Poland Today Business Review+ No. 004 by Poland Today Business Review+

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No. 004 / 23th September 2013 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Polish Mercor sells fire door business to Sweden's ASSA ABLOY for PLN 221m page 2 Finnish packaging company Walki opens new factory near Wrocław page 3 BANKING & FINANCE Poland's 3rd largest bank BZ WBK recruits more Holywood stars to boost its image page 4

With a GLA of 53,000 sq.m, Galeria Katowicka's retail section houses 220 shops.

Photo: Neinver

Katowice welcomes landmark project

Spanish developer Neinver and property fund Meyer Bergman have completed their flagship EUR 240m mixed-use project Galeria Katowicka. Located in Katowice, it combines the city's main transit center with 73,000 sq.m of shops and offices. page 5

Orlen acquires Canadian upstream firm Poland's leading oil refiner PKN Orlen is taking over Canadian upstream company TriOil Resources for PLN 563m in a bid to acquire oil fields and shale gas expertise. page 4

PROPERTY & CONSTRUCTION Immofinanz finalizes sale of Katowice mall and announces new EUR 50m retail project in Stalowa Wola page 7 TRANSPORT & LOGISTICS Israeli MLP Group reports record take-up in 1H and breaks ground on new logistics centre in Silesia page 8

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CONSUMER GOODS & RETAIL Cigarette maker British American Tobacco seeks to create 700 jobs with new distribution model page 10 FOOD & AGRICULTURE Swiss-Irish group ARYZTA launches EUR 45m bakery in Strzegom and mulls further expansion page 11 HEALTHCARE GE Healthcare to employ 150 engineers at new IT center in Kraków page 13 POLITICS & ECONOMY Sejm approves 2013 budget revision as ministers move on to 2014 assumptions page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

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Confirmed Speakers include:

Key discussion topics for 2013

• George Kikvadze, Managing Director, Terra Food

• What is driving CEE domiciled firms to look for international growth opportunities?

• Adrzej Kondracki, Director for Strategy, M&A and Investor Relations, Netia

• What impact will external financing, such as China’s $10 billion credit line, have on the region?

• Roland Haidner, Director M&A, Telekom Austria

• What are 2013’s prospects? Will deal rationale shift?

• Chris Mruck, Managing Partner, Advent International

• Outlining an overview of the changing private equity landscape

• Gierdius Pukas, Managing Partner, Quadro Capital Partners

• Will we see a revival in CEE IPO markets?

• Grzegorz Czapski, Head of M&A, Corporate Development, GTS Central Europe

• Keynote speaker: Artur Tomala, Managing Director, Warsaw, Goldman Sachs • Wojciech Mroczynski, Chief Strategy Officer, Amrest • Nikola Jekic, Deputy Director of Function, NIS Gazprom

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weekly newsletter # 004 / 23rd September 2013 / page 2

MANUFACTURING & PROCESSING

Polish Mercor sells fire door business to Sweden's ASSA ABLOY The world's largest supplier of intelligent locks and security solutions, Sweden's ASSA ABLOY has signed an agreement to acquire the fire door business of Mercor SA, a leading Polish manufacturer of fire protection solutions, with a strong position in Poland, Czech Republic and Slovakia. Estimated at PLN 221m, the transaction is to be finalized by the end of the year, following regulatory clearance. "We got approached by a number of investors, who had different preferences as to which portion of the Mercor business they would like to acquire. The fire partition unit is the most mature portion of our operations and it also happens to be organizationally separate. The fact that a company as large and well-known as ASSA ABLOY wanted to buy it was certainly flattering and their experience in acquisitions gave us confidence that the process would go smoothly," Mercor's CEO and key shareholder Krzysztof Krempeć said at a press conference in Warsaw on September 18th. "Mercor's fire doors business is an attractive addition to our East Europe region as part of ASSA ABLOY's strategy to offer complete door opening solutions to our customers," Magnus Kagevik, Market Region Manager East Europe at ASSA ABLOY told Poland Today. Asked whether becoming part of ASSA ABLOY's global supply chain will mean an immediate boost to production volumes at the fire doors factory in Dobrzeń Wielki, just north of Opole, Mr. Kagevik replied:

"The factory in Dobrzeń Wielki will continue to focus on fire doors, which is a specification-based business, one that delivers custom-made products for building projects, such as shopping centers, factories, or office developments. We believe the addition of the Mercor fire doors to our portfolio will strengthen our product offering of Door Opening Solutions. We have three legs in East Europe, the commercial business of hardware, the door business and the hardware factories serving the East Europe region as well as the West European markets. Mercor will become part of our East Europe Door Group. For now we are going to focus on sealing the deal and incorporating the Polish fire partition business into our regional structure. Crucially, all the highly experienced sales personnel from Mercor's fire door unit will transfer to ASSA ABLOY, so the main issue now will be to carve out of the door business in Poland out of Mercor which includes migrating to new IT systems etc."

company, with a manufacturing plant in Dobrzeń Wielki (just north of Opole) employs 550 people and its sales in the financial year ending 31 March 2013 came to PLN 180m with a "good EBIT margin," according to ASSA ABLOY. The latter will continue to sell fire doors under the "Mercor ASSA ABLOY" brand based on a 35-year licensing agreement. "It's extremely rewarding to see the Mercor logo, next to such an established global brand and we are certainly hoping to continue working with ASSA ABLOY on many future projects as our markets remain to some degree complementary," says Mercor's CEO Krzysztof Krempeć.

Ready for new investments Mercor has earmarked more than a half of the expected proceeds from the sale for dividend or share buyback. Some PLN 60m is to be spent on debt repayment, and the remainder – on investments in other product areas: smoke and heat exhaust systems, fire ventilation systems and fireproofing solutions for building structures. "Over the past few years we have lacked the capital to pursue a number of exciting opportunities and this agreement enables us to start investing again. We are already recruiting new staff, as the 450 we are left with certainly won't suffice for long," says Krempeć.

Fire doors generated a half of Mercor's revenue. Photo: Mercor

The business to be acquired by the Swedes was founded in 1988 and is based in Gdańsk, Poland with operations in Poland, Czech Republic, Slovakia, Ukraine and exports to several other European countries. The

In the financial year ended March 2013, Mercor turned over PLN 389.5m, up from PLN 386.4m in the prior year, and had a net profit of PLN 35.4m, up 66% y/y. Prior to the ASSA ABLOY transaction, exports represented more than a half of Mercor's revenues. Mercor is listed on the Warsaw Stock Exchange. Its CEO Krzysztof Krempeć is the company's largest shareholder with a 26% stake. Since its formation in 1994, ASSA ABLOY has grown from a regional company into an international group

weekly newsletter # 004 / 23rd September 2013 / page 3

with around 43,000 employees across 70 countries and annual sales of about SEK 47bn. The Swedish giant is divided into three regional and two global divisions. The regional divisions, Americas, EMEA and Asia Pacific, manufacture and sell mechanical and electromechanical locks, digital door locks, cylinders and security doors adapted to the local standards and security requirements. The global divisions, Global Technologies and Entrance Systems, produce and distribute electronic access control, identification products and entrance automation on the global market. ASSA ABLOY is represented on both mature and emerging markets worldwide, with leading positions in much of Europe, North America, Asia, Australia and New Zealand. In this year's edition of the Forbes list of the world's most innovative companies, ASSA ABLOY ranked as no. 78.

DATA BOX: INDUSTRIAL OUTPUT Poland's industrial output increased by 2.2% y/y in August on 4.5% decline from a month ago while seasonally adjusted output was up by 2.6% on a 0.9% monthly decrease, showing that the country's economic recovery is continuing, the Central Statistical Office (GUS) announced.

Industrial output & producer prices Producer Price Index, y/y change 12% 8% 4% 0% -4% -8% -12% Jun Aug Oct Dec Feb Apr 12 12 12 12 13 13

Source: GUS, the central statistical office

Finnish packaging company Walki opens opens new unit in Wrocław Finnish Walki, a major producer of protective packaging materials and technical laminates, has officially opened its greenfield factory near Wrocław, which will initially focus on consumer packaging and forest industry segments. Completed in less than seven months at the cost of EUR 10m, the factory has a capacity of about 50,000 tons annually, and employs 50 staff. "We are talking about a state-of-the-art, purpose-built facility with the latest automation technology", says Timo Finnström, Walki's Executive Vice President, Operations. The first commercial products, including for instance moisture preserving packaging for vegetables, were delivered in July. The fact that the raw materials are close at hand makes it possible to minimize lead times for customers without compromising on quality. "Our main markets are in Central Europe. The plant in Wroclaw reduces lead times significantly. Customers can expect to have their deliveries supplied within two weeks", says Leif Frilund, President and CEO.

Industry output, y/y change

Dec Feb Apr 11 12 12

MANUFACTURING & PROCESSING

Jun Aug 13 13

Major investments in road infrastructure in the area made Wrocław one of Poland's investment hotspots, a perfect base for supplying Poland, Germany, Czech Republic and Slovakia. Home to one of Poland's highest ranked technology universities, Wrocław is also ideal for recruiting highly skilled employees, the company said.

The new Walki plant in Wrocław makes a wide range Photo: Walki of specialized packaging products.

Walki already has some 185 employees in Poland making printed corrugated board at International Paper's plant in Kwidzyn 70km south of Gdansk and another plant in Jatne near Warsaw that makes printed ream wrapping for A4 and A3 cut size paper, where the Finnish company recently invested in a new flexo print line. The 10-colour printing machine line is completely automated, and uses 100 per cent water-based colors to minimize the environmental impact. "As the requirements regarding print quality continue to increase we felt that the time was right for modernization," says Frilund. According to Walki, brand owners increasingly often bet on frequent campaigns targeted for specific customer segments, which requires flexibility and short lead times on the part of the printing contractor. Walki can now deliver within one week after an order has been placed.

weekly newsletter # 004 / 23rd September 2013 / page 4

Walki Group specializes in the production of fiber based, intelligent, multilaminate products for markets ranging from energy saving insulation facings and construction membranes to barrier packaging solutions. The group has plants in Finland, Germany, the Netherlands, Poland, the UK, Russia and China with a workforce of about 950 people. Annual net sales for the group are over EUR 300m. "We have set our eyes firmly on Central Europe. Poland offers an optimal location with the Czech Republic, Slovakia, Germany, Ukraine and the Baltic countries are close at hand. Being close to growing markets is also the environmental-friendly choice," concludes Leif Frilund.

BANKING & FINANCE

Poland's 3rd largest bank recruits Kevin Spacey to boost image When you see Kevin Spacey's face spread across billboards and magazines in October, it most likely wonâ&#x20AC;&#x2122;t be about his new movie or TV show. The American actor has joined a growing list of international stars (the other being Chuck Norris, Antonio Banderas, Danny DeVito, John Cleese, and Gerard Depardieu) whom Poland's Bank Zachodni WBK hired to promote its expanding business. Spacey is the help strengthen the new image of BZ WBK, which following its recent merger with Kredyt Bank ranks as Poland's number three lender. "Kevin Spacey is being considered one of the world's best three actors and by casting him in our commercials we aim to support the new positioning of the BZ WBK brand. Following the migration and integration

of its brand, BZ WBKO seeks to strengthen its image as Poland's third largest financial institution," says Artur Sikora, head of PR department at BZ WBK. The Warsaw-listed BZ WBK started using foreign stars in its advertising campaigns years ago, when it was still majority-owned by Allied Irish Banks. Squeezed by the financial crisis, the Irish ended up selling the profitable Polish business to Spain's Santander, and the latter chose to merge it with Kredyt Bank, another Polish bank they acquired from Belgium's KBC. Consequently, in merely two years, Banco Santander has built a unit in Poland that is the third bank in terms of market share, with shares of 7.5% of loans and 8.7% of deposits, respectively. Bank Zachodni WBK Group has 889 branches, of which 370 came from Kredyt Bank, and about 4.1m customers, of which 3.8mare individuals, 274,500 are small or medium-sized enterprises 7,300 are corporate clients.

As part of its ongoing market offensive, in August BZ WBK agreed to expand its strategic partnership with British insurer Aviva in Poland. Under the agreement, Aviva will increase its distribution network from 500 to 900 branches across Poland, with access to 4m bank customers. Additionally, Aviva and BZ WBK will extend their strategic partnership by further 20 years, until 31 December 2033. Aviva is Poland's fourthlargest life insurer, with a strong retail business and distribution agreements in place with ZB WBK, BGĹť, Alior and Pocztowy. The UK company has more than 830,000 individual and group life customers and manages over GBP 2.9bn of customers' assets, providing both long-term insurance and savings products. Aviva has more than 2,400 direct sales people and 56 sales branches across in Poland. Cross-sales opportunities help banks boost revenues from fees and commissions. Poland's number one lender PKO BP is currently contemplating cooperation with the country's top insurer PZU.

ENERGY & RESOURCES

PKN Orlen to acquire Canadian upstream firm for PLN 563m BZ WBK has long been one of the most accomplished players in Poland's banking sector. Photo: BZ WBK

Earlier this year, Santander and KBC sold 21.4% of BZ WBK for PLN 4.89bn, increasing the bank's free float to approximately 30%. Belgium's KBC sold its entire 16.17% stake for PLN 3.7bn, while Santander sold a 5.2% stake for PLN 1.19bn. Poland's financial regulator made returning BZ WBK to a significant free float of 25% a condition of its approval of the BZ WBK-Kredyt Bank merger.

Poland's leading oil refiner PKN Orlen, through its Dutch-based subsidiary Orlen Upstream has sealed an agreement to acquire Canadian upstream company TriOil Resources for PLN 563m, gaining access to TriOil's total production capacity of approximately 20m barrels of oil equivalent. The offer has been accepted by the Board of Directors of TriOil, and will be considered by the shareholders of TriOil at the meeting of shareholders in November 2013.

weekly newsletter # 004 / 23rd September 2013 / page 5

PKN Orlen, which does not have its own oil fields, has long been seeking ways of becoming an actual oil producer and the TriOil deal brings them one tiny step closer to achieving that objective. According to observers it is not so much TriOil's oil fields that whetted the Polish giant's appetite as the hydraulic fracturing technology the Canadians are well versed in.

symbolic amount compared to PKN's daily processing capacity of 600,000 barrels. Over the past few years TriOil has taken steps to expand the areas in which it has working interests, with TriOil’s principal operations now spanning some 3,500 sq.km, including 1,100 sq.km of hydrocarbon formations from which it produces both oil and natural gas.

"They have a game plan of growing beyond what they’ve acquired," TriOil president and chief executive Russ Tripp told Calgary Herald. "They are mainly a downstream company but on top of that they are drilling tight gas, horizontal multi-stage frack wells like we are doing, in Poland. They have a tight gas basin there at a very early stage of development but they’ve drilled eight wells. A component of what they’re doing here is a technology transfer." "In our view, TriOil is an optimal acquisition target. If the transaction is successfully completed, we will gain access to producing fields and will diversify our asset portfolio geographically. It also offers an opportunity for the transfer of know-how from the mature and technologically advanced Canadian market," Jacek Krawiec, PKN Orlen’s CEO, said. "Further, we continue to retain our strong commitment to shale gas exploration projects in Poland. We have just completed our eighth well and are preparing for another hydraulic fracturing operation at Berejów in the Lublin region," Mr. Krawiec added. Once TriOil shareholders approve the deal, PKN will buy 100% of the Vancouver-listed company for CAD 2.85 per share. Prior to the takeover announcement, shares in TriOil stood at CAD 3.06 on the Canadian TSX Venture Exchange. Assuming TriOil's outstanding debt, the total transaction value amounts to CAD 240m. In TriOil's 2012 report the value of its fields was estimated at CAD 250m. PKN said that in the first half of 2013 TriOil's average daily production doubled y/y to some 4,000 barrels of oil equivalent, which is a

"The acquisition of TriOil Resources will position PKN orlen as an oil and gas producer. It will expand our upstream project execution capabilities and give us a chance to operate on international markets. TriOil represents not only attractive assets, but also a team of professionals with unique expertise, which will be essential to achieving synergies as part of our current projects as well as search for further growth opportunities," commented Wiesław Prugar, Orlen Upstream’s CEO. In recent years Canada has attracted a number of major Polish investments. In 2012 Europe's number two copper producer KGHM bought Canadian miner Quadra FNX for some PLN 9bn in the biggest overseas deal by a Polish company. Earlier this year, Kulczyk Oil Ventures, owned by one of the Poland's richest businessmen Jan Kulczyk, acquired a Torontolisted firm Winstar Resources for CAD 112m.

Orlen Upstream seeks to boost its competences in developing unconventional hydrocarbon resources. Photo: Orlen Upstream

A regional leader, PKN Orlen operates three petrochemical plants, seven refineries and a retail gas station network comprising approximately 2,700 outlets offering services in Poland, Germany, Lithuania, and the Czech Republic. Last year PKN Orlen saw its consolidated revenues reach PLN 120bn, up from PLN107bn in 2011, with net earnings at PLN 2.34bn and PLN 2.36bn respectively. The Polish giant refined 6.7m metric tons of oil in Q2 2013, according to its report. The subsidiary Orlen Upstream was established to implement PKN Orlen's strategy regarding exploration and production of hydrocarbons. The company also holds licenses for onshore oil and gas exploration throughout Poland and interests in offshore licenses at the Latvian shelf of the Baltic Sea.

PROPERTY & CONSTRUCTION

Meyer Bergman & Neinver complete EUR 240m shopping center in Katowice Spanish developer Neinver has completed its most ambitious project to-date, the EUR 240m retailanchored mixed-use development Galeria Katowicka. Located in the southern Polish city of Katowice, the project is part of a large-scale urban revitalization scheme spearheaded by Polish State Railways (PKP), which chose Neinver seven years ago to transform a rundown train station into a modern transportation hub, shopping and office complex.

weekly newsletter # 004 / 23rd September 2013 / page 6

Following the completion of brand new rail and bus stations, Neinver has delivered the retail section of the project, which includes more than 220 shops and service points set over four levels and 53,000 sq.m of GLA. Anchored by a Peek & Cloppenburg department store, Katowice's first, Galeria Katowicka is home to a number of international fashion brands (Zara, Pull & Bear, Bershka, Levi's, Nike, Adidas, Sephora, C&A, Deichmann, Benetton, Mango, Massimo Dutti) as well as a Stokrotka supermarket, RTV Euro AGD electronics store, and Smyk toys outlet, among others. The project was 92% leased on the opening day and welcomed 10,800 visitors in the first hour.

working together towards a common goal," commented Mark Gamble, Head of Asset Management, Meyer Bergman.

Neinver is the leading outlet mall operator in Poland, where it currently has five properties of this kind: two in Warsaw (Ursus and Annopol) as well as one in Wroclaw, Poznan and Krakow each. The latter was opened late 2011 as part of the 44,000 sq.m Futura Park complex, which encompasses a retail park and factory outlet center. The capex on the Kraków project totaled EUR 76m. Prior to Galeria Katowicka, Neinver's flagship Polish project was Poznań's Galeria Malta – the largest shopping and entertainment center in Western Poland, 75% of which Neinver sold to US Heitman back in December 2010.

Located in the heart of one of Poland's most densely populated regions, with a catchment area of 2.3m residents living within a 30 minute car ride, Galeria Katowicka is likely to enjoy a success comparable to that of Warsaw's Złote Tarasy, which benefits enormously from its central location and direct access to train and bus stations. Last but not least, average earnings in the Katowice area are also among the highest in the country. Phase three of the project will see the construction of a 20,000 sq.m office complex at the site. Besides Neinver, the partners behind Galeria Katowicka included PKP, which contribute the site, as well as the European real estate investment firm Meyer Bergman, specializing in retail properties, which holds a majority stake in the project. "Galeria Katowicka is undoubtedly one of the most interesting ventures in Europe at the moment. We knew we had to take part in this outstanding and challenging project that uniquely combines commercial, transportation and public functions. For this reason, Meyer Bergman decided to make an investment in Katowice in 2010. This project, which will reshape the image of Katowice, is an excellent example of an investment fund, a developer and a public institution effectively

Warszawa Annopol. Located in Warsaw's Bialoleka district, between the Annopol, Torunska, and Bialolecka streets, the 19,700-sq.m scheme houses 120 retail units and 1,400 parking spaces. Outlet malls sell brand-name, out-of-season & discontinued fashion at a discount. Neinver was the first to introduce the outlet mall concept to Poland with the 2002 opening of its Factory Ursus center in Warsaw.

Galeria Katowicka houses 220 outlets and 1,200 unPhoto: Neinver derground parking spaces.

Earlier this year, Neinver, Europe's second-largest operator of outlet centers with 500,000 sq.m of retail space under management across six countries, completed its second project in the Polish capital, Factory

A while ago, Neinver was seeking tenants for its first investment in northern Poland, an 18,000 sq.m Factory outlet center in Szczecin. According to earlier plans, phase one of the project with 120 retail units were to reach completion in 2013 and were to be followed by phase two with 93 stores. However, Polish Echo Investment meanwhile has developed its own Outlet Park in Szczecin, which welcomed its first customers last year, Despite Szczecin's considerable catchment potential, encompassing 2.3m customers living on both sides of the Polish-German border, two outlet malls could prove a bit much for the local market at the moment. Neinver's property development and management business spans Spain, Germany, Italy, France, Portugal, and Poland. The company manages the IRUS European Retail Property Fund, one of the largest of its kind.

weekly newsletter # 004 / 23rd September 2013 / page 7

DATA BOX: RETAIL CENTERS IN 1H At the end of June 2013, Poland had more than 400 shopping centers totaling 8.2m sq m. In 1H 2013 some 120,000 sq.m was added to the shopping centre market with new schemes such as Galeria Solna in Inowrocław and Galeria Veneda in Łomża. The total supply of modern retail space in 1H came to 200,000, largely thanks to the launch of the 67,000 sq.m Europa Centralna in Gliwice which combines traditional shopping centre and retail park functions. Overall, Poland's total modern retail GLA came to 11.2m sq.m by the end of June 2013. Besides Galeria Katowicka, major completions in 2H will include Poznań City Center, Galeria Bronowice in Krakow and Riviera in Gdynia. Several new retail schemes broke ground in 1H, including Galeria Warmińska in Olsztyn, Zamkowe Tarasy in Lublin, Galeria Bursztynowa in Ostrołęka, Galeria Neptun in Starogard Gdański and phase two of Ogrody in Elbląg. Apart from newly-constructed space, re-marketed shopping centers appear an attractive alternative for tenants seeking strong retail schemes. Demand for shopping centre space varies substantially depending on market saturation, the quality of retail schemes and space availability. The shopping centre density in the eight conurbations is the highest in Wrocław and Poznań, and the lowest in Katowice and Szczecin. At the end of 1H, Toruń and Radom posted the highest vacancy rate (6.2%), while the lowest vacancy was in Szczecin (2.2%) and Warsaw (2.3%). The highest rents in Warsaw’s prime shopping centers remain at EUR 75–85/sq.m/month for a fashion unit of 100–150 sq.m while in the other seven conurbations rents stand at EUR 35–40/sq.m/ month. Shopping centers in small and medium-sized cities fetch average rents of EUR 21–29/sq.m/month. Source: Cushman & Wakefield

PROPERTY & CONSTRUCTION

Immofinanz finalizes sale of Katowice mall and announces brand new retail project Austrian property giant Immofinanz AG has completed one of the largest ever deals on Poland's property markets and announced plans for a new retail project in southern town of Stalowa Wola. The Austrians sold their Silesia City Center property in Katowice for EUR 412m to an international consortium of investors led by Allianz. The buyers reportedly included also Chinese funds, for the first time ever on Poland's property market. The sale price exceeded the book value, Immofinanz said, without elaborating.

Developed by Hungary's TriGranit Development Corporation and opened in 2005, Silesia City Center remains one of Poland's largest shopping malls . Photo: Immofinanz

"Well-timed transactions, like the one involving Silesia City Center generate the liquidity we need for investments in new properties and again confirm our valuation approach in Eastern Europe. The Silesia transaction also underscores and supports the recovery that has taken hold on the investment market," commented Eduard Zehetner, CEO of Immofinanz Group. According to CBRE, real estate transactions with a combined volume of EUR 4.5bn were completed in Eastern Europe during the first half of 2013 – which is 60% over the comparable amount for 2012. The full year figure in Poland alone is likely to exceed EUR 3bn this year, said consultancy Savills in a recent report.

Immofinanz, which has just recently carried out a secondary listing in Warsaw, plans to bolster its development arm and sell properties more quickly in a strategy to increase profit. The company expects to hold assets from three to 10 years before selling them, CEO Eduard Zehetner said earlier this year. After many years of operating as an investor, Immofinanz has recently embarked on a number of projects as a developer. Their latest development project in Poland, announced in mid-September, involves the construction of a shopping center with approx. 30,000 sq.m of rentable space in Stalowa Wola, 60km north of Rzeszów, in south east of the country. The investment is expected to total EUR 50m. Construction should start during the first half of 2014, and completion is scheduled for the first half of 2015, the company said.

Silesia City Center has about 340 stores with combined floor space of 89,000 sq.m, all of which is occupied, The responsibility for Silesia’s center management has now been taken on by Germany's ECE, which is part of the buyers' consortium.

With the start of this retail project in Stalowa Wola, Immofinanz is entering a catchment area with nearly 400,000 residents. Located half way between Lublin and Rzeszów, at a strategic intersection of major roads, Stalowa Wola is among key employers in the re-

weekly newsletter # 004 / 23rd September 2013 / page 8

gion, partly due to its steel industry. Immofinanz will develop the new shopping center together with the development partner Acteeum Group, which has extensive experience on the Polish retail market. The latter holds a 14% stake in the project. "Stalowa Wola is a promising location for a retail development project of this size because of the catchment area and the moderate competitive situation. This is confirmed by the first positive responses from potential tenants," added Zehetner.

Prime rents in shopping centers in 1H 2013 in EUR/sq.m/month; units size: 100-150 sq.m

Warsaw

in Elbląg (currently being expanded from 17,500 sq.m to 40,000 sq.m of GLA) and Galeria Solna in Inowrocław (opened in May with 31,000 sq.m of GLA). In Poland Immofinanz Group is currently building the Nimbus office building (19,000 sq.m of GLA) in Warsaw and the Tarasy Zamkowe (37,000 sq.m), a shopping center with an extensive entertainment and leisure section in Lublin. The company is also expanding its STOP.SHOP. retail park chain with two locations, in Mława and in Ketrzyn, currently under construction. In the residential segment, Immofinanz Group is developing the EUR 18m Riverpark project in Poznań (189 apartments) and phase three of Dębowe Tarasy in Katowice (317 apartments). Since its founding in 1990, Immofinanz has compiled a portfolio that now comprises more than 1,700 investment properties with a carrying amount of approx. EUR 10.5bn. The company concentrates on development management and sale of commercial properties in top locations. Immofinanz Group concentrates its activities in the retail, office, logistics and residential segments of eight regional core markets: Austria, Germany, Czech Republic, Slovakia, Hungary, Romania, Poland and Russia.

Katowice Poznań Kraków Tricity Wrocław Łódź 0

Group, which has signed a number of major leases in recent months and broke ground on its 5th Polish logistic park - MLP Bieruń, located on a 11.5ha plot in the Katowice Special Economic Zone, near the S1 expressway and the A4 motorway intersection in Mysłowice. Phase one of MLP Bieruń, to be delivered in Q1 2014, will total 22,900 sq.m and its tenants are automotive sector firms Flexider Poland (8,300 sq.m) and Auto Partner (14,700 sq.m.). The former produces flexible steel connectors used in car exhaust systems for the likes of Magneti Marelli, Volkswagen and Tenneco. Flexider plans to invest approximately EUR 5.4m in Bieruń by the end of the decade and MLP Bieruń offers ample space for any future growth with its total GLA expected to reach 55,000 sq.m in the future. Auto Partner, the park's second occupant, is an importer and distributor of spare parts for passenger cars and delivery trucks, which has chosen Bieruń for its new logistics and distribution center. The two investors are to create some 400 jobs at the site.

Leased space at MLP's Polish parks in sq.m 350 300 250

200

The demand on Poland's industrial property market is picking up according to warehouse developer MLP

50 *2013

2012

2011

2010

2009

0 2008

Israeli MLP Group sees record taketake-up in 1H and breaks ground on new logistics centre

150 100

2007

The Jersey-based Acteeum Group was founded in 2006 by Dane Henrik Stig Moeller, who remains the company’s managing director. From May 1998-2006 Moeller was Head of International Business Development and board member at Danish TK Development A/S where he was responsible for the company’s Central and Eastern European activities. During this period TK developed 18 shopping centers in these markets. Besides Stalowa Wola, Acteeum is currently involved in two Polish projects: Ogrody shopping centre

TRANSPORT & LOGITICS

2006

Source: Cushman & Wakefield

*) end of 1H (all data as of end of period) Source: MLP Group

"The Bieruń municipality has secured European Union funds to expand and improve infrastructure in the

weekly newsletter # 004 / 23rd September 2013 / page 9

area, providing our clients with excellent logistics conditions. It is our hope that our park and the growing portfolio of tenants will contribute to the development of the entire economic zone," says Dorota Jagodzińska-Sasson, Management Board Member of the MLP Group.

Piotr i Paweł earlier this year. Their MLP Tychy project in Silesia has attracted logistics company Mes Rota which leased nearly 4,200 sq.m, making the park fully utilized.

Rapid growth in Pruszków Earlier this month, MLP Group has launched construction of another warehouse at their MLP Pruszkow II park near Warsaw. The client is Universal Express Group, one of Poland's largest independent providers of worldwide logistics and relocation services, which is to move into its newlydeveloped 10,000 sq.m. unit in Q1 2014. What makes MLP Pruszkow II popular with tenants is that the park's flexibility, enabling them to increase the amount of warehouse space leased as their business expands. Located in the outskirts of Warsaw, 5km from Pruszków, the park occupies a total of 67ha and will ultimately offer 302,000 sq.m of built up space. MLP Pruszkow II has well-developed connections to both the Warsaw city center and the main roads connecting the capital with other cities. An international railway track running in the proximity of the park offers excellent logistic conditions for both domestic and international distribution. Besides Universal Express Group, its tenants include: paper distributor Igepa, logistics company Dachser, convenience chain Żabka Polska, FMCG producer Sarantis Polska, and supermarket operator MarcPol, among others. In the first half of 2013, the MLP Group signed new lease agreements covering a total of 48,000 sq.m of warehouse and manufacturing space, with MLP Pruszków II being the company's fastest-growing park, following the completion of the 165,000 sq.m MLP Pruszków I (plot size: 43ha). In Poznań, where MLP is developing warehouses with a total area of approx. 102,000 sq.m (plot size: 19ha), the company signed an 8,300 sq.m lease with supermarket operator

ested in investments sites across the entire country, for our built-to-suit projects." At the moment, MLP Group owns more than 158ha of land in Poland, which according to the company will allow it to reach a target level of warehouse and production space of around 720,000 sq.m. Specializing in built-to-suit solutions, MLP earned PLN 57m last year on sales revenues of PLN 86m. Its asset portfolio was worth PLN 936m as of end of 2012, up from PLN 240m in 2006. The key shareholder in MLP Group is Cajamarca Holland B.V., a Dutch-based subsidiary of the Tel-Aviv-listed Israel Land Development Company Ltd.

Poland's industrial property market Key players (based on warehouse space offered in 2012):

MLP Pruszów II is the company's fastest growing Photo: AXI Immo project in Poland..

"Two of our five parks are almost fully leased out, but we can see enormous opportunities for further expansion in our other locations. At our Bieruń, Pruszków II and Poznań parks, approximately 400,000 sq.m of warehouse space may still be created. We plan to supplement our land bank with acquisitions of additional plots for the development of new logistics parks," adds Dorota Jagodzińska-Sasson. As of end of last year, nearly 300,000 sq.m of space at the company's Polish industrial parks was occupied and so far this year the figure has gone up by more than 50,000 sq.m. Asked about the most likely locations of their new projects, Ms. Jagodzińska-Sasson replies: "As far as Poland's key logistics hubs are concerned, we are looking at the Wrocław region. We are also interested in strengthening our presence in Upper Silesia, where MLP already has two projects in Tychy and Bieruń. But besides logistics parks, we remain inter-

ProLogis 28%

Panattoni 21%

SEGRO 14%

Other 28%

MLP Group 9%

Source: Cushman & Wakefield, May 2013

"We had a very successful first half of this year and our group generated record-high results. The market is clearly recovering and we hope to achieve even better results in 2H 2013. Our strategic objective is to double our warehouse and manufacturing space available for lease over the next four years," said Radosław T. Krochta, Deputy CEO of MLP Group.

weekly newsletter # 004 / 23rd September 2013 / page 10

DATA BOX: WAREHOUSES IN 1H As at the end of June 2013, Poland’s total modern warehouse stock reached 7,678,000 sq.m, according to the brand new MarketBeat report from Cushman & Wakefield. The highest concentration of warehouse space is in the Warsaw region, which accounts for around 36% of the country’s total stock, but its share is steadily contracting. Other large regional warehouse destinations of Upper Silesia, Poznań, Central Poland and Wrocław provide around 4,950,000 sq.m. Development activity in the industrial sector slowed in the first half of 2013. Some 148,000 sq.m came onto the market, marking a 30% decline y/y. Modern warehouse take-up in 1H 2013 stood at 868,000 sq.m (of which some 500,000 sq.m in Q2), reflecting a significant improvement compared with 660,000 sq.m transacted in 1H 2012. The largest deal was Castorama’s lease of 50,000 sq.m in Panattoni Park Stryków. Take-up predominantly came from logistics operators and distribution occupiers (37%). Ecommerce is also a driver of leasing activity. Headline rents remained at the same level. The highest rate was in Warsaw’s Inner City (EUR 4.5-5.8/sq m/month), with the lowest in Central Poland and in the Warsaw suburbs (EUR 2.4-4/sq m/month). "Although new warehouse completions dropped by 30%, the occupancy market boasted some great results as we witnessed some very large and strategic transactions take place as occupiers look to take advantage of relatively low construction costs and rents. Improving road infrastructure has also facilitated the development of other warehouse destinations in particular Tricity, Szczecin and Lublin,” said Tom Listowski, Partner, Head of Industrial Department and CEE Corporate Relations, Cushman & Wakefield. Source: Cushman & Wakefield

CONSUMER GOODS & RETAIL

Cigarette maker BAT to create 700 jobs with new distribution model Cornered by the Polish taxman, EU regulators, and illegal importers, tobacco companies are desperately seeking new ways of boosting profitability. British American Tobacco (BAT), one of the leading players in the sector, has decided to revolutionize its Polish sales & distribution in a project that according to the company will create close to 700 jobs nationwide. The new system is to be operational by the end of October, enabling BAT to scoop up the margins that have so far been pocketed by wholesalers, and better monitor the way its products are being marketed at the very end of the supply chain.

pooled together all the necessary equipment for the sales team. Over the coming weeks British American Tobacco Polska Trading Sp. z o.o. will offer full time employment to some 500 new recruits, mainly sales representatives and bookkeepers. Another 200 will be recruited by BAT's logistics partner at distribution centers throughout the country, the tobacco company said. According to BAT, given favorable economic conditions, the introduction of the new direct sales formula should result in an additional economic impulse of PLN 400m for the Polish economy over the coming half a decade.

Tobacco sector in decline Legal cigarette sales in Poland, in bn units 70 65 60 55

"Tobacco products are being retailed at an estimated 120,000 points of sale throughout Poland. Our new distribution model will enable us to reach many of them with our full product range, make the whole supply chain more efficient and offer our new trading partners better service and competitive terms of cooperation. Thanks to frequent visits from our sales reps, retailers will be kept up-to-date on our new products and special offers. Last but not least, we will be able to create several hundred jobs across Poland," says Antal Bekefi, CEO of BAT's Polish sales unit British American Tobacco Polska Trading Sp. z o.o. BAT said it would recruit its own army of sales reps to reach retailers across the country directly, without any intermediaries. Over little more than a year BAT has set up a nationwide network of distribution hubs (operated by an external logistics contractor) to support the new model, created a custom-made IT system, and

50 45 40 2007

2008

2009

Source: Cyberserwis, Euromonitor

2010

2011

2012

*2015

*) projected

BAT has been operating in Poland since 1991 and during that period it has invested more than PLN 1.7bn in its production unit in Augustów (80km north of Białystok), which produces 38bn cigarettes annually, two thirds of which are being exported to some 50 countries worldwide. The Augustów unit is BAT's third largest factory worldwide and one of the most technologically advanced of its 44 global plants. The company's sales and production units in Poland have a combined workforce of 1,200 employees. The Londonlisted British American Tobacco Plc is the world's

weekly newsletter # 004 / 23rd September 2013 / page 11

number two tobacco firm with some 55,000 staff in more than 180 countries. Its key global brands include Lucky Strike, Vogue, Pall Mall, Kent, Dunhill and Viceroy.

Polish government, may turn out to be detrimental for the Polish economy, since they could reduce the Polish tobacco market by 40%, cutting state revenues from tobacco excise tax by PLN 10bn a year.

Industry at a crossroads

Poland is currently Europe's largest market for menthol cigarettes and slims and tax revenues from these two types of smokes alone total approximately PLN 7bn. Should the EU ban their sale, "a large portion of that amount is likely to be lost as consumers turn to contraband products," according to Poland's finance ministry. The agriculture ministry lamented the likely fate of the estimated 60,000 farmers who live off tobacco crops, and are located primarily in the east of Poland where the labor market is particularly challenging.

With excise on tobacco products to go up by another 5% next year, the cheapest pack of cigarettes may soon cost more than PLN 12.4, up from some 11.4 at the moment. Tobacco producers argue that every rise in taxation (in the case of cigarettes VAT and excise already represent approximately 81% of the retail price) strengthens the shadow economy. Between 2013 and 2012 cigarette prices in Poland rose by 145%. Last year legal sales declined 6.3%, down to 52.1bn units. Illegal cigarettes and tobacco are said to have totaled 15% of total sales or approximately PLN 6bn last year.

Poland's top tobacco players: 2012 market share

Poland's top tobacco companies Turnover & employment as of 2012

Philip Morris International Polska Imperial Tobacco Polska* British American Tobacco Polska JTI Polska

Revenues

Employ-

(PLN bn)

ment

9.506

BAT 29%

2,886

7.381

1.381

**5.470

1,200

3.347

832

Japan Tobaco 13%

*) Imperial Tobacco Polska SA & Imperial Tobacco Manufacturing **) 2011 figure

Source: Polityka Lista 500

Besides taxes, which will continue to grow to reach EU levels by 2018, another major headache for Poland's tobacco industry is the planned EU ban the sale of flavored cigarettes and slims, popular especially among women, as well as introduction of the so-called plain packaging. With six out of a total of 31 European cigarette factories located in Poland, the country is the EU's leading cigarette producer and exporter. The sector directly employs over 6,000 workers and according to industry estimates, the EU ban may put 2-3,000 jobs at risk. The new regulations, strongly opposed by the

Imperial Tobacco 19%

Philip Morris 38% Other 1%

Source: Companies, Rzeczpospolita

Since many of such estimates originate from tobacco companies and their lobbyists, their content should be taken with a grain of salt. However, it seems clear that any further restrictions are going to have a harmful effect on Poland's tobacco industry. Together with to-

bacco growers and cigarettes retailers, some 0.5m people in Poland live off the sector in one way or another. Poland's foreign ministry believes that further work on the new regulations will take another two years and they may enter into force in 2015 or 2016. The tobacco industry contributes PLN 20bn annually in tax revenues for the country's budget. It's unknown how much the government would save on treatment costs of smoke-related diseases if the new restrictions are implemented and help diminish the number of smokers. There are 9m smokers in Poland and the country's health ministry estimates that some 90,000 deaths every year are smoking-related.

FOOD & AGRICULTURE

SwissSwiss-Irish ARYZTA launches EUR 45m bakery in Strzegom Strzegom Swiss-based food group ARYZTA AG, owner of two bakeries in the Warsaw area, has officially opened its third Polish production unit in Strzegom (50km west of WrocĹ&#x201A;aw). Built at the cost of EUR 45m, the newlyopened FSB Piekarnia Strzegom bakery employs more than 130 staff and the investor is already contemplating further expansion of the site. The plant's main product are hamburger buns, as ARYZTA's key client in Poland is the quick service restaurant chain McDonald's, which boasts more than 310 locations across the country. Besides burger buns the Strzegom bakery makes a range of other specialty products, such as tortillas as well as frozen and ambient croissants. Its three production lines supply both the Polish market as well as other CEE countries, Germany and Scandinavia, with exports representing

weekly newsletter # 004 / 23rd September 2013 / page 12

roughly a half of its output at the moment. The plant makes 1m buns a day, using 30 tons of flour but its medium-term goal is to produce 700m units of various baked products annually. "We are going to achieve this level with our three existing production lines but we are already discussing phase two of the investment, hoping to work out the details by mid-2014. We have not yet decided what kind of products will be added in Strzegom range, but we are certainly talking about a significant increase in production volumes," Waldemar Topolski, Managing Director & Head of Sales at ARYZTA Poland tells Poland Today.

The investor has teamed up with the local authorities to co-finance the creation of a special training program for future bakers a at vocational school in Strzegom, where a regular bakery workshop with all the necessary equipment has been set up. The program's first 16 participants will undergo three years of theoretical and hands-on training at the school as well as the FSB facility to join the latter's workforce once they graduate.

Tax incentives still a magnet Back in February 2012, when ARYZTA received permission to invest in Strzegom, the company promised to spend PLN 110m on the project and create 50 new jobs. The final figures have proven considerably higher (PLN 185m in outlays and 127 positions) and further development is only a matter of time. The plant's total floor area, including freezing, storage and office facilities, tops 14,500 sq.m and production has been in startup mode since April. Besides the town's convenient location, with easy access to Germany and the CEE region, what attracted ARYZTA to Strzegom was the WSSE "Invest-Park" special economic zone (SEZ), which enabled the project to take advantage of certain incentives (most notably CIT and property tax exemptions). "One of the key factors behind our decision to increase investments in Strzegom and consider further expansion of the site, was the government's recent decision to extend the existence of special economic zones until 2026. It gave us a much longer time perspective," explains ARYZTA's representative [read more on the SEZ in PT Business Review+ No. 003 page 14; ed.]

All raw materials for the Strzegom bakery, except the sesame seeds are being sourced locally. Photo: ARYZTA

Although bread consumption in Poland has been steadily declining for years, specialty categories keep recording double-digit growth as consumer habits change and the Poles have developed a taste for croissants, tortilla wraps, hot dogs and burgers.

McDonald's paved the way "We arrived in Poland two decades ago, to support the expansion of our key client McDonald's. Our original bakery in Michałów-Reginów near Warsaw continues to make hamburger buns with its single production line. The Hiestand bakery in Grodzisk Mazowiecki that specializes in parbaked bread and pastries, joined

our group a few years ago. With Strzegom operating at full capacity, we plan to sell a half of our production to customers like retail chains, and the other half to McDonald's, which so far has been buying most of our output. As ARYZTA's European business consolidates, we may also introduce some new products to the Polish market," Mr. Topolski tells Poland Today. ARYZTA AG is a global food business with a leadership position in specialty bakery. The company was founded as the Irish Co-Operative Agricultural Agency Society in January 1897 and renamed the Irish Agricultural Wholesale Society ('IAWS') in December 1897. It was first listed on the Irish Stock Exchange in 1988 after which it completed a number of acquisitions In June 2007 it spun off its agribusiness activities as Origin Enterprises plc. The following year it merged with Hiestand Holding AG in August 2008 and, having changed its name to ARYZTA, commenced trading on the SIX Swiss Exchange and the Irish Stock Exchange on 22 August 2008. Subsequently ARYZTA bought Honeytop Speciality Foods in September 2011 before taking over Germany's Klemme AG for EUR 280m earlier this year. Klemme, which makes bread rolls, pastries and doughnuts in seven bakeries, had revenue of EUR 229m, boasts a strong position in German retail channels. In the financial year ended in mid-2012 ARYZTA turned over EUR 4.2bn and posted net earnings of EUR 163m. The group is based in Zurich, Switzerland. "Klemme specializes in parbaked bread and pastries, whereas Strzegom focuses on fresh, packaged products which gives it a unique position within the group and additional growth prospects. Our businesses are complementary. ARYZTA's turnover in Poland will go up by a half next year, thanks to Strzegom, but the goal is to double the figure in 3-4 years to pass the PLN 400m mark. Our current workforce of nearly 500 staff is unlikely to increase much, however," says Mr. Topolski.

weekly newsletter # 004 / 23rd September 2013 / page 13

HEALTHCARE

GE Healthcare to employ 150 at Kraków IT center

that connect, communicate and cooperate with each other and people, leading to breakthrough levels of efficiency and productivity. According to GE, the Industrial Internet’s ability to connect people and machines is estimated to remove USD 150bn in waste from major industries like Energy, Healthcare, Aviation, Rail, Oil & Gas, and more, resulting in new levels of productivity and major savings.

GE Healthcare expects to create 150 highly skilled jobs in Poland at their new IT Center in Kraków, announced the US technology giant. The project is part of GE's global five-year investment program, estimated at USD 2bn, which aims at accelerating the development of innovative software for healthcare systems and applications.

this global center will bring success to Poland and GE as well." According to GE, over EUR 1.3 trillion was spent on healthcare in the EU last year. However, it is estimated that in the field of healthcare, some 10% of expenditure is wasted due to system inefficiency, and 59% of this is clinical and operations inefficiency. Just 1% reduction of clinical and operations inefficiencies would translate into EUR 11bn of savings over the next 15 years, argues GE.

Health expenditure* per capita In selected OECD countries as of 2011, in USD PPP Norway Germany

The goal is for the new recruits in Kraków to launch long-term careers with GE Healthcare’s IT organization, the company said. More than 50 positions are already available this year, with the remainder expected throughout 2014. The center will support GE Healthcare's business across the globe, with opportunities for developers, system analysts, application consultants, application architects and senior-level leaders. "GE has 10,000 employees in Poland and GE Healthcare has thousands of devices and systems in hospitals and clinics throughout the country, and the Central and Eastern Europe region. We've seen firsthand this market's highly valuable expertise and now this Global Center of Excellence will allow us to further grow our talent base in Poland, bringing outstanding people and knowledge to our business," said Randy A. Fox, Chief Information Officer at GE Healthcare. The emphasis on growth and technical capabilities is aligned with GE's focus on the Industrial Internet, an open, global ecosystem of highly intelligent machines

France UK Finland Spain Greece

The aim of the new IT Center in Krakow is to support GE Healthcare's business across the globe.. Photo: GE Healthcare

Czech Rep Slovakia Hungary Poland

"Today, we’re a supplier of subsystems for various sectors of the economy. We still want to deliver these technologies, but now with the software designed to increase their efficiency. We can also work with the already installed technologies. One IT Centre will be based in Kracow because Poland is the largest CEE country, it is still growing, carries great potential, and has a highly skilled workforce. We already have a major technology center, EDC, in Warsaw, which employs 1,300 engineers," said Ferdinando "Nani" Beccalli-Falco, President and CEO, GE Europe, who emphasized that GE's ultimate goal is to change the philosophy of how GE technology works. "The Cracow team will develop solutions for global applications and we really keep fingers crossed for them as I am sure

Estonia 0

1,000

2,000

3,000

4,000

5,000

6,000

*) public & private Source: OECD

GE has a strong, export-oriented industrial base in Central and Eastern Europe, with 26,000 employees in the region, of which some 10,000 in Poland. GE Power Controls, (part of GE Industrial) has factories in Poland (in Kłodzko, Łódź and Bielsko-Biała), whereas GE Aviation operates a manufacturing unit in Dzierżoniów. With a staff of 1,300 engineers the Warsaw-based GE Engineering Design Center (EDC) is one of the company's most advanced R&D units, working for the Aviation, Energy, as well as Oil & Gas in-

weekly newsletter # 004 / 23rd September 2013 / page 14

dustries. The Polish GE Capital subsidiary Bank BPH is one of Poland's top banks. The combined turnover of GE's Polish operations came to USD 1.177bn in 2012.

flecting the deeper than expected slowdown in the Polish economy. Budget spending has been cut by PLN 7.565bn to PLN 327.294bn.

POLITICS & ECONOMY

The Polish government officials said mid-July that a weaker than expected economy would derail its original budget plan and that they would let the countryâ&#x20AC;&#x2122;s deficit rise by PLN 16bn to face an estimated PLN 24bn revenue shortfall.

Parliament approves 2013 budget revision

Pension reform saves the day

Poland's lower house of parliament passed an amendment to 2013 budget, allowing the deficit to rise by some PLN 16bn while finding nearly PLN 7.7bn in spending cuts. The Sejm passed the amendment in a 235:73 vote, with three MPs abstaining. Representatives of the conservative Law & Justice (PiS) failed to show up at the session, as Poland's main opposition party chose to boycott the vote.

Pension reform to help curb deficit Poland's state budget: revenue & expenditures projections 2013

2014

(revised) Revenues

2014 vs. 2013

275.7

276.5

Including: VAT

113.0

115.7

+0.3% +2.4%

CIT

22.0

23.3

+5.9%

PIT

40.9

43.7

+6.8%

Expenditures

327.3

324.2

-0.9%

Expenditures (excl. OFE)*

327.3

333.5

+1.9%

Deficit

-51.6

-47.7

Deficit (excl. OFE)*

-51.6

-57.0

*) in case the government's pension reform is not implemented Source: Ministry of Finance, BZ WBK

The amended bill will put the 2013 deficit cap at PLN 51.565bn, vs. PLN 35.566bn planned initially. Budget receipts in 2013 are now seen at PLN 275.729bn, i.e. PLN 23.7bn or 7.9% lower than initially assumed, re-

Meanwhile, in a recent commentary, the investment bank Morgan Stanley described the Polish government's economic assumptions for the 2014 budget as "largely realistic." According to the government, Poland's fiscal deficit (calculated based on the domestic methodology which is not as restrictive as ESA 95) is to reach PLN 47.7bn next year (2.8% of GDP), down from PLN 51.6bn in 2013 (3.1%). "One of the key drivers behind the lower deficit next year is the expected transfer of Treasury bonds held by pension funds to the social security institution ZUS, leading to lower debt servicing costs. The budget is expected to gain some PLN 9bn (0.5% of GDP) from this next year, assuming that the reform enters into force from Q2 2014," the bank said. The government's GDP and inflation projections for 2014 (at PLN 2.5% and 2.4% respectively) are in fact more conservative than the ones published by Morgan Stanley (GDP: 2.7%; inflation: 2.2%). "The pension reform, to be implemented at the beginning of next year, will give the government sufficient fiscal leeway to avoid further unpopular austerity measures," commented Morgan Stanley analysts. In their opinion, although unpopular with supporters of the ruling Civic Platform (PO), the pension reform is unlikely to translate into stronger backing for the opposition PiS. They believe the "alienated voters" may

simply refuse to participate in the next elections, which are scheduled for 2015, rather than vote populist. Morgan Stanley expects the government to last until the end of its term, despite its low ratings and weak majority. If current projections prove right, the economic recovery should gain traction next year, just in time to boost public sentiment ahead of the general election.

Gov't projections seen as realistic Poland's state budget: macroeconomic assumptions 2013

2014

2015

2016

2017

1.643

1.722

1.830

1.957

2.090

GDP (% y/y)

1.5

2.5

3.8

4.3

Private consumption (%, y/y)

1.1

2.1

3.2

3.5

-0.7

4.4

7.8

9.2

10.6

GDP (PLN bn)

Investments (% y/y) Inflation CPI (% avg.)

1.6

2.4

2.5

13.8

13.3

12.8

12.0

EUR/PLN rate (avg.)

4.15

4.00

3.85

3.70

3.65

Reference rate (% avg.)

2.95

2.54

3.11

3.78

4.00

Unemployment (%. y-end)

Source: Ministry of Finance, BZ WBK

Poland's governing party PO saw its voter support remain stable at 25% in September, while the chief opposition party Law and Justice (PiS) lost 1 ppt to 23% support, the latest survey from the CBOS institute showed. According to the same poll, support for junior coalition party Polish Peopleâ&#x20AC;&#x2122;s Party (PSL) recorded a 1 ppt increase in voter support to 6%.

DATA BOX: WAGES & JOBS Poland's average corporate gross wage measured PLN 3,760.45 in August, as it rose by 2.0% y/y and declined by 1.8% m/m, the Central Statistical Office (GUS) said. Poland's corporate employment measured 5.494m persons in August, as it fell by 0.5% y/y and rose by 0.1% m/m.

weekly newsletter # 004 / 23rd September 2013 / page 15

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 (%) y/y

m/m

Apr '13 May '13 Jun '13 -2.7

+1.6

+1.5

+3.8

+0.1

-0.2

+0.5

+1.8

+4.3 2012

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

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

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

703.5

-4.4

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%

1,595,264

-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

Aug 13

60 May 13

-40 Feb 13

146

Nov 12

152 3,693 157

143 3,432

A ug 12

163 3,556

142 3,365

M ay 12

158 3,829

3,322

F eb 12

3,709

Retail & repairs

Nov 11

Construction

A ug 11

M ay 1 1

-20

Feb 11

152 3,560 155 188 5,828 177

Nov 1 0

3,491

Source: Central Statistical Office (GUS)

-1.9%

377,815

1,528,127

198 6,196

3,613 144

395,507

+0.5%

1,416,585

154

149

+0.8%

Q1 2013

+3.9%

151 3,522

3,741

Q2 2013

+4.5%

176 6,535

154

Current account def. in % of GDP

2010

3,463

147 3,878

GDP in PLN bn current prices

2011

5,790

National average 3,690

Growth y/y unadjusted

131.7

Sentiment Indicators

Energy

151

-20.6

-0.2

Manufacturing

6,712

(%)

91.6

+0.3

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

3,421 146

2013

m/m (%)

Month

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages Sector

Permits

Construction Output

Construction Prices Price s

Jul '13

+16.8

Year

y/y (%) Aug 13

-0.3

Jun 13

2.5

Apr 13

-0.3

Feb 13

+0.7 +0.7

Dec 12

+1.6

Mar '13

m/m (%)

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 (%)

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 # 004 / 23rd September 2013 / page 16

100 DKK

56.51 ↑

100 SEK

49.19 ↑

350

300

313.37 ↓ 16.34 →

100 CZK 10,000 HUF

USD EUR

8 Oct 12

10,000 JPY

400

53.21 ↓

100 NOK

141.25 ↑

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

as of 20 September 2013

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

WIG Total index

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

PLN (up to 1 year)

5.9%

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

5.6%

5.4%

5.3%

5.0%

6.4%

6.2%

6.3%

6.0%

6.3%

4.7%

5.9%

5.7%

5.4%

5.1%

5.7%

5.6%

5.3%

↑ Bogdanka

6.0%

5.8%

5.6%

5.3%

4.9%

→ BRE

EUR (up to 1m EUR) 2.1%

2.3%

2.1%

2.3%

1.9%

2.3%

↑ BZ WBK

EUR (over 1m EUR) 2.8%

3.6%

2.9%

3.2%

2.9%

3.5%

→ Eurocash

→ Asseco Pol.

→ GTC

Warsaw Inter Bank Offered Rate (WIBOR) as of 20 Sep 2013 Overnight

1 week

1 month

3 months

6 months

2.56%%

2.58%

2.60%

2.68%

2.72%

↑ Handlowy

Apr '13

May '13

Jun '13

Jul '13

150,295

150,475

144,260

155,767

493,721 107,468

508,299

523,783

109,312

914,732

920,112

433,840

425,740

935,231

941,791

112,815 927,345

530,666 112,565 921,662

418,252 405,900 946,586

945,077

- Net foreign assets 161,880 176,278 160,267 159,749 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

111

+1%

-18%

433.5

+33%

331

+3%

+37%

50, 50,308.19 Change 1 week

+2% ↑

Change end of '12

+6% ↑

+17%

WIG-20 blue chip index

7.2

-27%

107.4

+2%

+9%

2,408 2,408. 408.16

+5%

-12%

Change 1 week

+1% ↑

↓ Kernel

51.71

-1%

-23%

Change end of '12

-7% ↓

126.45

+2%

-33%

↑ JSW

Central Bank (NBP) Base Rates

47.2

Reference

Lombard

NBP deposit

Rediscount

↑ KGHM

2.50%

4.00%

1.00%

2.75%

↑ Lotos

37.01

+1%

-10%

WIG Total closing index

↑ Pekao

177

+4%

+6%

last three months

Credit

↑ PGE

17.6

+3%

-3%

52000

The financial sector's net lending in PLN bn,

↑ PGNiG

6.2

+1%

+19%

50000

44.89

+4%

-9%

48000

36.1

-5%

-2%

46000

440.1

+4%

+1%

44000

-5%

42000

loan stock at the end of period Type of loan

↑ PKN Orlen

Apr '13

May '13

Jun'13

Jul '13

↓ PKO BP

Loans to customers

880,213

887,960

900,999

896,635

- to private companies

257,956

259,593

263,453

261,000

↓ Synthos

5.15

-1%

- to households

542,130

549,117

553,055

552,503

↑ Tauron

4.82

+3%

+1%

1,588,750 1,622,666 1,634,587

1,616,221

→TP SA

7.80

-36%

Total assets of banks

Source: Central Bank NBP

↑ PZU

20 Sep 13

342.15 ↑

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

29 Aug 13

499.72 ↓

100 CHF

20 Sep 13

100 GBP

15 Jul 13

421.44 ↑

7 May 13

100 EUR

Key indices

Term / currency

450

25 Feb 13

311.52 ↓

14 Dec 12

100 USD

Stock Exchange

Average weighted annual interest rates

15 Jul 13

as of 20 September 2013

Interest rates

6 Aug 13

100 USD/EUR against PLN

Central Bank average rates

21 Jun 13

Currency

Source: Warsaw Stock Exchange

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

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

y/y (%)

share (%)

2012

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Jun 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

32,226

+9.7

10.5

61,694

10.3

22,938

+3.1

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

4,077

+5.7

1.3

7,967

1.3

1,911

-0.7

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

7,842

+5.4

2.6

14,024

2.4

10,539

-8.7

3.4

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%

14,708

+1.4

4.8

29,389

4.9

35,257

-16.4

11.4

85,280

13.4

4 France

21,017

5.8%

34,862

5.8%

4 Italy

19,010

5.2% 32,782

739

+54

0.2

1,342

0.2

1,247

-12.2

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

28,890

+5.5

9.4

54,295

9.1

45,247

-11.1

14.6

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

63,359

-1.4

20.6

126,161

21.1

54,120

-7.1

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.

115,762

+2.7

37.7

223,646

37.5

102,109

-0.9

33.0

203,718

31.9

8 Ukraine

9,940

2.8%

10,628

2.9%

16,436

2.6%