Poland Today Business Review+ No. 024 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. 024 / 24th February 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

HEALTHCARE British firm McKinlay Development open their first Polish retail park page 11

MANUFACTURING & PROCESSING Industrial output up by 4.1% in January page 3 Henkel acquires Polish laundry brands from PZ Cussons page 4 EBRD divests PLN 29m stake in Lentex page 5 ENERGY & RESOURCES Nuclear power tender attracts top global engineering firms page 5 LNG terminal 75% complete, PGNiG to renegotiate Qatar deal page 6

Protests in Kiev turned bloody last week with close to 90 people killed.

Photo: Mstyslav Chernov CC

Ukraine: revolution across the border Poland watched with great concern the violent political turmoil in Ukraine, which led to President Viktor Yanukovych's hurried getaway from Kiev. With transitional administration in place and new elections scheduled for May, Ukraine is entering a period of uncertainty that may determine its relationship with Russia and the West for many years to come. page 2

PROPERTY & CONSTRUCTION PHN finds partners for two key projects page 6 SERVICES & BPO Hospitality group Orbis signs franchise partners for two new Mercure & ibis hotels page 7 Best Western's 4th hotel in Kraków is under construction page 8

tel. +48 881 650 600

TRANSPORT & LOGISTICS Industrial property market breaks new records in 2013 thanks to Amazon's entry page 9 SEGRO pays EUR 100m for three logistics centers in Poland page 11 CONSUMER GOODS & RETAIL Carrefour building new centre in Sochaczew page 12 Capital Park breaks ground on retail park in Łódź page 12 FOOD & AGRICULTURE African swine flu cases confirmed in Poland, Russia imposes imports ban page 13 POLITICS & ECONOMY Opposition party PiS strengthens lead over PO, announces new political platform page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

Conference:

Primetime Warsaw 2 Developing a sustainable European metropolis 3 April 2014, Conference Center Muranów, The Museum of the History of Polish Jews

Building on the success of our first conference about Poland's capital, we bring you all the major issues and opportunities, in Central Europe's pre-eminent city.

Lead Speakers:

Mrs Elżbieta Bieńkowska, Deputy Prime Minister & Minister of Infrastructure and Development • Keynote: Professor Gronkiewicz-Waltz, Mayor of the City of Warsaw • Professor Hanna Sven Bienert MRICS, Professor of Sustainable Real Estate at the University of Regensburg and • ULI Sustainability Fellow, (Europe’s leading expert in the financial implications of sustainable development) Topics:

Single ticket price: 1,150 PLN Early bird registration: 950 PLN (till end-February)

Content: tel. +48 694 922 898 richard.stephens@poland-today.pl

Sponsorship: tel. +48 602 223 634 magdalena.gawlikowska@poland-today.pl Registration: tel. +48 602 224 390 ewa.rycicka@poland-today.pl

and Social Challenges for Warsaw within the new European Funds Perspective 2014-2020 • Infrastructural Wola & Praga: two of Warsaw’s most dynamic districts, soon to be joined by the 2nd metro line • Cutting away the ‘green’ what are the financial results and implications of sustainable development? • Can Warsaw come up withPRafluff: comprehensive • Trends & issues in the office and retail sectors‘high street retail’ plan? • The art of Placemaking: creating attractive public spaces in and around commercial properties •

Patrons

Partners

Organizing Partner

weekly newsletter # 024 / 24th February 2014 / page 2

POLITICS & ECONOMY

Crisis in Ukraine: Poland faces political turmoil on its doorstep The political turmoil in Ukraine was the number one topic in Polish media last week, with Poland playing an active part in negotiations between the opposition protesters and pro-Russian President Viktor Yanukovych, who abandoned the capital Kiev on Saturday after several days of bloodletting that claimed 88 lives, according to data from the Ukrainian Health Ministry. Yanukovych enraged much of the population by turning away from the European Union to cultivate closer relations with Russia three months ago. Last week, the protests in central Kiev turned bloody with security forces opening fire on demonstrators, who responded with stones and Molotov cocktails. After days of street battles during which police snipers gunned down protesters, on Friday Yanukovych made sweeping concessions in a deal brokered by Polish Foreign Minister Radosław Sikorski and his French and German counterparts. But the deal, which called for early elections by the end of the year, was not enough to satisfy proEurope demonstrators on Independence Square. On Saturday, Ukraine's parliament voted to remove President Viktor Yanukovich and freed his arch-rival Yulia Tymoshenko from jail. The vote came after police stopped guarding presidential buildings, allowing protesters in, and parliament made new high-level appointments. Mr. Yanukovych said it was a "coup" and vowed not to stand down. His whereabouts were unknown at the time this edition of Poland Today BR+ went to press. Although an early election was set for

25th May, Ukraine's future is far from certain, as the country remains torn between Europe and Russia. The Ukrainians seem to have thrown a wrench into Russian President Vladimir Putin's dream of creating a new Eurasian Union, of which Kiev were to become the key member, yet Moscow is unlikely to give up without a fight. Russian Foreign Minister Sergei Lavrov said "illegal extremist groups are refusing to disarm and in fact are taking Kiev under their control with the connivance of opposition leaders."

At 8pm on Friday, Polish people lit candles all across the country as an act of solidarity with all the victims of Ukraine's bloodshed. The presidential Palace in Warsaw (pictured above) was also illuminated for the event. Photo: Ł. Kamiński www.prezydent.pl

The unrest in Ukraine prompted all sides in Polish politics to unite to try to help the protesters in their eastern neighbor. The Poles were treated to the highly unusual sight of Prime Minister Donald Tusk and Jarosław Kaczyński, leader of the main opposition party Law & Justice (PiS), applauding each other’s speeches in the parliament. Mr. Tusk chaired a meeting of members of all the major political parties as well as former president Aleksander Kwaśniewski and former prime minister Jerzy Buzek. They agreed that Poland should try to provide humanitarian aid to

Ukraine and even to offer hospital beds to the injured and to accept refugees, among a series of policies discussed.

Building independent Ukraine

As it looked to build the foundations for stability, transparency and good governance on its border, a few years ago Poland, along with Sweden, established the European Union's Eastern Partnership program, which aimed to strengthen ties with countries such as Ukraine in the bloc’s post-communist neighborhood. It was under the auspices of that program that Poland had pushed for the EU to solidify ties with Kiev through an association and free trade deal. But Russia, which sees Ukraine as a critical geopolitical prize that must remain within its sphere of influence, scuppered the deal, and offered USD 15bn in loans. Officially, the loans came with no strings attached, though most Russia-watchers fear there was an unspoken deal that in return the Yanukovych regime would move Ukraine toward signing an agreement to join Russia’s own trading bloc, the Customs Union, putting it firmly in the Kremlin's grasp. With Yanukovych ousted, and Tymoshenko back in the game, pro-Western forces seem to be back in charge in Ukraine, but strong pro-Russian sentiments prevail in parts of the country, which could end up splitting into two or even three parts, according to the most pessimistic scenarios. Setting herself immediately on a collision course with Moscow, Tymoshenko said she was sure her country would join the European Union in the near future. Her release was welcomed by Washington. Ukraine is right next door, and any prolonged unrest there could have drastic effects for Poland, both political and economic. Pipelines that carry fuel critical to the Polish economy, namely Russian oil and natural gas, travel through Ukraine. The taps could be turned off if Moscow decides it is in its interest to exert pres-

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sure on Warsaw. Russia has shown its willingness to resort to such methods time and again – cutting off gas to Ukraine in the winter or even banning meat or vegetable imports from Poland during political disputes. Any further escalation could also negatively impact the Polish currency and exports. "As the situation in Ukraine continues to escalate, market jitters have spread to other Central and East European markets. Hence, it is not only the Russian ruble that has been under pressure: we have also seen some pressure on the Polish zloty, the Hungarian forint and the Romanian leu. In our view, the biggest direct risk if geopolitical escalates further is to the zloty," Danske Bank analysts wrote in a commentary last Thursday.

Experts talk to Poland Today about the situation in Ukraine and its consequences for Poland: Eugene Chausovsky, Analyst for Eurasia at Stratfor "The crisis in Ukraine has a significant impact on Poland, given that Ukraine's foreign policy orientation is of tremendous significance to Poland. Poland has been one of the outspoken leaders of bringing Ukraine closer to the EU, and along with Sweden initiated the EU’s flagship Eastern Partnership program. It is this program which brought Ukraine very close to signing the key Association and Free Trade Agreements with the bloc, and it was Ukrainian President Viktor Yanukovych's last minute U-turn on these deals in late November that precipitated the demonstrations in Ukraine. The protests quickly took on a general antigovernment nature, and now we see the possibility of significant changes to the government in the form of a new parliament, changes to the constitution with di-

minished presidential powers, and early presidential elections. Poland could therefore stand to benefit if a new government in Kiev takes on a more EU-friendly position. However, such a government would be at odds with Russia, which remains a key actor in Ukraine in the political, economic, and security realms. This would create a more unstable and dynamic situation in Ukraine, and would likely intensify tensions between Russia and the EU, to include Moscow’s bilateral relationship with Warsaw."

Ievgen Vorobiov, Analyst at the Polish Institute of International Affairs; Ukraine, Russia and Eastern Europe expert "We have to put this crisis into perspective. Almost 10 years ago during the Orange Revolution [of 20042005] Ukrainians were also calling for greater legitimacy in their government. Poland was very active through its president at the time, Aleksander Kwaśniewski. And Poland was successful in helping the Orange Revolution to bring about free elections. But this time is also very different: there has been much more violence. Poland, nevertheless, took a similar position. It wanted a solution that would include all of the players. It was working to bring the authorities and rebels together in compromise. This is where Poland used its experience, based on its transformation 25 years ago. Russia's approach this time around was very different. It has been much less willing to contribute to peaceful negotiations. It is now simply trying to push the West out of Ukraine. Poland, on the other hand, is trying to make sure that Russia does not simply impose its will. And there we see a difference in the Polish approach: it has been more outspoken, more explicit about Russia meddling in Ukrainian affairs. If Poland and the West had not acted, it would have allowed Russia to tighten its grip on Ukraine – and that would have been

a threat to democracies in the EU. Russia’s support for undermining democracy in its neighborhood is half the problem; the other half is governance and corruption. Russia has shown, through energy conflicts with Ukraine, that it is willing to use its economic power to exert political pressure. A tighter Russian grip on Ukraine would untie Russia's hands in the EU's eastern members, including Poland, by using energy, trade and military capacities as pressure tools."

MANUFACTURING & PROCESSING

Industrial output up by 4.1% in January Poland's industrial output increased by 4.1% y/y in January vs. 3.5% y/y growth expected in the PAP Polish news agency consensus survey, as production increased 2.9% from the prior month, the Central Statistical Office (GUS) said last week. The seasonally adjusted figure was up by 6.3% y/y on a 2.3% monthly increase – the best result since the beginning of 2012. According to GUS data, 24 out of 34 industries recorded y/y growth, mainly the sectors with significant exposure to foreign markets. The biggest increase, by 16.2%y/y, was seen in furniture production. On the flipside, however, construction and assembly output disappointed with January's contraction by 3.9% y/y being way below market consensus (1.3% y/y). The decline was mainly due to poor performance of civil engineering firms, which reported a 10.1% drop in output. "Taking into account the negative working day effect in January, the growth rate of output has to be interpreted as a very good result. This is an optimistic forecast for the upcoming months, when we are expecting

weekly newsletter # 024 / 24th February 2014 / page 4

further acceleration of output, supported by both external demand and recovering domestic demand. These statistics are in line with our scenario of gradual rebound in the domestic economy," BZ WBK's chief economist Maciej Reluga wrote in a commentary.

Industrial output & producer prices

MANUFACTURING & PROCESSING

Henkel acquires Polish laundry brands brands from PZ Cussons

"The transaction strengthens the bond between Henkel and our Polish customers. We are ready to include the new brands into our product range. We understand and will support UOKiK's decision that seeks to ensure free competition on Poland's detergents market," commented Markus Raunig, managing director of Henkel Polska's washing and cleaning products departments.

Industry output, y/y change Producer Price Index, y/y change 12% 8% 4% 0% -4% -8% -12% May 12

Jul 12

Sep Nov Jan 12 12 13

Mar May 13 13

Jul 13

Sep Nov Jan 13 13 14

Source: GUS, the central statistical office

PPI inflation amounted to -0.9% y/y in January (vs. 1.0% y/y in December after revision), which was slightly below market expectations (-0.8% y/y). In monthly terms, producer prices increased by 0.1%. "We are expecting a slight rise of PPI in the upcoming months, but this gauge will still be running at low levels, reflecting the weakness of inflationary pressure," BZ WBK analysts said.

Following a green light from Poland's competition watchdog UOKiK, German chemical giant Henkel has finalized the acquisition of Polish laundry and home care brands from the UK-based consumer products company PZ Cussons Plc. The EUR 53.5m deal was signed in February 2013 but the regulators took their time investigating its potential impact on the Polish market. The transaction includes predominantly "E" branded detergents and fabric softeners, as well as a handful of other smaller brands such as IXI and Kokosal, most of them quite popular locally as legacy of the communistera producer Pollena, which became part of PZ Cussons. The business operates mainly in Poland but also includes activities in Russia and other Central Eastern European countries. The acquisition is in line with Henkel's global strategy to further develop its three business sectors (laundry & home care, beauty care, adhesive technologies), the company said. In fiscal year 2012, the brands acquired from PZ Cussons generated sales of around EUR 60m. UOKiK's approval is not unconditional, however, as the cartel protection office demanded Henkel divest its laundry detergent brand Rex in Poland, in order to preserve fair competition. In the latest edition of its Polish brands ranking the daily Rzeczpospolita valued the "E" brand at some PLN 65m (+43% y/y), whereas the Rex brand was worth PLN 14.1m (-9% y/y).

The popularity of "E" and other brands acquired by Henkel date back to the communist times when they used to be made by state-owned Pollena WrocĹ&#x201A;aw. Image: PZ Cussons

PZ Cussons, which operates in Europe, Asia and Africa, said it was selling the home care brands as a result of restructuring the business to focus solely on the personal care category. Founded in 1879 as a trading post in Sierra Leone, the British-owned company expanded its operations throughout Africa before acquiring Cussons Group in 1975 and launching operations in Thailand and Indonesia. In 1993 PZ bought the stateowned Pollena Wroclaw in Poland, followed in 1995 by Pollena Uroda in Warsaw. The company has since discontinued production in Warsaw. In 2011 PZ Cussons turned over GBP 958.9mm and posted a net

weekly newsletter # 024 / 24th February 2014 / page 5

income of 11,000.

GBP 38m, with a global workforce of

Established in 1876, Germany's Henkel is a much larger player, operating across home and personal care products as well as adhesives, sealants & surface treatment for consumer and industrial purposes. With a turnover of EUR 16.5bn in 2013, the German giant employs 47,000 staff worldwide, including some 1,000 in Poland. To an average Polish consumer, Henkel is best known for its Persil, Perwoll, Silan, Schwarzkopf, Fa and Syoss brands. Henkel's Ceresit brand is a strong player in the building adhesives segment. Their Polish unit, Henkel Polska, posted a net profit of PLN 98m on PLN 1.82bn worth of revenues in 2012. The company has seven production centers focusing on building adhesives (Stąporków, Wrząca, Dzierżoniów), surface treatment technologies (Bielsko-Biała, Tychy), automotive sealants and adhesives (Ciechanów) and laundry detergents (Racibórz). Last year Henkel relocated washing detergent production from its factory in Vienna to Racibórz. Besides the production plants, the company has a logistics center for adhesives in Żerniki and a center for excellence for building products in Stąporków. In its current strategy, announced in late 2012, Henkel lists Poland as one of its key growth markets.

MANUFACTURING & PROCESSING

EBRD divests PLN 29m stake in Lentex The European Bank for Reconstruction and Development (EBRD) has sold its 5.63% stake in Polish PVC floor covering maker Lentex to institutional investors, via an accelerated book building, announced the Lon-

don-based institution. The sale was finalized before the opening of the Warsaw Stock Exchange on 18th February, and was completed at a discount on the previous day’s closing price at PLN 8.15 apiece. The total sale comprised 3.55m shares. The EBRD invested PLN 13.5m in Lentex back in December 2011 to help the company acquire Gamrat, a construction materials manufacturer which was privatized by the State Treasury. According to its preliminary unaudited results Lentex posted a net profit of PLN 15.6 on PLN 167m turnover last year, whereas the respective results for Gamrat came to PLN 23.4m and PLN 242.1m. Consolidated full-year results for the Lentex group are not yet available. "We are very pleased with the results and performance that the management of Lentex has achieved. After the successful restructuring and post-merger integration of the group, the time has come to sell our stake and provide other investors with the opportunity to participate in Lentex's future success.," commented Frederic Lucenet, EBRD Director, Manufacturing and Services.

Ltd. and a consortium of URS Polska sp. z o.o. with Tractebel Engineering S.A. Back in 2011 PGE EJ1 had been hoping to pay no more than PLN 1.25bn for the owner's engineer services under a 10-year contract, but now it looks like the final bill will almost certainly prove higher. The lowest bid (from AMEC Nuclear) came to PLN 1.6bn, while the highest (by Exelon) topped PLN 3.8bn. Since all bids were considerably higher than PGE EJ1's budget, the company may choose to repeat the tender, but a final decision will be taken following detailed assessment of the submitted offers.

Energy generation in Poland in 2035 By source, government plans Nuclear 36%

Gas 11% Coal 39%

ENERGY & RESOURCES

Nuclear power tender attracts top global engineering firms A number of global giants are competing for the contract to provide owner's engineer services to PGE EJ1, the nuclear power subsidiary of Poland's top energy utility PGE. The company has received four bids and hopes to name the winner in Q3 2014, PGE EJ1 said last week. The bids were filed by: AMEC Nuclear UK Ltd, Exelon Generation Company, LLC, a consortium of Mott MacDonald Limited with AF-Consult

RES* 14%

Source: PGE

*) renewable sources

The government had entrusted the country's top power utility PGE with the task of developing two nuclear power units ( 3,000 MW each) over the coming two decades. The construction of the first power plant is expected to be begin around 2019 and go online in 2024, at an estimated cost of PLN 40-60bn. The second power plant is planned for 2035. According to plans, by 2035 nuclear power plants are to generate 36% of the country's electricity. At the same time, coalfired stations are to see their share drop from 84% as of end of 2012 down to 39% in 2035.

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Following the recent adoption of a national nuclear energy strategy (see PT Business Review+ No. 021 page 4), the government will begin the search for strategic partners, hoping to be able to name them, along with the plant's precise location, by the end of 2016. Last year, PGE awarded a PLN 252m contract for assistance in the delivery of Poland's first nuclear power plant to WorleyParsons, a major Australian provider of professional services to the energy, resource, and complex process industries.

ENERGY & RESOURCES

LNG terminal 75% complete, PGNiG to renegotiate Qatar deal Poland's first LNG terminal in Świnoujście is 75% complete and will be ready by the end of 2014, the Prime Minister's office announced in mid-February. According to earlier plans, the project, which is of strategic importance for Poland's energy security, were to reach completion in mid-2014, but the Saipem-Techint-PBG consortium has been given an additional six months to deliver the facility. The terminal will allow for importing 5bn cubic meters of liquefied natural gas annually (more than a third of Poland's annual consumption), with a possibility of increasing the capacity to 7.5bn cubic meters. The running of the plant, which will significantly reduce Poland's dependence on Russian gas imports, will be managed by the national gas network operator Gaz System through the company Polskie LNG. The construction of the Świnoujście terminal will cost state-controlled Polskie LNG a total of about PLN 3bn. Another PLN 4.5bn is expected to be spent on all the related infrastructure.

Recently, construction efforts have focused on the terminal's LNG storage tanks – the assembly and welding of internal tanks made of special nickel sheets, and the completion of the assembly of roof bridge steel structures for the installations on both tanks, according to the statement. In the offshore part, the assembly of LNG pipelines continues and pressure-testing of steel pipelines has begun. In a separate statement, the Chancellery of the Prime Minister said that Poland’s government has approved an amendment to the so-called special act on investments related to the LNG regasification terminal in Świnoujście and to property management. The new regulations will make it possible to step up efforts related to the construction of new gas pipelines and modernization of old ones. This will enable Poland to create of functional and integrated gas infrastructure that will make the Świnoujście LNG terminal accessible to recipients located in any part of the country.

provides close to two thirds of Polish gas. As part of the ongoing efforts aimed at improving its energy security, Poland seeks to integrate the domestic transmission system with those of neighboring countries (see more on that in PT Business Review + No. 022 page 5). Particular focus has been placed on the northsouth pipeline and the integration of connections in the Baltic Sea region. These connections, together with the expansion of the LNG terminal and the national transmission network, are to create a common regional gas market. The first supplier of LNG to Świnoujście will be Qatargas, under an agreement signed in 2009, which stipulates that starting from July 2014 the Qatari company is to deliver 1m cb.m of the fuel annually over a period of 20 years. However, Poland's natural gas giant PGNiG said last week it would seek to renegotiate the deal with Qatargas. PGNiG would like to reschedule the timetable of future deliveries, as well as the price of the Qatar gas, because of the delayer completion of the terminal as well as significant drop in global gas prices over the past years. The prices in the initial agreement, while competitive five years ago, are now seen as too steep. "I think that within the next 2-3 months we will have negotiation scenarios ready," PGNiG CEO Mariusz Zawisza told the MPs last week.

PROPERTY & CONSTRUCTION

PHN finds partners for two key projects The LNG terminal in Świnoujście is to reach completion in December this year. Image: Polskie LNG

The creation of gas transmission infrastructure will enable Poland to import significant amounts of gas from suppliers other than Russia, which currently

The Warsaw-listed, state-controlled real estate group Polski Holding Nieruchomości S.A. (PHN), has found partners for another two of its key projects, a warehouse complex near Warsaw and a waterfront mixed-use complex in Gdynia. Letters of intent with

weekly newsletter # 024 / 24th February 2014 / page 7

the potential partners, whose names remain undisclosed, were signed in mid-February. The investment site PHN has designated for the Warsaw industrial complex is located in Parzniew near Pruszków, close to the Konotopa and Pruszków junctions on the A2 Berlin-Warsaw highway, an area that is particularly popular with logistics tenants. According to PHN's CEO Artur Lebiedziński, the site had been attracting attention of potential tenants even before a joint-venture partner for the project was found. PHN said its partner is an internationally renowned developer specializing in industrial and warehouse properties. The two parties are to hammer out details of the project. On a similar project in Wrocław (SEGRO Industrial Park Wrocław with a planned space of 40,000 sq.m), PHN's joint venture partner is the British developer SEGRO.

An artist's impression of PHN's Port Rybacki, a waterfront project the company seeks to develop with a partner in Gdynia. Image: PHN

The Gdynia site is an artificial pier located in the centre of Gdynia, on the Baltic coast, directly next to the landmark Sea Towers residential complex and Gemini shopping center. According to local zoning plans, the site can be used to develop some 70,000 sq.m of commercial space and 120,000 sq.m of residential space. PHN and its partner are to prepare detailed documentation for the investment. Although rather laconic, PHN's announcements are important given the government's ongoing efforts to

sell its remaining 73% stake in PHN by mid-2014. A virtual data room containing information about the company and current asset valuation is available to potential investors interested in the venture. PHN was created in 2011 when the Polish government pooled together some 180 different real estate and land holdings, to raise funds to help it reduce borrowing. In October last year PHN sealed a joint venture agreement with Germany's Hochtief Group for its flagship development, the office tower on 36 Świętokrzyska St., vis-à-vis Warsaw's most prestigious office project Rondo 1. The two partners are to create a 50/50 SPV, with PHN contributing one of Warsaw's most attractive sites, and Hochtief Development Poland taking on responsibility for the overall implementation of the project. According to PHN's preliminary plans, the building were to reach some 150m in height and 45,000 sq.m in GLA, but all final details, both financial as well as architectural, are yet to be hammered out together by the two companies. PHN representatives told Poland Today they are in the process of selecting the most suitable design for the planned office complex, with Hochtief being responsible for coordinating all preparatory work. According to property consultancy CBRE, PHN's portfolio comprising 171 properties, including 123 built-up areas with office, retail, residential, hotel and industrial buildings and 48 investment sites (over 1,100 ha) throughout the country was worth PLN 2.2bn as of end of 2013. PHN has been listed on the Warsaw Stock Exchange since 13 February 2013. Its net earnings came to PLN 96.6m in Q1-Q3 2013.

SERVICES & BPO

Hospitality group Orbis signs franchise partners for two new Mercure & ibis hotels Poland's leading hotel operator, the French-owned Orbis Hotel Group has signed franchise agreements for new hotels in the northern Polish town of Grudziądz as well as Lithuania's Marijampole, Orbis' Katarzyna Gronek informed Poland Today. The first ibis Styles hotel in Grudziądz. will open in Q4 2014 offering more than 80 modern rooms, restaurant and conference facilities. Orbis is part of Accor, Europe's number one hotel operator with 3,600 hotels and more than 460,000 rooms across 92 countries. The group entered Poland in 1973 through Novotel franchise with Orbis in which it became a majority shareholder 35 years later. Ibis Styles is the non-standardized arm of Accor's economy umbrella brand ibis, which includes also ibis Budget and ibis. There are 233 ibis Styles hotels (21,000 rooms) in 22 countries worldwide. In August last year, Orbis signed a franchise agreement for a new ibis Styles hotel in the southern Polish town of Nowy Sącz, to be developed by a local investor. With 57 rooms, the three-star property will open in Q4 2014 as the first hotel in Nowy Sącz belonging to an international chain. The Orbis Hotel Group manages 61 hotels in Poland and two in Lithuania with 11,500 rooms under the ibis, ibis Budget, Mercure, Novotel, Sofitel and Orbis Hotels brands. In 2010 Orbis adopted an asset-light strategy, which prioritizes the company's role as a hotel

weekly newsletter # 024 / 24th February 2014 / page 8

operator and bets on expansion via management and franchise agreements, striving for higher efficiency and focusing on hospitality as its core business. Hence, Orbis has been gradually restructuring its asset portfolio, seeking ways to refinance certain real properties with the help of long-term investors. Most of the group's new hotels are being developed under Mercure and ibis Styles conversion brands, which Orbis sees as best fitting the franchisee market. The French group is tempting potential partners with its dominant market position, booking system that generates close to a half of hotel revenue in Europe, 250strong global sales force and loyalty program which boasts 8.5m members worldwide including 160,000 in Poland. Orbis has so far signed 18 franchise agreements of which eight in 2013.

The new ibis Styles in Grudziądz will offer 80 rooms. Image: Orbis

Besides the two existing hotels in Lithuania, Orbis has signed agreements from another two Mercure properties in the Baltics, one in the Latvian capital of Riga, and the other in the Lithuanian town of Marijampole. The four star Mercure Riga Centre, located in a historic building in the centre of the Latvian capital, redeveloped by a Ukrainian investor, is to open in the first

half of 2014 offering 143 rooms. Mercure Marijampole, with 47 rooms and well-equipped conference facilities, will join the Accor network on 1st April 2014. "Latvia and the remaining two Baltic states are among Europe's fastest growing economies at the moment. We want to have 1-2 properties in each of those countries, under management or franchise agreements," Laurent Picheral, CEO of Orbis Group, said a few months ago. Orbis is also working on a Mercure hotel in Bydgoszcz, which is to open by mid-2014 with 90 rooms as well as Mercure/ibis Styles combo in Sosnowiec. Last year saw the opening of a Novotel hotel in Łódź, while in 2012 Orbis launched ibis and ibis Budget Reduta in Warsaw as well as a similar double project in Krakow, alongside an ibis hotel in the Lithuanian city of Kaunas. The Warsaw-listed Orbis turned over PLN 671.5m in 2013 (down from PLN 688m in 2012, in like-for-like terms), while its EBITDA came to PLN 199.1m (vs 204.7m in 2012). Average revenue per room dropped 4.6% last year, down to PLN 124.1, while room occupancy rose by three percentage points and topped 58.8%. The company has recently embarked on a PLN 100m investment program, seeking to upgrade some of its key properties by the end of 2014. Some 90% of the total amount is to be spent in Warsaw, where Orbis operates 11 hotels. The combined price tag on the ongoing makeovers of Mercure Warszawa Centrum, Novotel Warszawa Centrum, and Sofitel Victoria Warszawa is PLN 75m. Total capital expenditures in 2013 came to PLN 95m and included also substantial outlays on IT.

SERVICES & BPO

Best Western's 4th hotel in Kraków is under construction The global hospitality chain Best Western has secured its fourth location in Kraków. The investor, Poland's Grupa Dobry Hotel, has just broken ground on the four-star property that is scheduled to open by the end of the year as Best Western Plus Q Hotel. With 154 rooms and three conference rooms, the project will be located close to the historic city centre as well as Kraków's brand new ICE convention centre, which will likewise reach completion in 2014. The Kraków project is the 5th property Grupa Dobry Hotel has chosen to open under the Best Western logo, and a second one that belongs to the chain's mid-range "Plus" segment. The Polish developer seeks to open more business hotels with the "Q" mark in Poland's largest cities. The first Best Western Plus Q Hotel, with 127 rooms, is currently under construction in Wrocław. "We have a total of 20 properties operating under the Best Western, Best Western Plus and Best Western Premier brands in Poland. Several contracts are under advanced negotiations and soon we should have more news for the market. We are on track to have 50 contracts signed by the end of 2015," Gheorghe Marian Cristescu, Best Western country sales director for Poland tells Poland Today. "We are securing contracts for new destinations as well as cities like Warsaw or Katowice were we are already present." Prior to joining Best Western in April 2012, Mr. Cristescu had been working in the Polish hospitality

weekly newsletter # 024 / 24th February 2014 / page 9

market for over a decade, previously as a national sales director in Poland's leading hospitality group Orbis, subsidiary of France's Accor.

longing to the chain share the same quality and customer service standards as well as sales and marketing programs.

DATA BOX: KRAKÓW HOSPITALITY MARKET IN 2013

Best Western Plus Q Hotel will open this year close to Kraków's new convention centre.

Image: Best Western

Last year the chain added properties in Gdańsk, Lublin, Kraków, Piotrków Trybunalski and Modlin. Besides the aforementioned openings of Best Western Plus Q hotels in Wrocław and Kraków, the coming months will see the launch of a brand new 3-star hotel in Opole (30 rooms) as well as a 3-star Best Western Petropol in Płock (84 rooms), a conversion of a former Orbis property. The chain's expansion in Poland is being managed by BW Hotels Osuuskunta, also known as Best Western Hotels Finland, Baltic States and Poland - the affiliate office of Best Western International responsible for the brand and hotel services in the region. Although until 2012 Finland, with 16 hotels, had been the largest market for BW Hotels Osuuskunta, the balance has since shifted to Poland, which will continue to fuel the chain's growth in the region for years to come. Founded in 1946 Best Western is the world's biggest hotel chain. All of its hotels are independently operated and owned by private investors. All facilities be-

Kraków's branded hotels as well as the non-flagged products had a very good year. The number of leisure stayovers as well as the BPO driven corporate room nights are making Kraków one of the most visited cities in Poland year round. Occupancy levels in the 4 star segment was circa 73% at an ADR of EUR 71. 5 star hotels fared well with occupancies reported at the level of circa 74% with a year-end ADR of EUR 94. The only hotel completed in 2013 was the PURO hotel offering 138 rooms. Investments currently under construction include the Hilton Garden Inn at the Balice Airport and the DoubleTree by Hilton and Hampton by Hilton. What is more, the Kraków Congress Centre as well as Kraków EXPO are being built and they will be opened for business in mid-2014. These MICE venues will further positively impact the hotels trading in the coming years. We believe Kraków will also experience a growth in occupancy as well as RevPAR in 2014. This city is still the number one destination for national and international leisure visitors in Poland. Source: Colliers, February 2014

TRANSPORT & LOGISTICS

Industrial property market breaks new records records in 2013 thanks to Amazon's entry Demand for warehouse space in Poland broke some new records last year, largely due to Amazon's decision to build three giant logistics hubs in the country, property consultancy Jones Lang LaSalle (JLL) said in a recent report. The net demand totaled 1.26m sq.m in 2013, 26% out of which were the contracts signed by Amazon in Wrocław and Poznań. However, even without the Amazon deals, the figure came to 926,000 sq.m, marking a significant improvement on the 2012 result (755,000 sq.m). Moreover, gross demand, which includes new take-up and lease renewals, reached a historical maximum of 1.87m sq.m in 2013, representing a 38% increase on the prior year and an 11% improvement on the previous record result in 2011. The "Amazon effect," which is how JLL refers to the impact of the e-commerce giant on Poland's industrial property market, has made the Poznań and Wrocław regions, where gross take-up stood at 423,000 sq.m and 415,000 sq.m respectively, the top performers last year. In the case of Poznań, this translated into rising from fifth to first place on the list of the most popular industrial regions. The highest demand for industrial floor space came from retailers, whose share (largely due to Amazon deals) amounted to 49%, followed by logistic operators (23%) and automotive sector (12%). According to JLL, at the end of Q4 2013, a total of 850,000 sq.m was unoccupied, equal to 11.4% of existing market stock - up from 10.1% largely due to high

weekly newsletter # 024 / 24th February 2014 / page 10

levels of tenant churn and not to an increase in supply. The market also saw a few bankruptcies resulting in space being vacated. The highest amounts of vacant space are found in the markets of Central Poland (15.8%), Warsaw (14.6%) and Wrocław (11.7%), the lowest - in Poznań (4.4%).

Largest new leases in 2013 Region

Park

Sq.m

Tenant

Wrocław Amazon BTS

123,000 Amazon

Poznań

Amazon BTS

101,000 Amazon

Wrocław Amazon BTS

101,000 Amazon

Poznań

Poznań Logistics Centre II

82,000 ITM

Central

BTS Castorama Stryków

50,000 Castorama

As of December 2013, 714,000 sq.m of industrial space was under construction, the largest amount since 2008. Almost half of that volume was attributable to Amazon 's projects near Wrocław and Poznań. According to JLL, the share of speculation on the market remained insignificant. The largest speculative volumes are currently being constructed on markets with limited supply, such as Tri-City or Szczecin, and their total floor space stands at a mere 42,000 sq.m. In spite of the low share of speculative construction in the pipeline underway (5.8%), developers look set to embark on more projects of this type, the consultancy said, adding that largest market players had secured titles to large amounts of industrial land, and are ready and able to swiftly deliver buildings.

effective rents were typically found in metropolitan areas as well as markets with scarce supply, such as Kraków and Szczecin (see chart below for details).

Warehouse market as of end of 2013 Region

Existing stock

Warsaw Inner City

563,000

Warsaw suburbs Wrocław Kraków Łódź Central Poland (excl. Łódź) Poznań Szczecin

Wrocław Prologis Park Wrocław V

35,000 Eko Holding

Upper Silesia

Opole

BTS Polaris Opole

34,000 Polaris

Tri-City

Poznań

Segro Logistics Park Poznań

32,000 Volkswagen

Effective rents 3.6-5.1

2,063,000

2.1-2.8

780,000

3.4-3.9

141,000

3.3-4

300,000

2.75-3.7

721,000

2.1-2.8

1,023,000

2.5-3.15

48,000

2.8-3.4

1,431,000

2.4-3.3

184,000

2.8-3.3

Source: Jones Lang LaSalle, warehousefinder.pl Q4 2013

At the end of Q4 2013, the total stock on the Polish industrial market was 7.45m sq.m. During 2013, the market expanded by 305,000 sq m, which was the second lowest figure in the history after 2010 and a fall of 41% compared to the 2012 figure. Such a low result was caused by a number of factors - tenants attracted by lower rents offered in already existing projects, lease space optimization and the long winter that caused many projects to start late. Five BTS projects, with a joint floor space of 82,000 sq m, were completed in 2013, illustrating growing interest in Poland as a destination for manufacturing projects. The regions which saw the most new space delivered included Wrocław (117,000 sq.m), Warsaw (78,000 sq.m) and Upper Silesia (51,000 sq.m), Panattoni was the most active developer, delivering 90,000 sq.m of new space, followed by SEGRO (85,000 sq.m), Prologis (42,000 sq.m), Goodman (25,000 sq.m) and MLP Group (20,000 sq.m).

Panattoni and Goodman are building more tban 300,000 sq.m of industrial space for Amazon in Image: Panattoni Western Poland.

According to JLL, the high level of tenant activity during 2013 did not influence rental levels, which remain largely dependent on location, type of project, length of lease, size, technical improvements needed for the client’s requirements, tenant’s credibility and its longterm ability to handle the rental burden. For instance, rents for Small Business Units are markedly higher than rents in large distribution warehouses in the outskirts of big cities. At the end of last year the highest

Some 92% of Poland's total modern warehouse stock is located in the five largest markets (Warsaw, Upper Silesia, Poznań, Central Poland and Wrocław). With industrial stock totaling 2.63m sq.m, Warsaw remains by far the largest market in the country, followed by Upper Silesia (1.43m sq.m), Poznań and Central Poland (each of 1.02m sq.m). However, a major reshuffling in the ranking is expected this year. When the projects now underway are completed, Poznań will markedly outstrip Central Poland, and the latter region will be competing with Wrocław for the fourth position. "The differences between main industrial regions in Poland are becoming increasingly defined. Upper Silesia is attracting numerous automotive and production companies as well as logistics operators. Poznań and Wrocław are, to a larger degree, becoming nearshoring locations for western European logistics, and export-bound production. Warsaw region is predominantly focused on catering to the logistics needs of the capital city and the premises of many retail chains. Finally, Central Poland, which is increasingly

weekly newsletter # 024 / 24th February 2014 / page 11

integrating with the Warsaw region, is the main distribution centre for companies operating across the country," commented Tomasz Olszewski, Head of Industrial Agency in Central and Eastern Europe, Jones Lang LaSalle. Since according to most projections, Poland's economic recovery is likely to gain traction this year, the demand for industrial space is likewise expected to increase. "Despite promising economic prospects, it will be extremely difficult for 2014 to match last year's excellent result, due to the unlikely event of another investment on such a scale as Amazon. In an optimistic scenario, net demand for industrial space shall reach 1m sq.m in 2014. We also expect that more space will be developed as built-to-suit-projects. The supply vs. demand ratio remains relatively well-balanced. Taking into account all the forecasts, it is reasonable to assume, that the demand for warehouse space will be increasing at a pace that shall lead to a drop in space availability, meaning that rents will either remain at current levels or be pushed up slightly in the main regions," concluded Olszewski.

Logistics Partnership (SELP) acquire a EUR 472m portfolio of prime logistics assets and development land in Poland, France and Germany from Tristan Capital Partners. SEGRO holds a 50% stake in SELP and acts as asset, property and development manager for the joint venture. The acquisition of Tristan portfolio, which is to be completed in Q2 2014, underlines SEGRO’s strategy of building scale and expanding its presence in its target Continental European logistics markets in partnership with third party capital, the company said.

"Under our current strategy we continue to expand our asset portfolio in CEE," Paweł Sapek, Business Development Director CEE at SEGRO, tells Poland Today. Image: SEGRO

TRANSPORT & LOGISTICS

SEGRO pays EUR 100m for three logistics centers centers in Poland UK's industrial property company SEGRO is further expanding its asset portfolio in Poland with the acquisition of three logistics projects on the outskirts of Warsaw, Łódź and Poznań with a combined floor space of 171,000 sq.m. The EUR 100m takeover is part of a larger transaction that will see SEGRO European

"The off-market acquisition of this significant portfolio, just four months after the creation of SELP, increases the joint venture's position in some of the best logistics markets in Europe by almost 50%. The assets deliver an attractive income yield from modern, flexible buildings and strong covenants and their addition to SELP's existing assets will accelerate its investment strategy," commented SEGRO Country Business Unit Director, Pawel Sapek said. "We are particularly pleased to have strengthened our presence in Warsaw, Łódź and Poznań, all of which are key markets for us in Poland."

"This transaction confirms Poland as one of the markets that continues to attract real estate investment in significant numbers. 2013 proved to be a record breaking year for the Polish industrial investment market with approximately EUR 650m in transactions being completed across the country. We expect that this year's investment transaction volume will come in at around EUR 500m with large portfolio transactions once again dominating," Tomasz Puch, Head of Office and Industrial Investment, Jones Lang LaSalle. SEGRO is an owner, asset manager and developer of modern warehousing, light industrial and data centre properties, with GBP 4.7bn of assets (including joint ventures at Group share, as at 30 June 2013) principally concentrated in London’s Western Corridor (including the Thames Valley) and in key conurbations in France, Germany and Poland. The group serves over 1,400 customers spread across a diverse range of industry sectors. It has 5.2m sq.m of built space and a passing rent roll of GBP 311m (as at 30 June 2013). SEGROs operations in Poland started at the beginning of 2006 and currently its portfolio includes properties in Gdańsk, Warsaw, Poznań, Stryków, Lódz, Tychy, Wrocław and Gliwice. "We keep expanding our Polish portfolio, which totals some 800,000 sq.m of built-up warehouse and industrial space that can be quickly expanded by a further 600,000 sq.m," Paweł Sapek tells Poland Today. As for Tristan, the London-based investor has completed a number of deals in Poland in recent years, including the EUR 121m acquisition of Mokotów Nova office complex in Warsaw from Ghelamco in July 2013, EUR 174.5m purchase of five shopping centers from Charter Hall Retail REIT in June 2013, as well as the EUR 210m takeover of Warsaw Financial Center in November 2012 (in a joint venture with Allianz).

weekly newsletter # 024 / 24th February 2014 / page 12

RETAIL PROPERTIES

Carrefour building retail park in Sochaczew Carrefour has chosen Polish Mirbud as the general contractor for a new retail park the French retailer seeks to build in the town of Sochaczew, some 50km west of Warsaw. With a GLA of 6,000 sq.m the Sonata Park scheme is to open before the end of 2014 next to an existing Carrefour store on Warszawska St. It will house a number of fashion outlets and a large electronics & appliance store. "Apart from the Sonata Park project, our plans for this year in the retail center segment include phase one of modernization and redevelopment of CH Morena in Gdańsk and CH Carrefour in Olsztyn," Ronan Martin, V-ce President of Carrefour Polska tells Poland Today. "Besides development work, we plan to refresh the tenant mix at both centers in a move to strengthen their respective positions in the local markets."

Sonata Park is to open by the end of 2014. Image: Carrefour The French company owns 20 retail properties located in large and mediums-sized towns. Last year Carrefour signed new leases for 20,000 sq.m and extended

existing leases for a further 19,000 sq.m of retail space at its shopping centers across the country. Overall, the company owns and operates some 200,000 sq.m of retail space in Poland. Carrefour's tenants include the some of the leading retail park brands, such as LPP, Media Expert, Decathlon, Carry, Takko, Hebe, Rossmann, CCC, Komfort, Abra, Deichamnn, Avans, Pepco, Rossmann, Apart, and Textil Market.

" Besides organic growth, we are also looking into possible acquisitions of existing hypermarkets and supermarkets." Ronan Martin, V-ce President of Carrefour Polska tells Poland Today. Image: Carrefour Polska

"We will continue to increase the value of our properties not only through modernization, redevelopment and expansion, but most importantly by expanding their retail offering, to meet the changing consumer habits. This evolution can be seen, for instance, in the growing popularity of local and regional products, which Carrefour has been introducing." The core of Carrefour's business in Poland are its three retail formats: Carrefour hypermarkets, Carrefour Market supermarkets and franchise-based Carrefour Express neighborhood stores. Overall, the company operates some 600 retail units in the country (including 420-franchise-based) as well as 43 petrol stations. The Carrefour Express convenience format has been a particular hit with owners of small shops in

Warsaw, where 100th franchise outlet under that logo opened in December. "In the franchise segment, we intend to maintain the pace of growth from the past years. Besides organic growth, we are also looking into possible acquisitions of existing hypermarkets and supermarkets," says Ronan Martin. In 2012 Carrefour turned over PLN 7.57bn in Poland. The company has slowed the expansion of its hypermarket chain, with no more than four new stores in this format to be opened over the next two years (including one in CH Łacina in Poznań, developed by French Groupe Apsys). Its recent acquisitions include 10 RAST supermarkets in Olsztyn, the company bought at the end of last year Carrefour "The RAST chain offers online sales, with both home delivery and store pickup. We will carefully scrutinize the performance of this business, treating it as a test before making any decisions on venturing into ecommerce," Mr. Martin replied to our question about the possible launch of an online store. Carrefour's competitors Tesco, Auchan and Piotr i Paweł are busy developing their e-supermarkets, although so far the business is said to be far from profitable.

RETAIL PROPERTIES

Capital Park breaks ground on VisVis-à-Vis retail centre in Łódź Warsaw-listed property developer Capital Park has broken ground on its second strip mall under the Visà-Vis brand. Located in Łódź's Bałuty district, on Zgierska St., the 5,646 sq.m property is to reach com-

weekly newsletter # 024 / 24th February 2014 / page 13

pletion in Q4 2014. Besides an Intermarche supermarket (2,458 sq.m) the scheme will house some 20 other outlets, including Rossmann drugstore, Pepco textile discount and Euro Apteka pharmacy. The Vis-à-Vis concept encompasses small neighborhood shopping centers with store access directly from the parking lot.

Łódź will be the second Polish city to get a Vis-a-Vis shopping centre. Image: Capital Park

"We launched our first Vis-à-Vis center in November 2011 in Radom and we are seeking locations for further developments under that logo," Kinga Nowakowska, Head of Asset Management, Sales & Marketing at Capital Park tells Poland Today. "Changing consumer habits boost demand for smaller retail properties, where one can do everyday shopping, with easy parking lot access." Capital Park shares debuted on the Warsaw Stock Exchange a few weeks ago raising PLN 136m for several projects currently underway in Warsaw. Its flagship development is Eurocentrum, a 15-floor building housing more that 69,578 sq.m of office and more than 2,400 sq.m of retail-service space as well as more than 770 parking spaces. Phase one (42,337 sq.m) of Eurocentrum, which is located in Warsaw's Ochota district, is to reach completion in June 2014. In August 2013 Capital Park Group broke ground on its latest office project in Warsaw – Royal Wilanów.

Located at the corner of Klimczaka and Przyczółkowa streets in Warsaw's up-scale suburb of Wilanów, the five-storey building will offer close to 36,707 sq.m of office space as well as some 7,000 sq.m of retail space. Their third key Warsaw project is the mixed-use development Art Norblin in Wola district, with a total lettable area of 64,164 sq.m. Although the company does not communicate financial details of its undertakings, the combined capex for the three projects is likely to come in excess of PLN 1bn.

"We are seeking locations for more Vis-a-Vis developments," Kinga owakowska, Head of Asset Management, Sales & Marketing at Capital Park, tells Poland Today. Image: Capital Park

"We are still waiting for the final building permit for ArtNorblin. We are hoping to break ground on that development at the turn of the year with completion expected some 2-2½ year later," says Kinga Nowakowska. Besides large office buildings, Capital Park develops and manages retail properties (Vis à Vis shopping plazas) as well as residential projects. Their overall investment approach is to acquire properties with significant value creation potential, be it through changes to land use decisions, obtaining building permits, construction of new facilities or alteration of existing ones and improved management of existing buildings. Properties located in Warsaw represent 74% of the group's total portfolio value.

Since the start of its operations in 2003, the Capital Park group has completed approximately 100 investment transactions and its portfolio now comprises 76 properties of approximately 250,000 sq.m of lettable area in 39 towns and cities, including offices (93,030 sq.m), retail properties (26,700 sq.m), mixed-use developments (112,423 sq.m) and 13 other projects. One of Capital Park's specialties are small real estate assets such as high street retail properties. Out of the 76 projects in the group's portfolio, 39 high street retail properties are within the structure of a recently launched closed-ended investment fund – Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych Real Estate Income Assets, which is being actively managed by the group. As of end of 2012 Capital Park's existing retail portfolio was worth PLN 1.3bn, with a target value amounting to more than PLN 3.2bn. Capital Park posted a net profit of PLN 46.3m in the first half of last year, with PLN 19.8m in sales for the period.

FOOD & AGRICULTURE

African swine flu cases confirmed in Poland, Russia maintains January imports ban The European Commission has set up a buffer zone along parts of Poland’s eastern border with Belarus and Lithuania, after two cases of African Swine Fever (ASF) had been identified in two dead wild boars found in the area, Poland's veterinary authorities announced last week. The first cases of ASF in the region were reported in January in Lithuania, prompting

weekly newsletter # 024 / 24th February 2014 / page 14

Russia to impose a ban on pork imports from Poland and other EU countries. Although it poses no danger to humans, African Swine Fever (ASF) is a contagious epizootic disease that causes high mortality in the populations of domestic pigs. This is the first time the disease has been registered on the territory of Poland. Farmers in the Podlaskie voivodeship, near the border with Belarus, have been ordered to fence in their land, lay down disinfectant mats and test and monitor shipments of live pigs out of the zone. The country's Veterinary Service has taken steps to prevent the disease from spreading, imposing stricter supervision over the affected area. Last year Poland took Spain's place as Europe's third largest exporter of pork meat, after Germany and Denmark, with exports in 2013 valued at EUR 912 million. According to preliminary estimates by the Agricultural Market Agency, Polish producers exported close to 650,000 tons of pork last year, which represents a 10% improvement on the prior year. Imports went up as well (by 5%), partly due to a drop in domestic production, and reached an estimated 790,000 tons. The Russian ban, which is to remain in force for at least two months, is likely to have a significant impact on Poland's meat industry. The top three buyers of Polish pork are Belarus, Russia and Japan, although China is quickly catching up with the leaders. Last year Poland exported some 85,000 tons of pig meat worth an estimated PLN 800m to Russia and Belarus, who buy a quarter of all Polish pork exports.

POLITICS & ECONOMY

Opposition party PiS strengthens lead over PO, announces new political platform Poland's main opposition party, the conservative Law & Justice (PiS) movement is strengthening its lead over the centrist ruling coalition ahead of the upcoming elections to the European Parliament. According to a brand new poll by TNS Polska, Support for Prime Minister Donald Tusk's Civic Platform (PO) remains stable at 22%, while PiS increased its support since January by 1 pp. to 33%. Voter support for the Democratic Left Alliance (SLD) stood at 10% in mid-February, while the liberal Your Move (Twój Ruch) and PO's junior coalition partner, Polish People’s Party (PSL) each had 5% support, which is the minimum required to enter the Polish parliament. Polish President Bronisław Komorowski has announced that the elections to the European Parliament in Poland will be held on May 25. Poles will choose 51 MEPs in 13 voting districts. At a recent congress in Warsaw, PiS announced a new 160-page program focusing on pro-social policies. Along with the party congress, the party launched a TV ad campaign, related to the European Parliament elections. PiS is hoping this new mixture of what are essentially the party's old populist ideas will help expand its voter base, which currently stems mainly from rural regions and small towns. Their proposals include the lowering of retirement age, creation of jobs for young workers, radical reor-

ganization of government ministries and institutions and removal of the National Health Fund. PiS envisages some 1.2m new jobs created for the young under a National Employment Program. Social Security premiums would be cut in regions of high unemployment. The new platform also included calls to retain the złoty as currency, clean public finances, rebuild the tax system, ease regulations for small business, tie the minimum wage to average wages and spend up to 4% of GDP on pro-family policies, including direct payments to families. On the taxation front, VAT rates should be brought back to prior levels and a new Personal Income Tax (PIT) rate at 39% must be introduced for earners above PLN 300,000 annually. New taxes on financial institutions and supermarkets could bring about PLN 7bn annually, PiS said. A new ministry for Economy and Economic Development would be created to be led by a deputy PM. The current Ministry of Treasury is to be dissolved, while new ministries for: European Integration, Maritime Economy, Family Policy should be created, according to PiS.

DATA BOX: CORPORATE WAGES & EMPLOYMENT IN JANUARY The average monthly salary in Poland's corporate sector grew by 3.4% y/y in January to PLN 3,805, statistics office GUS announced last week. In month-onmonth terms the average salary declined by 9.9%. Economists surveyed by the Polish Press Agency had expected salaries to grow by 3.3% y/y and fall by 10.1% m/m. Polish enterprises employed 5.5 million people in January, GUS also said. The figure remained unchanged in annual terms and grew by a disappointing 0.3% m/m. Analysts had expected employment to grow by 0.6% y/y and by 0.9% m/m in January. Source: GUS

weekly newsletter # 024 / 24th February 2014 / page 15

KEY STATISTICS Consumer Prices Prices

Inflation

+0.1 +3.7

+1.4

0.0 +4.2 +0.8

Clothing, shoes

-4.8

+3.5

-4.9

-0.2

-4.9

-0.6

Housing

+1.8

+0.2

+1.8

+0.1

+1.8

0.0

Transport

-5.3

-3.9

+2.1 +0.2

-2.3

-1.0

-2.3

-1.2

-0.9

0.4

-1.2

-1.0

Communications -7.2

+2.8

-11.7

-4.9

-11.6

0.0

n/a

Gross CPI

+0.2 +0.6 -0.2 +0.7 +0.1 +0.7 +0.1

+0.8

y/y

m/m

Aug '13

Sep '13

Oct '13

Nov '13 Dec '13

m/m (%)

-0.7

-0.9

+3.6

-5.8

y/y (%)

+3.4

+3.9

+3.2

+3.8

+5.8 2013

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

Residential Construction Dwellings

2009 2010

2011

2012

2013

(in '000 units)

Producer Prices Prices

Industrial Output

+17.3

Year

y/y (%) Jan 14

+0.1 +3.6

+1.6

Nov 13

+1.5 +0.7

Sep 13

Alcohol, tobacco +3.6

+1.9 +0.3

Jul 13

-0.1

May 13

+1.9

Mar 13

Food & bev

Month

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

Jan 13

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

Nov 12

Sector

Retail Turnover

Sep 12

Jan '14

Jul 12

Dec '13

May 12

Nov '13

Jan 12

Oct '13

Mar 12

Data in (%)

Permits

Jan

y/y

2014

(%)

178.8

174.9

184.1

165.1

138.7

8.8

+8.5

158.1

162.2

141.8

127.4

6.5

+56.2

Commenced

142.9

m/m (%)

+0.2

-0.3

+0.1

-0.7

-0.3

-0.1

+0.1

m/m (%)

+1.5

-4.5

+9.6

+6.0

-6.2

-9.7

+2.9

U. construction

670.3 692.7 723.0

713.1 694.0 694.0

-2.6

y/y (%)

-0.8

-1.1

-1.4

-1.5

-1.0

-0.9

y/y (%)

+6.3

+2.2

+6.2

+4.4

+2.9

+6.6

+4.1

Completed

160.0 135.7

152.5

-12.8

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

Jul'13 Aug'13 Sep'13 Oct'13 Nov'13 Dec'13 Jan'14

-0.1

-0.2

-1.9

-1.8

-1.7

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

n/a 404,310

-1.9%

Q2 2013

+0.8%

395,657

-2.3%

Q1 2013

+0.5%

377,815

-3.1%

2013

+1.6%

1,628,200

n/a

2012

+1.9%

1,522,736

-3.7%

Sentiment Indicators

2011

+4.5%

1,462,734

-5.0%

Economic sentiment and consumer confidence indicators

2010

+3.9%

1,416,585

-5.1%

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

+14.3

-2.9

+21.5

-64.0

-5.2

-11.1

-4.8

-3.2

-8.9

+5.8

-3.9

2007

2008

2009

2010

2011

2012

2013

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

8,427

192 6,060

138 6,290

143 6,061 138

Manufacturing

3,522

154

3,491

152 3,560

155 3,625 158

Energy

6,535

198 6,196

188 5,828

177

152 3,693

157 3,766 160

Construction

3,829

163 3,556

Retail & repairs

3,365

143 3,432 146

3,421

6,021 183

146 3,408 145

Transportation

3,816

135 3,439

122 3,547

125 3,589 127

IT, telecoms

6,379

166 6,685

174 6,707

174 6,654 173

Financial sector 6,044

136 6,356

143 6,702

151 6,109 137

National average 3,878

154

3,741 149

Source: Central Statistical Office (GUS)

3,613

144 3,652 145

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

120

100

-20

-40

60 J an 1 4

Oct 13

Q3 2013

J ul 1 3

Q2 2013

Apr 13

Q1 2013

J an 13

Coal mining

Q4 2012

Current account def. in % of GDP

+1.9%

+9.4

Oct 12

Sector

GDP in PLN bn current prices

12.2

+2.7%

-0.8

J ul 12

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

146.1

Q3 2013

+7.8

Source: The Central Statistical Office of Poland, GUS

Gross Wages

Growth y/y unadjusted

131.7

Q4 2013

m/m (%)

Apr 12

y/y (%)

-0.2

Period

Jul '13 Aug '13 Sep '13 Oct '13 Nov '13 Dec '13 Jan '14

J an 12

Year

-0.1

Month

O ct 11

y/y (%)

Jul'13 Aug'13 Sep'13 Oct'13 Nov'13 Dec'13 Jan'14

Jul 11

m/m (%)

Jul '13 Aug '13 Sep '13 Oct '13 Nov '13 Dec '13 Jan '14

Construction Output

Construction Prices Price s Month

Month

Ap r 11

Month

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

n/a

Key Economic Data & Projections Indicator

2010

2013

*2014

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+1.2%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

+0.6%

CA balance, % of GDP

2011

2012

-5.1%

-5.0%

-3.7%

-1.6%

-0.8%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.5%

Unemployment**

12.4%

12.5%

13.4%

12.8%

3.99

4.12

4.19

4.20

4.07

EUR/PLN

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

weekly newsletter # 024 / 24th February 2014 / page 16

55.85 ↑

100 SEK

46.36 ↑

100 NOK

49.73 →

10,000 JPY 10,000 HUF

400

USD EUR 350

300

296.62 ↓ 15.20 ↑

100 CZK

133.83 ↓

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

WIG-20 stocks Price Change Change in alphabetical 21 Feb 14 Feb end of order '14 '14 '13

WIG Total index

Jul '13 Aug '13 Sep '13 Oct '13 Nov '13 Dec '13 4.7%

4.6%

4.5%

4.3%

PLN (up to 5 y )

5.1%

4.9%

PLN (over 5 y)

4.9%

4.8%

4.7%

↑ Bogdanka

PLN (total)

5.0%

4.9%

4.8%

4.7%

↓ BZ WBK

↑ Asseco Pol.

154,967 536,237 113,174 935,095

Nov '13

Dec '13

153,672

164,010

538,837

555,851

113,718

114,401

934,713

960,361

947,443

- Time deposits

414,941

412,469

421,160

n/a

955,419

953,446

978,924

962,416

- Net foreign assets 150,517 148,702 143,430 140,617 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

125.5

411

-1%

+6%

53,400. 400.42 Change 1 week

0% →

Change end of '13

+4% ↑

1.9%

1.8%

2.0%

1.9%

↑ Eurocash

44.55

+4%

-7%

3.5%

3.2%

2.5%

3.0%

2.9%

↑ Grupa Lotos

39.3

+1%

+11%

WIG-20 blue chip index

↓GTC

7.14

-1%

-4%

109.25

-2%

+4%

2,4 2,487.72

Warsaw Inter Bank Offered Rate (WIBOR) as of 21 Feb 2014 Overnight

1 week

1 month

3 months

6 months

2.57%%

2.59%

2.61%

2.71%

2.74%

↓ Handlowy → JSW ↓ Kernel

52.55

-1%

Change 1 week

35.7

-4%

-6%

Change end of '13

0% → +4% ↑

Rediscount

↑ KGHM

115

+2%

-3%

2.75%

→ mBank

532.8

+7%

WIG Total closing index

↑ Orange Pol.

10.32

+4%

+5%

last three months

Credit

↓ Pekao

191.35

-1%

+7%

The financial sector's net lending in PLN bn,

→ PGE

18.47

+13%

Reference

Lombard

2.50%

161,544 113,455

+2%

EUR (over 1m EUR) 3.5%

Jan '14 546,487

+1% +5%

EUR (up to 1m EUR) 2.3%

Central Bank (NBP) Base Rates Oct '13

46.94

NBP deposit

4.00%

1.00%

loan stock at the end of period

56,000 55,000 54,000

↑ PGNiG

5.04

+1%

-2%

53,000

Sep '13

Nov '13

Dec '13

Jan '14

↑ PKN Orlen

43.15

+6%

+5%

52,000

Loans to customers

901,288

906,298

903,890

914,189

→ PKO BP

43.15

+9%

- to private companies

260,585

262,396

259,061

263,063

↓ PZU

430.25

-3%

-4%

- to households

559,965

563,157

562,381

567,984

↑ Synthos

5.19

+3%

-5%

1,627,119 1,601,293

n/a

→ Tauron

4.84

+11%

Type of loan

Total assets of banks

1,612,836

Source: Central Bank NBP

51,000 50,000 49,000 21 Feb 14

100 DKK

as of 21 February 2014

8 Jan 14

341.49 ↑

21 Feb 14

506.70 ↑

100 CHF

11 Dec 13

100 GBP

Warsaw Stock Exchange, rates in PLN

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

2 Oct 13

416.81 ↑

25 Jul 13

100 EUR

Key indices

Term / currency

450

17 May 13

303.89 ↑

7 Mar 13

100 USD

Stock Exchange

Average weighted annual interest rates

30 Jan 14

as of 21 February 2014

Interest rates

9 Dec 13

100 USD/EUR against PLN

Central Bank average rates

15 Nov 13

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-Nov 2013

y/y (%)

share (%)

2012

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Nov 2013

y/y (%)

share (%)

2012

share (%)

No Country

*2013

IMPORTS in PLN bn 2012

Share No

Country

*2013

2012

139,334 21.5% 134,933 21.3%

63,081

+8.5

10.7

61,694

10.3

43,296

+4.6

7.3

44,287

6.9

1 Germany

7,955

+6.5

1.4

7,967

1.3

3,764

+1.7

0.6

3,989

0.6

2 UK

41,503

6.5%

40,184 6.8%

2 Russia

79,601 12.3%

Crude materials except fuels

14,606

+10.1

2.5

14,024

2.4

19,851

-5.3

3.4

22,053

3.5

3 Czech Rep.

39,421

6.2%

37,475 6.3%

3 China

60,914 9.4% 57,235 8.9%

Fuels etc

27,381

+0.6

4.6

29,389

4.9

1,687

+32.5

0.3

1,342

0.2

Food and live animals Beverages and tobacco

Animal and vegetable oils

159,622 25.0% 150,046 25.1%

1 Germany

91,033 14.0%

11.8

85,280

13.4

4 France

35,745

5.6%

34,862 5.9%

4 Italy

33,703

2,430

-9.6

0.4

2,887

0.5

5 Russia

34,058

5.3%

32,290 5.3%

5 Netherlands

25,005 3.9% 24,543 3.9%

4.3% 29,067 4.9%

6 France

24,533 3.8% 25,303 3.9%

7 Czech Rep.

69,873 -10.4

5.2% 32,782 5.2%

54,529

+6.9

9.3

54,295

9.1

85,948

+2.6

14.4

89,140

14.0

6 Italy

27,450

Manufactured goods by material

120,946

+1.3

20.5

126,161

21.1

104,027

-1.3

17.5

110,773

17.4

7 Netherlands

25,292 4.0%

23,778

3.7% 23,327 3.7%

Machinery, transport equip.

221,253

+5.3

37.5

223,646

37.5

198,729

+3.4

33.3

203,718

31.9

8 Ukraine

18,037

2.8%

17,213 2.8%

8 USA

17,350

2.7%

16,436 2.6%