Poland Today Business Review+ No. 006 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. 006 / 7th October 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Germany's MTU Aero Engines breaks ground on EUR 40m project page 2

TRANSPORT & LOGISTICS Mid Europa Partners add 2nd ski lift operator to their Polish portfolio page 11

BANKING & FINANCE Poland's second largest bank Pekao bids on Rabobank subsidiary BGŻ page 3

CONSUMER GOODS & RETAIL Żabka acquires three local retail chains, adds PLN 200m to turnover page 12

ENERGY & RESOURCES Warsaw heat & power producers moving towards natural gas page 4

Amazon seeks to establish two centers near Wrocław and one near Poznań.

Photo: Amazon

Amazon moving logistics to Poland

E-commerce mogul Amazon is reportedly gearing up to relocate a bulk of its logistics operations in continental Europe from Germany to Poland and the Czech Republic. In Poland alone the project may create up to 15,000 jobs in peak seasons. page 10

PHN picks Hochtief for flagship project

State-controlled property group PHN has teamed up with Germany's Hochtief to develop a 45,000 sq.m office skyscraper near Warsaw's Rondo ONZ. page 5

tel. +48 881 650 600

PROPERTY & CONSTRUCTION Skanska sells Wrocław project, signs key tenant for Atrium 1 in Warsaw page 6 Echo Investment picks contractor for PLN 500m office tower in Warsaw page 7 SERVICES & BPO IBM names location of giant IT center in Katowice page 8 Warsaw-listed Orbis expands Mercure chain in Latvia & Poland page 9

FOOD & AGRICULTURE Kompania Piwowarska to invest PLN 100m in Poznań brewery page 13 PE fund Bridgepoint seals 2nd deal in Poland, buys private label biscuit maker Dr Gerard page 14 POLITICS & ECONOMY Q3 PMI at highest level in more than two years, labor market picking up page 15 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 16-18

weekly newsletter # 006 / 7th October 2013 / page 2

MANUFACTURING & PROCESSING

geared turbofan programs," explains Egon Behle, CEO of MTU Aero Engines AG.

Germany's MTU Aero Engines breaks ground on EUR 40m project MTU Aero Engines AG, Germany's leading engine manufacturer has just broken ground on a major extension of its Polish production unit in Rzeszów. At the cost of EUR 40m MTU is adding a brand new 9,200 sq.m building to the existing factory, expanding its floor area by approximately 50%. "Our Rzeszów subsidiary MTU Aero Engines Polska currently has a workforce of about 500 employees and with the new investment we seek to increase that number by a further 250 staff by 2020," MTU's Melanie Wolf tells Poland Today.

industrial gas turbines. The company is a technological leader in low-pressure turbines, high-pressure compressors, manufacturing processes, and repair techniques. MTU Aero Engines is Germany's industrial lead company for practically all engines flown by the country's military. In the commercial maintenance area, MTU Maintenance is the world's largest independent provider of engine maintenance services. In fiscal 2012, the company had a workforce of some 8,500 employees and posted consolidated sales of some EUR 3.4bn.

MANUFACTURING & PROCESSING MTU Aero Engines provides also service and Photo: MTU maintenance of aircraft engines.

At its high-tech factory in Rzeszów, MTU manufactures engine components, such as turbine airfoils, for the PW1000G family of geared turbofan engines and performs preparatory work. Furthermore, the German engine manufacturer is concentrating its module assembly activities for a variety of its commercial programs in Rzeszów. Another of the shop’s areas of expertise is the repair of engine parts, for example tubes. As far as research and development is concerned, MTU Aero Engines Polska's focus is on uncooled airfoils, fixture design, and software.

MTU Aero Engines Polska was set up on a 7ha stretch of land near Rzeszów Airport in 2009. It is located in the so-called Aviation Valley and belongs to a special economic zone. Construction work on the new building has commenced this fall and production is expected to be up and running in late 2014 and to reach full capacity by 2017. The expansion of the Rzeszówbased facility will not affect the headcount at MTU's German companies, the company said, but cover the requirements for the production ramp-up in several of its commercial engine programs, for instance the V2500 for the Airbus 320, which have so far been carried out in rented buildings. Moreover, there are plans to step up the low-pressure turbine assembly activities and concentrate them in Rzeszów, and to beef up research and development at the Polish plant.

"The expansion of our Polish affiliate is part of MTU’s investment and growth strategy, very much in the same way as the new blisk production shop we built in Munich and the logistics center we set up in Hannover. With this move, we lay the foundation for the growing production and volume ramp-up for the

"Currently we have some 100 R&D engineers at MTU Aero Engines Polska, and we plan to increase their number by another 50, following the extension," says Agnieszka Adamczyk of MTU Aero Engines Polska. The Munich-based MTU Aero Engines develops and produces commercial and military aircraft engines and

Polish Polish candle producer to open factory in USA Polish Korona SA, one of the world's largest producers of candles, is embarking on its first foreign investment in a rather unexpected destination: the United States. At the cost of USD 18.3m Korona will launch production of candles in Pulaski County, Virginia. As part of the investment, the Polish company is to upgrade two existing buildings with a combined floor space of 15,000 sq.m and furnish them with the necessary equipment. The preparatory work, including fitout and staff training, will begin in November this year and production is to launch in September 2014, creating some 170 jobs. Virginia Governor Bob McDonnell has awarded Korona with a USD 0.6m grant for the project. Korona picked Pulaski county due to its location near the distribution hubs of its main clients as well as access to skilled workers, including Virginia Tech graduates. Founded in 1992 in Wieluń (100km east of Wrocław), Korona develops, designs and produces a wide range

weekly newsletter # 006 / 7th October 2013 / page 3

of candles (tealights, pillar candles and candles in containers) most of which are sold under private labels of retail chains. Its daily output totals 9m candles, which translates into an annual production volume of 3.3bn units, two thirds of which are scented candles.

the art machinery and equipment. Korona's R&D & product development team includes 35 experts. "Wieluń will remain our most important production facility, where this year alone we intend to invest some PLN 15m. Some of the capex will be financed with EU grants, which we effectively obtain for our innovative projects, particularly ones that focus on production of candles from renewable resources." Korona has been a joint stock company since 2005. It considered listing at the Warsaw Stock Exchange at one point, but the idea has since been shelved. In the financial year ended June 30th, 2013, Korona turned over close to PLN 355m.

Korona SA makes 9m candles every day.

BANKING & FINANCE

Photo: Korona

"Our decision to launch production in the United States has to do with our fast-paced growth in that market, where our clients include two global corporations, such as IKEA. We have been cooperating with IKEA since 1997 and it is their expansion in the US that has prompted us to consider investing there. Local production enables us to reach customers more efficiently and helps win new orders in the extremely promising markets of United States and Canada. Last but not least, it will shield us from currency risk. The goal is for our US sales volumes to match what we currently sell in Europe in 4-5 years," said Krzysztof Jabłoński, CEO of Korona SA. Korona's main factory in Wieluń, which currently employs some 820 workers and operates in a continuous 3-shift system, 24 hours / 7 days a week, will likewise continue to expand and it is to remain the group's R&D and technology center. The production process is highly automated and it is carried out using state-of-

Poland's second largest bank bids on Rabobank subsidiary BGŻ BGŻ Italy's largest bank UniCredit has placed a preliminary offer to buy Poland's Bank BGŻ from Dutch Rabobank, Chief Executive Federico Ghizzoni told reporters. According to market estimates, the price tag on the Polish bank could be somewhere in the region of USD 1bn. A UniCredit spokesman told Reuters the offer, made through UniCredit's Polish unit Pekao SA (number two on the local market), was not binding because the sale process was in a preliminary phase. A spokeswoman for Rabobank, the Netherlands' largest retail bank, said the lender was still "reviewing its strategic options" for BGŻ and had not yet decided whether it wanted to sell its 98% stake. The rumors of a potential sale of BGŻ first surfaced back in May, when the Rzeczpospolita daily said Rabobank repre-

sentatives approached Poland's largest banks, with the offer. Rabobank representatives declined to comment on the rumors at the time. Other banks potentially interested in BGŻ are said to be France's Credit Agricole, BNP Paribas, Dutch bank ING, and Poland's Getin Noble Bank, according to sources familiar with the situation and Polish media reports. UniCredit's announcement irked the Polish financial markets regulator KNF, whose representatives have recently described the structure of Poland's banking sector as "appropriate," making it clear that further consolidation would not be welcome. Commenting on the Rabobank-UniCredit talks, KNF's boss Andrzej Jakubiak told journalists: "We have some doubts as to the honesty of BGŻ's Dutch owners. A year ago they declared long-term interest in the Polish market, and now we are hearing rumors of a potential exit. The situation is all the more uncomfortable as the potential buyers are asking KNF our stance on the issue." Bank BGŻ is number 11 in Poland by assets and its capitalization totals some PLN 2.5bn, but its stock is anything but liquid. Last year Rabobank increased its ownership in the Polish lender by 40%, reaching the current 98% and later boosted the bank's equity by PLN 0.5bn. Although last year Bank BGŻ net-earned PLN 130m, its return on equity ratio is rather low at 4.4%, while its cost to revenue ratio is relatively high at 70%, compared to other banks. In most of the markets where it operates, Rabobank is among the top three-top five players, but in Poland the only way to achieve such a position would be through acquisitions, which does not seem to be something the Dutch are ready to dabble in at the moment. Time will tell whether their reported search for a buyer is just a rumor, a market testing exercise or an actual attempt to pull out of Poland.

weekly newsletter # 006 / 7th October 2013 / page 4

Foreign banks control about 70% of the Polish banking sector, but several have looked for an exit to boost capital positions hit by the global economic crisis. Major recent exits from Poland's banking market included Belgium's KBC, which sold Polish Kredyt Bank to Spain's Santander, Greek Eurobank EFG (their Polbank EFG merged with Raiffeisen Polska), and Swedish Nordea (their Polish arm was acquired earlier this year by Poland's largest lender PKO BP). With some PLN 150bn in assets, the Italian-owned Pekao is currently a strong vice-leader on the Polish market, but its dreams of reaching the top of the podium, have been shattered by the PKP BP-Nordea deal, which will boost the former bank's assets in excess of PLN 230bn. The number three player, Spanish-owned BZ WBK (Santander Group), which currently boasts some PLN 101bn in assets and keeps attracting new clients much more effectively than Pekao, may soon merge with Santander Consumer (PLN 7bn in assets), becoming a strong contender for the second place. The potential acquisition of BGŻ by Pekao would boost the latter's assets by PLN 37bn, thus expanding the distance to its Spanish competitor.

ENERGY & RESORUCES

Warsaw heat & power producers producers moving towards natural gas Warsaw heat & power operator PGNiG Termika has just sealed a network connection agreement for two gas fired units the company seeks to build in Warsaw over the coming years as part of its efforts to replace its older, less reliable and, more importantly, less environmentally friendly facilities. Under an agreement with regional gas transmission operator Polska

Spółka Gazownictwa (PSG), two of PGNiG Termika's combined heat & power units (CHPs), in Żerań and Pruszków, will be connected to the gas grid. Both PSG and PGNiG Termika belong to the listed Polish gas company PGNiG, which acquired the Warsaw heat & power plants two years ago from Sweden's Vattenfall. In a move to modernize its CHP in the suburban town of Pruszków, which is nearly 100 years old, the company will replace some of the oldest coalfired boilers with new ones that run on gas. With a capacity of 11 MWe (electricity) and 11 MWt (heat) the small plant will use 21m cb.m of natural gas annually. PSG has agreed to build a 1.7km medium-capacity pipeline to the facility. At its Żerań plant in the north of Warsaw, in 2015 PGNiG Termika plans to launch a gas & oil-fired peaker unit (to be used at times of high demand) with a thermal capacity of 390 MWt, to replace the oldest heat generators, dating back to 1960s. The unit will consume some 20m cb.m a year, to be delivered by PSG until 2018 when the national gas pipeline operator Gaz-System connects Żerań with the Rembelszczyzna pumping station via a 10km high pressure pipeline. The latter project is part of a larger strategic undertaking, as in 2018 a brand new gas-fired heat & power unit (450 MWe/300MWt) is to be commissioned at Żerań, reducing the plant's dependence on coal and improving its flexibility. Earlier this year, when we spoke to PGNiG Termika, they were hoping to announce a tender for the 450MWe unit before the end of this year. PGNiG is currently developing a very similar power block together with Tauron in the southern town of Stalowa Wola at the cost of PLN 1.6bn but the investor is hoping to get the job done in Warsaw for less. A second such unit may be developed in another location in Warsaw around 2020.

"According to our plans, construction of the new gasfired unit at Żerań will begin in mid-2014 and take some 42 months. Following a start-up phase in 2017, the project will be fully operational stating from January 2018," Dorota Kraskowska, spokesperson for PGNiG Termika told Poland Today's Lech Kaczanowski. Besides the new unit in Żerań, PGNiG Termika seeks to convert one of the existing coal-fired boilers at its Siekierki plant in south of Warsaw into a biomass unit, with commissioning expected in Q4 2014. In addition to the Żerań, Siekierki and Pruszkow CHPs, PGNiG Termika operates two heat generation plants (Wola and Kawęczyn). The French-owned Dalkia Warszawa, which operates the Polish capital's district heating network that delivers heat and hot water to some 80% of the city's buildings, is also contemplating the construction of a cogeneration unit in the Warsaw area. The French have zoned in on the rapidly expanding suburb of Ursus where they intend to build a gas-fired heat & power plant (80 MWt and 110 MWe). The main reason both investors are turning to gas instead of coal, despite the considerably higher cost of this type of fuel, are EU environmental regulations and the resulting emissions quotas. Another important consideration is the changing shape of Poland's natural gas market. On the one hand, PGNiG has recently negotiated a substantial discount on gas deliveries from Russia, cutting down gas prices for end customers. Secondly, the planned completion of Poland's first LNG terminal in Świnoujście (with a capacity of 5.5bn cb.m) next year will open up new opportunities for gas imports into Poland that should drag prices even further down. Last but not least, Poland is hoping to tap into new domestic conventional and unconventional gas resources, counting on its own little shale revolution to materialize by the end of the decade.

weekly newsletter # 006 / 7th October 2013 / page 5

ENERGY & RESOURCES

Poles support shale gas extraction, poll shows Some 72% of Poles who reside close to shale gas exploration areas support the fuel's extraction, according to a survey carried out by TNS Polska for the Ministry of the Environment. The poll also found that 60% of the respondents approve of shale gas extraction close to where they live. Only 7% of respondents oppose shale gas extraction. The survey has also shown that a vast majority of the respondents (92%) had heard of shale gas before, either from (85%), newspapers (54%), radio (49%) or the internet (44%). There were 105 valid exploration licenses as of September 1, 2013, held by 35 Polish and foreign entities. So far 48 exploration boreholes have been made. Altogether the licensees plan to make 335 boreholes by 2021. Several international explorers have divested or reduced their positions in Polish shale in recent months, including ExxonMobil, Marathon Oil and Talisman Energy, which has dented investor confidence although none of the explorers attributed their decision directly to exploration results. Poland, which consumes 15bn cb.m of gas a year, mostly imported from Russia, has estimated its recoverable shale gas reserves at up to 768bn cb.m. The Polish government, which sees domestic extraction as a way to reduce the country's dependence on Russian gas imports, has been streamlining regulations governing Polish shale to speed up the permitting process, and the country's Treasury has described shale development as a priority of Polish national interest. So far, however, the proposed regulation has been repeatedly

delayed whereas the geology is proving more difficult than anticipated.

PROPERTY & CONSTRUCTION

PHN teams up with Hochtief on giant project in Warsaw The Warsaw-listed property group Polski Holding Nieruchomości (PHN) has secured an experienced partner for its flagship development, the office tower on 36 Świętokrzyska St., vis-à-vis Warsaw's most prestigious office project Rondo 1. The state-controlled giant is to develop the project, currently referred to as PHN Tower, in cooperation with Hochtief Development Poland, a fully owned subsidiary of Germany's Hochtief Projektentwicklung. The two partners are to create a 50/50 SPV, with PHN contributing one of Warsaw's most attractive sites, and Hochtief Development Poland taking on responsibility for the overall implementation of the project. According to PHN's preliminary plans, the building were to reach some 150m in height and 45,000 sq.m in GLA, but all final details, both financial as well as architectural, are yet to be hammered out together by the two companies. A project of similar size that is currently being developed by Echo Investment just a stone's throw from PHN's Świętokrzyska site is set to cost some PLN 500m to build (see page 18). PHN was created in 2011 when the Polish government pooled 180 different real estate and land holdings, to raise funds to help it reduce borrowing. Besides 36 Świętokrzyska St., the group's main assets include a commercial and services centre at 26 Bartycka St. (a popular spot close to the city centre where some 350

retailers sell home improvement goods and services), high-rise Intraco, office building Kaskada and waterfront project Dalmor Port Rybacki in Gdynia. Moreover, PHN group is currently developing an office building at Foksal 10A in Warsaw, and in Wrocław – SEGRO Industrial Park Wrocław, developed in a joint venture with the British developer SEGRO. The company is also in charge of some 60 mansions and 41 blocks of flats with 800 apartments, which it took over with Dipservice, a state-owned firm providing housing services to diplomats. Overall, PHN's portfolio comprises some 150 real properties and over 1,100 ha of land throughout the country.

The image shows one of the earlier takes on PHN Tower, with the final design to be revealed at a later point. The project will replace an office building that currently occupies the site. Image: PHN

"The document signed today is part of our strategy that focuses on commercial properties with a signifi-

weekly newsletter # 006 / 7th October 2013 / page 6

cant share of modern A and B+ class office space, as well as retail and logistics space. We intend to carry out a number investment projects in cooperation with experienced developers, such as Hochtief Development Poland, under a joint venture formula," commented Artur Lebiedziński, Member of PHN's Supervisory Board. "Our long-term goal is to create a topclass asset portfolio that will provide a stable source of income," Paweł Laskowski-Fabisiewicz, Vice President of the company. According to PHN's bosses, their long-term goal is to focus on management and leasing only, but prior to that the group is to develop a number of large new projects, some on its own and some with partners. These investments, which are to include a number of logistics centers, modernization (quite possibly preceded by demolition) of Intraco, and development of PHN Tower, are expected to amount to some PLN 1.9bn over the next two-three years. PHN is also developing residential projects. Having floated the company on the Warsaw Stock Exchange earlier this year, Poland wants to find a strategic investor for PHN and reduce its stake in the group to some 20-25%. The Treasury's current 75% stake in PHN is being valued at PLN 900m, but market insiders are not expecting any deals to be finalized this year. Since its debut on the local market in 1998, Hochtief Development Poland has commissioned a number of well-known projects such as Rondo 1 and Lipowy Office Park. The company develops, sells and manages office, commercial and special-purpose buildings, handling the entire project development process – from investment concept, legal issues, construction process, financing and marketing trough to property management. Its German parent, Hochtief Projektentwicklung, specializes in large inner-city projects, operating as an "interim investor." Over the past 22 years it has completed more than 160 investments of the total value of nearly EUR 6bn.

PROPERTY & CONSTRUCTION

Skanska Skanska sells Wrocław project, gets key tenant for Atrium 1 in Warsaw Skanska Property Poland, part of the Swedish construction and property group Skanska, has sold its Wrocław office project Green Day to Investec GLL Global Special Opportunities Real Estate Fund, a fund managed jointly by Investec Bank PLC and GLL Real Estate Partners GmbH. The value of the transaction came to EUR 43.4m. Located in the centre of the city on Szczytnicka St., Green Day is a modern class A building, offering a total of 16,060 sq.m of office space, all of which has been leased to an international company from the financial sector. The building is due to be commissioned for use in Q1 2014. All of Skanska’s recent office investments undergo both LEED and EU GreenBuilding certification, and Green Day be no exception. The already completed Green Towers building in Wrocław was the first office project to be LEED Core & Shell certified with the highest Platinum rating, whereas Green Day has been pre-certified at Gold level. "Green Day is yet another office building leased by Skanska before completion and then sold. In the same vein, the office complexes Green Towers in Wrocław and Green Corner in Warsaw were sold very quickly. Skanska’s experience combined with LEED requirements guarantees that the highest quality product is delivered to the market, which is valued by investors. Green Day's success also reflects the great potential of Wrocław, where we have been investing for a long

weekly newsletter # 006 / 7th October 2013 / page 7

time and where we are currently working on our fourth office project – Dominikański. I am confident that it will be highly appreciated both by tenants and investors," said Waldemar Olbryk, President of Skanska Property Poland.

has just launched its 4th project. In Warsaw, the company is building one of its most ambitious undertakings to-date - Atrium 1, which according to Skanska will be the greenest office building in Central and Eastern Europe. The project is to reach completion by the end of this year, offering 18,000 sq.m.

DATA BOX: WROCŁAW OFFICE MARKET IN 1H 2013 In H1 2013, the transaction volume in Wrocław’s modern office market reached nearly 51,000 sq.m, with new leases accounting for 43% of which pre-lets account for over 50%. It represents nearly a threefold rise on the leasing volume recorded in the same period of 2012. The largest deals were the Getin Group’s lease of 11,700 sq.m in the Sky Tower office building and Kruk’s 7,500 sq.m lease expansion in Wrocławskie Centrum Biznesu.

Green Day, pictured above was Skanska's 3rd office development in Wrocław and the company is already working on its 4th: the Dominikański. Image: Skanska

The Dominikański office complex, with a total leasable space of around 40,000 sq.m, will comprise two underground levels and seven storeys above ground. Skanska’s new office project will be developed at the meeting point of Piotra Skargi and Kazimierza Wielkiego streets, near the Dominikański Square, the shopping centre Galeria Dominikańska and the historic Market Square. Phase one of the investment, including the underground car park is due to be completed in Q2 2015, offering around 16,000 sq.m of office and retail space. The construction costs for this initial stage of the project have been estimated at EUR 42m. Skanska Property Poland is the leading office developer operating outside Warsaw, with investments in Poznań, Łódź, Cracow, as well as in Wrocław, where it

At the end of June 2013, the city’s office stock stood at 510,000 sq.m, up by more than 40,000 sq.m compared with the beginning of the year, largely following the delivery of office space in the Sky Tower (28,000 sq.m) and phase II of Skanska’s Green Towers complex (10,800 sq.m). If all projects planned for 2013 are completed on time, this year’s supply will total around 80,000 sq.m. The vacancy rate rose in Wrocław by nearly 4.4 percentage points to 12.4% from the rate of December 2012. Headline rents stood at EUR 13–16/sq.m/month, with effective rents at EUR 11–14/sq.m/month.

12,200 sq.m at Atrium 1, making it the largest office deal in Warsaw's central business district in years. Atrium 1 will house the new headquarters of BZ WBK along with the bank's flagship branch. The remaining space in the office building, located by one of Warsaw's key intersections, Rondo ONZ, will be occupied by the property consultancy CBRE as well as the developer, Skanska Property Poland itself. Skanska Property Poland has been operating in Poland since 1997 and is part of the Skanska Group, 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.

PROPERTY & CONSTRUCTION

Echo picks contractor for PLN 500m office tower in Warsaw The Warsaw-listed Echo Investment, one of Poland's top property developers, has named Modzelewski & Rodek the shell contractor for its flagship project in Warsaw's city centre, the 155-metre Q22 office tower that will emerge at the site of the former Mercure hotel, at the intersection of Jana Pawła II Avenue and Grzybowska Street.

Source: Cushman & Wakefield

In the last week of September, Skanska signed a 12year agreement with a key tenant for Atrium 1, Poland's third largest bank BZ WBK, belonging to Spain's Banco Santander. The bank will take up

Modzelewski & Rodek has built many of Poland's high-rise buildings including Warsaw's Złota 44 residential tower, Intercontinental Hotel, Babka Tower, Warta S.A. building, PZU Tower, Warsaw Financial Center and ILMET centre as well as Sea Towers in Gdynia.

weekly newsletter # 006 / 7th October 2013 / page 8

Estimated at PLN 500m, Echo's new Q22 building is to reach completion in Q1 2016, delivering nearly 50,000 sq.m of class-A office space to Warsaw's central business district. The investor has just finished demolishing the former hotel (having reclaimed some 1,500 tons of steel and 25,000 tons of concrete aggregate in the process) and it is now embarking on the construction of the underground section of the high rise.

der Electric Polska, which has secured 7,000 sq.m of offices at Park Rozwoju to fit approximately 700 staff. In August the BZ WBK bank granted Echo Investment a EUR 22.4m loan for the project.

SERVICES & BPO

IBM names location of Katowice IT center

Q22 was designed by

Kuryłowicz & Associates in cooperation with

Buro Happold Polska. Image: Echo Investment

Echo is currently working on another major office project in Warsaw, the 32,000 sq.m Park Rozwoju on Konstruktorska St. in the Mokotów district, near the Chopin Airport and the recently opened southern section of the Warsaw ring road. The project will comprise two buildings with separate courtyards, with a restaurant located in the connector, and some 740 parking places. Already at the design stage Park Rozwoju was BREEAM pre-certified with a "very good" rank. Phase one of the project is to be delivered in Q1 2014, whereas phase two is scheduled for completion in Q2 2015. The first major tenant is Schnei-

doubled y/y and reached PLN 302m, while its net revenues remained almost unchanged at PLN 365m.

West Gate will be Echo's 4th project in Wrocław. Image: Echo Investment

In mid-September, Echo Investment broke ground on a 16,000-sq.m class-A office project in Wrocław. The West Gate building will be Echo's fourth development in the city, following the shopping centre Pasaż Grunwaldzki, office project Aquarius Business House, and residential complex Przy Słowiańskim Wzgórzu. The company has invested more than PLN 1.2bn in Wrocław to-date, having delivered some 80,000 sq.m of floor space across its three finished projects in the city. Phase one of Echo's first office project in Wrocław, Aquarius Business House, was sold in July to Spain's Azora Europe for EUR 41.9m. Echo Investment focuses on four key sectors of the real estate market: housing, shopping and shopping/entertainment centers, office buildings and hotels. To-date, the company has completed over 100 projects in several Polish cities, with a total area of ca. 900,000 sq.m. Besides Poland, the Kielce-based developer manages investments in Romania, Hungary and in Ukraine. Its consolidated net income came to PLN 373m last year, up from PLN 208m in 2011, whereas the respective revenue totals came to PLN 584m and PLN 407m. In the first half of 2013 Echo's net earnings

In one of the largest office lease deals in Poland's regional cities, US IT Services giant IBM has secured 9,000 sq.m at Katowice's A4 Business Park, developed by Polish Echo Investment. The project, which launched in August, has already created 400 jobs by and in two years' time later the figure is to reach 2,000. The new facility will join a global network of IBM centers that render a broad range of IT services including: the management of server operating systems, system protection and security, end-user services including the maintenance and monitoring of IT equipment and software systems. IBM is to cooperate with Silesian universities in order to introduce some of the hottest topics in IT, such as cloud computing, into their curricula. "Since 2009, when we opened an IBM delivery centre in Wrocław, the scope and reach of our offer of services has been considerably extended. The centre in Katowice will be built in accordance with IBM’s global standards in order to provide our clients with top quality services," said Stef Stangret, director of IBM Service Delivery Centres in Poland. A4 Business Park is being developed on Francuska Street in Katowice, near an exit from the A4 motorway. It is a modern business park comprising three office buildings and a separate multi-storey car park.

weekly newsletter # 006 / 7th October 2013 / page 9

Phase one of the development, scheduled to reach completion in Q1 2014, will be a seven-storey office building with an area of app. 9,000 sq.m. The project has been BREEAM precertified with a "very good" mark.

solely associated with heavy industry; today, it is undergoing a complex transformation and becoming an attractive destination for the business services sector," said Patricia Lannoije, Head of Research and Consultancy at property company Jones Lang LaSalle in a recent commentary on the local market.

DATA BOX: KATOWICE OFFICE MARKET IN 1H 2013

The IBM Delivery Center in Katowice will be moving into A4 Business Park in early 2014. Image: Echo Investment

IBM is one of the largest IT companies in the world, offering a broad range of consulting and IT services, software as well as IT systems and technologies. The US giant established its first Polish office in Warsaw in 1935, but the company had been serving customers in Poland since the 1920s when it delivered tabulating machines to the Locomotive Construction Factory. Headquartered in Warsaw, IBM Poland has sales and service support units in Gdańsk, Kraków, Katowice, Wroclaw and Poznań. The company provides a full range of products and services to build IT infrastructure for large enterprises, public administration and medium-sized companies across multiple industries helping them solve some of their most-challenging and data-intensive problems. Besides operations aimed at domestic customers, IBM also has a number of key facilities across Poland that its clients around the world. "As the key city of the Silesian Metropolis, which has a population of 2m, Katowice is a strong economic and academic centre of Poland. In the past, Katowice was

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

Katowice is located in one of Po-land's most industrialized regions, at the intersection of two transEuropean transport corridors. Its main feature is its very good transportation infrastructure, with three international airports located within a short distance and the well-developed road network, with direct ac-

cess to two motorways (the A1 and the A4) as well as the Silesian Intercity Road (DTŚ). Katowice is also a major railway hub, linking the city to virtually all destinations in Poland and around Europe. The city spends more than 30% of its budget on investment and it has been very active lately in attracting new projects. "With its pool of highly-skilled employees, scientific and technical potential, strategic location, welldeveloped infrastructure, extensive support from city authorities, access to modern office space and high quality of life Katowice is now considered an excellent destination for new investment projects. The city was selected by leading global companies, including advanced business services sector representatives Capgemini, Unilever, Ericsson, Oracle and PwC to name but a few," said Lannoije.

SERVICES & BPO

WarsawWarsaw-listed Orbis expands Mercure chain in Latvia & Poland Poland's leading hotel operator, the French-owned Orbis Hotel Group has signed a franchise agreement for its third hotel in the Baltics - Mercure Riga Centre. Located in a historic building in the centre of the Latvian capital, redeveloped by a Ukrainian investor, the four-star hotel will open in the first half of 2014 offering 143 rooms. "Latvia and the remaining two Baltic states are among Europe's fastest growing economies at the moment. We want to have 1-2 properties in each of those countries, under management or franchise agreements," says Laurent Picheral, CEO of Orbis Group.

weekly newsletter # 006 / 7th October 2013 / page 10

On 3rd October company inked a franchise deal for a Mercure hotel also in Poland. Located in the historic centre of Bydgoszcz, the new Mercure Bydgoszcz Sepia will open in mid-2014 as the only four-star hotel in this part of the city. It will include 90 rooms, conference facilities, restaurant and a roof terrace. Orbis is part of Accor, Europe's number one hotel operator with 3,500 hotels and more than 440,000 rooms across 92 countries. The group entered Poland in 1973 through Novotel franchise with Orbis in which it became a majority shareholder 35 years later. Mercure is Accor's mid-range brand with 746 properties worldwide.

has been gradually restructuring its asset portfolio, seeking ways to refinance certain real properties with the help of long-term investors. The Riga deal was Orbis' 14th franchise agreement under the asset-light model. Most of the group's new hotels are being developed under Mercure and ibis Styles conversion brands, which Orbis sees as best fitting the franchisee market. The French group is tempting potential partners with its dominant market position, booking system that generates close to a half of hotel revenue in Europe, 250-strong global sales force and loyalty program which boasts 8.5m members worldwide including 160,000 in Poland. In August, Orbis signed a franchise agreement for a new ibis Styles hotel in the southern Polish town of Nowy Sącz, to be developed by a local investor. With 57 rooms, the three-star property will open in Q4 2014 as the first hotel in Nowy Sącz belonging to an international chain. Last year Orbis launched ibis and ibis Budget Reduta in Warsaw, right in time for the Euro 2012 tournament. A similar double project was opened in Krakow, alongside an ibis hotel in the Lithuanian city of Kaunas. A Novotel hotel was opened earlier this year in Łódź, while a Mercure/ibis Styles combo is under construction in Sosnowiec.

Mercure Riga Center Latvia will be located in a historic tenement building, dating back to 1901. Photo: Orbis

The Orbis Hotel Group manages 60 hotels in Poland and two in Lithuania with 11,500 rooms under the ibis, ibis Budget, Mercure, Novotel, Sofitel and Orbis Hotels brands. In 2010 Orbis embarked on an asset-light strategy, which prioritizes the company's role as a hotel operator and expansion via management and franchise agreements, striving for higher efficiency and focusing on hospitality as its core business. Hence, Orbis

The Warsaw-listed Orbis posted consolidated revenues of PLN 707m in 2012 (up from PLN 693m in 2011), while its attributable net profit totaled PLN 68m, down from PLN 119m in 2011. The company has recently embarked on a PLN 100m investment program, seeking to upgrade some of its key properties by the end of 2014. Some 90% of the total amount is to be spent in Warsaw, where Orbis operates 11 hotels. The combined price tag on the ongoing makeovers of Mercure Warszawa Centrum, Novotel Warszawa Centrum, and Sofitel Victoria Warszawa is PLN 75m.

TRANSPORT & LOGISTICS

Amazon to relocate German distribution hubs to Poland One of last week's top business stories, broken by the daily Puls Biznesu, covered the alleged plans by US ecommerce giant Amazon to develop a brand new distribution hub for continental Europe, consisting of three logistics centers in Poland and two in the Czech Republic. According to unnamed sources quoted by the paper, Amazon is take its packaging and distribution business out of Germany, where workers at one of its eight warehouses have recently gone on strike, to the CEE, where wages are way lower, and employees much less demanding.

Polish employees are to start handling the sorting, packing, and dispatching of Amazon's customer orPhoto: Amazon ders in Europe next year.

According to the report, in Poland, Amazon will have two logistics hubs near Wrocław (to be developed by

weekly newsletter # 006 / 7th October 2013 / page 11

Panattoni and Goodman) and one in Poznań (Panattoni). Each of the projects will be worth EUR 50-60m and cover an area of 100,000sq.m. The company will employ 6,000 people in Poland, plus an additional 9,000 seasonal employees, a source quoted by the daily said. Unfortunately, neither Amazon nor the warehouse developers wanted to comment on these revelations, but local officials from Poznań and Wrocław have confirmed that Amazon is indeed getting ready to shift the bulk of its European logistics operations to Poland. The first of the three hubs is to open in Poznań next year, just in time to take on Amazon's pre-Christmas delivery frenzy. The Australian developer Goodman is currently building its 128,000 sq.m Goodman Wrocław East Logistics Centre in the city, but due to its size and strategic importance the Amazon project is likely to be an independent, built-to-suit development. US Panattoni has four parks in the Wrocław area, two of which are fully occupied, whereas the remaining two offer a combined 80,000 sq.m. In the Poznań region Panattoni likewise has four properties, but the amount of space on offer across these centers amounts to little more than 20,000 sq.m, which again suggests that the Amazon hub will be an entirely separate development. According to local officials, Amazon's Poznań hub will be situated in Sady, in the Tarnowo Podgórne area, which is home to some 4,000 companies, including the likes of MAN, Scania, Volvo, Lidl and Auchan. The completion of key motorway links to Germany in recent years put Poland in the spotlight of Western European e-retailers, a number of whom have already set up distribution hubs in the Szczecin, Poznań, and Wrocław regions, and many more are said to be getting ready to follow suit.

Amazon employs 9,000 people in Germany at eight logistics centers, two customer service centers and at the German headquarters in the southern city of Munich. In mid-September several hundred of its employees went on strike in Germany in a planned three-day walkout over pay, unions said. The unions are demanding that Amazon's German employees be paid according to a sector-wide wage deal for the retail and mail-order industries. But the head of Amazon Germany, Ralf Kleber, rejected such demands in press interviews. Amazon says it pays an hourly wage of EUR 9.30 to employees in their first year and then EUR 10 after that, whereas the unions call for a minimum hourly wage of EUR 10.66. Amazon's working conditions in Germany were the subject of a public television documentary earlier this year which accused the group of bringing workers in from crisis-hit countries such as Spain to work at Amazon warehouses. The documentary alleged that employees were subjected to bullying from security personnel, some of whom wore clothing associated with neo-Nazi groups. It also alleged that Amazon paid the workers less than advertised and that their belongings were regularly searched in the temporary housing they were provided.

cated in Krynica, Poland's second most popular mountain tourist destination, Jaworzyna Krynicka is one of the country's leading ski lift operators. The transaction came merely weeks after Polskie Koleje Gorskie (PKG), an entity set up by four communities from Poland's Tatra region, in which Mid Europa holds a majority stake, had taken over Poland's leading cable car & ski lift operator Polskie Koleje Linowe (PKL) from the state-owned railway company PKP. "We are pleased to have been able to complete this attractive investment shortly after the PKL acquisition. Combining PKL and Jaworzyna Krynicka under the PKG platform represents a key milestone in creating a market leader able to compete for tourists and skiers with mountain resorts in other countries," said Zbigniew Rekusz, Partner of Mid Europa.

TRANSPORT & LOGISTICS

Mid Europa adds 2nd ski lift operator to its Polish portfolio Mid Europa Partners, a major private equity player in Central Europe, has sealed its second acquisition in Poland's mountain tourism sector at the end of September, with the purchase of a majority stake in Kolej Gondolowa Jaworzyna Krynicka from leading Polish financial institutions, PZU and PKO BP. Lo-

Backed by municipalities from the Tatra region, Mid Europa is consolidating Poland's ski-lift and mounPhoto: Jaworzyna Krynicka tain tourism operators.

PKG, in which Mid Europa holds a 90% stake, sealed the PLN 215m acquisition of PKL in the beginning of September. PKL is the largest and the oldest cable car,

weekly newsletter # 006 / 7th October 2013 / page 12

funicular, ski lift and ski slope service provider in Poland with presence in six locations in the Polish mountains, including flagship operations at Kasprowy Wierch and Gubalowka in Zakopane. With net profits of PLN 9.1m in 2011 (representing profitability of approx 25%), PKL operates nine cable cars, seven ski lifts and 100ha of ski slopes. It carries 6m passenger annually. Mid Europa and the local communities are committed to pursue a coordinated growth strategy for the business and expand it, both organically and through acquisitions, in order to strengthen its market position and leverage the consolidation potential, the Londonbased private equity company said in a statement. As for the newly-acquired Jaworzyna Krynicka, PKG's shareholders will seek to co-operate with the Krynica municipality to support long-term sustainable growth in the region. Over the coming five years the partners seek to invest tens of millions PLN into PKL assets in an effort to introduce Alpine quality standards to Polish resorts. Since large areas of the Tatra Mountains belong to a nature preserve, investments in the region will be challenging, although with local municipalities as its business partners, Mid Europa should have it easier than any external buyers, such as Slovakia's Tatry Moutain Resorts, which had been strongly interested in acquiring the Polish operators. Following the customary five-year period, Mid Europa Partners will seek to exit PKG, most likely through a Warsaw IPO. "We have identified leisure and tourism sector as a strong growth opportunity and believe that PKL, with its established presence in the most popular Polish mountain locations, represents an attractive entry route and consolidation platform in this market. We plan to actively contribute to the success of the Company and support its growth by leveraging our experience in the services sector," Mid Europa's Zbigniew Rekusz commented on the PKL deal.

CONSUMER GOODS & RETAIL

Żabka acquires three local retail chains, adds PLN 200m to turnover

not only a step forward in our expansion, but also new prospects for their employees. Thanks to our knowhow and strong brand we can guarantee further growth of the acquired outlets and give their customers an attractive offer and high service quality standards," says Julio Duarte, Vice-President & CEO of Żabka Polska.

Poland's leading convenience store operator Żabka Polska has agreed to acquire three local supermarket chains in Poland with combined annual turnover of PLN 200m. The 32 newly acquired outlets will become part of Żabka's supermarket chain Freshmarket. "We have close to 2,800 Żabka stores and nearly 400 Freshmarkets in Poland at the moment," Żabka Polska's Jacek Spychałą tells Poland Today. "Since the beginning of the year we have launched some 300 new units, divided almost evenly between the two chains. We indeed to keep up that parallel development in the future." The first of the three businesses to be taken over by Żabka is the Częstochowa-based PS Food. Established in 1996 it employs 400 staff across 18 stores, with an average size of 420 sq.m and inventory ranging from 2,800 to 7,800 items per store. The second one was AGAP, established in 2001 and operating eight outlets in the Gorzów Wielkopolski area. With an average floor space of 330 sq.m, AGAP stores carry between 5,000 and 7,000 items each and employ 150 staff. The third and final transaction concerns TORG, a Koszalin-based retailer with 130 employees and six outlets averaging 290 sq.m in terms of their floor area and 4,500 sq.m items as far as their inventory size is concerned. "Our strategy relies on organic growth as well as active participation in the consolidation of the Polish market. The acquisition of AGAP, TORG, and PS Food means

Convenience stores, such as Żabka and Freshmarket are the fastest growing segment of Poland's retail sector after the expansion of largesized outlets has come to a standstill. Photo: Żabka Polska

Founded in 1998 by the same people who created Poland's leading discount supermarket chain Biedronka, and later supported by AIG New Europe Fund, in 2007 Żabka Polska was acquired by the Czech-Slovak private equity company Penta Investments from AIG Global Investment Group and Świtalski & Synowie for more EUR 150m. Under Penta's management, besides speeding up the expansion of its network of small convenience stores Żabka, including their entry to Czech Republic, in 2009 the company created a new chain of convenience outlets in a deliformat under the Freshmarket logo. In February 2011 Penta sold Żabka Polska to private equity fund Mid Europa Partners for EUR 400m. With Penta at its

weekly newsletter # 006 / 7th October 2013 / page 13

helm, Żabka Polska saw its gross revenues increase by almost 42% while its EBITDA increased by 62%, making it the fund's best investment in Poland and one of its top three projects ever. The 2012 was a record year for the company, with 366 new Żabka and Freshmarket outlets opened during the period – an average of one opening per day. With a turnover of PLN 3.3bn in 2012, Żabka Polska ranked as Poland's 10th largest retailer by sales. Żabka stores are operated by independent entrepreneurs, but whom the company provides with fully furnished and stocked up retail units.

up without a fight. Earlier this year Danish Carlsberg announced a major extension of one of its Polish plants, and now the country's top beer maker, the SABMiller-controlled Kompania Piwowarska is embarking on a PLN 100m investment at its Poznań brewery. The company seeks to install an additional 10 tanks at its fermentation plant and as well three new tanks for finished beer, or beer right after filtration and before packaging. All of the new tanks will be built in addition to Kompania's existing facilities and housed in a single 500 sq.m complex.

It's been nearly three years since Mid Europa Partners invested in Żabka, and as a private equity investor, the fund may soon start looking for buyers interested Polish business. This could provide a rare opportunity for a new global player to enter the local market. According to some market insiders, the Tokyo-based Seven & I Holdings Co., Ltd., the world's 5th largest retailer, with 35,000 stores in approximately 100 countries, known primarily as the owner of the 7Eleven chains in the US and Japan, among other markets, used to contemplate entry into Poland a few years ago, but recently they've been so busy with acquisitions in North America that Central Europe may have fallen off their priority list.

FOOD & AGRICULTURE

Kompania Piwowarska to invest PLN 100m in Poznań brewery Although the fat times for Poland's beer industry seem to be long gone, faced with shrinking sales and increasingly picky customers, breweries are not giving

and streamline the management of production phases between beer brewing and dispatch from the brewery site. The new layout will be particularly favorable for brewing smaller batches of beer, including trial batches of innovation products. This is how we improve our competitiveness and strengthen our market leadership." At the existing finished beer warehouse, a 5,000 sq.m facility, a new returnable bottling line will be installed, with a capacity of 60,000 bottles per hour. The new packaging line will be operational in Q1 2014, in time for the 2014 summer season. As part of the ongoing investment , a 4,000 sq.m pack storage site will be erected next to the fermentation plant.

Beer market in 2012: breweries & market shares

Others

The PLN 100m investment program enables Kompania Piwowarska to remove certain production & storage bottlenecks and create more space for Photo: Kompania Piwowarska innovations.

"We are aware of the fact that in an increasingly mature market one cannot expect to grow organically and keep boosting sales. At the same time, the pace of innovation in the market keeps increasing and breweries compete by broadening their product range," Paweł Kwiatkowski, Corporate Affairs Director at Kompania Piwowarska, tells Poland Today. "With this investment the company aims to improve brewery flexibility

Carlsberg

KP (SABMiller)

Żywiec (Heineken)

Source: Breweries, Browary Polskie

"We brew and pack the most diverse range of brands in the most diverse range of packaging. In Poznań alone we employ over a thousand people and, in addition, we generate roughly 6,500 jobs in supply sectors throughout the Wielkopolska region," says Paweł Kwiatkowski. "This expansion sends a message that

weekly newsletter # 006 / 7th October 2013 / page 14

Competing in a saturated market

Beer sales in Poland increased 5% last year reaching a record level of 37.9bn hl. Kompania Piwowarska saw its sales reach 14.2m hl, keeping its market share at 38%. The runner up, Grupa Żywiec (Heineken) reported a 3% increase (to 11.6m hl). The most dynamic performer among Poland's top three breweries last year was Carlsberg. The Danish beer maker maintained its double digit growth pace with a 15% sales in-crease (in value & volume) in 2012 - in a market that rose by merely 5%. The growth boosted Carlsberg's 2012 share in the Polish market to 18.5% in volume terms and 17.8% by turnover. In order

Beer consumption in Poland (in liters per capita) 100

income to push that figure any higher. The market is pretty much saturated and growth here means tough competition and more emphasis on innovations and specialties," Mr. Bławat said.

FOOD & AGRICULTURE

Bridgepoint seals 2nd deal in Poland, buys private label biscuit maker Dr Gerard

France's Groupe Poulot has sold Polish private label biscuits maker Dr Gerard to private equity company Bridgepoint for an undisclosed amount. The deal is Bridgepoint's second in Poland, the other being its 2008 acquisition of railroad freight company CTL Logistics.

80 70

2012

2011

2010

2009

2008

2007

2005

2006

2004

2003

60 2002

Kompania Piwowarska is part of SABMiller plc, one of the world's largest brewers with brewing interests or distribution agreements across six continents. In the year ended on 31 March 2013, the group reported USD 6.4bn in gross profit (EBITA) and group revenue of USD 34.5bn. SABMiller plc is listed on the London and Johannesburg stock exchanges.

Is there room to grow in Poland's beer market?

2001

The company's brand portfolio includes best-selling Polish beers: Tyskie, Żubr, Lech, Dębowe Mocne, Redd's as well as international premium brands: Pilsner Urquell, Grolsch and Peroni Nastro Azzurro. Kompania Piwowarska, established in 1999, operates three breweries (in Tychy, Poznań and Białystok) and depots across the country. With a staff of 3,200, Kompania Piwowarska turned over PLN 4.4bn last year and posted net earnings of PLN 703m. In 2011 the respective results had come to PLN 4.7bn and PLN 861m. According to Paweł Kwiatkowski, the new investments ion Poznań may result in creation of some 30 new jobs, at the same time reducing seasonal fluctuations in workforce, which tend to be quite significant in the brewing industry.

to keep up with its increasing sales, Carlsberg has recently added new PLN 60m (EUR 15) bottling to their Okocim brewery in Brzesko (50km east of Kraków) and announced a large-scale expansion of its Kasztelan brewery in Sierpc (120km northwest of Warsaw). Estimated at PLN 187m (EUR 45m), the project will boost Carlsberg Polska's annual production capacity from the current 7m hl up to 8.5m hl, enabling the company to further increase its market share.

2000

we intend to maintain our leading position in the industry, which we achieved a few years ago."

Source: Browary Polskie, GUS

"Our medium-term goal is to pass the 20% mark but without new investments we simply cannot get there. Currently our Polish breweries operate at capacity," Tomasz Bławat, CEO of Carlsberg Polska told Poland Today's Lech Kaczanowski earlier this year. "The new line will be operational in mid-2014 and it should reach full capacity by the end of the same year." According to Carlsberg's March projections, the Polish beer market is forecast to shrink 2% in volume terms this year, with Carlsberg expecting its sales to grow 34%. "Beer consumption in Poland came to 98l per capita last year and it would take a major surge in disposable

Established in 1993, Dr Gerard is now a leading biscuit producer in Poland selling its products to all retail formats. The company operates from three sites across Poland where it employs over 950 people and in recent years has developed a growing export business to the wider CEE region having transformed itself from a local company to a significant international player. Today, the business offers its customers some 200 types of products in all biscuit segments, from onion crackers to apricot cream sticks. The Polish biscuits market remains fragmented with the top four players holding just over a third of the market. The sector is forecast to continue to grow at 6% per annum as new product is introduced to the market and consumption converges towards Western European levels, Bridgepoint said. Growth is also ex-

weekly newsletter # 006 / 7th October 2013 / page 15

pected to be driven by product innovation, a key strength of Dr Gerard. "Dr Gerard has transformed itself into a leading player and is already well positioned for further long term growth in its market following its successful multichannel strategy. With its differentiated and innovative value-for-money products, strong preferred partnership status with its trade customers and robust operational execution, it is set to consolidate its position in Poland and develop a significant international platform in the CEE, commented Khai Tan, partner responsible for Bridgepoint's activities in the CEE region.

Bridgepoint is a European middle market private equity firm with over EUR 12bn of committed funds to date from a world class investor base. Over the past decade it has completed over 54 transactions totaling more than EUR 17bn. Bridgepoint's investment focus is on established, market-leading companies valued up to EUR 1bn that combine good market share, diversification, brand strength, quality of products or services and first-rate management. Sector-wise, it targets primarily business services, consumer, financial services, healthcare, manufacturing & industrials and media & technology. Bridgepoint has set up a separate unit, Bridgepoint Development Capital, for investments in companies valued up to EUR 150m.

POLITICS & ECONOMY

Q3 PMI at highest level since Q2 2011, good news for labor market

According to Nielsen, Dr Gerard's PryncyPaĹ&#x201A;ki was Poland's best-selling packaged biscuit brand in 2012, Photo: Dr Gerard in volume-terms.

Groupe Poult, an investment of LBO France, acquired Dr Gerard just three years ago. At the time it operated under the name Lider SKG before rebranding in 2011. LBO France bought Groupe Poult in 2006 and put the French biscuit maker on the block in 2010, at the same time it was pursuing Dr Gerard, but failed to find a buyer. The firm hired Rothschild earlier this year as it looks for an exit once again.

The recovery in Poland's manufacturing sector gained pace in September, bringing the average manufacturing purchasing managers' index (PMI) in Q3 to its highest level since Q2 2011. The survey of 300 industrial companies, prepared by Markit Economics for HSBC, showed PMI rise to 53.1 points in September from 52.6 points in August, the third consecutive month above the key 50-point threshold, which separates expansion from contraction. According to the bank, the output index rose in September thanks to increased new orders, production levels and an improvement in employment, while price pressures remained subdued. "The Q3 2013 average, at 52.3, is the strongest since Q2 2011 and marks a significant improvement over the

first half of this year when the PMI index averaged just above 48 points in both quarters. While output and new orders indices corrected lower in September, stock of purchases and employment improved. The employment index rose to the highest level in more than six years. This is very promising against the prevailing weakness of consumer demand since mid -2012 on the back of weak labor market. The PMI still points to benign inflation outlook. Output prices continued falling in September despite rising input prices. This contrast shows limited pricing power and still indicates fragility of the emerging recovery," said Agata Urbanska-Giner, Economist, Central & Eastern Europe at HSBC.

Purchasing Managers' Index (PMI) The 50 mark separates growth from contraction 54 53 52 51 50 49 48 47 46 45 Jul 12

Sep 12 Nov 12 Jan 13 Mar 13 May 13

Jul 13

Sep 13

Source: Markit & HSBC

"Overall the positive PMI reading in Q3 this year supports our forecast of economic growth gradually recovering from the Q1 2013 bottom. We expect GDP growth to increase from 1% y-o-y in 2013 to 2.6% in 2014," she added.

weekly newsletter # 006 / 7th October 2013 / page 16

KEY STATISTICS Consumer Prices Prices

Inflation

2.5

-1.2

Alcohol, tobacco +3.5

+0.2

+3.7 +0.2 +3.6

+0.1 +3.6 +0.2

Clothing, shoes

+0.1

-4.7

-2.7

Housing Transport

-4.8 +1.1

+0.1 +0.9

-0.8

-5.0

0.0 +2.0

-4.8

-2.7

+1.2 +2.0

+0.1

-4.2

-2.3

-3.5 +0.4

-1.2

+1.1

-1.4 +0.5

Communications -9.7

-2.6

-9.7

0.0

-9.7

0.0

-9.7

0.0

Gross CPI

-0.1

+0.2

0.0

+1.1

+0.3

+1.1

-0.3

+0.5

y/y

m/m

Apr '13

May '13

Jun '13

Jul '13 Aug '13

m/m (%)

-2.7

+1.6

+1.5

+3.8

-0.7

y/y (%)

-0.2

+0.5

+1.8

+4.3

+3.4

Year

2008

2009

2010

2011

Turnover in PLNbn

564.7

582.8

593.0

646.1

n/a

+13.3

+4.3

+5.5

+11.6

+5.6

y/y (%) Aug 13

-0.3

Jun 13

2.5

Apr 13

-0.3

Feb 13

+0.7 +0.7

Dec 12

+1.6

Oct 12

Food & bev

Month

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

Aug 12

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

Jun 12

Sector

Retail Turnover

Apr 12

Aug '13

Feb 12

Jul '13

Dec 11

Jun '13

Oct 11

May '13

Aug 11

Data in (%)

Residential Construction Dwellings

2008 2009 2010

2011

2012 Jan-Aug y/y

230.1

178.8

174.9

184.1

165.1

142.9

158.1

(in '000 units)

Producer Prices Prices Month

Industrial Output Output

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

m/m (%)

+0.3

-0.3

-0.7%

+0.1

+0.7

+0.2

-0.3

y/y (%)

-0.4

-0.7

-2.1%

-2.5

-1.3

-0.8

-1.1

Year

2006

2007

2008

2009

2010

2011

2012

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

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

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

-0.2

-0.1

-0.2

-0.1

-1.6

-1.8

-1.9

-2.0

-1.9

2006

2007

2008

2009

2010

2011

2012

+3.2

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

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

Coal mining

Q3 2012

Q4 2012

Q1 2013

Q2 2013

5,920

135 8,427

192 6,060

138 6,290 143

Commenced

174.7

162.2

141.8

85.4

-18.2

-2.3

-0.7

+2.6

+1.5

-4.5

U. construction

687.4 670.3 692.7 723.0

713.1

707.0

-3.9

y/y (%)

-2.7

-0.6

+2.7

-1.8

+2.8

+6.3

+2.2

Completed

165.2 160.0 135.7

152.5

91.1

-1.7

Year

2006

2007

2008

2009

2010

2011

2012

Source: Central Statistical Office (GUS)

y/y (%)

+11.6

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

Gross Domestic Product

Month

Period

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

m/m (%)

-0.3

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

+20.9

+7.9

+16.1

+19.1

+7.8

-0.8

-11.4

-18.5

-23.1

-27.5

-18.3

-5.2

-11.1

2006

2007

2008

2009

2010

2011

2012

+18.1

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-2.8%

Q4 2012

+0.7%

442,231

-3.5%

Q3 2012

+1.3%

393,792

-4.1%

2012

+1.9%

1,522,736

-3.5% -4.9% -5.1%

Economic sentiment and consumer confidence indicators

2009

+1.6%

1,344,384

-3.9%

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

120

Transportation

3,543

125

3,816

135 3,439

122 3,547 125

IT, telecoms

6,493

169 6,379

166 6,685

174 6,707 174

Financial sector 5,875

132 6,044

136 6,356

143

Key Economic Data & Projections

100

Indicator GDP change

+3.9% +4.5%

Consumer inflation Producer inflation CA balance, % of GDP

Sep 13

60 Jun 13

-40 M ar 13

146

Dec 1 2

152 3,693 157

143 3,432

S ep 12

163 3,556

142 3,365

J un 1 2

158 3,829

3,322

M ar 1 2

3,709

Retail & repairs

Dec 1 1

Construction

S ep 11

J un 11

-20

Mar 11

152 3,560 155 188 5,828 177

Dec 10

3,491

Source: Central Statistical Office (GUS)

-1.9%

377,815

1,416,585

198 6,196

3,613 144

395,507

+0.5%

1,462,734

154

149

+0.8%

Q1 2013

+3.9%

151 3,522

3,741

Q2 2013

+4.5%

176 6,535

154

Current account def. in % of GDP

2010

3,463

147 3,878

GDP in PLN bn current prices

2011

5,790

National average 3,690

Growth y/y unadjusted

131.7

Sentiment Indicators

Energy

151

-20.6

-0.2

Manufacturing

6,712

(%)

91.6

+0.3

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

3,421 146

2013

m/m (%)

Month

Source: The Central Statistical Office of Poland, GUS

Gross Wages Sector

Permits

Construction Output

Construction Prices Price s

2012

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

2013

2014

+1.9%

+1.2%

+2.7%

+2.6% +4.3%

+3.7%

+1.2%

+2.2%

+2.1% +7.6%

+3.4%

-1.2%

0.6%

-5.1%

-4.9%

-3.5%

-0.6%

0.3%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.2%

+4.5%

Unemployment**

12.4%

12.5%

13.4%

13.7%

13.2%

3.99

4.12

4.19

4.20

4.06

EUR/PLN

*2010

*2011

*2012

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

weekly newsletter # 006 / 7th October 2013 / page 17

56.39 ↓

100 SEK

48.53 ↓

100 NOK

51.81 ↓

10,000 JPY 10,000 HUF

400

USD EUR 350

300

318.12 ↑ 16.47 ↑

100 CZK

141.68 ↑

Money Supply in PLN m Monetary base M1 - Currency outside banks M2 - Time deposits M3

WIG-20 stocks Price Change Change in alphabetical 4 Oct 27 Sep end of order '13 '12 '13

WIG Total index

Mar '13 Apr '13 May '13 Jun '13 Jul '13 Aug '13 5.6%

5.4%

PLN (up to 5 y )

6.2%

PLN (over 5 y)

6.0%

PLN (total)

6.0%

4.7%

4.6%

150,475 508,299 109,312 920,112 425,740 941,791

Jun '13

Jul '13

144,260

155,767

523,783 530,666 112,815

112,565

927,345

921,662

928,359

418,252 405,900

412,407

946,586

945,077

949,988

- Net foreign assets 176,278 160,267 159,749 154,035 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

50, 50,601. 601.24

110.9

-18%

Change 1 week

470

+44%

345

-1%

+43%

44.9

-8%

+3%

7.43

+3%

-25%

109.55

-3%

+11%

2,394 2,394. 394.59

↓ JSW

72.5

-4%

-22%

Change 1 week

-1% ↓

→ Kernel

50.2

-25%

Change end of '12

-7% ↓

5.7%

5.4%

5.1%

5.7%

5.6%

5.3%

4.9%

↑ Bogdanka

5.8%

5.6%

5.3%

5.0%

4.9%

→ BRE

EUR (up to 1m EUR) 2.3%

2.1%

2.3%

1.9%

2.3%

1.9%

↓ BZ WBK

EUR (over 1m EUR) 3.6%

2.9%

3.2%

2.9%

3.5%

↓ Eurocash ↑ GTC

↓ Asseco Pol.

Warsaw Inter Bank Offered Rate (WIBOR) as of 4 Oct 2013 Overnight

1 week

1 month

3 months

6 months

2.58%%

2.55%

2.60%

2.68%

2.71%

↓ Handlowy

0% →

Change end of '12

+7% ↑

WIG-20 blue chip index

Rediscount

↓ KGHM

120.8

-3%

-36%

2.75%

↓ Lotos

36.22

-2%

-12%

WIG Total closing index

↑ Pekao

183.2

+1%

+9%

last three months

Credit

→ PGE

16.99

-7%

52000

The financial sector's net lending in PLN bn,

↓ PGNiG

5.9

-3%

+13%

50000

loan stock at the end of period

↓ PKN Orlen

43.27

-4%

-13% +1%

Reference

Lombard

2.50%

153,867 114,083

+5%

+1%

5.9%

Aug '13 531,124

-3%

5.0%

Central Bank (NBP) Base Rates May '13

47.54

5.3%

NBP deposit

4.00%

Type of loan

1.00%

48000

May '13

Jun'13

Jul '13

Aug '13

→ PKO BP

37.45

Loans to customers

887,960

900,999

896,635

901,863

↓ PZU

425.2

-2%

-3%

46000

- to private companies

259,593

263,453

261,000

263,491

↑ Synthos

4.9

+1%

-9%

44000

549,117

553,055

552,503

556,027

↓ Tauron

4.76

-1%

1,622,666 1,634,587

1,616,221

1,627,182

↑TP SA

8.55

+2%

-30%

- to households Total assets of banks

Source: Central Bank NBP

4 Oct 13

100 DKK

as of 4 October 2013

12 Sep 13

343.12 ↓

4 Oct 13

497.84 ↓

100 CHF

29 Jul 13

100 GBP

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations PLN (up to 1 year)

21 May 13

420.65 ↓

11 Mar 13

100 EUR

Key indices

Term / currency

450

2 Jan 13

309.02 ↓

22 Oct 12

100 USD

Stock Exchange

Average weighted annual interest rates

29 Jul 13

as of 4 October 2013

Interest rates

21 Aug 13

100 USD/EUR against PLN

Central Bank average rates

5 Jul 13

Currency

Source: Warsaw Stock Exchange

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

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

y/y (%)

share (%)

2012

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan- Jul 2013

y/y (%)

share (%)

2012

share (%)

No Country

Jan-Jul share 2013

IMPORTS in PLN bn *2012

Share No

Country

Jan-Jul share 2013

*2012 Share

37,974

+9.9

10.5

61,694

10.3

26,750

+3.6

7.4

44,287

6.9

1 Germany

89,862 24.9% 150,046 25.1%

1 Germany

77,335 21.3% 134,933 21.1%

Beverages and tobacco

4,910

+5.9

1.4

7,967

1.3

2,271

-0.1

0.6

3,989

0.6

2 UK

23,427

6.5%

40,184

6.7%

2 Russia

45,944 12.6%

Crude materials except fuels

9,077

+5.1

2.5

14,024

2.4

12,302

-7.6

3.5

22,053

3.5

3 Czech Rep.

21,951

6.1%

37,475

6.3%

3 China

32,785 9.0% 57,235 9.0%

Fuels etc

17,106

+0.1

4.7

29,389

4.9

41,400

-14.3

11.4

85,280

13.4

4 France

21,017

5.8%

34,862

5.8%

4 Italy

19,010

5.2% 32,782

920

+62.1

0.3

1,342

0.2

1,492

-8.7

0.4

2,887

0.5

5 Russia

19,345

5.4%

32,290

5.4%

5 France

14,267

3.9% 25,303 4.0%

Chemical products

33,929

+6.5

9.4

54,295

9.1

53,686

+0.3

14.8

89,140

14.0

6 Italy

16,368

4.5%

29,067 4.9%

6 Netherlands

13,837

3.8% 24,543

Manufactured goods by material

74,733

-0.5

20.7

126,161

21.1

63,760

-6.0

17.5

110,773

17.4

7 Netherlands

14,129

3.9%

26,678 4.5%

7 Czech Rep.

13,374

3.7% 23,327

3.7%

Machinery, transport equip.

136,236

+3.3

37.7

223,646

37.5

120,298

-0.5

33.1

203,718

31.9

8 Ukraine

9,940

2.8%

10,628

2.9%

16,436

2.6%