Poland Today Business Review+ No. 66 by Poland Today Business Review+

1 year subscription: EUR 690 +VAT (23%) 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. 066 / 22nd December 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

POLITICS & ECONOMY November industrial output weaker than expected page 2 MANUFACTURING & PROCESSING Azoty breaks ground on new polyamide unit in Tarnów page 2

The Agros-Nova deal is Maspex's 17th acquisition and its largest one to-date. Photo: Maspex

Maspex acquires key part of AgrosAgros-Nova Poland's top juice and pasta producer Maspex has agreed to acquire the preserves and ready-made food business of AgrosNova, another key player in the sector, from private equity fund IK Investment Partners. The transaction, which includes two factories and a portfolio of leading brands, boosts Maspex's turnover in excess of PLN 4bn, strengthening its position as one of the largest Polish-owned food companies. page 8

Invesco pays EUR 226m for Plac Unii

Warsaw-listed developer BBI Development and its Flemish partner Liebrecht & wooD have sold their flagship development, the mixed-use complex Plac Unii in Warsaw, to Invesco Real Estate. The transaction topped EUR 226, making it one of the largest deals on the Polish market in 2014. page 5

tel. +48 881 650 600

TRANSPORT & LOGISTICS Polferries tender attracts top Baltic Sea ferry operators page 9 P3 Logistic Parks begins huge BTS project in Mszczonów page 10

Bosch-Siemens to buy FagorMastercook's Wrocław business page 3

UPS acquires pharma logistics firm Poltraf page 10

BANKING & FINANCE Marsh & McLennan to create hundreds of jobs in Poland page 4

PKP Cargo sees fewer takeover opportunities after CTL talks page 11

PROPERTY & CONSTRUCTION Vienna Insurance Group buys two office buildings in Warsaw page 6 HOSPITALITY Union Investment buys Warsaw's Hampton by Hilton hotel from S+B page 7 France's B&B to build hotel in Katowice page 7

KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

No. 066 / 22nd December 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

POLITICS & ECONOMY November industrial output weaker than expected page 2 MANUFACTURING & PROCESSING Azoty breaks ground on new polyamide unit in Tarnów page 2

The Agros-Nova deal is Maspex's 17th acquisition and its largest one to-date. Photo: Maspex

Invesco pays EUR 226m for Plac Unii

tel. +48 881 650 600

TRANSPORT & LOGISTICS Polferries tender attracts top Baltic Sea ferry operators page 9 P3 Logistic Parks begins huge BTS project in Mszczonów page 10

Bosch-Siemens to buy FagorMastercook's Wrocław business page 3

UPS acquires pharma logistics firm Poltraf page 10

BANKING & FINANCE Marsh & McLennan to create hundreds of jobs in Poland page 4

PKP Cargo sees fewer takeover opportunities after CTL talks page 11

KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

weekly newsletter # 066 / 22nd December 2014 / page 2

"The monthly industrial output data confirm some deceleration in the economic activity in Q4 2014 vs. the previous quarter. We anticipate that in the final quarter of 2014 the GDP growth could drop below 3% but we expect this to be only a temporary phenomenon, lasting no more than six months). Next quarters should bring a recovery due to, among others, rebound in the euro zone," BZ WBK bank analysts commented on the data.

POLITICS & ECONOMY

November industrial output data weaker than expected Industrial output growth decelerated to 0.3% in November (0.2% in seasonally adjusted terms), following a 1.6% increase in October, confirming fears about Q4 being the weakest quarter of the year for the Polish economy. The November result proved considerably worse than consensus forecasts (+1%), showing the weakest growth since May 2013. The most considerable increase was recorded in exports-oriented sectors such as computers, electronic and optical devices (+13% y/y) or furniture (+11.1% y/y). Construction and assembly output contracted in November by 1.6% y/y (-1.1% seasonally adjusted).

Industrial output & producer prices

"In our opinion, PPI inflation is likely to remain well below zero until the end of Q3 2015, and then to gradually increase towards 1% y/y at the end of 2015," BZ WBK said.

IN BRIEF:

Industry output, y/y change

Poland's average corporate gross wage measured PLN 4,004.8 in November, rising by 2.7% y/y and by 0.6% m/m. Economists surveyed by PAP Polish news agency expected a 3.6% y/y corporate wage growth on a monthly increase of 1.3%.

Producer Price Index, y/y change 8% 6% 4% 2%

Poland's corporate employment measured 5.551 million people in November, up by 0.9% y/y and by 0.1% m/m. Expectations were for employment to rise by 0.8% in annual terms and edge up 0.1% in monthly terms.

0% -2% -4% Mar 13

Producer prices dropped significantly in November, by 1.6% y/y (vs. decline by 1.3% y/y in October ) and 0.5% m/m (vs. -0.4% in the previous month). In annual terms, the most visible decline was seen in manufacturing (-2%), especially and in the fuel segment, and was caused chiefly by the downward trends on international commodity markets.

May 13

Jul 13

Sep 13

Nov 13

Jan 14

Source: GUS, the central statistical office

Mar 14

May 14

Jul 14

Sep 14

N ov14

Polish consumer prices edged down by 0.6% y/yin November after a 0.6% y/y decline in the month prior. Prices fell 0.2% month on month. Source: Central Statistical Office (GUS).

MANUFACTURING & PROCESSING

Azoty breaks ground on new polyamide unit in Tarnรณw Chemicals firm Grupa Azoty has commenced the construction of a new polyamide unit at their industrial site in the southern Polish city of Tarnรณw. The PLN 320m project is to reach completion by the end of 2016, boosting the site's annual production capacity by 80,000 tons of polyamide. Last week Azoty signed an agreement with the general contractor, Germany's Uhde Inventa-Fischer. Located in the Krakรณw special economic zone, the new plant will use caprolactam feedstock produced at the site. Azoty said the new plant reflects rising demand for polyamide from the automotive sector and other industries using structural fibres. It also creates a captive outlet for the company's caprolactam production in the face of falling retail prices for the polyamide feedstock due to global overcapacity. Due to the oversupply in China, the Polish company has abandoned plans for a production facility there. "The key benefit of the project will be the extension of our production chain and increased output of highmargin products," Grupa Azoty's CEO Paweล Jarczewski said. According to Azoty, the increased supply of polyamide 6 should stimulate development of value-added polymer-based production in the Tarnรณw area. "The global polyamide consumption totals 9m tons. Thanks to the increased production capacity Grupa Azoty will be better positioned to deal with any market fluctuations as well as reduce its dependence on

weekly newsletter # 066 / 22nd December 2014 / page 3

external recipients. Moreover, the investment will enable us to shift our target market from Asia to Europe," added Witold Szczypiński, deputy CEO. Azoty's total investments in Tarnów are to come in excess of PLN 900m over the coming four years. Besides the polyamide unit, the company will invest PLN 140m into a new fertilizer granulation plant, and implement a number of other upgrades.

been gradually increasing the stake in the firm. Facing an increasingly realistic prospect of some of Poland's key industrial assets falling into Russian hands, the government used its decisive say in Azoty Tarnów and another major nitrate producer ZA Puławy to merge the two businesses, creating the number two fertilizer producer in Europe. Following the merger, in March 2013, Poland capped voting rights at what is now Grupa Azoty to 20% for all shareholders other than the State Treasury as well as gave the firm's CEO a tiebreaking vote on the management board.

Grupa Azoty key figures Turno ver, in PLNb n, lef t axis Net result in PLNm, right axis

Uhde Inventa-Fischer and Azoty executives seal the deal on the new polyamide 6 plant in Tarnów. Image: Azoty

Grupa Azoty, which has an estimated 80% share in Poland's fertilizer market, has been the target of a hostile takeover by Russia's Acron, which managed to acquire a 20% share in the company. Earlier this year, the Polish government has reaffirmed the "strategic asset" status of Grupa Azoty, and said it had no intention of reducing its stake in the chemicals conglomerate. Acron, indirectly held by Russian oligarch Vyatcheslav Kantor, began to increase its ownership in Grupa Azoty's legal predecessor ZA Tarnow following a 2012 PLN 1.87bn tender offer for a 66% stake. Following the bid, in which Acron bought just over 12%, Acron has

10 .0

70 0

8.0

6 00

6.0

50 0

4.0

4 00

2.0

30 0

0 .0

20 0 201 0

201 1

2012

20 13

Source: Grupa Azoty

Last year Grupa Azoty turned over PLN 9.8bn (up from PLN 7.1m in 2012) and more than doubled its net earnings that reached PLN 714n against PLN 315m in the prior year. Although so far the government has managed to keep Acron at bay, Azoty remains dependent on the Russians to a significant degree due to gas, which, which prior to their merger represented some 30% of raw material costs for Tarnów and as much and 60% for Puławy – the group's two key industrial assets. The group's product range encompasses inorganic fertilizers (nitrogenous & multicomponent), caprolactam, structural materials and other highly

processed chemicals, such as OXO, plasticizers, titanium white, melamine & AdBlue. The group is also the largest supplier of ammonia and phosphoric acid in Poland. Grupa Azoty is ranked fifth among European producers of polyamides and is the only producer of polyacetal (POM), OXO and titanium white in the country. The group has its own research facilities. As for the Berlin-based Uhde Inventa-Fischer, the German contractor has recently completed another major contract in Poland - a large-scale revamp of a PET plant in Włocławek, Poland, owned by Thai Indorama Ventures. As a result of the modernization, the plant's capacity increased from 160,000 to 216,000 tons per annum, and production costs have been considerably reduced.

MANUFACTURING & PROCESSING

BoschBosch-Siemens to buy FagorMastercook's FagorMastercook's Wrocław business Creditors of the FagorMarstercook factory in Wrocław, which makes cookers, washing machines and kitchen hoods, have agreed to sell it to Germany's BSH Bosch und Siemens Hausgeräte GmbH. The value of the transaction may reach PLN 90m, with another PLN 120m to be invested in the facility. The initial asking price for the factory was PLN 270m, but the offer failed to attract any bidders. The new owner, which obtained regulatory permission to take over the Fagor business earlier this year, said it would reduce factory's workforce from 830 employees to just 500. The collapse of FagorMastercook Wrocław follows the bankruptcy of its Spanish parent Fagor Electrodomésticos. The latter was hit hard by slump-

weekly newsletter # 066 / 22nd December 2014 / page 4

ing consumer demand and had been scrambling to secure financing to continue operations and pay down a debt of EUR 850m. The investor and its Wrocław’s subsidiary filed for bankruptcy, which was approved by the San Sebastian court. Fagor 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. The Wrocław plant remains operational thanks to a PLN 86m order from Algeria's Cevital.

past two decades the company has invested more than EUR 0.5bn in Poland. Over the coming years BSH seeks to boost the production capacity of its Łódź factories by 80%, resulting in 500 new jobs, CEO Konrad Pokutycki told reporters at a recent press conference, celebrating the 20th anniversary of BSH's presence in Poland. With sales in 2013 of about EUR 10.5bn and a workforce numbering around 50,000, BSH Bosch und Siemens Hausgeräte GmbH is currently the world’s third largest company in the home appliance sector. BSH manufactures its products in 40 factories, and with over 80 companies, has a presence in 47 countries. 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 the country. Poland-based home appliance manufacturers as a whole, boosted their large appliance output by 9% y/y in January-August 2014 (reaching 12.3m units), reported the industry organization CECED. Last year Poland exported some PLN 14bn worth of home appliances, some 10% more than in 2011.

FagorMastercook's three Polish production plants in Wrocław have so far failed to find a new owner. Image: Fagor

With 3,600 employees (of which 2,000 in Łódź's washing machine, dryer & dishwasher plants), BSH is Poland's leading producer of household appliances. The company has three factories in Łódź, making washing machine, laundry dryers and dishwashers in Łódź as well as the former Zelmer plant in Rzeszów, producing small appliances. Poland is also home to R&D and logistics facilities as well as a shared services center that handles IT, bookkeeping, payroll, purchasing and other processes for the BSH group. Over the

is to create 50 new jobs by 2015 and grow to some 200300 positions over the nect two-three years. "Poland is an attractive investment destination both in terms of skilled workforce as well as its geographic locations and therefore we are expecting to deliver more projects of this type in the coming years, including new Marsh & McLennan group shared services centers and hubs," Dominika Kozakiewicz, CEO of Marsh Polska tells Poland Today. At the beginning of next year will be moving its Warsaw offices to a new location next year, to keep up with the fast-paced expansion of its Polish business. The company has secured 5,800 sq.m at the Nimbus office building, developed and owned by Austria's Immofinanz Group.

BANKING & FINANCE

Marsh & McLennan to create hundreds of jobs in Poland US professional services, risk management, and insurance brokerage group Marsh & McLennan Companies has chosen Poland as the location for its first shared services centre, which will handle various back office, administrative and HR functions for most of the group's companies in continental Europe. The project

Located at Aleje Jerozolimskie 98, close to Plac Zawiszy, Nimbus Office building is Immofinanz's first office development in Warsaw. The LEED-certified project offers 19,000 sq.m of office GLA and 200 Image: HB Reavis parking spaces..

Marsh & McLennan Companies are represented in Poland by four companies: Marsh, Mercer, Oliver Wyman and Guy Carpenter, with a combined staff of

weekly newsletter # 066 / 22nd December 2014 / page 5

600. The Polish arm of Marsh, the insurance broking and risk management consulting unit, serves more than 1,400 clients from different industry sectors (for instance finance, energy, and transportation), as well as public institutions, other organizations and individuals. Its revenues came in excess of PLN 41m in 2013. "Over the past couple of years the Polish Marsh team has grown by 20%, and currently comprises of 120 staff, including more than 75 licensed brokers. They are serving both global corporations and domestic, Polish clients," says Dominika Kozakiewicz. With PLN 50m worth of revenues in 2013, the Polish Mercer unit provides human resources consulting and other HR services to some 500 companies in different sectors, such as FMCG & retail, pharmaceuticals, automotive, financial services, technology and BPO/SSC. "Mercer's Warsaw Operations Centre employs some 300 analysts and specialists who handle payroll reports and other related products for global clients," Ms. Kozakiewicz says. A reinsurance intermediary, Guy Carpenter works with clients from the insurance industry, whereas Oliver Wyman, which entered the Polish market earlier this year, is a management consulting firm. "Oliver Wyman already has since taken on 70 employees who provide support to our consultants," adds the CEO. In Marsh & McLennan Companies had approximately 54,000 employees and recorded an annual revenue of USD 11.9bn. In 2013, it was ranked the 228th largest corporation in the United States by the 2013 Fortune 500 list, and the 5th largest US company in the diversified financial industry.

PROPERTY & CONSTRUCTION

Invesco acquires Plac Unii project in Warsaw Warsaw for EUR 226m Warsaw-listed developer BBI Development and its Flemish partner Liebrecht & wooD have sold their flagship development, the mixed-use complex Plac Unii in Warsaw to Invesco Real Estate. The value of the transaction (EUR 226m or ca. PLN 950m), makes it one of this year's largest deals in Poland's real estate investment market. It's also a huge win for the developers, as according to earlier statements by BBI, the capex on Plac Unii had amounted to PLN 600m. The transaction gives the two partners significant funding for future developments, including another jointventure scheme - the commercial section of the Praga Koneser Center in Warsaw. Plac Unii – located next to the Unii Lubelskiej Square – is one of the largest commercial properties delivered to Warsaw’s market in recent years. It comprises three buildings offering 41,300 sq.m of A+ class office space, as well as a three-level shopping centre – Plac Unii City Shopping – with a total rentable space of 15,500 sq.m hosting dozens of top-brand shops, service points, cafes and restaurants. Following the completion of Plac Unii, BBI & Liebrecht & wooD are working on another major office & retail scheme in Warsaw, the Koneser project in the Praga district. Located on a 5ha site between Ząbkowska, Nieporęcka, Białostocka and Markowska streets, the project will comprise over 300 housing units, 22,500 sq.m of retail and service space and 22,000 sq.m of offices (some 75,000 sq.m of usable space in total). Liebrecht & wooD joined forces with

BBI Development to develop the retail & office section of Koneser, which constitutes around 59% of the total space at the complex. The investment value is set at PLN 450m, and the completion of the project is planned for 2017.

Despite its central location, the retail section of Plac Unii is yet to find its place on the highly competitive Image: BBI Warsaw market.

BBI has just recently broken ground on a 15,000 sq.m office & retail building Centrum Marszałkowska, located on top of Warsaw's Świętokrzyska subway station. The company's other major future undertakings will be include 180-metre class A office skyscraper in the very centre of Warsaw, at the corner of Emilii Plater and Nowogrodzka streets (55,000 sq.m). In the residential segment, BBI has also delivered the Rezydencja Foksal project near Warsaw's high street Nowy Świat, with 7,500 sq.m of luxury condos. The company has also teamed up with US investment fund Amstar to complete the Złota 44 luxury residential skyscraper, which was left unfinished by its original developer Orco. BBI and Amstar have just agreed with Italy's Inso, the original general contractor of the project, to return to the building site. With 54 stories

weekly newsletter # 066 / 22nd December 2014 / page 6

and approx. 37 000 sq.m of usable space, Złota 44 is to be delivered to the market in 2016 as one of Europe's tallest residential buildings. Over the past two decades, Liebrecht & wooD have delivered a number of projects throughout the CEE region, including office buildings, office parks and mixuse developments in Warsaw (Kopernik Office Buildings, Jerozolimskie Business Park, Flanders Business Park, Batory Office Buildings, Plac Unii) and Bucharest (Victoria Park), as well as some of the first outlet centres in Poland, Romania and Russia under the Fashion House Outlet Centre brand. Its property management unit weCARE will continue to manage Plac Unii following the change of ownership. Invesco opened its Warsaw office in March this year with former Colliers and AIB PPM executive Anna Duchnowska as Director of Asset Management. Prior to the Plac Unii acquisition, Invesco's Polish portfolio included eight properties with c. USD 570m under management. The company transacted EUR 300m in the region in 2013 including the EUR 180m acquisition of Kraków's Galeria Kazimierz shopping center from GTC, one of the largest retail acquisitions in Poland last year. Invesco Real Estate is a global real estate firm, which has been providing real estate investment and property asset management services since 1983, first in the US and then expanding into Europe and Asia. Globally, Invesco Real Estate had USD 55.7bn of assets under management as of end of last year including EUR 706m in 18 CEE assets.

PROPERTY & CONSTRUCTION

Vienna Insurance Group buys two office buildings in Warsaw One of the most active foreign investors in Poland's insurance sector, Austria's Vienna Insurance Group AG (VIG) has acquired two office buildings: Jasna 26 and Libra Business Centre in Warsaw from Polish developer Mermaid Properties. Jasna 26 has been converted by Mermaid Properties into pre-dominantly class A offices, offering approximately 5,700 sq.m of office space spread over seven levels as well as 49 underground car parking spaces. The majority of the building was prelet to Sołtysiński Kawecki & Szlęzak, a leading Polish law firm. Located next to Al. Jerozolimskie on Daimlera Street, Libra Business Centre opened at the beginning of 2013 and provides 16,000 sq.m of Class A offices. Current tenants include Infovide-Matrix, Wydawnictwo Naukowe PWN and Canon Polska. VIG has recently merged its life insurers Compensa TUnŻ and Benefia TuNŻ, making the former the number three player in Poland's life segment. Earlier this year the company had also concluded the acquisition of another life insurer Skandia Życie TU from UK's Old Mutual Group. 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. Premiums at VIG’s Polish group companies Compensa, InterRisk, Benefia and Polisa totaled some PLN 4.8bn

(EUR 1.2bn) in 2013, making VIG one of the country’s top three insurers. The group companies recorded non-life premiums of about PLN 2.4bn. The company reported a particularly good result in the non-motor segment, where year-on-year growth reached about 13%. VIG’s premiums in the life insurance segment were also about PLN 2.4bn. VIG's posted a EUR 49m gross profit in Q1-Q3 2014, up by 0.3%y/y, on EUR 809m in gross written premiums collected (-3.7% y/y), according to the official statements.

Libra Business Center, one of the two office buildings Image: Mermaid Properties acquired by VIG in Warsaw.

The entire VIG Group, which operates also in Austria, the Czech Republic, and several other markets, raised EUR 7bn in gross written premiums over the first three quarters of the year. Listed in Vienna and Prague, VIG is the leading insurer 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. The insurance density (annual premium payments per capita) figure in Poland tops EUR 400m, compared to EUR 2,000 in Austria and close to EUR 600 in the Czech Republic.

weekly newsletter # 066 / 22nd December 2014 / page 7

HOSPITALITY

Union Investment buys Warsaw's Hampton by Hilton hotel from S+B

saw, Łódź) and Hilton (Warsaw, Gdańsk). The Hilton brand is yet to appear in Wrocław, where two projects (Hilton and Hilton Graden Inn) experienced serious delays due to financing problems on the part of investors, but according to recent reports they are about to take off. A Hampton by Hilton property is also under construction in Bydgoszcz.

Germany's Union Investment has added the first hotel to its Polish real estate portfolio with the acquisition of Hampton by Hilton Warsaw City Centre from Austrian developer S+B Gruppe. The value of the deal, which according to Polish sources had been sealed prior to the official opening of the hotel in June 2014, has not been disclosed. With 300 rooms on 17 floors, the property is Hampton's largest hotel outside the US and one of the biggest hotels to open in the city centre in the last few years. The property was the first hotel in Warsaw to receive the LEED Gold Certification, in recognition for its eco-friendly construction and energy efficiency. The scheme was delivered by Austria's S+B Gruppe, which acquired the unfinished 55-tall edifice a few years ago from the original investors who had sought to fill its 12,500 sq.m of floor space with offices, before their business went bust. S+B decided to turn the project into a hotel at the cost of approximately EUR 40m. Located on 72 Wspólna St., close to the Marriott hotel and the central station, Hampton by Hilton Warsaw City Centre offers easy access to a number of Warsaw key tourist attractions as well as a wide range of shopping and dining venues. 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 Gdańsk and Świnoujście. Other Hilton brands available in Poland are Hilton Garden Inn (Kraków, Rzeszów), DoubleTree by Hilton (War-

Union Investment purchased also S+B Gruppe's previous development, the 18,200 sq.m Zebra Tower building, for EUR 76m. The Austrian developer is currently working on a boutique office project króLEWska in central Warsaw. The building is to reach completion by early 2016 with a GLA of 6,000 sq.m. S+B has also acquired the former Universal building by Warsaw's Rondo Dmowskiego, which is to be replaced by new office high-rises.

HOSPITALITY

France's B&B to build hotel in Katowice

Hampton by Hilton Warsaw Cite Centre opened in Image: S+B Gruppe June 2014.

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. The Union Investment Group, based in Frankfurt/Main, Germany, was founded in 1956, and is today one of Europe’s leading asset managers for private and institutional clients with EUR 224.6bn worth of assets under management as of September 30, 2014. The company, in which DZ Bank AG and WGZ Bank AG are the principal shareholders, employs more than 2,500 staff who service 4.2m client investment accounts.

Following the launch of their third Polish location in Wrocław, the French budget hospitality operator B&B Hotels has announced details of their next investment in the country. The company has acquired a site in Katowice, close to the city's main railway station, where a brand new, two-star, seven-storey hotel with 105 rooms will open in 2016. "This investment is a step towards strengthening our position on the Polish market, which still offers large expansion opportunities in the budget hotel sector. Katowice is an important centre of business, sports and culture, where this type of accommodation is much needed," says Beatrice Bouchet, CEO of B&B Hotels Polska. The first B&B hotel in Poland was opened in Toruń, near the historic Old Town. Next, the company launched its B&B Hotel Warszawa-Okęcie, located a 10-minute drive from Warsaw's Chopin Airport. It was built in a record time of ten months, as the developer was determined to complete the project before arrival of football fans for the UEFA Euro soccer champion-

weekly newsletter # 066 / 22nd December 2014 / page 8

"We are working on a number of projects in Poland's largest cities whereby B&B would become the operator of leased properties. This is currently the preferred expansion formula for our brand," Ms. Bouchet said, but so far it does not seem like the new approach has yielded much result. Established in 1990, Groupe B&B Hotels owns 318 hotels (including 228 in France, 70 in Germany, 16 in Italy as well as a handful of properties in Poland, Portugal, Morocco and the Czech Republic. Its formula re-

Source: Maspex

*2014

2013

2012

Headquartered in Warsaw, Agros Nova is a leader in all three of its business segments, comprising fruit and vegetable preserves, ready-made food and noncarbonated beverages. The company owns three manufacturing plants in Poland and employs around 2,000 people. Maspex is to acquire the preserves and readymade food businesses which include Łowicz, Kotlin, Krakus, Włocławek and Fruktus brands, two factories in Łowicz and Wąsosz as well as related private label products. Additionally, Maspex is to acquire noncarbonated beverages brand Tarczyn and functional products brand Dr Witt. The IK 2007 Fund will remain as owner of the non-carbonated beverages business with brands Fortuna, Garden and Pysio as well as the production plant in Tymienice, the distribution centre and related support functions. Last year AgrosNova sold a processing plant in Włocławek to Poland's

2011

Back in 2011, B&B representatives said they wanted to develop 10 hotels in Poland in 3-4 years at the cost of PLN 300m, mentioning Gdańsk, Kraków, Łódź, Poznań and Katowice as their next target locations. A year ago Ms. Bouchet told Poland Today her company, which had previously relied mainly on owned properties, was shifting towards the operator model.

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010

Image: B&B

Maspex's turnover in PLNbn

2009

Katowice will be B&B's 4th location in Poland.

Nordic private equity fund IK Investment Partners has agreed to sell part of Agros-Nova, a leading Polish maker of branded fruit and vegetable products to Polish Maspex Group. The transaction, the terms of which remain undisclosed, is Maspex's 17th acquisition and its largest one to-date. It strengthens the company's position as a leading Polish food producer, with two production plants and a portfolio of popular brands, and boosts its turnover in excess of PLN 4bn.

2008

Maspex acquires key part of AgrosAgros -Nova

"After more than four years under IK’s ownership, completing our internal restructuring and relaunches of our strategic brands, handing over the company to a reputable peer such as Maspex is a very natural step. Maspex will guarantee long-term investments into brands, production sites as well as employees. I am particularly proud that the transaction will allow our employees to develop within the biggest food group in CEE," said Marek Sypek, CEO of Agros Nova. "I will remain the CEO of both business pillars until the takeover of the acquired assets and sales force structures is completed by Maspex. Thereafter I will focus solely on managing the non-carbonated beverages business, which will remain under IK ownership," he added.

2007

FOOD

leading sugar producer, the state-owned Krajowa Spółka Cukrowa (KSC).

2006

lies on affordable, standardized rooms, with bathrooms, satellite TV and Wi-Fi internet, targeting primarily short-term business travelers. In 2010 the business was acquired by US private equity giant Carlyle Group for EUR 480m.

2005

ships in June 2012. The chain's latest project in Wrocław opened a year ago, bringing the total number of hotel rooms B&B has in Poland to 387. The company is actively seeking further suitable locations for new hotels in Poland.

*) projected

Based in Wadowice near Kraków, Maspex is Poland's number one producer of juice, which generates some 70% of the group's turnover. The company has been consolidating its position in the juice segment since the 1999 acquisition of Tymbark, which remains Poland's leading juice brand. Maspex's Tymbark and Kubuś brands represent roughly a half of total juice sales in Poland, which explains why the company could not take over Agros-Nova's juice business.

weekly newsletter # 066 / 22nd December 2014 / page 9

In 2003 Maspex acquired the Lublin-based pasta producer Lubella, becoming a leader also in this category. Its investments in Tymbark and Lublin have since amounted to PLN 180m. Besides juice and pasta, Maspex produces also instant beverages. Its 2014 turnover is expected to reach PLN 3.3bn, up from PLN 3.1m in 2013, which gave Maspex the number six position among Polish food producers. The Agros-Nova deal, which still requires an approval by Poland's competition authority UOKiK, adds some of Poland's best known food brands to Maspex's portfolio, making the company a top player also in the jam, sauce, ketchup, soup and soup concentrate categories.

Poland's most popular jam brand Łowicz is joining Image: Agros Nova Maspex's portfolio .

Maspex has also emerged as a major regional player via a string of acquisitions that gave the Polish company a strong position in Romania, Hungary, Slovakia, Russia, Bulgaria, and the Czech Republic. It also exports its products also to the Baltic States, the British Isles, and North America. Exports represent roughly a third of Maspex's turnover. IK Investment Partners is a Pan-European private equity firm focused on investments in the Nordics, DACH region, France, and Benelux. Since 1989, IK Funds have raised more than EUR 7bn of capital and invested in over 85 European companies. IK Funds invest together with management teams in mid-sized companies that have strong improvement potential,

operating in the business services, care, industrial goods and consumer goods sectors. The current portfolio comprises 20 companies.

which according to the ministry referred only to selected PŻB assets and not the company as a whole.

TRANSPORT & LOGISTICS

Polferries tender attracts top Baltic Sea ferry operators oper ators Having cut the asking price by more than a half, the Polish ministry of Treasury may finally succeed at privatizing the state-owned ferry company Polska Żegluga Bałtycka, better known under the Polferries brand. The tender has attracted Denmark's DFDS, Finland's Finnlines (part of Italy's Grimaldi Group), Germany's TT-Link Estonian Tallink, Polish state-controlled PŻM group (owner of Unity Line), as well as two other domestic investors. PŻB's fleet includes three ferries serving routes between Poland, Denmark and Sweden, each more than 30 years old and the company seeks to acquired a 4th vessel. The company employs 129 staff. DFDS, which has been eyeing Polferries for nearly half a decade, said in a brief statement that its participation in the sale process is driven by its strategy of expanding the route network through value creating acquisitions, but refused any further commentary citing "the nature of the process". The Polish ministry of treasury has put its 91.64% stake up for sale several times since 2009. The first time PŻB was put up for sale, in Q4 2009, the ministry ended up canceling the tender finding none of the two offers (from Sweden's Stena Line and DFDS) satisfactory. The tender was repeated almost immediately, in Q1 2010, but this time only the Danes placed an offer,

Polferries operates three Swedish-built vessels. Image: Wikipedia

Discouraged by these experiences, PŻB managers decided to restructure the business before embarking on the subsequent sale attempt. The remedial measures taken to make PŻB more appealing included closure of the unprofitable Gdynia-Copenhagen connection, layoffs and employment restructuring, and divestment of problematic assets, such as port facilities in Kołobrzeg and Gdańsk. PŻB's financial condition had been gradually worsening, to reach PLN 175m worth of revenues and PLN 20m in net losses in 2010. Another tender, in 2011, likewise yielded no outcome. More recently, the ministry was in talks with TT-Line, which led to accusations that the German operator's true intention was to obtain commercially sensitive data about its Polish competitor. In the end, the ministry cut the price from PLN 95m to PLN 39m, and this new valuation has clearly stirred some interest among potential buyers. A response from the Polish ministry is expected by 23 January 2015.

weekly newsletter # 066 / 22nd December 2014 / page 10

TRANSPORT & LOGISTICS

P3 begins huge BTS project in Mszczonów P3 Logistic Parks has broken ground on a 46,230 sq.m built-to-suit warehouse for its French client ID Logistics. Based at the P3 Mszczonów park, 50km southwest of Warsaw, the project is to reach completion by Q3 2015, becoming a regional hub for one of the French forwarder's international clients.

than 160,000 sq.m of additional warehousing there," said Andrzej Wroński, country head of P3 Poland. P3's other key Polish facility, P3 Poznań offers up to 195,000 sq.m of warehouse space, including more than 131,000 sq.m of zoned land for further build-to-suit developments. Key customers include Hager, DAMCO, Jeronimo Martins Dystrybucja, ND Poland, CEVA, and PF Concept. The parks have planning consents for new warehouse developments, while P3 is also able to offer other locations for BTS projects near key Polish cities, including Warsaw, TriCity, Wrocław, Kraków, Rzeszów, Bydgoszcz and Lublin as well as in the industrial regions of Upper Silesia and Legnica.

"P3 Mszczonów offers great potential as a multi-modal freight centre, while we have scope to develop more

"After the transaction, P3 will increase warehouses in ownership in Poland from eight to 23 and lettable area from 200,000 sqm to 450 000 sq.m. We will also own almost 1m sq.m of developable land bank in Poland," Peter Bečár, P3’s Managing Director for Central & Eastern Europe, told Poland Today.

TRANSPORT & LOGISTICS

UPS acquires pharma logistics firm Poltraf

Stock market listed ID Logistics is a France-based contract logistics provider serving retailers, DIY, industrial, textile, cosmetics and e-commerce groups. It operates from 170 sites in 14 countries in Africa, Asia, Europe and Latin America and its services include detailed order picking and other value-added solutions in supply chain management. The company established a Polish affiliate in 2008 and it has become one of the country’s most dynamic logistics contractors, with clients that include Auchan, Bricomarché, Carrefour, Ferrero and Lindt. Thanks to its location close to Warsaw and with direct access to key roads linking central Poland with Katowice, Łódź, Poznań and Berlin, Mszczonów has emerged as one of the country's key logistics hubs. Once fully built-up, P3 Mszczonów will comprise close to 320,000 sq.m in 12 buildings. Currently the park's three largest tenants are Fiege, Jeronimo Martins Dystrybucja (operator of Poland's top retail chain Biedronka) and ID Logistics Polska, which currently occupies close to 15,000 sq.m at the park.

offering scope for development. Kühne & Nagel, FM Logistic and InPost are among the park’s largest tenants.

P3 Mszczonów can be expanded by an additional Image: P3 Logistic Parks 160,000 sq.m.

Two months ago In Poland, P3 acquired two projects in Poland as part of a larger deal with CA Immobilien Anlagen AG. The first one is 177,000 sq.m park in Błonie, some 30 km west of Warsaw city centre,. The Błonie park offers 17 ha of development land and good access to the A2 motorway to Poznań and Berlin. Tenants include Bayer, IBM, Orange, Triumph and online retailer Allegro. The second park lies near Piotrków, south east of Łódź in central Poland. It provides 75,000 sq.m of space and direct road links to Warsaw, Wroclaw and Katowice. The park is on a 120 ha. plot,

Merely three months after it announced two large projects in Poland – a parcel sorting facility and a shared services centre – the US logistics giant UPS has unveiled plans for another strategic investment in the country. The company has agreed to acquire a pharmaceutical logistics company Poltraf from a Polandbased investment fund ORTIE. UPS expects to finalize the deal, the terms of which have not been disclosed, in the first half of 2015. "This acquisition brings greater capability to our global healthcare network," said Cindy Miller, president, UPS Europe. "Poltraf complements our mainland Europe expansion plan and we are now able to provide healthcare companies access to a single source for logistics solutions across the continent, helping to achieve greater supply chain efficiencies and compliance with relevant guidelines." Based in Błonie near Warsaw, Poltraf has been operating in the healthcare logistics sector for the past nine years, offering temperature-sensitive warehousing and

weekly newsletter # 066 / 22nd December 2014 / page 11

transportation solutions. The company utilizes a fleet of approximately 170 temperature-controlled vehicles, all of which are equipped in an end-to-end GPS and temperature-monitoring system, and deliveries are supported by an advanced scan-based tracking program. In addition, 10 field stocking locations, strategically placed across the country, support the timely delivery of the pharmaceuticals and medical devices. Poltraf's customers include some of the best known healthcare brands in the world.

Orbis plans to open a new Mercure hotel in Kraków Image: Orbis by the end of 2016 .

The acquisition will add three facilities with advanced warehousing management systems, full quality assurance services, and an experienced workforce to UPS's existing European healthcare network, now totaling 14 healthcare facilities. Since 2011 UPS has acquired healthcare logistics companies in Italy (Pieffe), Hungary (CEMELOG), and the UK (Polar Speed). The company's European network now includes dedicated healthcare distribution centers in the Benelux area, Eastern Europe, Central Europe, Southern Europe, the Iberian Peninsula and the United Kingdom. Besides specialized transportation and distribution services. UPS's healthcare network also offers services such as

temperature-sensitive around-the-clock monitoring and transportation capabilities, geography-specific regulatory compliance, monitoring and security, kitting and labeling, as well as order management and accounts receivable. Back in September, UPS said it would invest USD 25m in a new parcel sorting hub and center in Stryków as well as a shared services centre in Łódź. Developed by Panattoni, the Stryków hub will have a floor area of 13,000 sq.m and a sorting capacity of 15,000 per hour. The new UPS Global Business Services (GBS) center in Łódź will complement an existing site in Wrocław., where more than 600 people are employed today. After launching services at the center in Łódź, the company will ultimately employ more than 900 people at both GBS sites combined, UPS said. Globally UPS delivers over 16.9m packages every day which adds up to 4.3bn parcels and documents per annum. Its global revenue for 2013 was USD 55.4bn and net income totaled USD 4.37bn. UPS first entered the Polish market in 1992 through a service partner PPS Polkurier, which UPS acquired in March 2001. In 2005, UPS acquired Messenger Service Stolica S.A. to further strengthen its capabilities on the Polish market, where it currently has 2,300 employees, a delivery fleet of 1,700 vehicles (operated by subcontractors) and a national network of 40 depots with a combined warehouse space of 38,000 sq.m. The company does not disclose any operational data with regard to its individual markets.

TRANSPORT AND LOGISTICS

PKP Cargo sees fewer takeover opportunities after CTL talks Polish PKP Cargo, the European Union’s largest listed rail freight company, has terminated talks with the private equity company Bridgepoint regarding the acquisition of 100% in Warsaw-based operator CTL Logistics. Although the letter of intent PKP Cargo and CTL's owners signed back in September was warmly received by the markets, the two parties "have not reached an agreement on the conditions of the purchase," PKP Cargo said in a communiqué last week. Bridgepoint did not give PKP Cargo exclusivity in the CTL talks, and therefore one can assume that negotiations with other potential buyers continue. CTL Logistics is Poland’s leading private rail logistics company and one of the largest private rail operators in Europe. It provides tailor-made logistics solutions focusing on long distance national and international rail logistics, siding management and corporate waste disposal for the coal & coke, fuels & oil, chemicals, construction material and steel industries. A majority stake in CTL, which had PLN 726.6m of sales last year, was sold by its founder Jarosław Pawluk to the UK private-equity fund Bridgepoint in 2007 for an undisclosed sum. According to independent estimates, the business may be worth some PLN 450-650m. The news came only weeks after PKP Cargo and its partner, the coal trader Węglokoks had lost a bid to acquire Port Gdański Eksploatacja, a stevedoring company operating in the Port of Gdańsk. The latter

weekly newsletter # 066 / 22nd December 2014 / page 12

chose to engage exclusive talks with Mariner Capital Limited of Malta. The Polish rail freight giant continues, although no more on an exclusive basis, to discuss the potential takeover of the Netherlands-based Advanced World Transport, which holds a 8% share in the Czech market and has operations in other CEE countries, specializing in transport of coal, steel, and car parts. With EUR 282m in sales revenues and 2,000 employees, the company realized freight transport of 2.72m tonkilometers gross in 2013. Apart from the Czech Republic, the firm operates in Slovakia, Slovenia, Hungary, Poland, Germany, Romania, Bulgaria, and Croatia. In the end, of its four planned acquisitions, PKP Cargo is closest to sealing a deal with the Polish copper mining giant KGHM concerning up to 50% of shares in the latter's rail freight unit Pol-Miedź Trans. The two firms signed an MOU in September.

Poland's top rail freight operators Share in total cargo transported by rail in Jan-Oct 2014

DB Schenker Rail 19%

CTL 6% PKP Cargo 48%

Lotos Kolej 5%

PKP LHS 5% Other 19% Source: UTK

"We are sitting on some PLN 800m of cash, which we intend to put to good use by acquiring domestic and foreign businesses that complement PKP Cargo," PKP

Cargo's CEO Adam Purwin told Poland Today in a recent interview (reprinted hereafter). Cargo’s net income rose 67% y/y to PLN 128m in the first half of 2014. PKP Cargo is the European Union's second largest railway freight company after Deutsche Bahn AG and the first publicly listed one, following its recent PLN 1.42bn IPO on the Warsaw Stock Exchange, which saw the state-owned Polish railway operator PKP sell 20.9m shares in the business. A few weeks ago PKP reduced its stake in the business by a further 7.63m shares, down to 33%. The 17% stake in PKP Cargo was sold for PLN 580m.

25 YEARS OF TRANSFORMATION

New ways of doing things Poland Today talks to: Adam Purwin, CEO at PKP Cargo

PKP Cargo key figures Turn over, in PLNbn, left axis Net result in PLNm, righ t axis 6.0

600

5.0

500

4.0

400

3.0

300

2.0

20 0

1.0

10 0

Photo: PKP Cargo

0.0

0 2010

20 11

2 012

2 013

Source: PKP Cargo

PKP Cargo saw its revenues top PLN 4.72bn in 2013, down from PLN 5.16bn in 2012, while its net earnings slumped to PLN 74m from PLN 268m, due to economic slowdown and an almost PLN 200m worth privatization bonus. Last year the company carried around 114m tons of freight, mainly hard coal and building materials. Based on the volume of transported goods and the distance travelled, PKP Cargo had a 56.7% share in the Polish market in 1H 2014.

• PT: What stage of your life were you at in 1989 at what are your memories of that period? Adam Purwin: I was 14 at the time so my impressions of the transformation have a lot to do with access to Western culture, music and art. Suddenly travelling became so much easier. I was fortunate in that my parents made sure I got to see the world. Going to London as a teenager I witnessed the West with my own eyes for the first time and I could sense that things were organized in a very different way over there. But at the time, not even in our wildest dreams could we expect that one day Poland would resemble that world. In those days, returning to Warsaw from the West felt like travelling back in time. I don’t get that feeling any more when I land here. Now it’s just another European city. I cannot say that as youngsters we felt particularly oppressed under communism. We were not aware of the limitations of the reality we in-

weekly newsletter # 066 / 22nd December 2014 / page 13

habited, and at the same time we were not conscious of what to expect of the new world unfolding before our eyes. At the time no-one really dared to dream that achieving what we have achieved would be attainable. • PT: Was there a moment you felt the country was on the right track? AP: This has been such a gradual process that I cannot name a single defining moment like that. The gap between Poland and the West was so immense, one lacked any vision of how to bridge it. I don’t think people really believed we ever would. There was a definite sense of something ending, but no-one knew what the next step would be. • PT: How about the early days of your career? What are your impressions of that period? AP: I went to law school, spent some study abroad time in Canada, and travelled across the US. Looking back at that road trip, it made me feel like the catching up that awaited Poland simply could never be done. The distance was simply too far. And yet, here we are. At my first job at BRE Bank, where I spent a couple of years, learning the ropes of currency markets and participating in big international projects, and later at Pekao SA’s corporate desk, I met people similar to myself; people who took up challenging jobs at international corporations in order to learn all those essential things no university could teach us, for instance teamwork or project management. A whole generation of people were consciously trying to learn different ways of doing things, because the old ways in Poland were incompatible with the emerging new reality. A lot of credit always goes to the Solidarity movement for setting off political change, but I’d say that it’s our generation, the 30- to 40-year-olds, who were the true catalysts of transformation. We have been the ones who implemented the modern ways in business and administration. But our mundane day-to-day efforts are not something that gets applauded or even noticed, even though this is how true change is being made.

• PT: What would you say was Poland’s biggest achievement? AP: The fact that all this immense change took place without deep conflicts and bitter divisions in the nation. Poland is still work in progress, in many ways – a country that is still being pieced together from different cultures, religions, and legacies of foreign powers that used to occupy us. The contrast in affluence between the east and west of the country remains deep. Coming from Białystok, near Poland’s eastern border, I myself can testify to that. Different regions vary also in their sensitivity to history. Yet, despite all those differences and the huge change the country has undergone, we remain largely united, especially the younger generation. • PT: Was there anything we could have done better, as a country? AP: I regret the loss of Polish art and culture, and by this I mean music, architecture or design. I feel like what’s available out there is way below our potential. Take, for instance, the chaotic way Polish cities and streets look these days. Polish design from the 1960s or architecture a few decades ago were world class. Something got lost along the way while we were busy catching up with Europe economically. Could it be due to many of the creative people who could have contributed to Poland’s cultural and aesthetic refinement having left the country? Fortunately, Polish culture is beginning to re-emerge, perhaps because we’ve gotten better off, but a nation of 40 million people is certainly capable of achieving more. • PT: What should Polish companies do in the future in order to remain competitive? AP: They should open up to the world and foreign competition. That’s the only way to grow, learn and test their existing business models. The easy sources of growth, such as EU subsidies, are about to run out and this will be a true reality check for us. The earlier

we start confronting our models with established, global ways of doing business, the better we will be prepared for this crucial test. Another important issue is innovation. We can’t do without it. • PT: Innovation has become a bit of a buzzword. We all know we need more of it, but how do we go about getting there? AP: I believe there has to be a grassroots drive to innovate among entrepreneurs and more appreciation of innovation and innovators in the society. State-run programs and artificially created ‘innovation clusters’ cannot substitute a natural hunger for progress. The past two decades we were busy catching up and then spending EU money, and as a result we may have lost some of that thirst and awareness that drives innovation. But the Poles are finally getting over the fever of transformation and I am sure we’ve still got what it takes to excel. Looking at other countries, I don’t see innovation as something ingrained in the DNA. The Poles can be just as innovative as other nations. The society simply has to recognize and appreciate creativity, starting from school curricula, proper infrastructure and friendly regulations. The ferment is already there and with the right environment we can simply help it achieve its momentum faster. • PT: Let’s talk a little bit about the railway sector. Why has the change been so slow there, as opposed to other key industries? AP: This is a pan-European issue really. I don’t think Poland is doing so much worse in this respect than other European countries. The liberalization has been slow, because we are talking about complex ecosystems that involve problems with infrastructure, ageing rail stock, state ownership, strong trade unions and a legacy of employee benefits and inefficient management. The attitude in Europe has been as follows: as long as it functions somehow, we better not touch it. Against this backdrop, Poland’s rail freight sector is doing very well. PKP Cargo is the number two player

weekly newsletter # 066 / 22nd December 2014 / page 14

in Europe after DB Schenker, and we hold a 60% share in the Polish market. • PT: What’s your recipe for success? AP: You have to believe it can be done. When we were getting ready for PKP Cargo’s IPO, people doubted us, because there had been no listed national rail freight firm in Europe before. We proved that you can make a profitable, well-managed business out of a former state-owned enterprise without an external, foreign investor. This was done by Polish managers only. We focused on our clients and on numbers, trimmed the fat where necessary, realigned our resources, and changed the way work was organized across the entire company. But it will always be a work in progress. In today’s economy, no-one can afford to be resting on their laurels. Of course, all our achievements aside, PKP Cargo owes a great deal to the way Poland’s PKP railway group was restructured, which left all debt in the parent company. Hence, since the moment PKP Cargo was spun-off from the group, we’ve been able to fully focus on operational improvements without having to deal with financial restructuring. I feel that we are now well-placed to begin expanding.

• PT: Isn’t the competition watchdog going to throw a wrench in your plans? PKP Cargo already controls 60% of rail freight in Poland. AP: Prior to restructuring, we had a 100% share in the Polish market and we believe it makes sense for us to try to win back at least some of what we lost. Most of the remaining rail freight players in Poland are subsidiaries of large industrial groups, such as KGHM or Grupa Lotos, and serve their own logistical needs. Should those companies decide it’s better for them to outsource freight to PKP Cargo, who’s to call that an attack on free competition? Moreover, we think of PKP Cargo as a European company and therefore we believe market concentration issues should be considered at the European, not national, level. We are licensed to operate in eight European countries are we are seeking to enter more. Last but not least, it is in Poland’s interest to channel more goods traffic to railways and strengthen this sector. The containerization level – the ratio of the number of containers per capita – is six times lower in Poland than in the EU, which translates into more truck traffic, more congestion, and more pollution. This is something the authorities should definitely take into consideration.

• PT: Considering your already strong position in Poland and Europe, what’s the next step? And what are your strengths vis-a-vis European competitors? AP: For one, we are benefiting from Poland’s location at the crossroads of Europe, with access to seaports. There is, and will be, a natural movement of goods across the country and we are tapping into that. Furthermore, PKP Cargo is now a well-run, well-financed business, which is not always the case with our rivals. We are sitting on some 800m złoty of cash, which we intend to put to good use by acquiring domestic and foreign businesses that complement PKP Cargo. We are currently in talks on a number of acquisitions, including CTL Logistics and Pol-Miedź Trans in Poland and the Advanced World Transport B.V., which operates primarily in the Czech Republic.

• PT: Your business largely relies on shipping coal and aggregates. As Europe pushes for cleaner sources of energy and Poland’s infrastructure development programs reach completion, what will your trains carry? AP: Whether we like it or not, coal will remain a key element of Poland’s energy mix for many years to come. I don’t see that changing any time soon. Whether it’s extracted locally or imported from abroad, someone will have to carry it and I hope it will be us. As for aggregates, it’s true that the sector is nearing its peak, after which the volumes will gradually decrease. We believe their place will be taken by containers and this is why our investment focus is on developing intermodal transport. Transporting highly

processed goods in containers will be the way of the future. PKP Cargo was a partner of Poland Today's Poland Transformed conference.

FROM STATE-RUN MONOPOLIST TO EUROPEAN GIANT PKP Cargo is the European Union’s second largest railway freight company after Deutsche Bahn AG and the first publicly listed one, following its recent IPO on the Warsaw Stock Exchange. The state-owned railway group PKP currently holds a 33% stake in the company, which carried around 114m tonnes of freight last year, mainly hard coal and building materials. PKP Cargo saw its revenues top 4.72bn złoty in 2013, down from 5.16bn złoty in 2012, while its net earnings slumped to 74m złoty from 268m złoty, due to economic slowdown and over 200m złoty worth one-off privatization bonus. The company has emerged from the brink of bankruptcy caused by the economic crisis at the end of the last decade. In 2008 and 2009 it posted net losses of 179m złoty and 498m złoty, which prompted an indepth restructuring that saw some 20,000 positions cut, and many redundant side businesses and regional units closed down. The overhaul proved effective as the business is back in the black and expanding abroad. PKP Cargo has obtained licenses to independently operate in Austria, Belgium, the Czech Republic, Germany, Hungary, Lithuania, the Netherlands and Slovakia. Warsaw-based PKP Cargo had a 60.3% share in the Polish market in 2012 and controlled 8.5% of total rail freight in the EU. That compares with DB Schenker’s 28% and 5.4% shares in the EU and Poland, respectively.

weekly newsletter # 066 / 22nd December 2014 / page 15

KEY STATISTICS Consumer Prices

Inflation

Alcohol, tobacco +3.8

0.0 +3.6

Clothing, shoes

-2.7

+1.1

Housing Transport

-5.1 +0.6 -1.5

-4.7

-2.5

-0.1

0.0 +3.6

+0.1

-4.6 +3.4

+0.1 +0.5

0.0

-1.0

-3.2

-0.2

-4.6

-0.2

+0.1 +0.4

0.0

-3.0 -0.8

-3.7

-2.0 -0.7

Communications +3.9

+1.3 +4.0

0.0

-0.4

-0.3 +3.0

Gross CPI

-0.4

0.0

-0.6

0.0

-0.3

Jul '14

-1.1

+4.7

Aug '14 Sep '14 Oct '14 -1.1

-0.9

+1.2

+2.1

+1.7

+1.6

+2.3

2% 1%

Year

2009

2010

2011

2012

2013

Turnover in PLNbn

582.8

593.0

646.1

676.0

685.7

-1%

y/y (%)

+4.3

+5.5

+11.6

+5.6

+2.3

-0.6 -0.2

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-Nov y/y

178.8

174.9

184.1

165.1

138.7

158.1

162.2

141.8

(in '000 units)

Producer Prices Month

Industrial Output O utput

May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14

Commenced

142.9

127.4

139.5

+15.3

+2.0

-8.5

+16.5

+3.5

+0.3

U. construction

670.3 692.7 723.0

713.1 694.0

709.7

+0.3

y/y (%)

+4.4

+1.7

+2.3

-1.9

+4.2

+1.6

-7.5

Completed

160.0 135.7

152.5

127.6

-1.8

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product (ESA2010)

-0.1

+0.3

0.0

-0.4

-0.5

m/m (%)

y/y (%)

-1.0

-1.8

-2.1

-1.5

-1.6

-1.3

-1.6

Year

2007

2008

2009

2010

2011

2012

2013

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

Construction Output Month

Period

May '14 Jun '14 Jul '14 Aug '14 Sep '14 Oct '14 Nov '14

m/m (%)

-0.1

0.0

-0.1

m/m (%)

+14.0

+16.9

+0.9

-5.4

+19.8

+7.2

-9.4

y/y (%)

-1.5

-1.4

-1.2

-0.9

-0.8

-0.7

y/y (%)

+10.0

+8.0

+1.1

-3.6

+5.6

-1.0

-1.6

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Year y/y (%)

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

y/y (%)

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages

(%) +14.3

-0.1

May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14

2014 144.4

-1.7

-0.2

Month

Permits

May '14 Jun '14 Jul '14 Aug '14 Sep'14 Oct'14 Nov'14

Month

m/m (%)

Construction Prices

+4.2

y/y (%)

Nov 14

-2.2

Sep 14

+0.1

Jul 14

-2,0

Jun '14

m/m (%)

m/m

May 14

-1.6

Mar 14

-2.1

Jan 14

Food & bev

Month y/y

Nov 13

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

Sep 13

Sector

Retail Turnover

Jul 13

Nov '14

May 13

Oct '14

Mar 13

Sep '14

Jan 13

Aug '14

Nov 12

Data in (%)

Growth y/y unadjusted

131.7

146.1

GDP in PLN bn current prices

Current account def. in % of GDP

Q3 2014

+3.3%

426.836

n/a

Q2 2014

+3.5%

418,317

-1.2%

Q1 2014

+3.4%

403,121

-1.2%

Q4 2013

+3.0%

463,855

-1.3%

2013

+1.7%

1,662,052

-1.3%

2012

+1.8%

1,615,894

-3.6%

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

Sentiment Indicators

2011

+4.8%

1,553,582

-5.0%

Sector

Economic sentiment and consumer confidence indicators

2010

+3.7%

1,437,357

-5.1%

163 3,747 164

Energy

6,736 205 6,358

193 6,020

183 6,392 194

Construction

3,895

166 3,706

158 3,884

166 3,872 165

Retail & repairs

3,456

147 3,544

151 3,577

153 3,532

Transportation IT, telecoms

3,913

138 3,666 130 3,650

129 3,710

151 131

6,695

174 6,987

181 6,835

177 6,835 177

Financial sector 6,602

148 6,747

152 6,738

151 6,360 143

National average 3,823

152 3,895

155 3,740

Source: Central Statistical Office (GUS)

149

3,781 154

0 -20 -40

Key Economic Data & Projections

100

Indicator

2011

2012

GDP change

+4.5%

+1.8%

+1.7%

+3.2%

Consumer inflation

+4.3%

+3.7%

+0.9%

+0.0%

Producer inflation

+7.6% +3.4%

-1.3%

-1.2%

+0.7%

CA balance, % of GDP

-5.0%

-3.7%

-1.4%

-1.8%

-2.4%

Nominal gross wage

+5.2%

+3.7%

+3.4%

+3.5%

+4.0%

Unemployment**

12.5%

13.4%

11.5%

10.9%

4.12

4.19

4.20

4.18

4.12

60 Nov 14

145 6,044 137

161 3,663 160 3,743

120

Aug 14

196 6,333 144 6,382

3,690

M ay 14

8,615

Manufacturing

C onsumer confidenc e (le ft a xis) Economic se ntiment (right axis)

Feb 14

Nov 13

Aug 13

Ma y 13

Feb 13

Nov 12

Q3 2014

Aug 12

Q2 2014

May 12

Q1 2014

Feb 12

Coal mining

Q4 2013

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

EUR/PLN

2013

*2014

*2015

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

weekly newsletter # 066 / 22nd December 2014 / page 16

100 DKK

57.40 ↑

100 SEK

44.98 ↑

10,000 HUF

350

300

291.45 ↑ 15.49 ↑

100 CZK

USD EUR

10 Jan 14

10,000 JPY

400

47.12 ↑

100 NOK

135.77 ↑

Money Supply Aug '14

Sep '14

Oct '14

WIG Total index

4.4%

4.5%

4.4%

4.1%

PLN (up to 5 y )

4.8%

4.7%

4.8%

4.7%

4.5%

↓ Alior Bank

76.6

PLN (over 5 y)

4.7%

4.5%

↓ Asseco Pol.

51.56

-2%

+12%

Change 1 week

-2% ↓

PLN (total)

4.7%

4.4%

↓ Bogdanka

-5%

-22%

Change end of '13

0% →

EUR (up to 1m EUR) 2.0%

1.9%

1.7%

1.6%

↑ BZ WBK

375.25

+1%

-3%

EUR (over 1m EUR) 2.7%

3.4%

3.1%

2.5%

↓ Eurocash

38.11

-2%

-20%

WIG-20 blue chip index

↓ Grupa Lotos

25.9

-27%

Warsaw Inter Bank Offered Rate (WIBOR) as of 19 Dec 2014 Overnight

1 week

1 month

3 months

6 months

2.11%

2.08%

2.06%

2.05%

171,649

169,090

574,606

583,682

- Currency outside banks

124,986

124,389

125,902

127,107

1,003,128 1,003,354 1,011,930 1,017,659

- Time deposits

448,037

444,514

457,106

453,769

1,020,561 1,021,824 1028,665 1,033,418

- Net foreign assets 162,129 159,513 157,084 160,634 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

-67%

2,3 2,310.88

+1%

-23%

Change 1 week

0% ↓

→ KGHM

111.95

-5%

Change end of '

-2% →

-16%

-7% +2%

-2%

↓ Orange Pol.

8.34

-6%

-15%

Credit

↓ Pekao

181.3

-1%

+1%

The financial sector's net lending in PLN bn,

↓ PGE

18.53

-6%

+14%

2.25%

166,104

-10%

29.39

491.05

Rediscount

1.00%

578,485

17.4

↑ Kernel

↓ JSW

7563.95

NBP deposit

3.00%

167,008

-6%

↑ mBank

Lombard

2.00%

574,529

-1%

↓ LPP

Reference

51,297. 97 .12

PLN (up to 1 year)

Nov '14

Monetary base

WIG-20 stocks Price Change Change in alphabetical 19 Dec 12 Dec end of order '14 '14 '13

May '14 Jun '14 Jul '14 Aug '14 Sep '14 Oct '14

Central Bank (NBP) Base Rates

in PLN m

as of 19 December 2014

loan stock at the end of period Type of loan

56,000 55,000 54,000

4.31

-4%

-16%

↑ PKN Orlen

48.8

-1%

+19%

↓ PKO BP

35.32

-3%

-10%

51,000

282,031

→ PZU

475.8

+6%

50,000

593,456

↓ Synthos

-1%

-27%

4.91

-4%

+12%

Sep' 14

Oct' 14

Nov' 14

Loans to customers

950,774

954,978

958,641

966,268

- to private companies

277,482

280,248

279,124

587,136

590,208

592,068

Total assets of banks

last three months

↓ PGNiG

Aug' 14

- to households

WIG Total closing index

1,718,251 1,737,728 1,742,288 1,755,746

Source: Central Bank NBP

↓ Tauron

53,000 52,000

19 Dec 14

354.83 ↑

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

27 Nov 14

544.50↑

100 CHF

19 Dec 14

100 GBP

13 Oct 14

427.05 ↑

5 Aug 14

100 EUR

Key indices

Term / currency

450

28 May 14

347.91 ↑

19 Mar 14

100 USD

Stock Exchange

Average weighted annual interest rates

4 Nov 14

as of 19 December 2014

I nterest rates

13 Oct 14

100 USD/EUR against PLN

Central Bank average rates

19 Sep 14

Currency

Source: Warsaw Stock Exchange

Trade 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-Sep 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Sep 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Oct share 2014

IMPORTS in PLN bn 2013

share No

Country

Jan-Oct share 2014

2013

54,009

+4.3

10.7

69,304

10.9

36,296

+3.9

7.2

47,906

7.4

1 Germany

148,094 26.1% 162,548 25.1%

1 Germany

124,792 21.8% 142,161 21.7%

7,729

+19.9

1.5

8,624

1.4

3,158

+5.8

0.6

4,150

0.6

2 UK

335,966

6.3%

42,138

6.5%

2 Russia

62,706 10.9% 79,578 12.1%

Crude materials except fuels

12,459

+2.1

2.5

15,744

2.5

16,368

+07

3.2

21,585

3.3

3 Czech Rep.

35,430

6.2%

40,110

6.2%

3 China

59,368 10.4%

Fuels etc

21,003

-6.1

4.2

30,013

4.7

55,523

-0.5

11.0

75,539

11.7

4 France

32,011

5.6%

36,367

5.6%

4 Italy

31,056 5.4% 34,940 5.3%

Food and live animals Beverages and tobacco

61,127 9.3%

1,471

+4.7

0.3

1,864

0.2

1,985

-0.6

0.4

2,646

0.4

5 Russia

25,034

4.4% 34,069

5.3%

5 Netherlands

21,277 3.7% 25,409 3.9%

Chemical products

46,392

+4.3

9.2

59,103

9.3

75,454

+6.7

14.9

92,917

14.3

6 Italy

25,808

4.5%

27,958

4.3%

6 France

21,780 3.8%

Manufactured goods by material

101,308

+2.8

20.1

129,915

20.3

90,508

+6.9

17.8

112,392

17.3

7 Netherlands

23,358

4.1%

25,707 4.0%

167,104

+4.0

32.9

216,608

33.4

8 Ukraine

10,922

1.9%

18,020

2.8%

8 USA

13,693 2.4%

17,431 2.7%

51,133 +16.6

10.1

58,210

9.0

9 Sweden

16,331

2.9%

17,581

2.7%

9 UK

14,687 2.6%

17,184 2.6%

10 Slovakia

14,368

2.5%

17,099

14,125

15,137 2.3%

Animal and vegetable oils

Machinery, transport equip.

190,119

+5.1

37.8

239,434

37.5