Poland Today Business Review+ No. 042 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. 042 / 7th July 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Germany's BSH Bosch und Siemens Hausgeräte gets green light to acquire Fagor but faces Polish rival Amica page 3 ENERGY & RESOURCES Government sells PLN 1.3bn stake in top power utility PGE page 4 Polish mining technology giants Famur and Kopex give up merger plans page 5

"We're expanding our footprint," Wielton's CEO Andrzej Szczepek tells BR+.

Photo: Wielton

Polish trailer maker eyeing French peer

Wielton, Central Europe's top producer of trailers and semitrailers for trucks, seeks to become a leading European player with the acquisition of France's Fruehauf Group. If finalized, the deal will boost Wielton's turnover in excess of PLN 1bn. page 2

Sołowow pulls out of Echo Investment

Billionaire Michał Sołowow is reportedly seeking buyers for his 45% stake in the leading Polish property developer Echo Investment. The transaction may total PLN 1.2-1.5bn. page 5

PROPERTY & CONSTRUCTION Hines breaks ground on 48,000 sq.m office project in Warsaw page 6 AIG Lincoln to add 23,300 sq.m of GLA to Warsaw office park page 7 New capital streaming into the Central and Eastern Europe region page 9

tel. +48 881 650 600

TRANSPORT & LOGISTICS MLP Group to launch new warehouse project in Wrocław next year page 11 Polish airports operator PPL to sack 800 employees by year-end page 13 IT & TELECOM Cable TV operator Vectra to spend PLN 610m on Netia shares page 13 POLITICS & ECONOMY PMI data shows Polish manufacturing sector lose steam in Q2 page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

weekly newsletter # 042 / 7th July 2014 / page 2

MANUFACTURING & PROCESSING

Poland's top truck trailer maker Wielton to acquire French peer

approximately 1,250 employees, Wielton posted net earnings of PLN 25.6m last year on PLN 588.1m turnover. The respective 2012 figures had come to PLN 22.9m and PLN 605.2m.

"With the planned acquisition of Fruehauf, Wielton aims to significantly boost its sales revenues and diversify its geographical markets. The goal is also to increase the value and profitability of the combined Wielton and Fruehauf business through close cooperation betwen the two entities, which will remain separate, and expanding the scale of their operations," Wielton said. The takeover is part of Wielton's strategic efforts to become one of Europe's top trailer makers by boosting annual output in excess of 10,000 units and reaching sales revenues of PLN 1bn. With a staff of

Poland Today talks to: Andrzej Szczapek, CEO of Wielton • PT: What is the share of exports in your total sales at the moment? Andrzej Szczapek: Thanks to an upturn on the Polish market, domestic sales currently represent some 5560% of our total turnover. In the first half of 2014 exports amounted to 48% of Wielton's sales, including agricultural trailers. We are exporting to 25 countries and in 1H 2014 our key markets were Russia, Germany, Lithuania, Romania, Slovakia and Belarus.

The Warsaw-listed Wielton, one of Europe's leading producers of semitrailers, has placed a binding bid on France's top trailer maker Fruehauf Group. The transaction, the value of which remains undisclosed, is subject to approvals by relevant regulatory bodies as well as Fruehauf's employee council. The acquisition will be financed 80% with debt, Wielton said in a stock market filing. In the financial year ended June 30, 2013, Fruehauf Group turned over EUR 95m and posted a net profit of EUR 1.6m. Its workforce tops 400 employees at the moment. The company's cash reserves are higher than its debt, Wielton said, after completing a due diligence at Fruehauf, which is currently owned by a group of executives following a management buyout in 2007. Fruehauf's trailer and semitrailer sales came to 3,400 units last year. The current size of the French market is being estimated at 16,000, against a long-term average of more than 21,000 units.

Germany, Italy, the Netherlands, Hungary, the Czech Republic, Slovakia, Romania and Turkey.

Wielton produces more than 60 types of trailers and semitrailers, including agricultural ones. Photo: Wielton

The company, which remains majority owned by the Szataniak brothers (investors behind the WSE-listed ready meals maker Pamapol), entered the Warsaw Stock Exchange in 2007 to raise financing for expansion of its existing factory in Wieluń (120km east of Wrocław) and foreign expansion. Established in 1996 the company initially focused on repair and upgrade of European-built semitrailers imported into Poland, before starting its own production in 2004. Over this short time, the company developed and began to manufacture over 60 models of semitrailers, including tippers, isothermal and tented trucks, container carriers, heavy-load semitrailers and other dedicated vehicles for diverse business purposes, with combined sales of 6,500 units in 2013. The Wielton dealer network comprises 16 regional branches in Poland plus two affiliated companies in Ukraine and Russia, as well as commercial agencies in Belarus, Lithuania and Latvia. It also has dealers in

• PT: Does the Fruehauf takeover expand Wielton's manufacturing competences, in addition to market shares? AS: It is important to emphasize that the transaction has not been finalized yet. But the answer is yes, Fruehauf has a portfolio of top quality products that are highly valued on the French market. • PT: Is it your intention to maintain production in France or relocate it to Poland? AS: We intend to keep production in France in its current shape and scale. • PT: Since Fruehauf was subject to a management buyout a few years ago, does it mean the business has been fully restructured or will some additional measures be necessary? AS: Fruehauf is a profitable business that posted net earnings EUR 1.6m in the financial year ended June 30, 2013. The company has no debt with full control over its costs. Hence, it needs no financial restructuring. This transaction gives Wielton, as an industry investor, a foothold in new markets and a significant position in Europe.

weekly newsletter # 042 / 7th July 2014 / page 3

Home appliance production in Poland In 'ooo units Small appliances Large appliances

The collapse of FagorMastercook Wrocław follows the bankruptcy of its Spanish parent Fagor Electrodomésticos. The company was hit hard by slumping consumer demand and had been scrambling to secure financing to continue operations and pay down a debt of EUR 850m. A few weeks ago the courtappointed receiver at the Wrocłąw plant began mass layoffs that were to affect up to 1,120 employees. Fagor

16 14 12 10 8 6 4 2 0 2010

Poland's competition regulator UOKiK expressed no objections to the potential acquisition of the bankrupt Wrocław-based white goods producer FagorMastercook by Germany's BSH Bosch und Siemens Hausgeräte GmbH. The latter asked UOKiK for permission to buy an unspecified portion of the Fagor business earlier this year, but it has so far refrained from disclosing any details of its plans. Since UOKiK's decision remains valid for a period of two years, it seems like BSH should now have plenty of time to negotiate a possible deal. However, the German firm is not the only investor who are interested in the Wrocław firm plant.

2013

BSH gets green light light to acquire Fagor but faces Polish rival Amica

BSH produces dishwashers and laundry dryers at modern factories in Łódź and the central Polish city is also home to their R&D and IT services centers. The company has spent some EUR 275m on greenfield investments in Poland, to-date, and in 2012 it acquired the country's top small appliance maker Zelmer for a further EUR 145m. According to experts, BSH is most likely interested in Fagor's Polish cooker business.

2012

MANUFACTURING & PROCESSING

acquired the Wrocław business (then known as Wrozamet) in 2002 where it has since been producing a range of white goods (ovens, hobs, hoods, dishwashers, washing machines, and fridges) under three brands: Mastercook, De Dietrich, and Fagor.

2011

• PT: Should the acquisition go as planned, Wielton will achieve its strategic goals in terms of turnover and production capacity, which you communicated during the 2007 IPO. What is the next step for Wielton? AS: Indeed, the Fruehauf takeover would boost our sales revenues to approximately PLN 1bn, but let's wait for the transaction to close before we start making further plans.

Source: CECED Polska

BSH is the largest manufacturer of home appliances in Europe and one of the leading companies in the sector worldwide. BSH was founded as a joint venture in 1967 by Robert Bosch GmbH (Stuttgart) and Siemens AG (Munich), and posted annual sales of about EUR

10.5bn in 2013 (up from EUR 9.8bn in 2012) and net earnings of PLN EUR 308m (down from EUR 466m). Today, BSH operates in 47 countries through 41 factories, with a total workforce of over 50,000 people. The product range encompasses large and small domestic appliances. BSH is not the only company to have officially expressed interest in Fagor's assets. Also Polish Amica has recently placed a bid on the bankrupt Spanish firm, as part of its brand new expansion strategy (see BR+ No. 036 page 2). The Polish firm seeks to triple the scale of its business under an ambitious growth plan for the years 2014-2018. Amica's turnover, which at the moment totals some EUR 400m, is to grow to EUR 900m in 2018 and EUR 1.2bn in 2023, while over the same period of time its EBITDA is to increase from EUR 30m to EUR 107m. The company's capital expenditures over the coming decade are set to reach EUR 400m and will include both organic growth as well as acquisitions. The company continues to expand its cooker plant in Wronki near Poznań, which can currently produce some 1.35-1.4m units. By 2018, its capacity is to be extended to reach 1.7m, and in 2023 the figure will top 2.2m. Amica nearly doubled its net profit last year, reaching PLN 89.4m on PLN 1.66bn revenues. Poland is Europe's top producer of household appliances alongside Italy. A number of top global white goods makers, including Electrolux, Whirlpool, BSH, LG and Samsung, have established factories in Poland. Poland-based home appliance manufacturers as a whole, boosted their large and small appliance output by 15% y/y and 25% respectively, in Q1 2014, reported the industry organization CECED. The 2013 full-year production volume came to 17,590 units of large appliances (+11% y/y) and 5,488 units of small appliances (-8% y/y). Last year Poland exported some PLN 14bn worth of home appliances, some 10% more than in 2011.

weekly newsletter # 042 / 7th July 2014 / page 4

ENERGY & RESOURCES

Gov't sells PLN 1.3bn stake in top utility PGE Poland has sold a 3.5% stake (65.4m shares) in the country's largest power utility PGE via accelerated bookbuilding last week in a move to raise funding for the state investment vehicle Polskie Inwestycje Rozwojowe (PIR) that supports growth-oriented infrastructure projects. With the final price set at PLN 20.25 apiece, the entire deal came to approximately PLN 1.33bn, of which PLN 1.2bn went to PIR and the rest â&#x20AC;&#x201C; to state coffers. Deutsche Bank AG, Goldman Sachs Group Inc., UniCredit SpA, Societe Generale SA, Banco Espirito Santo SA and PKO Bank managed the whole operation. PGE shares tumbled by as much as 7.4% on the news, reducing this year's growth to 25%. Prior to the sale, PGE had been the best-performing stock in Warsaw Stock Exchange's blue chip index WIG 30, with investors counting on economic improvement and growing electricity prices to bolster the company's profitability. Poland is selling stakes in publicly traded companies to help PIR co-investing with private capital in large projects in oil exploration, power generation and telecommunication industries. The government approved in 2012 a plan to sell parts of state-owned stakes in PGE as well as PKO BP, insurer PZU and chemical producer Ciech to help speed up investments through the fund. The treasury ministry, which manages state assets, is also hoping to find a strategic investor for real estate group PHN this year. After running out of fresh companies ready to float, and struggling to meet privatization revenue targets, government officials admitted late last year they would need to rely on sales

of blue-chip stakes in 2014. The 2014 target for revenue from privatization has been set at PLN 3.7bn, down from PLN 5bn in 2013, which was already way below the amounts raised in previous years.

Led by Mariusz Grendowicz, the former CEO of mBank, PIR mediates in the allocation of low-cost capital for strategic projects that have a hard time raising commercial financing.

PGE Group's key financial figures Revenues in PLN bn, left axis Net p rof it in P LNbn, right axis

The government believes new investments in Opole are crucial to Poland's energy security. Photo: PGE

Created in late 2012 as part of the government's "Polish Investments" program to stimulate economic recovery by investing future privatization proceeds into projects of strategic importance, PIR has recently agreed to inject some EUR 30-40m into a fund that will focus on development of heat & power sources in Central and Eastern Europe(see BR No. 40 page 4), provide PLN 750m for a PLN 1.5bn Tauron cogeneration project in Silesia (see BR+ No. 027) as well as invest PLN 150m into a public-private heat & power plant project in Olsztyn (see BR+ No. 022 page 4). The fund's other projects included a PLN 120m investment into a PLN 560m fiber optic joint venture with backbone network operator HAWE (see BR+ No. 018 page 12, PLN 563m investment in Lotos Petrobaltic's B8 exploration project in the Baltic Sea (see BR+ No. 007 page 5) and possible participation in a PLN 12bn petrochemical project by Polish refiner Grupa Lotos and chemical company Azoty (see BR+ No. 014 page 2).

0 200 6

200 7

200 8

20 0 9

20 10

2011

2012

2013

Source: PGE

PGE's consolidated sales revenue totaled PLN 30.1bn last year (down from PLN 30.5bn in 2012), while its net earnings rose 14% y/y and came to PLN 4.1bn. Its net electricity generation volume rose 1% and topped 57.05 TWh. The company has a 40% share in Poland's electricity production, and controls 26% of distribution. PGE is currently implementing the largest ever project in the history of Poland's energy sector - the construction of two coal-fired 900 MW power units at the Opole power plant. With a price tag of PLN 11.6bn the new units are to be operational five years from now. Besides the Opole project, PGE is responsible for building Poland's first nuclear power plant, with an estimated capex of PLN 50bn, and continues to expand its wind energy capacity, which stood at 283MW as of end of last year.

weekly newsletter # 042 / 7th July 2014 / page 5

ENERGY & RESOURCES

Polish mining technology giants give give up merger plans Polish mining technology giant Famur has abandoned plans to acquire its key competitor Kopex, due to lack of interest from the latter's key shareholder Krzysztof Jędrzejewski. Since the beginning of the year Famur executives have been trying to convince Jędrzejewski to join forces and create a global market player with a capitalization of PLN 3.3bn.

The majority shareholder in Famur is a Polish venture TDJ, which also happens to own a 9.99% stake in Kopex. TDJ had given Famur time until end of June to acquire the Kopex stake at PLN 10.75 apiece, but due to lack of merger intentions on the part of Kopex, the offer expired. The transaction with TDJ were to lay the foundations for the proposed share swap, with Famur offering two of its own shares for a single Kopex stock. Famur produces highly specialized equipment such as longwall systems used in underground mining. With net earnings of PLN 208m on PLN 1.18bn turnover in 2013, the company exports its products worldwide and has local units in Russia, Germany, Ukraine and India. As for Kopex, it produces machinery and equipment and offers a range of services to mining companies around the world. In 2013 its sales revenues came close to PLN 1.4bn and its net profit totaled PLN 65.3m.

Famur & Kopex revenues in PLNbn 2.5 Famur

Kopex

mines, stronger R&D capabilities, better production efficiencies, improved position vis-à-vis global competitors, and resources for further growth.

PROPERTY & CONSTRUCTION

Key shareholder seeks buyers buyers for 45% stake in top Polish developer Echo Investment 20 years after establishing one of Poland's top property developers Echo Investment, its founder Michał Sołowow is reportedly seeking buyers for his 45% stake in the business. According to analysts, the shares in question may be worth between PLN 1.2 and PLN 1.5bn, making the sale one of this year's biggest deals on the Warsaw Stock Exchange. According to media reports, the offer has been on the table for a few weeks and it is being handled by Citibank's London unit. Echo and Sołowow remain tightlipped on the issue.

2.0 1.5 1.0 0.5

2013

2012

2011

tems: shearers, roof supports, conveyor belts, etc.

0.0 2010

Famur develops and produces advanced mining sysPhoto: Famur

Source: Companies

"Our goal is to establish, together with Kopex, a single global Polish brand and supplier of equipment and services for the underground and open pit mining sector," said Waldemar Łaski, CEO of Famur, who invited Kopex's management to the negotiating table, proposing a merger though a share swap.

A number of market analysts have expressed disappointment at Kopex's refusal to team up with Famur as they shared the latter's conviction that the merger would generate a whole range of synergies for the two firms, including a more comprehensive offer for

Sołowow founded Echo Investments in 1994 and two years later floated the business on the Warsaw bourse. To-date, Echo Investment has delivered more than 430,000 sq.m GLA in retail centers, 250,000sq.m in office buildings, 245,000 sq.m of usable housing space, and 89,000 sq.m in hotels, having completed more than 100 projects in total. Besides Poland, the Kielcebased developer manages investments in Romania, Hungary and in Ukraine. Its consolidated net income came to PLN 331m last year, down from PLN 373m in 2012, whereas the respective revenue totals came to PLN 528m and PLN 584m. Echo's flagship office project at the moment is the 155metre Q22 office tower in Warsaw the company is

weekly newsletter # 042 / 7th July 2014 / page 6

building at the intersection of Jana Pawła II Avenue and Grzybowska Street. Estimated at PLN 500m, Echo's new Q22 building is to reach completion in Q1 2016, delivering nearly 50,000 sq.m of class-A office space to Warsaw's central business district. Another major office project in Warsaw, the 34,000 sq.m Park Rozwoju on Konstruktorska St. in the Mokotów district, near the Chopin Airport and the recently opened southern section of the Warsaw ring road, is currently under construction. Phase one of the project was delivered in Q1 2014, whereas phase two is scheduled for completion in Q2 2015.

idential investments. The company is also working on a large office development in Katowice, A4 Business Park. The first of its three buildings reached completion in Q1, with IBM taking up the entire 9,000 sq.m. In April Echo secured a EUR 30m loan from BNP Paribas Bank Polska for the subsequent two stages of the investment. According to the developer, building two of A4 Business Park as well as a separate multistory garage for 560 vehicles, will reach completion in Q4 2014.

BREAKING NEWS: ECHO ACQUIRES TOP SITE IN CENTRAL WARSAW

Q22 was designed by

Kuryłowicz & Associates in cooperation with

Buro Happold Polska. Image: Echo Investment

A few weeks ago Echo secured a building permit for its Opolska Business Park office project in Kraków, which will include three buildings with 57,000 sq.m of leasable space. Phase one, with 18,000 sq.m of GLA, is to be completed in Q4 2015. Echo Investment has already developed several projects in Kraków which include the Novotel-Ibis and Qubus hotel schemes, the Avatar office development, as well as a number of res-

As this issue of Business Review+ was going to the press, Echo Investment confirmed earlier rumors about its successful acquisition of what is considered as one of Warsaw's premier development sites. The company has purchased a 4.5ha former site of Browary Warszawskie brewery (an entire block enclosed by the Grzybowska, Krochmalna and Wronia streets, across the street from Warsaw's Hilton Hotel and the Platinum Towers complex) for EUR 42m. Echo bought the land from Banco Financiero Y De Ahorros, which took it from the previous owner, Spain's ailing Prasa Group. The latter had purchased the plot eight years ago for exactly the same amount. The Polish developer intends to build mainly offices in this location, with some residential buildings – overall approximately 100,000 sq.m of floor space. According to the company, the capital expenditures will come in excess of PLN 1bn and the project will take some 5-7 years to complete. The recently approved zoning permit allows for the construction of three 120-140m tall towers at the site and obligates investors to preserve the historic brewery cellars located there.

In September last year, 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 2013 to Spain's Azora Europe for EUR 41.9m.

PROPERTY & CONSTRUCTION

Hines breaks ground on 48,000 sq.m office project in Warsaw US property firm Hines has broken ground on its latest development in Poland, the class-A Proximo office building, which is to reach completion in May 2016 offering 28,385 sq.m of GLA, including 2,000 sq.m of retail space. The entire project, to be developed in two stages, will total 48,000 sq.m of GLA. Located directly by the new subway station Rondo Daszyńskiego, a stone's throw from Skanska's new high rise Generation Park and Ghelamco's flagship Warsaw Spire, Proximo will be the latest addition to Warsaw's rapidly developing Wola business district. Designed by Rolfe Judd, Proximo will emerge at the intersection of Prosta and Przyokopowa Streets, just 20 meters from the subway entrance. The area is also easily accessible by bus, tram, as well as car and the building's three-story underground parking lot will provide 435 spaces. The southern wing of Proximo will constitute a 13-story dominant, offering good visibility from one of the main road junctions in this part

weekly newsletter # 042 / 7th July 2014 / page 7

of Warsaw. The project will be BREEAM-certified with a "very good" grade.

sets valued at approximately USD 28.2bn, Hines is one of the largest real estate organizations in the world. Hines regional office in Poland was founded in 1997 in Warsaw and is 100%-owned by the Houston-based Hines International Real Estate Holdings, which belongs to the Hines family.

Warsaw office market Key indicators as of end of 2013 Office zones Central locations CBD-Central Business District CCF-City Centre Fringe Non-central locations

Designed by Rolfe & Judd architects, Proximo will feature reception spaces and landscaping by the renowned Italian studio Pininfarina. Photo: Hines

The general contractor on the project is the Warsaw branch of Hochtief Poland. Construction commenced at the end of June 2014, shortly after Hines obtained a building permit for the project, and will be complete in May 2016. In June 2016 the first of two buildings will be ready for occupancy. Hines is a privately owned real estate firm involved in real estate investment, development and property management worldwide. The firm’s historical and current portfolio of projects that are underway, completed, acquired and managed for third parties includes 1,317 properties representing more than 50m sq.m of office, residential, mixed-use, industrial, hotel, medical and sports facilities, as well as large, masterplanned communities and land developments. Currently, Hines manages 391 properties totaling 15m sq.m, which includes 8.3m sq.m for third parties. With offices in 115 cities in 18 countries, and controlled as-

Stock

Vacan-

sq.m

1,247,000

9.9%

473000

12.2%

774,000

9.6%

2,866,000

12.2%

E-East (Praga)

172,000

9.4%

LS-Lower South (Puławska)

176,000

10.2%

N-North (Żoliborz & Bemowo)

143,000

13.8%

SE-South East (Wilanów & Sadyba)

193,000

5.0%

SW-South West (Jerozolimskie & Okęcie)

712,000

14.4%

1,152,000

12.4%

315,000

13.2%

4,113,000

11.7%

US-Upper South (Mokotów) W-West (Wola) Total

Source: CBRE Q42013 Warsaw Office MarketView

Hines is probably best known in Poland for its 34,000 sq.m Metropolitan project near the Warsaw Old Town, which remains among the city's most prestigious office locations. The company's latest office development is Centrum Biurowe Neptun, the first high rise office building in Gdańsk, which was completed in Q1 2014 offering close to 16,000 sq.m of GLA. Their development portfolio includes three completed office projects and one under construction (Proximo) with a combined GLA of approximately 150,000 sq.m, as well as three residential projects (including one under construction in Kraków) with a total usable floor space of 100,000 sq.m.

"In July we are purchasing an investment site for another office project in Warsaw's Mokotów district," Ewa Borkowska, Marketing Manager at Hines tells Poland Today. "Following the recent completion of Centrum Biurowe Neptun in Gdańsk and the launch of our Proximo project in Warsaw we are actively seeking opportunities to develop further office investments in Warsaw as well as one of Poland's regional cities. As far as our logistics properties are concerned, we are finishing up a new warehouse in Warsaw Annopol and continue to modernize our remaining assets." Aside from developing new buildings, Hines Polska is also a major investor in Poland's property market. Todate, the company has built and acquired a total of 16 assets in Poland with a combined space of 0.5m sq.m. Last year alone Hines acquired the New City office complex in Warsaw's Mokotów district (42,000 sq.m) as well as two logistics assets (in Gądki near Poznań and Grodzisk Mazowiecki near Warsaw).

PROPERTY & CONSTRUCTION

AIG Lincoln to add 23,300 sq.m of GLA to Warsaw office park After reaching 80% occupancy in the first two buildings of its latest Polish office project The Park Warsaw, US developer AIG Lincoln has broken ground on phase two of the investment, which will include another two buildings with a GLA of 11,900 sq.m and 11,400 sq.m respectively. Located in Warsaw's Okecie district, very close to the airport and a number of key thoroughfares, The Park Warsaw will comprise ten free-standing buildings (four-five stories each) with a combined net rentable

weekly newsletter # 042 / 7th July 2014 / page 8

area of 110,000 sq.m. Designed by APA Wojciechowski (which since 2012 has been part of Sweden's Sweco group), the campus-style office park will include a number of on-site amenities, including daycare, beauty & fitness centers, restaurants, banks, and a post office. The anchor tenants in the first two buildings of The Park Warsaw (10,800 sq.m and 9,990 sq.m) are computer gaming companies Qloc and Cenega, automation technology firm Johnson Controls, IT giant IBM and cash machine specialists NCR Polska. Other occupiers include Werner&Mertz, Perfetti Van Melle, Valentis Polska, Hikvision Poland and ARS Retail Solutions.

way between the Chopin airport and Warsaw's immensely popular Mokotów business district, right by the ring road. Bartosz Prytuła, office development partner at AIG/Lincoln Polska, said that the company is currently negotiating the first lease agreements at Lincoln Park. Outside of Warsaw, the company is developing the first class-A office project in Radom, some 100km south of Warsaw, which will include two buildings with a combined leasable area of 10,000 sq.m Building A was completed last year, and the company is hoping to break ground on building two in 2014. AIG Lincoln has been actively involved in promoting Radom as a location for business services providers, who are Radom Office Park's key target.

Once fully developed, The Park Warsaw will include more than 110,000 sq.m of net rentable area. Photo: AIG Lincoln

AIG Lincoln's pipeline includes another office park in the Okęcie area. With a planned net rentable area of 56,000 sq.m, Lincoln Park will include six class-A, free-standing buildings, five to nine stories high. Designed also by APA Wojciechowski, it will be developed in several stages in the coming years. The company obtained a building permit for phase one of Lincoln Park last year. The project will be located half

AIG Lincoln, first revealed plans for its Gdańsk retail project two years ago.. Image: JMP Apart from office developments, AIG Lincoln is active also in the retail and industrial property segments. This year AIG/Lincoln were to embark on one of its largest project to-date, a shopping center in Gdańsk's Szadółki neighborhood with a rentable area of 94,000 sq.m. Phase one of the project (61,000 sq.m and 3,000

parking spaces) were to reach completion in 2015 whereas phase two (33,000 sq.m and 300 spaces) will be developed at a later point. "Due to a number of complications we are certainly not going to break ground on the Gdańsk retail project this year, Magdalena Borowiec, communication manager at AIG Lincoln told Poland Today. The company's first retail development in Poland was the 42,000 sq.m Galeria Słoneczna in Radom, a city of 225,000 inhabitants situated some 100km south of Warsaw. Completed last year, the shopping mall is the heart of Centrum Sloneczne, a 10-hectare mixed use project which includes also residential buildings, an Aquapark, winter ice rink, summer skate park, as well as outdoor amphitheater, bike and walking paths and two children's playgrounds. Galeria Słoneczna has over 150 shops that include some of the top brand names in Europe: H&M, Zara, C&A, TK Maxx, New Yorker, KappAhl, Reserved, Intersport, and Multikino. Established in 1997 as a joint project of New Yorkbased AIG Global Real Estate Corporation and Lincoln Property Company of Dallas, AIG/Lincoln has so far completed a number of class-A office buildings in downtown Warsaw (including Saski Crescent, Saski Point, Riverside Park, AIG Amplico Life HQ, Grzybowska Park) as well as five Diamond Business Parks in Piaseczno, Warsaw, Strykow and Gliwice. Its most recent undertakings include Sosnowa Dolina – a complex of 440 homes in Słomin (15km south of Warsaw) as well as warehouse and light industrial parks in Torun, Gdansk, and Stryków. Besides Poland, AIG/Lincoln operates in a number of European market, most notably Hungary, the Czech Republic, and Germany.

weekly newsletter # 042 / 7th July 2014 / page 9

Warsaw is now a real hot spot but there is also much growth potential in the regional cities in Poland. We are going to see new transactions there later this year, said Tomasz Puch, head of office and industrial capital markets at JLL in Poland. Maciej Zajdel, president of the management board at IVG Poland, pointed out that Poland, and Warsaw in particular, is already perceived as a core market. In the next few years, investors will go to the regional cities in the country, rather than further east, Zajdel said.

PROPERTY & CONSTRUCTION

New capital streaming into the Central and Eastern Europe region Central and Eastern Europe remains a highly attractive destination for real estate investors, said participants in the Poland & CEE Real Estate Summit which Poland Today and Property Investor Europe jointly organized at the Bristol Hotel in Warsaw last week. There are still many interesting investment opportunities in CEE, with new investors, coming from markets including Asia, now showing much interest in the region, the participants in the conference said.

The summit brought together the leading investors, banks and consultancies active in the CEE region Image: Poland Today

Continued investor interest

In terms of the macroeconomic situation in Central and Eastern Europe, the growth prospects are currently improving, said Anna Zabrodzka, an economist at the Moodyâ&#x20AC;&#x2122;s Analytics Prague office. Growth is returning to Europe. Exports is now the main driver of growth in the CEE region, with exports to Germany particularly important for the economies of the Czech Republic and Slovakia, Zabrodzka said.

Investors have been showing continued interest in Central and Eastern Europe, and Poland, the Czech Republic and Hungary are now seen as the best developed countries in the region. â&#x20AC;&#x153;I would allocate money there,â&#x20AC;? said Otis Spencer, managing director at Peakside Capital. Spencer emphasized the fact that Poland has a growth story. He contrasted investing in the country with investing in Spain where investors are admittedly buying cheap these days, but have to hope for the best.

The region remains politically stable despite the ongoing crisis in Ukraine. We have seen little impact of the crisis in Ukraine on the investment sentiment in Poland, said Jan Cienski, former Financial Times correspondent in Poland and now a senior fellow at Demos Europa. He argued that the crisis has actually strengthened the image of Poland as a safe country. Investors are now decamping from Ukraine and those planning to enter CEE will be choosing Poland over Ukraine, Cienski said.

Dennis Dart, consultant at Secure Legal Title, argued that the problem with the Czech Republic is that there are few investment opportunities outside Prague. The Slovakian and Croatian markets are also small, he said. Eric Assimakopoulos, founder and managing partner at Revetas Capital Advisors, said that Bulgaria is an interesting market. For his part, Dart was of the opinion that both Bulgaria and Romania are still causing headaches and will yet have to regain their reputation.

Growth and stability

Admittedly, CEE is a relatively small market, compared to some of the Western European markets, noted Robert Martin, principal, head of Central Europe, at Europa Capital. He pointed out that the region accounts for just 3% of the European property investment market. However, he stressed that his company, which as a pan-European investor can invest anywhere in the European Union, sees opportunities in CEE and believes in the growth of Poland.

Participants in a panel discussion on bank financing. Image: Poland Today

Dieter Knittel, director Europe, real estate finance international, at pbb Deutsche Pfandbriefbank, said that the lack of product is a problem in the Polish

weekly newsletter # 042 / 7th July 2014 / page 10

market. However, overall, the market is doing very well, Knittel said. Joanna Kowalska-Szymczak, investment director at Kulczyk Silverstein Properties (KSP), stressed that the company has long-term plans for CEE and sees investment opportunities in the region. Meanwhile, new money is coming to CEE from countries including the United States. However, the real game changer could be the increased interest of Asian capital in the region, said Allan Saunderson, managing editor at Property Investor Europe. Not much of that capital has been allocated to date and Asian investors have been rather reluctant to reveal their investment strategies. However, they are there, have a lot of money behind them and are looking for opportunities, Saunderson said.

Warsaw’s office boom

comprised 100,000 sqm of that. It was pointed out that big tenants now seem to be leaving new buildings for newer ones. For example, Deloitte stayed in Deloitte House for just five years and is now moving, and Frontex is moving out of Rondo 1 to Warsaw Spire. On the other hand, the Warsaw Financial Center tower has managed to keep relatively full. The new developments in Wola will definitely put pressure on rents in the CBD. Effective monthly rents for class-A CBD are currently EUR20-23 per sq.m, while those for class-B CBD are less than EUR20 per sq.m. Nevertheless, it was generally agreed upon that the Warsaw market will continue to expand. In the late 1990s and early 2000s, there were the same occupancy issues and pressure on rents, and then the market still grew and is likely to continue to do so, the participants said.

one banker admitted that banks are still very conservative and cautious in the country. A number of banks lost a lot of money there a few years ago, he explained.

New retail trends The retail property market in Poland and the other countries of Central and Eastern Europe has been witnessing the emergence of new shopping and development trends, the participants in the conference said. Some of the developers and investors present at the summit pointed to the growing importance of high-street retail. Kowalska-Szymczak, for one, argued that with all shopping centers looking much the same, Poles now want to shop in a different way.

During a special breakout session devoted to the office market in Warsaw, the conference participants discussed the supply pipeline and the effects it could have on the vacancy rate in the city. There is now around 6.5 million sq.m of office space in Poland, of which approximately 4.2 million sq.m is in Warsaw. The vacancy rate in the Polish capital currently amounts to around 12.6%-13% and is expected to reach 15% by year end. Two office towers – Q22 and Warsaw Spire – are under construction and many others are planned. There is a lot of skepticism about how much of what is planned will find enough pre-lease tenants to begin construction. "If you look at the supply pipeline in Warsaw, it is terrifying," one of the participants said. It was argued that if 30% of what is planned for the Wola district of Warsaw is built in the next five years, that would be considered a good result. There was approximately 600,000 sqm of lease deals signed in Warsaw last year, with new supply having

Moody’s Analytics economist speaking during the conference.

Anna

Zabrodzka

Image: Poland Today

One of the breakout sessions during the summit. Image: Poland Today

Participants in a breakout session on the wider CEE office market said that the focus is now also turning to Budapest. It was suggested that Hungary is now seen as predictable and having political stability. There is financing available for good product in Hungary but

She admitted that at the moment there is not much high-street retail product available in the market. It will take many years to develop proper high streets in Poland, Kowalska-Szymczak said. Others stressed that there is growth potential in the high streets in Poland, and especially in Warsaw, but the streets should not be very exclusive. It was pointed out that the richest

weekly newsletter # 042 / 7th July 2014 / page 11

Poles often shop in the high streets of the Western European cities anyway. Much of the discussion also focused on the impact of e-commerce on the retail property market in CEE. It was agreed that the impact has so far not been great and that the region is still behind Western Europe in this regard. Admittedly, the size of the hypermarkets in shopping centers has diminished considerably in recent years. On the other hand, however, developers are now expanding many of the existing shopping centers.

to do more business in Poland," said Helge Sehorz, vice president, team head, real estate finance, at Erste Group Immorent. At the moment, Poland accounts for just 6% of the bank's portfolio.

Outside of Poland, the logistics property market is now particularly growing in the Czech Republic which is conveniently located close to the German market and is currently servicing a lot of German companies. Romania, Bulgaria and Croatia are not attracting many logistics investments at the moment, the developers and investors participating in the discussion said. However, it is expected that investors will start going to those countries within the next few years.

Banks still active

The representatives of several large German and Austrian banks who came to the Poland & CEE Real Estate Summit in Warsaw said that they would like to be involved in more projects in the region. "We would like

MLP Group to launch new warehouse project in Wrocław next year The Warsaw-listed commercial space developer MLP Group seeks to break ground on its 7th logistic park in Poland in the Wrocław area with a target warehouse space of approximately 63,000 sq.m. According to MLP, which specializes in built-to-suit solutions, it is currently finalizing negotiations with prospective tenants for the Wrocław project.

Speculative investments returning

The participants in the conference pointed to the continued investment attractiveness of the logistics and industrial property market. Poland, for one, has been good at attracting foreign industrial investments in recent years which has resulted in a number of new BTS projects. Robert Dobrzycki, managing partner at Panattoni Europe, also admitted that it has recently started to make sense to develop speculative investments in selected locations across Poland. His company itself has launched a number of such schemes in the country of late.

TRANSPORT & LOGISTICS

The summit was held at the luxury Bristol Hotel. Image: Poland Today

Robert Sztemberg, head of the corporate finance department at JLL in Poland, noted that European banks are increasing their exposure abroad. However, he added that banks have now become more cautious. Banks now create their own strategies for different markets and do deals that fulfill those strategies, not necessarily following the clients’ strategies. They look at the borrower and the product, and they decide whether to follow them into a market or not, one of the bankers said.

"By commencing the MLP Wrocław investment we are penetrating a region that is highly popular among our warehouse space tenants in Poland where we have so far lacked any footprint. We are counting on extensive interest among investors and rapid commercialization of the planned facilities. The group's strategic objective and at the same time the fulfillment of its goals related to last year’s IPO would be to develop new logistical parks and to expand existing ones” – emphasized Radosław T. Krochta, CEO and VicePresident of the Management Board of MLP Group. A few weeks ago MLP launched another brand new project, a logistics park in the Lublin area, with electric motors maker ABM Greiffenberger as its first tenant. Once fully built-up, the Lublin project will total 55,000 sq.m of which the German investor will take up 9,800 sq.m. At the end of 2013, the total warehouse space leased by MLP Group S.A. reached over 350,600. sq.m, marking an 18.5% increase on the prior year. In 2013, the company signed leases with 22 clients, for a total of nearly 94,000. sqm. of warehouse and office space. Agree-

weekly newsletter # 042 / 7th July 2014 / page 12

ments with new clients for development of new facilities within MLP's five existing logistic parks: MLP Pruszków I, MLP Pruszków II, MLP Tychy, MLP Poznań and MLP Bieruń, represented more than a half of the total figure (48,300 sq.m), the rest being lease extensions (approx. 31,000 sq.m) and leases of premises already available at the five parks (14,500 sq.m).

DATA BOX: WROCŁAW WAREHOUSE MARKET IN 2013 The highest concentration of warehouse space in the Wrocław region is along the A4 motorway (Bielany Wrocławskie, Kąty Wrocławskie, Kobierzyce, Krajków) and national road no. 8. Wrocław is now one of the fastest growing industrial markets in Poland with very large deals signed in 2013. Two of Amazon’s three distribution centres developed by Panattoni and Goodman are under construction in Wrocław and will deliver more than 200,000 sq m of new space to the market. These transactions pushed the region’s total take-up in 2013 to 482,000 sq m – a twofold rise on 2012 – accounting for more than 20% of Poland’s total take-up. Some 192,000 sq.m was under construction at the break of 2013/2014 with the largest projects underway including BTS Amazon (123,000 sq m) developed as part of Goodman Wrocław South Logistics Centre, another phase of Prologis Park Wrocław V (35,000 sq m), and a BTS scheme for Polaris Industries (33,000 sq m). Headline rents remained stable at EUR 3.0– 3.9/sq m/month. Source: Cushman & Wakefield

According to the developer, it can add a further, 372,000. sq.m of new warehouse to each of its existing five parks, thus doubling its current offering. MLP Pruszkow II, MLP Poznań and MLP Bieruń parks in

particular have the potential for further expansion. MLP Lublin and MLP Wrocław will add another 118,000 sq.m to that total. As far as its financials are concerned, the group’s net assets increased nearly 36% y/y in 2013 and reached PLN 508.9m. Revenues (mostly from rent) went up 7% y/y, topping PLN 92.1m and this year MLP's management board is hoping to see double-digit growth. Last year, the average surface area of leased warehouse space at MLP parks increased 4%. Net result on the developer’s continuing operations topped PLN 56.6m, slightly less than the year before (down 1%). In turn, total comprehensive income increased nearly 16% to PLN 62.8m. 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. 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 Today talks to: Radosłąw T. Krochta, CEO & Vice President of MLP Group

• PT: A number of key players in Poland's warehouse property sector have returned to speculative invest-

ments in recent months. Considering the upturn that's clearly taking place on the market, is MLP also considering speculative projects? Radosław T. Krochta: Our strategy is to build warehouses and industrial facilities based on signed lease agreements, which makes our business safe and predictable, and generates high margins. It might happen that for technical reasons we end up building an asset that offers more space that we have secured tenants for, but as a principle it is not our intention to develop speculative projects. • PT: Besides Wrocław, a few months ago you mentioned Upper Silesia as the location for MLP's next project. Will you be breaking ground on that scheme also this year ? RTK: By launching MLP Wrocław we are entering a very popular market from which we have been absent so far. This is our second large investment this year alongside MLP Lublin. It has complemented our portfolio, which currently spans all important regions in the country. We keep thinking about strengthening our position in Upper Silesia but we would rather not discuss any dates at the moment. We still have space available for lease in Upper Silesia at MLP Bieruń. • PT: What other regions are you taking into consideration? Can you see any opportunities in the east or north of the country? AS: We are looking at all regions in Poland as well as considering expansion abroad. The prospects for the industrial property market are overall very good. We want to take advantage of the positive trend and build logistics parks whereever our clients need them.

weekly newsletter # 042 / 7th July 2014 / page 13

TRANSPORT & LOGISTICS

Polish airports operator to sack 800 employees by yearyear-end

equivalent of their 36 monthly salaries. The average gross monthly pay at PPL is PLN 9,300.

IT & TELECOM

Cable TV operator Vectra to spend PLN 610m on Netia shares shares

Passenger traffic at Polish airports Millions of passengers Warsaw* Kraków

Poland's state-owned airports company Państwowe Porty Lotnicze (PPL) will cut 500 jobs by the end of July and a further 300 before the end of the year, the company announced. Due to generous severance packages for those, who choose to leave voluntarily, the entire operation will cost more than PLN 250m, but according to PPL's management, over long term, the redundancies are to result in annual savings of PLN 100m.

Poland's number two cable TV operator Vectra has placed a buyout bid on a 33% stake in the country's second largest fixed phone company Netia. Vectra is seeking to buy 114.8m shares of Netia at PLN 5.31 apiece or approximately PLN 610m in total, said UniCredit SpA, which is managing the bid. Netia shares jumped as much as 4.3% on the news, the most in three months.

Gdańsk Katowice Wrocław Poznań Rzeszów Łódź Modlin*

"This downsizing should be treated as an investment," CEO Michał Kaczmarzyk told reporters. "We expect it to start paying back in 2½-3 years, which means that the job cuts will quickly make a positive impact on financial results."

2013 2012

Bydgoszcz

2011

Lublin Zielona Góra 0

According to most recent reports, PPL posted a PLN 200m loss for 2013 and is expecting to be again in the red in 2014, largely due to the cost of the ongoing restructuring. Besides the job cuts, PPL is in the process of simplifying its corporate structure which essentially means getting rid of redundant organizational units in a bid to improve efficiency. PPL employs some 2,200 workers, of whom approximately 1,400 are actual airport personnel and the remaining 800-900 people – administrative staff, who will be most affected by the planned cuts. According to labor agreements that were scrapped in June, every person who had worked at PPL for more than a decade was entitled to a severance package amounting to the

Source: ULC *) Chopin Airport

The company directly manages the Warsaw (Chopin) and Zielona Góra airports and owns shares in 10 airport companies that operate airports in Kraków, Szczecin, Poznań, Gdańsk, Modlin, Wrocław, Katowice, Szczytno, Bydgoszcz and Rzeszów. PPL is also a shareholder in a number of other businesses, for instance the Courtyard by Marriott hotel in Warsaw. With more than 10.6m passengers in 2013, Warsaw's Chopin airport remains the country's largest airport. It currently serves 27 regular carriers (including two budget airlines), which in the 2013/14 winter season offered flights to 75 destinations in 38 countries.

"We are seeing this share purchase as a purely financial investment," Vectra Chief Executive Officer Tomasz Żurański told reporters last week, adding that Vectra was not expecting to raise its stake in Netia beyond the initial 33%. "To the contrary, we are likely to sell the shares in a couple of years," Żurański said, calling the bid a "risky investment" that was made attractive by Netia's new dividend policy. In May, Netia shareholders approved a plan for the company to pay its first dividend in eight years. The operator plans to announce a new medium-term strategy "this autumn," CEO Adam Sawicki said in May. The company has seen a minor ownership reshuffle in the past quarter, with investment fund MCI Management SA buying a 7.2% stake, coin maker Mennica Polska SA raising its holding to 9.99% and the latter's key shareholder Zbigniew Jakubas buying 5.2%. ING Groep NV’s Polish pension fund cut its stake to below 10% from 17%, while Third Avenue Management LLC sold all its shares.

weekly newsletter # 042 / 7th July 2014 / page 14

Gdynia-based Vectra, controlled by Polish investor Tomasz Węgrzyński, said it was confident about the success of its offer, following talks with some of Netia's owners. Mennica and Zbigniew Jakubas quickly assured they would not be among the sellers, while others are said to be considering their options. Vectra representatives said also they wanted to finalize more than 10 smaller acquisitions this year, relying on its own cash and bank loans for financing. Vectra's past acquisitions include a small Warsaw-based network Spray. With 910,000 subscribers Vectra is Poland's second largest provider of triple-play services after UPC. The company has not disclosed its 2013 results. As for Netia, the company saw its turnover tumble 12% y/y last year on the back of declining customer numbers and mobile termination rates, and total PLN 1.88bn, while its 2014 guidance stands at PLN 1.74bn. The operator posted a net profit of PLN 46.3m versus net loss of PLN 87.7m for 2012. Netia's customer numbers (RGUs or Revenue Generating Units to be exact) dropped from 2.69m as of end of 2012 to PLN 2.53m a year later. The operator has approximately 850,000 broadband internet clients.

Markit and HSBC, put additional pressure on Poland's monetary policy makers to reduce the cost of borrowing, something they have been rather reluctant to do. Poland's inflation stands at 0.2% in annual terms, well below the Polish central bank's official inflation target (2.5%). However, the central bank last week kept its key policy rate unchanged and said that it did not see any reason to cut rates in the near future. Poland has one of the highest real interest rates in the region and is facing the risk of deflation.

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

PMI data shows Polish manufacturing sector lose steam in Q2 The manufacturing PMI index for Poland fell to a lower-than-expected 50.3 points last month, a 12-month low, from 50.8 in May, getting worryingly close to the 50 threshold that separates growth from contraction and signaling a broad stagnation in Polish manufacturing business conditions. The data, compiled by

Apr 13

Jun 13 Aug 13 Oct 13

Dec 13 Feb 14 Apr 14

The Polish PMI data came after a disappointing retail sales and industrial output reading last month, signaling that economic growth was likely to slow compared with the first quarter, when the economy expanded by 3.4% annually. "The manufacturing PMI survey continued to show improving business conditions in May, but at a slowing pace for the third month in a row. The May PMI index is the lowest since June 2013. Output, new orders and employment indices all declined in May; though still remain above 50. But companies' stock of inputs as well as purchases of inputs declined in May reflecting expectations of lower production in the future. There was no accumulation of stock of finished goods though and in fact it declined at the fastest pace since September 2013. New export orders index fell below 50 for the first time since May 2013. Anecdotal evidence partly linked this to situation in Ukraine and Russia's said Agata Urbańska-Giner, Economist, Central & Eastern Europe at HSBC.

POLITICS & ECONOMY

been the case, because credit has been slow, the government is reducing public debt and low inflation in the euro zone, Poland's biggest trade partner, has had a knock-on effect.

Jun 14

Source: Markit & HSBC

"We think we could see consumer prices falling close to 1% y/y in the coming months. This, combined with rate cuts in other European countries, could, in our view, eventually force the hand of NBP governor Marek Belka, as a continued rise in real interest rates could very well halt the moderate recovery in Polish economy," Danske Bank said in a recent commentary. Consumer prices typically go up as the economic situation improves, but recently in Poland this has not

"The PMI survey supports our expectations of economic activity consolidating in 2014 with GDP growth at just over 3% y/y. Falling input and output prices confirm lack of cost side inflationary pressures. The strength of consumer demand will determine the outcome for CPI. Data to date continue to show improving consumer confidence and labor market but the pace of this improvement should be capped by weaker momentum in the manufacturing sector," she added.

weekly newsletter # 042 / 7th July 2014 / page 15

KEY STATISTICS Consumer Prices Prices

Inflation

+3.7 +0.7 +3.9 +0.3 +3.9 +0.2

-4.7

-1.7

-4.3 +0.8

-4.4 +2.8

-4.6

-0.1

Housing

+1.9

+0.1

+1.8

-0.1

+1.7

0.0

+1.6

0.0

-0.1 -0.4

Transport

-1.1

+0.4

-2.7

+0.1

-2.1

-0.1

Communications -3.2

+0.4

-0.3 +0.6

-1.7

-1.5

Gross CPI

+0.1 +0.7 +0.1 +0.3

0.0

+0.7

-0.8 -0.4

-1.1

Jan '14

-0.1

+0.2 -0.1

Feb '14 Mar '14

Apr '14 May '14

m/m (%)

-21.3

-0.6

+12.5

+2.3

-2.7

y/y (%)

+4.8

+7.0

+3.1

+8.4

+3.8 2013

Year

2009

2010

2011

2012

Turnover in PLNbn

582.8

593.0

646.1

676.0

n/a

+4.3

+5.5

+11.6

+5.6

+2.3

y/y (%) May 14

+1.4

Clothing, shoes

-0.5

Mar 14

Alcohol, tobacco +2.2

-0.3 +0.3

Jan 14

+1.2

m/m

Nov 13

-0.2

Sep 13

+1.6

y/y

Jul 13

Food & bev

Month

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

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

Mar 13

Sector

Retail Turnover

Jan 13

May '14

Nov 12

Apr '14

Sep 12

Mar '14

Jul 12

Feb '14

May 12

Data in (%)

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-May y/y

178.8

174.9

184.1

165.1

138.7

Commenced

142.9

158.1

162.2

141.8

127.4

U. construction

670.3 692.7 723.0

713.1 694.0

Completed

160.0 135.7

152.5

(in '000 units)

Producer Prices Prices Month

Industrial Output Output

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

Month

Permits

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

m/m (%)

-0.3

-0.1

0.0

-0.1

-0.2

m/m (%)

-6.2

-9.7

+2.9

-1.8

+9.4

-2.3

-1.7

y/y (%)

-1.5

-1.0

-1.4

-1.3

-0.7

-1.0

y/y (%)

+2.9

+6.6

+4.1

+5.3

+5.4

+4.4

Year

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product

Construction Output

Construction Prices Price s -0.2

-0.1

0.0

-1.7

-1.6

-1.5

-1.4

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

A: avg monthly wages in PLN B: indexed avg wages, 100=2005 Q3 2013

Q4 2013

Q1 2014

138

8,615

196 6,333 144

-1.1%

Q3 2013

+2.0%

405,554

-1.9%

Q2 2013

+0.8%

296,314

-2.3%

2013

+1.6%

1,635,746

-1.3%

2012

+1.9%

1,596,379

-3.7%

Sentiment Indicators

2011

+4.5%

1,528,127

-5.0%

Economic sentiment and consumer confidence indicators

2010

+3.9%

1,416,585

-5.1%

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

+3.2

+14.0

-8.9

+5.8

-3.9

+14.4

+17.4

+12.2

+10.0

2007

2008

2009

2010

2011

2012

2013

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

3,560

155 3,625

158 3,690

161 3,663 160

Energy

5,828

177 6,021

183 6,736 205 6,358 193

-20

145 3,456 3,913

166 3,706 158 147 3,544

151

Transportation

3,547

125 3,589

127

IT, telecoms

6,707

174 6,654

173 6,695

174 6,986

Financial sector 6,702

151 6,109

137 6,602

148 6,749 152

National average 3,613 144 3,652

145 3,823

152 3,895 155

Source: Central Statistical Office (GUS)

100

138 3,666 130 181

-40

60 J un 14

157 3,766 160 3,895

120

Mar 14

3,421 146 3,408

Sep 1 1

3,693

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

Manufacturing

Retail & repairs

Current account def. in % of GDP

-1.3%

Construction

-3.0

455,528

+24.2

Dec 13

143 6,061

-0.7

55.8

397,429

+18.7

Sep 13

6,290

+23.8

+2.7%

-64.0

J un 13

Coal mining

Q2 2013

58.7 697.9

+3.4%

+21.5

M ar 13

Sector

GDP in PLN bn current prices

+14.9

Q4 2013

-2.9

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages

Growth y/y unadjusted

146.1

(%)

61.9

Q1 2014

m/m (%)

Dec 12

y/y (%)

-0.2

Sep 1 2

Year

-0.1

Period

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

J un 12

y/y (%)

-0.1

Month

M ar 12

m/m (%)

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

Dec 11

Month

131.7

2014

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

Key Economic Data & Projections Indicator

2010

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+0.5%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.8%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.5%

Unemployment**

12.4%

12.5%

13.4%

12.2%

3.99

4.12

4.19

4.20

4.11

EUR/PLN

2011

2012

2013

*2014

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

weekly newsletter # 042 / 7th July 2014 / page 16

55.57 ↓

100 SEK

44.44 ↓

100 NOK

49.06 ↓

10,000 JPY

298.81 ↓

10,000 HUF

400

USD EUR 350

300

15.09 ↓

100 CZK

as of 4 July 2014

WIG-20 stocks Price Change Change in alphabetical 4 July 27 June end of order '14 '14 '13

WIG Total index

133.35 ↓

Money Supply

PLN (up to 1 year)

4.3%

4.2%

4.5%

4.4%

PLN (up to 5 y )

4.9%

4.8%

4.9%

4.8%

PLN (over 5 y)

4.7%

4.8%

4.7%

→ Asseco Pol.

PLN (total)

4.7%

4.8%

4.7%

→ Bogdanka

EUR (up to 1m EUR) 1.9%

2.0%

1.9%

2.0%

→ BZ WBK

EUR (over 1m EUR) 2.9%

3.6%

3.4%

3.3%

3.0%

2.7%

↓ Eurocash ↓ Grupa Lotos ↓ JSW

Overnight

1 week

1 month

3 months

6 months

2.65%%

2.60%

2.61%

2.68%

2.69%

Central Bank (NBP) Base Rates

in PLN m

Feb '14

Mar '14

Apr '14

May '14

Monetary base

158,330

173,213

168,511

162,246

2.59%

- Currency outside banks

548,033 114,680

558,954

548,394

116,657

119,261

557,651 119,649

954,284

964,624

969,754

975,001

- Time deposits

423,296

422,990

439,137

435,386

968,442

980,377

986,142

991,120

- Net foreign assets 135,759 132,849 126,943 142,260 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

Lombard

NBP deposit

Rediscount

4.00%

1.00%

2.75%

40.82

-11%

Change 1 week

-1% ↓

116

-8%

Change end of '13

-1% ↓

361.2

-7%

39.71

-1%

-17%

WIG-20 blue chip index

36.41

-1%

+3%

44.6

-4%

-16%

2,363 2,363. 363.27

→ Kernel

32.15

-4%

-16%

Change 1 week

-8% ↓

↑ KGHM

125.32

+1%

+6%

Change end of '13

-2% ↓

8120

-2%

-10%

↓ LPP → mBank ↓ Orange Pol.

494.8

-1%

9.37

-3%

-4%

175

-3%

54,000

20.28

-7%

+25%

53,000

Credit

↑ Pekao

The financial sector's net lending in PLN bn,

↓ PGE

loan stock at the end of period

→ PGNiG

5.04

-3%

-2%

→ PKN Orlen

40.2

-2%

Type of loan

Feb '14

Mar' 14

Apr' 14

May' 14

Loans to customers

914,068

923,709

928,450

930,652

- to private companies

263,941

267,553

270,886

273,360

↓ PZU

- to households

567,257

569,334

573,332

574,800

↓ Synthos

4.32

-1%

-21%

Total assets of banks

1,616,891

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

↓ Tauron

5.09

-6%

+16%

→ PKO BP

Source: Central Bank NBP

50,995. 995.56

81.55

→ Alior Bank

Warsaw Inter Bank Offered Rate (WIBOR) as of 4 July 2014

Reference

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

37.62

-5%

430.55

-3%

-4%

WIG Total closing index last three months

52,000 51,000 50,000 4 Jul 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

11 Jun 14

340.76 ↓

4 Jul 14

523.07 ↑

100 CHF

25 Apr 14

100 GBP

17 Feb 14

414.35↓

5 Dec 13

100 EUR

Key indices

Term / currency

450

26 Sep 13

304.95 ↑

19 Jul 13

100 USD

Stock Exchange

Average weighted annual interest rates

20 May 14

as of 4 July 2014

Interest rates

10 Apr 14

100 USD/EUR against PLN

Central Bank average rates

19 Mar 14

Currency

Source: Warsaw Stock Exchange

T rade Poland's ten largest trading partners, ranked according to 2013

Poland exports and imports according to commodity groups, according to SITC classification EXPORTS in PLN bn Jan-Apr 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Apr 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Apr share 2014

IMPORTS in PLN bn *2013

share No

Country

Jan-Apr share 2014

*2013

24,353

+9.8

10.9

69,304

10.9

16,611

+4.9

7.5

47,906

7.4

1 Germany

47,765 21.7% 139,334 21.5%

Beverages and tobacco

2,874

+9.8

1.3

8,624

1.4

1,223

-5.0

0.6

4,150

0.6

2 UK

14,109

6.3%

41,503

6.5%

2 Russia

26,387 12.0%

Crude materials except fuels

5,642

+1.1

2.5

15,744

2.5

7,290

-0.3

3.3

21,585

3.3

3 Czech Rep.

13,475

6.0%

39,421

6.2%

3 China

21,405 9.7% 60,914 9.4%

Fuels etc

9,750

-3.8

4.4

30,013

4.7

25,443

+2.9

11.6

75,539

11.7

4 France

13,093

5.9%

11,303

639

+35.8

0.3

1,864

0.2

866

+2.3

0.4

2,646

0.4

5 Russia

9,809

Food and live animals

Animal and vegetable oils

58,734 26.3% 159,622 25.0%

79,601 12.3%

5.1% 33,703 5.2%

35,745

5.6%

4 Italy

4.4% 34,058

5.3%

5 Netherlands

10,033

4.5%

27,450

4.3%

6 France

9,048

4.1%

25,292 4.0%

7 Czech Rep.

7,648 3.5% 23,778 3.7%

8,172 3.7% 25,005 3.9% 8,705 4.0% 24,533 3.8%

Chemical products

20,370

+5.1

9.1

59,103

9.3

33,213

+6.9

15.1

92,917

14.3

6 Italy

Manufactured goods by material

43,767

+2.4

19.6

129,915

20.3

38,999

+6.6

17.7

112,392

17.3

7 Netherlands

Machinery, transport equip.

85,634

+11.0

38.4

239,434

37.5

71,343

+3.9

32.4

216,608

33.4

8 Ukraine

n/a

18,037

2.8%

8 USA

5,028 2.3%

17,350