the Wrocław factory should prove relatively easy. Chinese manufacturers, mainly Haier, have long been seeking to establish a local manufacturing base in the CEE region and Fagor's problems seem like a perfect opportunity. Earlier this year Haier and the Spaniards struck a deal to build a new refrigerator plant in Wrocław at the cost of EUR 70m, but Fagor's bankruptcy has put an end to those plans. Other Asian giants such as Korea's Samsung and LG may also be interested in the Spanish company, especially since their current product range does not include stoves, dishwashers and top-loaded washing machines, popular in Europe.

MANUFACTURING & PROCESSING

Imperial Tobacco completes major project near Poznań Imperial Tobacco, Poland's number three cigarette producer, has completed a large-scale extension of its factory in Jankowice near Poznań. At the cost of PLN 240m the company expanded the manufacturing plant by approximately 13,000 sq.m, boosting its production

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and packaging capabilities particularly with regard to rolling tobacco and making Jankowice one of the largest Imperial Tobacco sites in the world. Imperial Tobacco is Poland's number one producer of hand-rolling tobacco, which has gained popularity in recent years due to more favorable taxation. Its share in this market segment, according to Nielsen, stood at 51% in January-September 2013. When it comes to ready-made cigarettes, Imperial Tobacco ranks as number there in Poland with an 18.5% share. The company exports tobacco products made in Poland to 35 markets.

Tobacco firms: 2012 market share BAT 29%

Imperial Tobacco 19%

in Radom. Their combined turnover came close to PLN 7.4bn last year. With six out of a total of 31 European cigarette factories located in Poland, the country is the EU's leading cigarette producer and exporter. Last year legal sales declined 6.3%, down to 52.1bn units. Illegal cigarettes and tobacco are said to have totaled 15% of total sales or approximately PLN 6bn last year. With excise on tobacco products to go up by another 5% next year, the cheapest pack of cigarettes may soon cost more than PLN 12.4, up from some 11.4 at the moment. Tobacco producers argue that every rise in taxation (in the case of cigarettes VAT and excise al-ready represent approximately 81% of the retail price) strengthens the shadow economy. Between 2013 and 2012 cigarette prices in Poland rose by 145%.

Tough times for tobacco industry Legal cigarette sales in Poland, in bn units 70

Japan Tobaco 13% Philip Morris 38%

65 60 55

Other 1%

Source: Companies, Rzeczpospolita

The new project marks phase two of a PLN 300m investment program Imperial Tobacco embarked on three years ago. Back in 2010 the company added a new 10,000 sq.m production and warehouse building to the plant and introduced more efficient production processes for loose tobacco. Since 1996 Imperial Tobacco has invested in excess of PLN 1.9bn in Poland, where it employs 1,400 staff across two subsidiaries: Imperial Tobacco Polska in Tarnowo Podgórne near Poznań and Imperial Tobacco Polska Manufacturing

European lawmakers seek to establish a list of officially approved tobacco additives, and Poland is afraid they may not include the substances that are added to the Burley-type tobacco, popular among Polish growers. An estimated 60,000 farmers in Poland who live off tobacco crops, mostly in the east of Poland where the labor market is particularly challenging. Poland is currently Europe's largest market for menthol cigarettes and slims and tax proceeds from these two types of products alone total approximately PLN 7bn. Should the EU ban their sale, "a large portion of that amount is likely to be lost as consumers turn to contraband products," according to Poland's finance ministry. The sector directly employs over 6,000 workers and according to industry estimates, the EU ban may put 2-3,000 jobs at risk. The new regulations, strongly opposed by the Polish government, may turn out to be detrimental for the Polish economy, since they could reduce the Polish tobacco market by 40%, cutting state revenues from tobacco excise tax by PLN 10bn a year. The tobacco industry contributes PLN 20bn annually in tax revenues for the country's budget. There are 9m smokers in Poland and the country's health ministry estimates that some 90,000 deaths every year are smoking-related.

50 45 40 2007

2008

2009

Source: Cyberserwis, Euromonitor

2010

2011

2012

*2015

*) projected

Besides taxes, which will continue to grow to reach EU levels by 2018, another major headache for Poland's tobacco industry is the planned EU ban the sale of menthol cigarettes and slims, which represent some 38% of the Polish market, as well as introduction of the so-called plain packaging. The final shape of the proposed tobacco directive is currently being hammered out with details to be announced in December.

BANKING & FINANCE

Austria's VIG acquires life insurer Skandia One of the most active foreign investors in Poland's insurance sector, Austria's Vienna Insurance Group AG (VIG) has concluded an agreement with Skandia Retail Europe Holding GmbH, member of UK's Old Mutual Group, to acquire 100% of shares in Polish life insurance company Skandia Życie TU S.A. for

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an undisclosed price. The acquisition, which strengthens VIG's position as Poland's third largest insurer, is subject to approval by the relevant regulatory and competition authorities.

Poland's top five life insurers Gross written premiums in PLN bn PZU Życie

In the first half of 2013 Skandia Poland recorded premiums written of around EUR 45m, making it the number 14 on the Polish life insurance market. Its premium income totaled about EUR 91m in 2012. Skandia Poland has been operating on the Polish market for 14 years and sells its products – primarily unitlinked life insurance policies – particularly through financial intermediaries such as banks, insurance brokers and insurance platforms. The company currently employs 150 people.

Talanx*

Poland's top five non-life insurers

VIG**

Gross written premiums in PLN bn

1H 2012

Open Life

1H 2013

Listed in Vienna and Prague, VIG is the leading insurance specialist in Austria and a major player in the CEE region with about 23,000 employees and 50 companies in 24 countries. The Austrian company considers Poland, where it has operated since 1998, its core market with a significant long-term growth potential. Premiums written on the Polish insurance market amounted to about EUR 15bn in 2012, resulting in an insurance density (annual premium payments per capita) of approximately EUR 390. By way of comparison, insurance density in the Czech Republic is EUR 560, while the average Austrian spends some EUR 1,920 on insurance each year. The Polish insurance market grew by 7.9% y/y in 2012, with the life insurance segment increasing by 12.5%.

PZU

ING 0

*) includes Europa and Warta life insurers owned by Germany's

Warta*

BANKING & FINANCE

Ergo-Hestia

Talanx and Japan's Meiji Yasuda **) includes VIG's life insurers Compensa, Benefia and Polisa-Życie

Source: KNF

"The addition of the Skandia Poland product range will significantly expand our portfolio of unit-linked life insurance policies. The company also has an extensive sales network that will provide VIG with an excellent opportunity to attract new customer groups, as well as enhance our long-term position as one of the country's leading insurers," said Peter Hagen, CEO of Vienna Insurance Group. "Our decision to sell Skandia Poland is driven by our strategic commitment to simplify our operations in Europe and focus on a select number of core growth markets. Skandia Poland is a profitable business which is expected to continue to thrive within VIG. We look forward to working with them to ensure a smooth transfer of the business for our customers, distributors and staff," said Paul Feeney, CEO of Old Mutual Wealth.

Alior Bank takes over asset management firm Money Makers

1H 2012

VIG**

1H 2013 Allianz 0

*) owned by Germany's Talanx and Japan's Meiji Yasuda **) includes VIG's life insurers Compensa, Benefia, Interrisk and PZM Source: KNF

Following a number of acquisitions in recent years, the Vienna Insurance Group is represented in Poland by three non-life insurance companies, Benefia, Compensa and Interrisk, and three life insurers, Benefia Life, Compensa Life und Polisa Life. These companies posted a combined premium volume of some EUR 610m in the first six months of 2013, making VIG the number three player in Poland's insurance sector.

One of Poland's leading lenders, the Warsaw-listed Alior Bank has acquired a 57.6% stake in asset management company Money Makers. The transaction totals PLN 4.6m, of which PLN 4m will represent an equity boost for the newly-acquired entity. Alior and Money Makers have been cooperating for over a year and the bank is hoping to attract more wealthy clients with a broader investment and asset management offering. "We are anticipating a growing demand for investment products. The relatively low interest rates and improving economy at the moment are prompting clients to transfer at least a portion of their deposits to other, alternative savings products. With our investment in

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Money Makers we seek to tap into that trend," says Krzysztof Polak, head of Alior Bank's brokerage house. Money Makers is to grow by expanding its asset and product portfolio as well as customer numbers, aiming to win a 2.5% share in Poland's asset management market over the coming half a decade. Cooperation with Alior Bank is to generate additional synergies. At the moment, customers with as little as PLN 40,000 are eligible for the asset management services of Alior and Money Makers. Founded shortly after the 2008 collapse of US investment bank Lehman Brothers, in less than four years Alior created Poland's third largest branch network and started generating profits. Alior Bank hit the Warsaw Stock Exchange in December last year in what was the largest ever IPO by a private company on the Warsaw bourse. Of the total PLN 2.1bn worth of receipts, some PLN 700m represented new equity, whereas the remainder was cashed in by Alior's main shareholder Carlo Tassara, whose lenders started pressurizing the company in late 2012 to reduce its huge debts. Carlo Tassara was established by FrancoPolish billionaire Romain Zalewski, who injected some EUR 450m into the Polish start-up. In 1H 2013 Alior's net earnings came to PLN 171.8m, up 29% y/y. Total operating income generated by the bank as at the end of June 2013 increased by 23.4% y/y to PLN 790.5m, and its cost/income ratio reached 51.7%, down by 10.7% from June 2012. The value of loans extended to customers by Alior Bank reached PLN 17.7bn as at the end of 1H 2013, and the deposit base reached PLN 19.1bn. This marks a 43.6% and 40.2% increase, respectively, as compared to the corresponding period of the previous year. The loan-todeposit ratio at 93% remains one of the lowest in the market. In January-June Alior's customer base grew by 253,000 reaching 1.7m in mid-2013.

PROPERTY & CONSTRUCTION

and outside views, light intensity adjustment, and the use of low-emitting building materials and finishes.

Skanska sells Warsaw office project Atrium 1 to Deka for EUR EUR 94m Swedish developer Skanska Property Poland has sold Atrium 1, its flagship office project in downtown Warsaw, to the German open-ended property fund Deka Immobilien-Global. The EUR 94m transaction is Skanska's fourth sale of a new office project in Poland to an investment fund within the last 10 months. Scheduled to reach completion in early 2014, Atrium 1 will offer 18,000 sq.m of leasable office and retail space. Currently the building is 75% leased, with Santander Group subsidiary BZ WBK as the key tenant. The 12-year contract for 12,200 sq.m signed in September 2013 was the largest lease agreement in Warsaw's Central Business District in recent years. Atrium 1 will house the new headquarters of BZ WBK along with the bank's flagship branch. The remaining space will be occupied by the property consultancy CBRE as well as the developer, Skanska Property Poland itself. Atrium 1 is located on the ONZ roundabout in the very centre of Poland's capital, with direct access to public transport and next to a future station of the Warsaw metro system, with many shops, restaurants and other facilities in the vicinity. Due to pioneering technologies including a geothermal heating and cooling system with piping extending 200 meters underground, Atrium 1 is the most sustainable office building in Poland. Atrium 1 has already been LEED precertified with the highest Platinum rating. Skanska also made sure that the building would create an optimum work environment in terms of air quality, access to daylight

Atrium 1 is to reach completion next year.

Image: Skanska

"Atrium 1 is another of our projects situated at Jana Pawła II Avenue in Warsaw to be purchased by Deka, which shows that this business relationship is built on mutual trust and brings benefits to both parties. We hope that such fruitful cooperation will continue in the future," said Katarzyna Zawodna, Regional Director at Skanska Property Poland. In the transaction the purchaser was advised by Jones Lang LaSalle, whereas Colliers International acted as the exclusive sale agent of Skanska Property Poland. Legal advisors in the transaction were Allen & Overy for Deka Immobilien-Global and Dentons for the seller. Skanska Property Poland is very active also outside Warsaw, with investments in Poznań, Łódź, Kraków (see PT Business Review+ No. 010 page 9,) as well as in Wrocław, where it has just launched its 4th project, the Dominikański (see PT Business Review+ No. 006 page 6). Skanska Property Poland has been operating in Poland since 1997 and is part of the Skanska Group,

weekly newsletter # 011 / 18th November 2013 / page 6

one of the world’s leading project development and construction groups. The group currently has 57,000 employees in selected home markets in Europe, the U.S. and Latin America. Skanska's revenue in 2012 totaled EUR 15.2bn.

The remaining retail space is being occupied by Hebe drugstore and Green Coffee Nero. In the transaction, IVG were represented by Dentons, Hogan Lovells, C&W oraz DIL, whereas the sellers were represented by Colliers International, Linklaters, and MDDP.

LaSalle and Dentons, Warimpex were represented by the GALT law firm.

PROPERTY & CONSTRUCTION

IVG pays EUR 70m for two office buildings in central Warsaw German property fund IVG has sealed two major acquisitions on the Warsaw office market in less than a month. After closing the EUR 31m purchase of Le Palais in October, IVG Institutional Funds GmbH acquired the Feniks office building for EUR 39m, making it the 10th transaction for IVG in Warsaw in the past three years. Developed by Polish Europlan and co-financed by Griffin Real Estate, Feniks is located at 32 Żelazna Street in Warsaw’s Central Business District, a short walk from the Rondo ONZ roundabout, the Warsaw Central railway station and the Złote Tarasy shopping centre. The property is a new, class A office building with a gross leasable area of 10,000 sq.m over eight levels and a underground lot providing 48 secure parking spaces. The project offers all the usual class-A amenities, including fully raised floors, operable windows, a BMS including access control, suspended ceilings and a 4-pipe fan coil HVAC system. The main long-term tenant in Feniks is the stateowned Bank Ochrony Środowiska (BOŚ) Group, which has leased the entire 9,000 sq.m office component and a portion of the 1,000 sq.m ground floor retail area of the building for 12 years commencing in May 2013.

Feniks's strong points include good location and a solid long-term tenant.

Photo: Colliers

As for the Le Palais project, it was built by Austria's Warimpex on the corner of Próżna Street and Grzybowski Square in Warsaw's city centre. The property provides approximately 6,665 sq.m of prime class A office accommodation with ground floor retail, and has attracted tenants such as Ipopema, Stewart Title, Schoenherr and the Austrian Cultural Forum. Polish branches of IVG and Warimpex also occupy space within the building. The development involved the reconstruction and refurbishment of historic buildings, along with their extension and expansion through new build construction. Warimpex worked closely with Warsaw authorities to preserve the unique historic significance of the property. In the transaction, IVG were represented by Jones Lang

Le Palais is a rare example of a successful transformation of historic properties into modern offices. Photo: JLL

Le Palais and Feniks will become part of the IVG Warsaw Fund, alongside Ujazdowskie 10, N21, Młodziejowski Palace and Norway House. Over the past 18 months IVG Funds have invested more than EUR 1.9bn across Europe, mainly in Germany and Warsaw. IVG Institutional Funds belongs to IVG Immobilien AG and offers specialized fund products. With EUR 12.4bn assets under management, IVG Institutional Funds GmbH is one of the leading European fund providers for institutional investors. The parent company IVG Immobilien AG manages assets worth EUR 22bn and has approximately 590 employees across 19 offices in key German and European cities.

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PROPERTY & CONSTRUCTION

HB Reavis breaks ground on third office project in Warsaw Slovakia's HB Reavis Group, which in less than half a decade has joined the ranks of top office developers in Warsaw and the region, is breaking ground on its third project in the Polish capital, the Postępu 14 business center. Located near Marynarska Street, in the heart of Warsaw's Mokotów office district and a stone's throw from the popular Galeria Mokotów shopping center, Postępu 14 is to reach completion in Q2 2015 with a GLA of 34,000 sq.m and more than 750 parking spaces. The building seeks BREEAM green building certification at the "excellent" level. "This year we have delivered 48,000 sq.m of GLA and we are going to finish and deliver another 47,000 sq.m next year, more than any of our competitors," Stanislav Frňka, CEO of the Polish branch of HB Reavis, tells Poland Today. "We are the most dynamic developer on the market and our intention is to maintain this position." The company's first Polish project, delivered in March 2013, was the 48,000 sq.m Konstruktorska Business Center. Work is currently underway on Gdański Business Center, a 46,000 sq.m office development located on a 28,700 sq.m site on Warsaw's Inflancka Street, which has been somewhat of a legend on the local property market. The plot, a former bus depot in central Warsaw, was originally acquired from the municipality at the peak of the real estate boom by Spanish developer Lubasa, which paid a record PLN 390m. Already at the time the price (close to PLN 13,600 per sq.m) was regarded by many as ridiculous, and it does

not come as a surprise that instead of building 45,000 sq.m of offices and 40,000 sq.m at the site the Spaniards ended up in dire straits leaving the place undeveloped. According to unofficial reports HB Reavis bought the site from Lubasa for a half or third of what the Spanish company had originally paid for it. Gdański Business Center is to reach completion in Q1 2014. Its first tenant is Canada's SNC Lavalin, which pre-leased 2,000 sq.m in October. "We have since signed a second tenant and I am sure other deals will follow soon. We are seeing the same trend in Konstruktorska BC, where we have already leased over 60% of GLA and further contracts should follow shortly. Although competition on the market is getting tougher, we remain optimistic. The situation has changed after we delivered our first project – tenants and agents now can personally evaluate and appreciate the quality of our office buildings and locations. For that reason we are certain that Postepu 14 will be a success. It offers unique architecture in a very attractive area together with above standard efficiency and comfort."

Postępu 14 will be HB Reavis' third office development in the Polish capital and second in Mokotów. Image: HB Reavis

However, the Slovakian developer's most prestigious projects are yet to see the light of day. In November 2010 HB Reavis won two tenders for the purchase of

some 1.7ha of land along the Western section of Chmielna Street, in the very heart of Warsaw's central business district, directly across from the main railway station and Złote Tarasy shopping mall, from Poland's railway giant PKP. The total transaction value came to PLN 171m, which translated PLN 9,955 per sq.m. According to estimates, the investor may build up to 90,000 sq.m of offices in this location, and the municipality is reportedly not objecting construction of office towers of up 130-m in height at the site. The following year HB Reavis struck a deal with PKP to build a new Warsaw West train station along with seven office buildings totaling 54,000 sq.m in a project that's expected to cost EUR 110m. "The Chmielna project is our most sensitive and important project located in one of the best places in Warsaw. For that reason we are still improving the concept, at the same time coordinating all details with city authorities. The project is comprised of a tower and other buildings together with additional elements, which will create a new and attractive part of the very heart of Warsaw. Our expectation is to obtain zoning permit soon. As for Warsaw West, unfortunately administrative procedures require time and we are ready to start construction shortly after obtaining a building permit, which we expect to get in the coming months." According to Mr. Frňka, the company is not considering investments in Poland's regional cities at the moment. Headquartered in Luxembourg, HB Reavis operates in Slovakia, Poland, Hungary, the Czech Republic, Great Britain and Turkey. Since its establishment in 1993, it has executed projects in the office, commercial and logistics real estate segment with total leasable space exceeding 670,000 sq.m. With a staff of 400 professionals and more than EUR 860m in equity, HB Reavis is managing and developing assets worth EUR 1.4bn, based on an integrated business model that combines development, construction, property management and investment management.

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SERVICES & BPO

French giant Veolia sets up SAP offshoring centre in Łódź Europe's largest water and waste company, France's Veolia Environnement, seeks to recruit more than 80 professionals at a newly-opened Center of Excellence in Łodź which together with a similar unit in Bangalore, India, will be responsible for maintenance and development of SAP solutions within the organization. SAP is one of the world's leading enterprise resource planning applications. It is currently being used by Veolia's subsidiaries in France, Great Britain and Benelux, but over the coming years its reach is to expand significantly, with SAP user numbers in the company to grow from 9,000 to 22,000. Due to Veolia Environnement's size and its evertransforming global organization, system maintenance is a major challenge and one that requires constant updates and changes. When it comes to development of the system, the Center of Excellence will carry it out simultaneously in two areas, implementing SAP in new Veolia subsidiaries across the globe as well as expanding its functionality. Besides maintenance of the existing SAP system at Veolia, and its expansion, the Łódź center is to ensure consistency and quality of solutions across all businesses. Veolia's Center of Excellence SAP covers a wide range of processes from bookkeeping and resource planning, sales, warehousing and distribution, to procurement, governance risk compliance, testing, data migration, and development. The company said it picked Łódź due to its central location and availability of qualified staff.

Veolia Environnement is a French transnational company with activities in four main service and utility areas traditionally managed by public authorities - water supply and water management, waste management, and energy. Although the company is represented in Poland in all of these areas, its key business in the country is Dalkia Polska that owns district heating networks in 40 Polish cities, including Warsaw, and heat & power plants in Łódź and Poznań. In 2012, Veolia employed 318,376 employees in 48 countries. Its revenue in that year was recorded at EUR 29.4bn, with net earnings of close to EUR 0.4bn. The group is quoted on Euronext Paris and the New York Stock Exchange. Between 2000 and 2003 the company was known as Vivendi Environnement, having been spun off from the Vivendi conglomerate, most of the rest of which became Vivendi.

Poland Today talks to: Adam Wiercioch, Service Delivery Manager, SAP Centre of Excellence, at Veolia Environnement • PT: At what stage is the CoE project in Łódź at the moment? Adam Wiercioch: The very first technical stage, including company registration, office fit-out and network connections we completed on July 1st and we have been recruiting staff since then. By November 1st we recruited the core team of approximately 40 people that enables us to take on responsibility for SAP at Veolia. The remaining positions are being temporarily outsourced but recruitment will continue until we reach around 80 employees. • PT: Is this the final figure? AW: We are currently working for Veolia companies in France, Luxembourg, Belgium, Netherlands and the UK, but we are getting ready to serve new clients as well. Next year our coverage will include also Veolia's

US operations, which is quite a challenge, particularly due to time zone differences. This will translate into additional positions in Łódź, but we are still analyzing how many staff will be needed to handle the US business. Since Veolia is planning further implementations after the US, we will be carrying out such analyses many times in the future. • PT: The Łódź center operates in tandem with a Bangalore unit. What is the point of splitting the CoE between two locations? AW: Thanks to the Indian unit we were able to build competences quickly. The Bangalore center had already been in place when Łódź was still being set up. We intend to maintain that unit in the future, as thanks to an outsourcing contract it enables us to remain flexible as far as employee numbers are concerned. Certain large scale implementations, for instance in the USA, will certainly require additional manpower that can be easily adjusted once the project reaches completion without affecting staff numbers in Łódź. Our center is divided into task teams, with employees in India being part of those teams. There is no division of competences between Łódź and Bangalore. • PT: Why have you chosen Łódź? Qualified staff can surely be recruited elsewhere in Poland… AW: Skilled talents are absolutely crucial and we found them in Łódź. Another key factor for us was being able to rely on infrastructure – offices, IT networks, bookkeeping – provided by Dalkia, member of the Veolia group. Easy access to Warsaw via the newly-built A2 motorway and, hopefully one day also via a fast train link, is just the icing on the cake. • PT: Are there plans to relocate other processes within the Veolia group, besides SAP, to Poland? AW: Not outside the IT area, but there are plans for an IT center that would handle maintenance and development of Veolia's entire IT infrastructure in the CEE. Of course all countries in the region would love to at-

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TRANSPORT & LOGISTICS

Automotive industry on slow recovery track, says new report Poland's automotive sector saw its total output decline by 3% last year, down to PLN 114.6bn, shows a recent report by business consultancy KPMG and industry organization PZPM. Although according to projections in 2013 the figure is set to inch up slightly, reaching PLN 117.1bn, it will still be lower than in 2011.

600,000 Poles work in segments closely related to the automotive sector: financial services, car fleet management, road transport and road construction. In merely half a decade Poland lost its position as the region's top car manufacturer, lagging behind Slovakia and the Czech Republic. Last year the country saw its exports of automotive products drop 5% and total PLN 86bn. According to KMPG & PZPM the Polish passenger car production will total some 464,100 units this year, nearly a half of the 2008 result, before it inches up to 475,700 in 2014 and 494,700 in 2015. In the light commercial vehicle (LCV) segment (represented mainly by the Volkswagen Caddy model made in Poznań), production is to reach 117,200 this year, up from 111,800 in 2012, before hitting 119,500 in 2014 and 123,400 in 2015.

Automotive industry in decline

Things are looking rather dismal also on the demand side, with 280,000 cars to be sold in Poland in 2013, of which only some 255-260,000 vehicles will actually remain in Poland, the rest being re-exported. Fortunately, according to the report, sales are said to pick up next year with new car registrations to hit 287,400 units in 2014 and 294,600 in 2015. Second-hand cars brought from abroad remain the number one choice for Polish motorists. Last year some 657,400 such vehicles were imported to the country, more than a half of them older than 10 years.

Fiat Tychy keeps shrinking Car production in Poland by maker in '000 units

Fiat

Opel

2009

Passenger & LCV production in Poland and automotive exports

2010

Auto mo tive expo rts, in EURbn Vehicle o utput in '000

2011 VW

2012

800

700

600

500

CONSUMER GOODS & RETAIL

400

Ghelamco unveils plans for three retail projects in Warsaw

130

500

900

400

300

Total output of Poland's automotive sector in PLN bn

200

1,000 100

Slow improvement ahead

600

tract a project of that kind, but our chances will be solid if CoE SAP proves to be a long term success. We already have our first victory, as building the Łódź center from scratch in merely six months is a major achievement.

Source: Samar

120 110 100 90

2008

80 2008

2009

Source: KPMG, PZPM

2010

2011

2012

*2013

*2014

*2015

*) projected

The significant weakening of the country's automotive industry is impacting the entire economy as the sector generates some 8.6% of Poland's gross domestic product and employs nearly 762,000 people. A further

2009

2010

2011

2012

Source: Samar, AutomotiveSuppliers.pl

In the first ten months of 2013 Poland's car & van production came to 494,279, down by 10.1% y/y, automotive market research institute Samar said in its most recent report. In 2012, the full-year figure amounted to 635,837 cars and vans, which translated to a 23% y/y decrease.

Flemish developer Ghelamco, one of the leading players on Warsaw's Office market, has announced details of its first projects in the retail segment, which will be unveiled at this year's MAPIC property fair in

weekly newsletter # 011 / 18th November 2013 / page 10

Cannes. The company seeks to focus on neighborhood shopping plazas, with a GLA of 7,000-12,000 sq.m, the first three of which will be built in the Warsaw area, in the affluent neighborhood of Wilanów as well as the suburban towns of Piaseczno and Łomianki.

complete the latter over the 2014-2015 period. The Belgian developer is currently negotiating the acquisition of another two sites (one in Warsaw and one in its vicinity) for further retail schemes.

CONSUMER GOODS & RETAIL

Warsaw needs more retail space, says JLL in new market report

"We are looking at locations near large existing housing estates areas," says Jeroen van der Toolen, Ghelamco's CEE Managing Director. "Retail properties of this type are functioning well abroad, serving local residents as easily accessible neighborhood shopping & service centers, unlike large malls where shopping is too time consuming, as well as creating valuable public space and supporting local entrepreneurship."

Plac Vogla is one of several retail projects to emerge in Wilanów in the coming years.

Prochownia Łomianki aims to become the new centre of this northern suburb.

Image: Ghelamco

The Wilanów project, Plac Vogla, will be a 11,000 sq.m property with approximately 50 units aimed at quality grocery tenants, restaurants, cafes and service outlets. With a GLA of 7,000 sq.m Pasaż Tukanów in Piaseczno, just south of Warsaw, will offer 30 retail units, whereas Prochownia Łomianki, with 11,500 sq.m of leasable space and 60 shops and service outlets aims to become a new centre of this northern suburb of the Polish capital. Ghelamco is already in talks with prospective tenants for the three centers, hoping to

residential segment with 350 apartments in Warsaw project Woronicza Qbik.

Image: Ghelamco

Over the past 22 years Ghelamco has developed nearly 0.5m sq.m of offices and warehouses. Since mid-2011 the company has been working on its most ambitious project to-date – the 100,000 sq.m Warsaw Spire office complex comprised of a 220m-tall tower and two smaller buildings – which is scheduled for completion in 2014, with Frontex, the EU border agency, as the first key tenant. Their other major recent and ongoing developments include Łopuszańska Business Park with 17,000 sq.m, and the new T-Mobile HQ, a 40,000 sq.m office complex on Marynarska 12. Outside of Warsaw, Ghelamco is developing a 60,000 sq.m. class A project Synergy Business Park in Wrocław. Earlier this year sold its Warsaw office projects Mokotów Nova (to Curzon Capital Partners III fund for EUR 121m) and Senator (to Union Investment for EUR 120m). The Belgians have also made inroads into the

According to property consultancy Jones Lang LaSalle, the modern retail stock in the Warsaw agglomeration totaled 1.61m sq.m of GLA as of end of October 2013, with shopping centre formats accounting for 1.1m sq.m GLA across 36 properties. With a density of 445 sq.m per 1,000 inhabitants, Warsaw still ranks low compared to other major metropolitan areas and according to Jones Lang LaSalle the city offers significant potential for new developments, particularly in the Wilanów, Białołęka, Tarchomin, Ursynów and Bielany districts. With the highest purchasing power in Poland (EUR 9,294 per person per annum), which exceeds the national average by approximately 60%, the Warsaw area is becoming more attractive to global retailers than certain well established Western European destinations. “The dynamic development of new residential clusters, coupled with notable improvements to Warsaw's road infrastructure, have helped to create new retail locations. This, in turn, has generated demand for further retail developments such as Galeria Wilanów and Galeria Białołęka by GTC," says Anna Wysocka, Head of Retail Agency, Jones Lang LaSalle. "According to Jones Lang LaSalle's report Retail Destination Europe, Warsaw ranks higher than Stockholm, Lyon or Copenhagen in terms of attractiveness for international retailers. In addition, high street locations are becoming increasingly important, with the planned revitali-

weekly newsletter # 011 / 18th November 2013 / page 11

zation of Plac Trzech Krzyży 10/14 and the CEDET building on Aleje Jerozolimskie and they are aimed not only at tourists, but also at clients who seek a different shopping experience to the found in shopping centers. Last but not least, convenience centers are also gaining traction."

new popular operators such as Bershka, Stradivarius, Mohito, Cropp, Parfois and Starbucks. Good quality assets from the retail park sector are capturing tenant demand as well, says Jones Lang LaSalle with Inter Ikea's Park Handlowy Targówek welcoming TK Maxx and CCC.

The most notable event in Q3 was the opening of Plac Unii City Shopping (15,500 sq.m), the first downtown shopping mall since the launch of Złote Tarasy in 2007 (see PT Business Review+ No. 007 page 9). The project is part of a large office complex, prominently located in one the most affluent catchment areas in the city. The retail mix, besides a Supersam supermarket that historically operated in this destination, includes leading brands such as Zara, H&M, Massimo Dutti, Smyk and a strong pool of premium fascias, i.e. Marella, Furla, Deni Cler, Manila Grace, LiuJo, Armani Jeans, Chiara and E-go’ – an Italian brand entering Poland. Existing shopping centers are also being expanded and remodeled with Galeria Mokotów receiving 5,000 sq.m extension in the past months and Auchan Piaseczno, Centrum Janki, Atrium Promenada, Tesco Kabaty or Wola Park, set to follow suit in the near future.

Owing to the re-commercialization of key retail assets during last year, prime shopping centre rents for a 100 sq.m fashion outlet, located prominently in a leading shopping centre, increased slightly by 5% and currently stand at EUR 85 to EUR 100/ sq.m/ month. On high streets (including Nowy Świat, Marszałkowska, Chmielna, Mokotowska or Plac Trzech Krzyży), prime rents oscillate between €80 and €95 sq.m/ month, depending on location.

According to Jones Lang La Salle, strong demand for modern retail space in Warsaw's top malls is keeping the vacancy rate stable at a low level of around 2%, and it is positively impacting also the city's other retail schemes. The tenant mix of the Klif centre has been markedly refreshed by the introduction of renowned brands such as COS, Tommy Hilfiger, Napapijri, Tous, as well as Hera, and work is underway on a SuperPharm drugstore and H&M that will include Warsaw's first H&M Home. Also, Sadyba Best Mall has strongly reinforced its position by introducing H&M, Gino Rossi, Celio (first store in Poland) and a Pure Jatomi fitness club. Warszawa Wileńska, which will benefit in autumn next year from direct proximity to a new subway station, is busy improving its offer by introducing

Three years after launching their first Polish retail park in Wroclaw, Polish-Austrian joint venture Tradeland have completed their second project in the country. The new Family Point retail park in Głogów, (90km northwest of Wrocław) opened on 16th November with a GLA of 4,600 sq.m. Over the coming years the investor seeks to develop some 30 similar properties under the Family Point logo.

CONSUMER GOODS & RETAIL

parking spaces. In line with the Family Park formula, the project is located near the existing Carrefouranchored Galeria Głogów shopping centre as well as Media Markt electronics outlet and Castorama DIY superstore. This is already the key destination for Głogów shoppers and Family Park is hoping to benefit from the customer traffic. Tradeland picked Głogów, a town of 70,000 inhabitants, because the per capita income level there is higher than the national average. Tradeland was founded in 2008 by four Austrian property professionals with a long-term experience in real estate development in CEE countries. Tradeland's shareholders not only co-invest in its projects but also manage the business on a daily basis with the support of a local Polish team. Their partner in the Family Point project is REVCAP (Real Estate Venture Capital Management LLP), a London-based institutional real estate investor.

Tradeland Tradeland completes its second shopping center in Poland

Phase one of the project, with Rossmann drugstore, Avans electrical outlet and sporting goods retailer Martes Sport opened in May, and the November newcomers will include SMYK kids goods shop, among others. Built by Swedish construction company Skanska at the cost of PLN 20m, the project offers 175

Tradeland's formula is simple: a handful of chain outlets plus plenty of parking space.

Image: Tradeland

The joint venture seeks to build approx. 30 Family Point sites in the coming years, and their immediate pipeline includes a handful of parks with an area of 5,000–11,000 sq.m each. The company seeks suitable sites (typically 1.5-2ha) in cities of more than 50,000

weekly newsletter # 011 / 18th November 2013 / page 12

inhabitants, offering a catchment of 80,000 upwards. The first Family Point was opened in Wrocław in March 2010 with a GLA of 30,000 sq.m. The investor has recently broken ground on its third FamilyPoint, which will be located in Ełk, in the north east of Poland. With a GLA of 6,200 sq.m, the project is to reach completion in Q1 2014. Tradeland's partner in this undertaking is Austria's EYEMAXX (see PT Business Review+ No. 005 page 12).

are located at street level, making them easily accessible directly from the parking lot. The concept is popular with chains that seek units that are larger and more competitively-priced than those offered by regular shopping malls. Specialist retail parks are usually located next to established outlets such as grocery hypermarkets and large-scale DIY or electronics stores. Adding a small retail park, such as Family Point, to the mix, enhances the attractiveness of the entire area with a product range that complements the goods already on offer.

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 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

Tradeland promotes the concept of "convenience shopping." All retail units at Family Point retail parks

HEALTHCARE & PHARMA

Polish Medort acquires top German wheelchair maker Meyra After acquiring its Hungarian counterpart two years ago, Poland's top manufacturer of orthopedics and rehabilitation equipment Medort has taken over Meyra Ortopedia, the leading player in Germany, an industry icon with 80 years of tradition and established exports to more than 60 countries. Medort, which is enjoying strong growth in a number of markets, especially Russia, is hoping to significantly strengthen its position in Germany and France with the acquisition. "Owing to the investment, Medort is now joining the global premier league, with new expansion opportunities opening up," said Michał Perner, Vice-President of the Management Board of Medort. "In particular, we are hoping to extend the portfolio of premium products in Germany, Europe's largest market for orthopedic and rehabilitation products, and take advantage of new distribution channels of in Europe." Best known for its high quality wheelchairs for children and adults, including battery-powered wheel-

chairs, Meyra employs 240 people at manufacturing plants located in North Rhine-Westphalia as well as several dozen employees at its divisions abroad. Its annual sales revenues have come in excess of PLN 250m in recent years. Medort acquired Meyra for an undisclosed amount from the latter's receiver. For the Łódź-based Medort Group, the acquisition of Meyra is part of a long-term development strategy that aims at reinforcing its leading position in the orthopedics and rehabilitation industry in Central and Eastern Europe via targeted takeovers of industry leaders and development of wholesale companies in Poland, Hungary and the Russian Federation. Established in 1988, Medort was Poland's first privately-held manufacturer of orthopedic equipment. With a comprehensive product range that includes a number of innovative brands (for instance, Memo prophylactic footwear for children, Qmed orthoses or MTB active wheelchairs), a network of 60 proprietary and partner-owned outlets and operations in Poland, Hungary, Russia as well as Germany, Medort is now determined to strengthen its position in Western Europe. The company is expecting a turnover of approximately PLN 100m this year. "We aim to boost sales on those markets and the acquisition of a renowned manufacturer of rehabilitation equipment should support our mission, at the same time providing us with access to advanced technology, patents and solutions which Meyra has been developing for decades. As far as finances are concerned, over the coming half a decade we are hoping to reach a group turnover of EUR 100m," added Michał Perner. The transaction was supported by Medort's owner, the private equity fund Avallon, which pioneered Poland's management buy-out market, operating in the domain since 2001. At the moment, Avallon manages a private equity fund of target capitalization of more than EUR 100m, with investors that include international finan-

weekly newsletter # 011 / 18th November 2013 / page 13

cial institutions, such as the European Bank for Reconstruction and Development. The fund invests in different sectors, primarily in companies with annual revenues of PLN 50m to 250m. It has so far invested some EUR 50m, inclusive of the 2013-finalised acquisitions of Velvet Care from Kimberly-Clark and of ORE from Telekomunikacja Polska.

The winning team: Robert Więcławski, Partner at

Avallon (left) and Michał Perner, CEO of Medort. Photo: Avallon

Poland Today talks to: Robert Więcławski, Partner and Deputy Chairman of Avallon • PT: What is the backdrop to the Meyra takeover? Robert Więcławski: We have been building Medort's position as a regional leader together with the Perner family - its founders and co-owners - as well as the management, since 2007, when Avallon invested in the business. Besides organic growth on the Polish and Russian markets, acquisitions make an important part of our strategy. In 2011 we supported Medort in the takeover of Rehab – a leading player in Hungary with a well-established brand and 100 years of history. This gave Medort and its managers the necessary experi-

ence and competences in handling M&As, and running a holding company. For the past couple of years Medort's revenues and financial results have seen a steady growth. • PT: But how did an aspiring Polish firm end up buying a top German brand? RW: Parallel to Medort's ascent, Meyra experienced the most difficult period in its history. Due to managerial mistakes, high financing costs, lack of effective cost management, excess employment etc., in March 2013 Meyra was put in receivership. Having been aware of the situation in advance, Medort could not pass up the opportunity to bid on the business. • PT: Doesn't Meyra require a deep restructuring? RW: Luckily, Meyra's problems had nothing to do with its products and brand, which are of the highest and most renowned quality, nor with the market, which is bound to see long-term growth due to demographics. We believe that those assets, combined with Medort's cost effectiveness and proven management style will lead to the desired outcome. Moreover, the bankruptcy process itself is helping improve the company's standing through employment downsizing, and restructuring of the business and its financing. • PT: Is relocating some of Meyra's production to Poland a part of the plan? RW: We are going to use all available means to boost efficiency across the entire Group, using the full manufacturing potential of our companies in Poland and Germany as well as Meyra and Medort's global distribution networks. • PT: The medium-term Group sales target of EUR 100m seems conservative considering the combined turnover of Medort and Meyra. Does it mean your focus will be on organic growth in the near future?? RW: Achieving a EUR 100m turnover in 3-5 years is by all means a realistic plan, but not necessarily the best

possible one. Meyra alone used to post annual revenues at that level. Our goal is to win back that market for Meyra and continue to grow in Poland, Russia, and Hungary. Certainly in the near future we will focus on integrating Meyra with the rest of the group but we remain open to new acquisition opportunities. • PT: What is the value of Avalon's commitment to Medort and when are your expecting to exit the business? RW: The value of Avallon's investment in Medort is confidential. The company is capable of financing its growth in the near future. We will continue to support Medort and Meyra in implementation of their strategy for another 2-3 years.

IT & TELECOM

Deutsche Telekom acquires GTS Central Europe for EUR 546m In line with earlier rumors, Deutsche Telekom has acquired telecommunications service provider GTS Central Europe for EUR 546m from a group of private-equity firms in a deal which gives the German telecom operator a solid fiber optic fixed-line and infrastructure footprint in Eastern Europe. According to many observers, the GTS deal means that the Germans are no more interested in the Polish fixed line operator Netia, which is said to be looking for new investors at the moment. "We are investing against the trend. GTS is a further element for developing our integrated market position comprising mobile and fixed-line network services. Strengthening our position with business customers is also a core element of our strategy," Timotheus

weekly newsletter # 011 / 18th November 2013 / page 14

Höttges, Chief Financial Officer at Deutsche Telekom, said in a written statement following the deal. According to media reports, Deutsche Telekom had reviewed its strategy in Eastern Europe earlier this year, with the key question being whether the company should exit Eastern European markets in which it has mobile-only activities or buy fixed-line and broadband assets to strengthen its position. The GTS takeover means the German incumbent bet on the latter option.

T-Mobile customers* in Poland Post-paid

Pre-paid

16 14 12 10 8 6 4 2 0

provides voice and data services to complex virtual private networks and cloud services. In 2012, GTS achieved revenues of EUR 347m and EBITDA of EUR 87m pro-forma excluding the Slovak assets, which will be retained by the sellers as part of the transaction. The Polish unit of GTS relies on infrastructure rented from the state-owned railway operator PKP. Deutsche Telekom is acquiring GTS from a consortium of international private equity firms, including Columbia Capital, HarbourVest Partners, Innova Capital and M/C Partners, who have actively developed the company over the last six years. According to Deutsche Telekom, complete business continuity for all of the current 38,000 business, carrier and government customers will be ensured.

T-Mobile is Poland's top mobile firm

tomers. With revenues of over EUR 58.2bn in 2012, more than have of which came from outside of Germany, Deutsche Telekom is present in around 50 countries and has 230,000 employees worldwide. The German giant owns one Poland's top mobile operators T-Mobile Polska, which boasted a market share of 28.8% as of mid-2013 with 15.97m SIM cards. In Q3 the company lost some 0.3m customers, down to 15.67 as of end of September. Last year T-Mobile Polska posted an EBITDA of PLN 2.45bn on revenues of PLN 7bn and in 2013 its results are expected to drop. The planned merger with GTS Poland, which turned over PLN 478m and had an EBIDTA of PLN 138m last year, will represent an important boost for the Deutsche Telekom's Polish arm. However, since the transaction is subject to regulatory approvals, the two businesses are to operate independently for many months to come.

Source: T-Mobile, Telepolis

Q3'13

Q2'13

Q1'13

Q4'12

Q3'12

Q2'12

Q1'12

Q4'11

Q3'11

Q2'11

Q1'11

Mobile operators in Poland, market shares as of Q2'13*

*) number of active SIM cards

"This acquisition enhances our ability to provide innovative pan-European cross-border telecommunications services. Our existing mobile-centric national companies in the Czech Republic and Poland will benefit most from the added fixed-line infrastructure. Therefore, GTS is an ideal addition to our portfolio," added Claudia Nemat, Board member for Europe and Technology at Deutsche Telekom. GTS is one of the top infrastructure-based telecommunications service providers in Central and Eastern Europe. GTS owns and operates a fiber optic and data centre network as well as a strong portfolio of services focused on business customers throughout the Czech Republic, Hungary, Poland, Romania and Slovakia. It

Orange 27% T-Mobile 29%

Plus 25%

Other 2%

Play 18%

Source: Telepolis *) based on SIM card numbers

Deutsche Telekom is one of the world’s leading integrated telecommunications companies with 140m, over 31 million fixed-network lines and more than 17m broadband lines. The Group provides products and services for the fixed network, mobile communications, the Internet and IPTV for consumers, and ICT solutions for business customers and corporate cus-

IT & TELECOM

Cyfrowy Polsat to buy majority stake in mobile firm Polkomtel Poland’s biggest television group Cyfrowy Polsat has agreed to buy a majority stake in mobile phone company Polkomtel – operator of the Plus network - in a share deal worth roughly PLN 5.15bn (EUR 1.23bn) that it said will establish it as "the largest mediatelecommunications group in Poland." According to market analysts, improving Polkomtel's financing structure and substantial synergies are said to be the key drivers behind the transaction. Cyfrowy will issue 243.9m shares at PLN 21.12 each to acquire 84% of Metelem Holding Company Ltd,

weekly newsletter # 011 / 18th November 2013 / page 15

the sole owner of Warsaw-based Polkomtel, Cyfrowy said in a statement on Thursday. The European Bank for Reconstruction and Development, which owns 16% of Metelem, is considering whether to participate in the deal, Cyfrowy said. Both Cyfrowy and Metelem are controlled by Polish billionaire Zygmunt Solorz-Żak. Cyfrowy shares dropped 3.6% to PLN 21.57 on the news, trimming this year’s advance to 32% and valuing the company at PLN 7.52bn. "I am confident that thanks to this transaction both Cyfrowy Polsat and Polkomtel will gain new possibilities for development in the dynamically changing and highly competitive market environment," said Dominik Libicki, President of the Management Board of Cyfrowy Polsat. "The strategy of Cyfrowy Polsat Group, based on providing the best entertainment and telecommunication services using the latest technologies on all consumer devices, remains unchanged. Polkomtel fits it perfectly and provides a fantastic opportunity for significant acceleration of its execution." The purchase of Polkomtel, which Solorz-Zak bought in 2011 for 18.1 billion zloty in the biggest leveraged buyout in Poland, will create the country’s largest media and phone company with combined nine-month pro forma sales of PLN 9.7bn, EBITDA of PLN 3.9bn, EBITDA margin of 40.1% and operating cash flow of PLN 3.6bn. Cyfrowy competes with Warsaw-based broadcaster TVN and Vivendi’s Polish pay-TV unit while Polkomtel’s largest rivals are France's Orange and Deutsche Telekom. Completion of the transaction is expected in mid‐2014, dependent on Cyfrowy Polsat and Metelem shareholder approval, and a successful refinancing of Cyfrowy Polsat’s debt. Cyfrowy sees operating savings from the merger at PLN 3.5bn through 2019 while financial savings will reach PLN 500m, according to its statement. Combined net debt of Cyfrowy and

Metelem is PLN 12bn, or 3.1 times their joint earnings before interest, taxes, depreciation and amortization, it said. The company plans to lower the ratio to below 2.5 by the end of 2016.

POLITICS & ECONOMY

Q3 GDP growth beats projections, tops 1.9% as consumption and exports increase Polish economic growth accelerated to its fastest pace in more than a year in Q3 2013 as foreign demand improved and consumers boosted spending, according to a flash estimate from the central statistical office GUS. Gross domestic product, unadjusted for seasonal effects, rose 1.9% from a year earlier, compared with a 0.8% growth in Q2. The figure was higher than the 1.6% median estimate of 36 economists surveyed by Bloomberg. Seasonally adjusted GDP increased 0.6% from the previous quarter. Private consumption and exports probably "contributed positively" to Poland’s third-quarter growth, Maria Jeznach, director of national accounts at the statistics office, told reporters. There's also "a gradual improvement" in investment by Polish companies, she said. The central bank, which expects the country's GDP growth to reach 1.4% in 2013, last week pledged to keep its main interest rate at a record low until mid2014 or longer to aid a "moderate" recovery from the economy’s worst slowdown in at least a decade. In 2012 Poland's economy grew at a pace of 1.9%.

A number of institutions have recently raised their growth forecasts for Poland. The European Bank for Reconstruction and Development (EBRD) expects the Polish economy to expand by 2.3% y/y in 2014. In its previous forecast published this past May, the EBRD saw Poland's GDP growth coming in at 2.0% in 2014. For this year, its projection remains unchanged, at 1.2%.

Gross Domestic Product (y/y) Seasonally unadjusted

Seasonally adjusted

5% 4% 3% 2% 1% 0% Q3'09 Q1'10

Q3'10

Q1'11

Q3'11

Q1'12

Q3'12

Q1'13

Q3'13

Source: GUS

"After a very weak first half of the year, when growth dropped to under 1% compared to a year earlier, recent data in Poland point towards a recovery over the coming quarters," the EBRD wrote in a report. The institution expects the joint GDP of the Central Europe and Baltic States region to grow by 0.9% in 2013 and by 1.9% in 2014. The European Commission had likewise revised upward its forecast for the Polish economy, expecting it to grow by 1.3% y/y in 2013 and accelerate to 2.5% in 2014 and 2.9% in 2015. "Economic activity is set to gradually gain steam over the forecast horizon, when the global economic outlook improves further translating into a pick-up in private investments and a moderate increase in employ-

weekly newsletter # 011 / 18th November 2013 / page 16

ment," the European Commission wrote. "Real GDP growth is expected to reach 2.5% and 2.9% in 2014 and 2015 respectively, with domestic demand projected to gradually replace external trade as the main growth engine." The European Commission’s scenario "is subject to broadly balanced risks" with a weaker currency further boosting exports and enhancing import substitution on the upside and possible pick-up in inflation, which "might dent real incomes and lead to lower private consumption," on the downside. On the fiscal front, the European Commission underlines that 2014 and 2015 forecasts are largely based on the planned reform of private pension funds OFE, which is expected to result in a one-off general government surplus in 2014.

POLITICS & ECONOMY

Independence Day celebrations turn violent, rioters attack Russian embassy Poland has expressed "deep regret" after rioters attacked Russia's embassy in Warsaw during Independence Day celebrations on November 11. The holiday was disrupted by violent riots for the third year in a row as large groups of masked young people threw stones, firecrackers and set fire to cars during a march in downtown Warsaw. Some of them tried to climb the fence at the Russian Embassy after setting a guard's booth ablaze. National Independence Day, celebrated in Poland on November 11, is the country's most important public holiday marking the restoration of Polish independence in 1918, when, after 123 years of partitions by

Austria, Prussia and Russia Poland reappeared on the map of Europe as a sovereign democratic state. From 1939 to 1989, celebration of the holiday was forbidden. After the collapse of communist government, the holiday regained its significance. More than 10,000 people participated in a peaceful patriotic march led by President Bronisław Komorowski Monday mid-day but later in the afternoon riots broke out during an independence march organized by nationalist movements, in which several tens of thousands people took part, including hundreds of hooligans. Warsaw authorities took the decision to stop the march following a number of incidents, with 72 people arrested, and 14 taken to hospital with injuries, including a number of police officers. Warsaw police earlier said they had deployed 3,000 officers for Independence Day. Russia said its embassy had been attacked by "hooligans" who had pelted the mission with "flares, bottles and stones." In a statement, it accused Polish authorities of allowing the march to take place without adequate security. Russia's Ministry of Foreign Affairs said the Kremlin had summoned the Polish ambassador over the riots and given him a protest note saying the Vienna convention had been violated, after the Russian Embassy in Warsaw "had been blocked for hours." Poland's Ministry of Foreign Affairs expressed "deep regret over the violent behavior and incidents that occurred near the Embassy of the Russian Federation in Warsaw." It blamed the incident on Independence March participants, including the All-Polish Youth (Młodzież Wszechpolska) and the National Radical Camp (ONR). "Such behavior directed at a diplomatic mission should be strongly condemned and is incompatible with 11 November Independence Day celebrations," it said in a statement. Prime Minister Donald Tusk called those who interrupt the national holiday

with acts of violence and aggression a threat to the Polish independence, calling all politicians to take a stance on the issue. Tusk also apologized to Russia for the incident in front of the Russian embassy, saying that "certain events” were "embarrassing" for Poland. An apology was issued also by President Bronisław Komorowski who described the Monday events as "scandalous acts of hooliganism," adding that they have greatly affected Poland's image on the international stage. Meanwhile, three people were arrested in Russia after throwing smoke bombs and fireworks at Poland's embassy in Moscow in apparent retaliation for the Warsaw attack, according to state-run news agency RIA Novosti.

DATA BOX: INFLATION Consumer prices grew by 0.8% y/y in Poland in October 2013, said the Central Statistical Office (GUS). In monthly terms, prices increased 0.2% from September, GUS added. Economists expected that October's prices of consumer goods and services would go up 1.0% y/y and 0.3% m/m. In September 2013 consumer inflation stood at 1.0% y/y and by 0.1% m/m.

CP inflation in Poland (y/y) 5% 4% 3% 2% 1% 0% Apr 11

Source: GUS

Oct 11

Apr 12

Oct 12

Apr 13

Oct 13

weekly newsletter # 011 / 18th November 2013 / page 17

KEY STATISTICS Consumer Prices Prices

Inflation

-0.1

Alcohol, tobacco +3.6

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

+0.1

Clothing, shoes

-5.0

-2.7

-4.8

-2.7

-4.7 +0.7

-4.8 +3.5

Housing

+2.0

+1.2 +2.0

+0.1

+1.8

+1.8 +0.2

+0.1

-1.2

+1.1

-1.4 +0.5

-1.4 +0.8

-2.3

Communications -9.7

0.0

-9.7

0.0

-9.7

-7.2 +2.8

+0.3

+1.1

-0.3

Gross CPI

+1.1

0.0

y/y

m/m

Aug '13 Sep '13

+3.8

-0.7

-0.9

+0.5

+1.8

+4.3

+3.4

+3.9

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

2008 2009 2010

2011

2012 Jan-Sep y/y

230.1

178.8

174.9

184.1

165.1

142.9

158.1

(in '000 units)

Producer Prices Prices

Industrial Output Output

2012

Residential Construction Dwellings

+1.0 +0.1 +0.8 +0.2

Jul '13

+1.5

y/y (%)

-1.0

Jun '13

+1.6

y/y (%)

Oct 13

0.0

Aug 13

-1.2 +2.6

Jun 13

2.5

Apr 13

+1.9

Transport

-0.3

Feb 13

+2.5

May '13

m/m (%)

Dec 12

Food & bev

Month

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

Oct 12

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

Aug 12

Sector

Retail Turnover

Jun 12

Oct '13

Apr 12

Sep '13

Feb 12

Aug '13

Oct 11

Jul '13

Dec 11

Data in (%)

Permits

2013

(%)

104.8

-18.1

Commenced

174.7

162.2

141.8

97.9

-16.2

m/m (%)

-0.3

-0.7%

+0.1

+0.7

+0.2

-0.3

+0.2

m/m (%)

-0.2

-2.3

-0.7

+2.6

+1.5

-4.5

+9.6

U. construction

687.4 670.3 692.7 723.0

713.1

707.4

-3.9

y/y (%)

-0.7

-2.1%

-2.5

-1.3

-0.8

-1.1

-1.4

y/y (%)

-0.6

+2.7

-1.8

+2.8

+6.3

+2.2

+6.2

Completed

165.2 160.0 135.7

152.5

103.2

-1.5

Year

2006

2007

2008

2009

2010

2011

2012

Year

2006

2007

2008

2009

2010

2011

2012

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

y/y (%)

+11.6

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

Gross Domestic Product

Month

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

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

Mar '13 Apr '13 May'13 Jun '13 Jul'13 Aug'13 Sep'13 -0.2 -1.8 2006 +3.2

-0.1 -1.9 2007 +7.4

-0.2

-0.1

-2.0 2008

-0.1

-2.0

-1.9

2009

+4.8

-0.2 -1.9

2010

+0.2

-0.1

2011 +1.0

-0.1 -1.8 2012 +0.2

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

Coal mining

Month

Period

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

m/m (%)

+20.9

y/y (%)

-18.5

Year

2006

y/y (%)

+18.1

+7.9

+16.1

-23.1 2007 +15.5

-27.5 2008 +12.1

+19.1 -18.3 2009 +5.1

+7.8

-0.8

-5.2

-11.1

2010

2011

+4.6

+11.8

+9.4 -4.8 2012 -0.6

Q3 2012

Q4 2012

Q1 2013

Q2 2013

5,920

135 8,427

192 6,060

138 6,290 143

-3.1%

Q4 2012

+0.7%

442,231

-3.5%

2010

+3.9%

1,416,585

-5.1%

2009

+1.6%

1,344,384

-3.9%

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

120 100

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

O ct 13

60 Jul 13

-40 Ap r 1 3

146

Jan 13

152 3,693 157

143 3,432

O ct 1 2

163 3,556

142 3,365

J ul 12

158 3,829

3,322

A pr 1 2

3,709

Retail & repairs

J an 12

Construction

O ct 1 1

J ul 1 1

-20

Apr 11

152 3,560 155 188 5,828 177

J an 1 1

3,491

Source: Central Statistical Office (GUS)

377,815

Economic sentiment and consumer confidence indicators

198 6,196

3,613 144

+0.5%

Sentiment Indicators

154

149

-2.3%

Q1 2013

-3.5%

151 3,522

3,741

-2.0%

395,507

-4.9%

176 6,535

154

n/a

+0.8%

1,522,736

3,463

147 3,878

+1.9%

Q2 2013

1,462,734

5,790

National average 3,690

Q3 2013

+1.9%

Energy

151

Current account def. in % of GDP

+4.5%

Manufacturing

6,712

GDP in PLN bn current prices

2011

3,421 146

Growth y/y unadjusted

131.7

2012

Source: The Central Statistical Office of Poland, GUS

Gross Wages Sector

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

Construction Output

Construction Prices Price s Month

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

*2011

2013

2014

+1.9%

+1.3%

+2.7%

+2.6% +4.3%

+3.7%

+1.0%

+1.9%

+2.1% +7.6%

+3.4%

-1.2%

0.7%

-5.1%

-4.9%

-3.5%

-1.3%

-0.3%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+2.9%

+4.1%

Unemployment**

12.4%

12.5%

13.4%

13.7%

13.2%

3.99

4.12

4.19

4.20

4.06

GDP change

+3.9% +4.5%

Consumer inflation Producer inflation CA balance, % of GDP

EUR/PLN

*2012

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

weekly newsletter # 011 / 18th November 2013 / page 18

339.26 ↓

100 DKK

56.16 ↑

100 SEK

46.86 ↓

100 NOK

50.65 ↓

10,000 JPY

50000 47500 45000

15.44 ↓

100 CZK 10,000 HUF

52500

310.54 ↓ 140.40↓

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

WIG-20 stocks Price Change Change in alphabetical 15 Nov 8 Nov end of order '13 '13 '12

WIG Total index

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

PLN (up to 1 year)

5.4%

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

5.3%

5.0%

4.7%

5.9%

5.7%

5.4%

5.7%

5.6%

5.3%

5.8%

5.6%

5.3%

5.0%

EUR (up to 1m EUR) 2.1%

2.3%

1.9%

2.3%

EUR (over 1m EUR) 2.9%

3.2%

2.9%

3.5%

4.5%

5.1%

4.9%

4.8%

↑ Bogdanka

4.9%

4.8%

↑ BRE

1.9%

1.8%

↑ BZ WBK

378

+3%

+56%

3.5%

3.2%

↑ Eurocash

52.51

+15%

+20%

8.28

+9%

-16%

↑ Handlowy

122.65

+10%

+25%

↓ JSW

63.44

-3%

-31%

Change 1 week

+2% ↑

↓ Kernel

42.96

-1%

-36%

Change end of '12

-1% ↓

-37%

↓ Asseco Pol.

↑ GTC

Warsaw Inter Bank Offered Rate (WIBOR) as of 15 Nov 2013 Overnight

1 week

1 month

3 months

6 months

2.60%%

2.56%

2.59%

2.65%

2.70%

1.00%

2.75%

↑ Lotos

39.3

+2%

-5%

↓ Pekao

190

-2%

+13%

Credit

↑ PGE

18.6

+5%

+2%

The financial sector's net lending in PLN bn,

↑ PGNiG

5.75

+1%

+10%

loan stock at the end of period

↑ PKN Orlen

+2%

-9%

Sep '13 166,620

2.50%

927,345

- Time deposits

418,252 405,900 946,586

921,662

114,083 928,359

113,223 931,042

412,407 405,703

945,077 949,988

947,228

- Net foreign assets 160,267 159,749 154,035 147,978 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

+60%

4.00%

Aug '13

112,565

+3%

-3%

153,867

112,815

521

119.5

Jul '13

540,873

131.6

-3%

↓ KGHM

155,767

531,124

+12%

Rediscount

Jun '13

530,666

-2% +3%

NBP deposit

144,260 523,783

50.8

Lombard

Reference

Type of loan

Jun'13

Jul '13

Aug '13

Sep '13

Loans to customers

900,999

896,635

901,863

908,106

- to private companies

263,453

261,000

263,491

262,963

↑ Synthos

- to households

553,055

552,503

556,027

560,608

↑ Tauron

1,634,587

1,616,221

1,627,182 1,626,489

Total assets of banks

53,896. 896.03

4.6%

Central Bank (NBP) Base Rates

M2 M3

as of 15 November 2013

Source: Central Bank NBP

↑ PKO BP → PZU

↑TP SA

Change 1 week

2,5 2,547. 47.01 WIG Total closing index last three months 55000 52500 50000

41.29

+2%

+12%

+4%

47500

5.25

+1%

-3%

45000

5.1

+3%

+7%

+6%

-13%

+14% ↑

WIG-20 blue chip index

453.65

10.6

+1% ↑

Change end of '12

15 Nov 13

100 CHF

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

22 Oct 13

500.48 ↑

15 Nov 13

100 GBP

22 Oct 13

418.90 ↑

30 Sep 13

100 EUR

Key indices

Term / currency

55000

6 Sep 13

311.72 ↑

14 Aug 13

100 USD

Stock Exchange

Average weighted annual interest rates

6 Sep 13

as of 15 November 2013

Interest rates

30 Sep 13

100 USD/EUR against PLN

Central Bank average rates

14 Aug 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-Aug 2013

y/y (%)

share (%)

2012

IMPORTS in PLN bn share (%)

Jan-Aug 2013

y/y (%)

share (%)

2012

share (%)

EXPORTS in PLNbn JanNo Country Sep share 2013

*2012

Share No

IMPORTS in PLN bn JanCountry Sep share *2012 2013

43,520

+9.0

10.5

61,694

10.3

30,470

+3.1

7.3

44,287

6.9

1 Germany

Beverages and tobacco

5,633

+5.8

1.4

7,967

1.3

2,593

+0.1

0.6

3,989

0.6

2 UK

30,740

6.5%

40,184

6.7%

2 Russia

59,388 12.5%

Crude materials except fuels

10,501

+7.7

2.5

14,024

2.4

14,118

-7.9

3.4

22,053

3.5

3 Czech Rep.

28,868

6.1%

37,475

6.3%

3 China

44,332

Fuels etc

19,670

+1.7

4.8

29,389

4.9

48,392

-12.8

11.6

85,280

13.4

4 France

26,520

5.6%

34,862

5.8%

4 Italy

24,315

5.1% 32,782

1,088 +60.8

0.3

1,342

0.2

1,736

-8.8

0.4

2,887

0.5

5 Russia

25,476

5.4%

32,290

5.4%

5 France

18,262

3.8% 25,303 4.0%

20,214

4.3% 29,067 4.9%

Food and live animals

Animal and vegetable oils

118,119 25.1% 150,046 25.1%

38,680

+6.2

9.4

54,295

9.1

61,502

+0.7

14.7

89,140

14.0

6 Italy

85,413

-0.2

20.7

126,161

21.1

72,837

-5.0

17.5

110,773

17.4

7 Netherlands

18,714 4.0%

Machinery, transport equip.

155,077

+3.3

37.5

223,646

37.5

137,560

+1.3

33.0

203,718

31.9

8 Ukraine

13,277