Poland Today Business Review+ No. 032-33 by Poland Today Business Review+

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No. 032-33 / 28th April 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

POLAND TRANSFORMED Poland Today talks to Roman Wieczorek, EVP of Skanska AB about the past 25 years of economic transformation page 2

PROPERTY & CONSTRUCTION Skanska unveils details of giant new office project in Warsaw page 8

MANUFACTURING & PROCESSING Michelin to expand Olsztyn tire plant, create 50 new jobs page 4

Penta acquires land in Warsaw for large office development page 10

Imperial Tobacco to close plants in UK and France and relocate production to Poland page 5

DPD strengthens its position in Poland's express delivery sector.

Photo: DPD

DPD to acquire Si贸demka parcel firm

French-owned logistics operator DPD is to acquire Polish parcel delivery firm Si贸demka, becoming the number two player in Poland with a market share of 24% and PLN 1bn turnover. page 11

Life Healthcare enters Poland

South African hospital operator Life Healthcare is entering the Polish market via the acquisition of Scanmed Multimedis. The company will consider further investment in hospital assets, Life Healthcare's Jonathan Lowick tells Poland Today. page 16

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Economic recovery continues, industrial output data show page 6 BANKING & FINANCE PZU buys British RSA's Polish and Baltic insurance business for EUR 360m page 6 Asset manager Amundi opens Warsaw branch page 7 ENERGY & RESOURCES Tauron signs PLN 4.4m contract for new coal-fired unit at Jaworzno page 8

TRANSPORT & LOGISTICS Integer.pl raises EUR 53m for phase two of global expansion page 12 RETAIL River Island to remain in Poland despite EM&F's fashion failure page 14 HEALTHCARE GSK in hot water over Polish bribery case page 17 IT & TELECOM Innova Capital offers PLN 450m for Polish telecom firm ATM page 17 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 19-21

Conference & Cocktail Party Poland Transformed 28 May 2014 | Endorfina Foksal | ul. Foksal 2, Warsaw

Celebrating

25 years of economic transformation Join leading opinion formers including George Friedman, Founder and Chairman of Stratfor, Edward Lucas, Senior Editor of The Economist, top international journalists from 50 countries around the world, and key figures from the domestic and international business community.

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Patronage of the President of the Republic of Poland, BronisĹ&#x201A;aw Komorowski.

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10:30 am – 11:00 am Registration & refreshments 11:00 am – 11:05 am Introduction Speaker: Richard Stephens, Founder and Editor in Chief of Poland Today 11:05 am – 11:15 am Speech from a government representative Speaker: To be confirmed 11:15 am – 11:25 am Presentation: Poland’s economy – an overview Speaker: Professor Witold Orłowski, member of the Prime Minister’s Economic Council and Chief Economic Advisor at PwC 11:25 am – 12:15 pm Panel discussion: Defining Poland’s success What were the drivers behind Poland’s successful economic transformation? Moderator: Edward Lucas, Senior Editor, The Economist Panellists: Jan Krzysztof Bielecki (Head of the Prime Minister’s Economic Council, former Prime Minister), Henryka Bochniarz (President of Polish Confederation Lewiatan, former Presidential Candidate, President for Central and Eastern Europe Region of Boeing Co.), Jacek Socha (Partner in the Advisory Department and the Deputy Chairman of PwC in Poland, Former Treasury Minister), Xavier Devictor (World Bank Country Manager for Poland and the Baltic Countries)

2:30 pm – 3:15 pm Panel discussion: Facing the future What are the opportunities and challenges for the new generation of Polish business leaders? Moderator: To be confirmed Panellists: To be confirmed 3:15 pm – 3:30 pm Discussion: Poland 2039: The good, the bad and the ugly What must Poland do to avoid the ‘middle-income trap’? Financial Times journalist Jan Cienski discusses the positive and negative scenarios set out in his article for Poland Today about the country’s economic future. 3:30 pm – 4:30 pm Breakout sessions & networking Participants will have the chance to contribute their own thoughts and arguments on the in smaller, more informal, breakout sessions. These sessions will also present an excellent networking opportunity. 4:30 pm – 5 pm Panel discussion: Goodbye Polish plumber? What is Poland’s image abroad, and has the message of its success filtered through in foreign media? Moderator: Richard Stephens, Founder and Editor in Chief of Poland Today Panelists: Several foreign journalists from the Poland Today press tour

12:15 pm – 1:30 pm 25 years of Poland’s business transformation How unleashing business helped write Europe’s biggest success story Moderators: Andrew Kureth (Editor, Poland Today), Lech Kaczanowski (Business Editor, Poland Today) Panellists: To be confirmed

5 pm – 6 pm Panel discussion: Poland in the global context A discussion with Edward Lucas and George Friedman about what Poland’s past can teach us about its future Moderator: Andrew Kureth, Editor, Poland Today Panelists: Edward Lucas, Senior Editor, The Economist and George Friedman, Founder and Chairman of Stratfor

1:30 pm – 2:30 pm Lunch Networking and discussions over a catered gourmet meal

6 pm – late Cocktail party Networking and discussion

Patronage of the President of the Republic of Poland, Bronisław Komorowski.

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weekly newsletter # 032-033 / 28th April 2014 / page 2

POLAND TRANSFORMED

Foundations for freedom In the run-up to our "Poland Transformed" conference, celebrating 25 years of economic transformation, Poland Today talks to key figures from the domestic and international business community. Last week we sat down with Roman Wieczorek, executive vice president of the global construction giant Skanska AB, to hear his thoughts on the past 25 years.

Transparency in business and Western practices set the stage for Poland’s future success, says Roman Wieczorek, executive vice president of Skanska AB • PT: What stage of your life were you at in 1989 and what are your memories of that period? Roman Wieczorek: I remember the 1980s as the early days of my professional life. Many of us were full of energy and ambition but at the same time the surrounding reality took away one’s will to fight, making any effort seem pointless. We used to read the same books as the people in the West but at the same time

we lacked any hope for true self-fulfillment. The term "career" meant nothing back then. The year 1989 and the changes that came with it gave us a massive boost of hope. Listening to Prime Minister Mazowiecki on the radio for the first time I felt that someone was speaking to me in my language and about issues that really mattered. Everyone else seemed to share that feeling – there was this air of all-encompassing unity. • PT: What did the first years of freedom look like? RW: It was a time of joyful chaos and amazing energy. Everything was being made from scratch. In politics and business we were creating solutions that had been a long established standard in the West. We were learning the ropes of local governance and business management, figuring out what a company was. The 1990s were this period of experimentation amid lack of clear regulations. On the one hand, there was this great drive towards privatization and an explosion of entrepreneurship, because everyone wanted to try their luck in business, and on the other hand – plentiful problems, including bankruptcies, because the competition was merciless. Our management skills were still at a very basic level at the time. The end of the 90s brought about a wave of consolidation, from which emerged many of today’s leading players in key sectors. At the same time, Poland was starting to get recognized by foreign investors as an increasingly attractive market, a gateway to the entire region. It was around that time when Skanska began to seriously look at Poland, which led to the acquisition of Exbud in 2002. • PT: That was shortly before the EU enlargement… RW: The fact that Poland began to operate according to the same rules as the rest of Europe was absolutely invaluable from the point of view of foreign investors. The EU funds have of course given our economy a powerful boost, but another crucial and frequently overlooked issue is the regulatory environment that

came with our membership. As for the muchdiscussed exodus of an estimated one million Poles that followed the opening of EU labor markets, I don’t think it should be considered as a purely negative development. Scores of those people are now coming back to the country or will do so in the future, experienced and hungry for success. There are those who find work at Skanska and others who set up their own businesses, after returning to Poland, and become our subcontractors. It’s the European Union that gave them that opportunity. • PT: What was the role of foreign investors, like Skanska, in this transformation? RW: Of course the actual contribution depends on an investor, but besides obvious issues, such as capital and know how, companies like Skanska, with more than 100 years of tradition, brought with them a people-oriented organizational culture, a clear culture of honest work. Of course, as every company, we seek to create value for shareholders, but we also strive to be a place where people want to work. It just so turns out that one supports the other. We showed that one can make money and observe values. Teaching people that honest work pays off better than scheming has proven easier than one might think. Of course that requires true leadership and integrity. I am sure that most companies sooner or later come up with a certain culture of values, but this takes time which can be really shortened by introducing a tried and tested organizational culture. Sometimes the thing that takes the longest time for people to realize is that there are no shortcuts in business. The faster people understand that, the sooner they get to focus on what really matters: values-driven work. Perhaps this is the key lesson for Poland from the past 25 years. • PT: What do you see as Poland’s biggest achievement during that period? RW: Transparency in business and its environment, although I am fully aware that there’s still a lot left to

weekly newsletter # 032-033 / 28th April 2014 / page 3

be done. It was only a few years ago when Poland did very poorly in corruption rankings and now we are on par with the Western average. Transparency is key, because it is the foundation for any further achievements. We created conditions that are transparent enough for global corporations to invest in Poland and we achieved that in an express time. We have a welleducated society of nearly 40 million people. Everything is going in the right direction and we can legitimately feel like citizens of Europe and the world. One has to bear in mind that it took less than a generation to implement all those changes. We embraced capitalism without any business education and therefore the first decade after 1989 was really a period of learning, when we laid the foundations for transformation that truly began later. That first generation of “garage managers” had to find their way in a world they knew little about. We had well-educated people but we knew nothing about business. However, thanks to intuition and hard work, we reared a complex-free generation, which is now successful in Poland and abroad. • PT: What, then, was our chief failure? RW: I think that the lack of pride and optimism among the Poles might be it. What we achieved over the past quarter of a century is a truly amazing thing and the last decade of growth has no precedence in our history. And yet, the Poles seem ashamed to admit to themselves that they’ve succeeded. Driving home for Easter I watched the renovated houses, clean yards and new roads. This very same route in 2004 and 2014 – it’s like two entirely different worlds, and yet we collectively refuse to admit that things have gotten better. This gloomy outlook affects also politics and business. We lack appreciation for ourselves and others, including employees. Another, equally painful issue is the low quality of politics and its excessive influence on other matters. Polish politics oozes venom that makes it hard to enjoy our success.

• PT: What should Polish companies focus on in order to succeed in the future? RW: Openness towards others and willingness to learn from them. Still way too often we breach open doors instead of learning from the failures and achievements of other countries, where business has been operating more or less the same way for decades. Our technical know-how is world class, but we lack the so-called soft skills. We need to believe that people are the competitive advantage in a world where any machine can be bought. Prioritizing people translates into real economic gains, but we are still unable to think in such terms. Leadership is money – I really believe that..

ROMAN WIECZOREK Roman Wieczorek has served as executive vice president of Skanska AB since January 1, 2010. He is responsible for Skanska Czech and Slovak Republics and Skanska Poland. He was previously division manager of Skanska Poland and later on president of Skanska Poland from 2005. He joined the company in 1998. Wieczorek holds a Master of Law and Administration degree from the Adam Mickiewicz University in Poznań, Poland. He is Legal Counsel.

• PT: What should be our key priority in the coming years as far as economic growth is concerned? RW: The next seven years will be a golden era for Poland, a once in a lifetime opportunity. We have more than EUR 100bn of EU funds to spend. We’ve identified our needs and we’ve learnt to manage the resources that were earmarked for us. The challenge will be to utilize this enormous capital in such a way that when the EU money runs dry at the beginning of the next decade, the economy does not experience a shock. We need to create the foundations for longterm growth.

• PT: What about other challenges Poland is facing? RW: We need systemic solutions in many areas, in order to make them as independent from politics as possible. I am thinking about taxation, healthcare, or education. The latter should be better linked to business, because our universities still emphasize formal education but fail to teach key business skills, for instance leadership, teamwork, or project management. It is not very effective if such skills have to be taught by employers as it greatly prolongs the assimilation period of new recruits. Another challenge is demographics. One has to stop regarding seniors as a problem, but start to treat them as an asset and find ways to utilize their experience in the economy, which will help to make them less of a burden for the state coffers. The EU is heading in this direction and it is inevitable. Then comes growing urbanization – another irreversible trend. How do we make our cities better places to live? It’s a question for authorities but also for companies such as Skanska if we want corporate social responsibility to be more than just a buzzword. • PT: In infrastructure, there are still a couple of years of catching up with the West ahead of Poland. But what will drive growth once all those highways and ring roads have been completed? RW: Seeing how much work Skanska is doing in Scandinavia and the US, two very mature markets, I am certain there will be other jobs in Poland. Society is changing and so are its needs. Today we need roads and in the next decade the focus will be on something else. I wouldn’t be worried about lack of work. • PT: The past half a decade has been a purgatory for many builders, who took up large government infrastructure contacts. A number of key players went belly-up as a result. Skanska operates in the same market and yet you end every year with a solid profit. What’s your secret?

weekly newsletter # 032-033 / 28th April 2014 / page 4

RW: I think we owe it to our organizational culture as well as our tried and tested controlling and riskmanagement procedures. We have an experienced team that analyses each project and isn’t afraid to ask difficult questions. Even though many of those giant infrastructure jobs that drove our competitors bankrupt had been tempting for us, due to the prestige, in the end we considered them too risky. Let’s take the Euro 2012 stadiums, for instance. Skanska has so far built only one project of this kind in Poland, in Kielce, and we decided that we lacked sufficient experience to take up such a challenge, even though our US unit has developed a number of large sporting facilities. If a global player, like Skanska, found some of those projects too risky, then what can we say about some companies that had even less experience than us? The past years have been the best time for Skanska in Poland. Bankruptcy came to those who misjudged the risk. • PT: Some of those companies blamed the road authority GDDKiA and other public clients. Did they have the right to do so? RW: In my opinion, it was a very good thing that clear rules, based on price, had been introduced from the start. Any other, more complex models, which had previously in force, would be problematic and could lead to abuses. I believe that in the most publicized bankruptcies the fault was definitely with the contractors, who accepted excessive risk. I find it unfair that some foreign companies are trying to pin the blame on the Polish authorities, because public procurement regulations in Poland are practically the same as elsewhere in Europe. Some foreign companies tried to establish local presence in Poland only after receiving contracts, while some Polish contractors entered uncharted territory, where they lacked any expertise. It was unreasonable and ended badly. Of course the public side could have shown more flexibility on certain issues, but overall, they are in the right.

• PT: Following a few solitary projects at the beginning of the last decade Skanska abandoned residential developments for many years, to return only recently with the Ostrobramska complex. During the boom years in homebuilding you were absent from this segment. Why? And what are your plans? RW: At the time, it was a strategic decision at the group level to focus on general construction and infrastructure and consolidate our competences in these fields. Homebuilding is an entirely different type of business with different risks and at the time we labeled it as “non-core.” Once our Polish business matured, we chose to return to the residential sector, where our strong brand is proving very helpful with sales. We have big ambitions and want to become one of the key players in this marketplace.

RW: Although there are some 40 cities of more than 100,000 inhabitants in Poland, I believe that the demand for the type of product Skanska delivers: class-A, LEED-Gold+ certified office buildings, will be limited to the cities you mentioned. I’m not expecting the list to grow. As a developer, we follow the tenant and therefore we build the most in cities that develop the fastest, which largely depends on the local authorities and their ability to attract investors. Wrocław, as well as Warsaw, have proven particularly effective in this respect, however, the expectations towards other cities had been higher. Of course, besides effective local authorities there are also certain objective factors at play, such as geography or demographics.

• PT: The state-run bank BGK is working on a fund to build affordable apartments for rent. What are your thoughts on this idea and its potential impact on the market? RW: It isn’t something we devote much attention to at the moment, partly due to lack of details. In programs like this the devil is always in the details. Solutions of this kind are functioning quite well in Europe, including in Scandinavia. A lot depends on whether this model will be accepted in purely cultural terms, meaning whether people will be ready to take rental over ownership. If the Poles become more mobile, then perhaps this might work, but it’s too early to say. It’s also too early to assess what the BGK initiative will mean for commercial developers.

Skanska AB is one of the world’s leading project development and construction groups, which currently has 57,000 employees in selected home markets in Europe, the US and Latin America. Skanska’s revenue in 2013 totaled SEK 136bn (EUR 15.8bn). With a staff of 7,000, Skanska’s Polish unit turned over PLN 4.2bn last year and posted operating profits of PLN 170m. Its best-known projects include the northern section of the A1 highway and Warsaw’s Złote Tarasy shopping centre.

• PT: Skanska Property Poland has become one of the leading office developers in regional cities, with projects in Wrocław, Katowice, Łódź, Poznań, and Kraków. Are there any other regional markets you might find interesting? Have there been any positive surprises or disappointments in the cities where you currently operate?

SKANSKA

MANUFACTURING & PROCESSING

Michelin to expand Olsztyn tire plant, create 50 new jobs French tire maker Michelin has reinvigorated plans to invest PLN 413m (nearly EUR 100m) in the modernization of its Olsztyn agricultural tire plant in northern

weekly newsletter # 032-033 / 28th April 2014 / page 5

Poland, first mooted in August 2013. The project is to reach completion by 2018, creating around 50 new jobs in addition to the existing 4,000 there. "After the Volkswagen cars in Września, Ronal Wheels in Wałbrzych SSE and the GM expansion in Tychy, it is the fourth major investment of a huge automotive corporation this year in Poland", said Sławomir Majman, head of the state investment promotion agency PAIiIZ, which supported the project. According to media reports, Michelin can count on public aid of up to 8% of the total investment. According to Economy Minister Janusz Piechociński, who attended the inauguration event, Michelin's continuous growth in Olsztyn is of huge significance to the region not only because of the 4,000+ jobs the company directly sustains. "They are cooperating with some 400 local subcontractors and the new investment is likely to increase that number even further. Moreover, Michelin is cooperating with three universities in Olsztyn, Warsaw and Gdańsk." The company has been present in Poland since 1994, when the first branch of Michelin Group in Central and Eastern Europe was established in Warsaw. Following the acquisition of state-owned tire maker Stomil Olsztyn it has invested approximately EUR 500m at the site over the past two decades. The investment will enable the Olsztyn plant to produce next generation agricultural tires. Besides tires for farming machinery, the French company manufactures tires for passenger cars and trucks, tire cords and forms in Olsztyn, which is one of Michelin's largest production plants worldwide. Michelin is the key employer in Poland's northeastern Warmia and Mazury region. In 2012 the company turned over PLN 4.8bn.

MANUFACTURING & PROCESSING

Imperial Tobacco to close plants in UK and France and relocate production to Poland UK-based Imperial Tobacco Group is relocating more production from Western Europe to Poland and Germany, as it seeks to close its cigarette factories in Nottingham, UK and Nantes, France in a move to "strengthen its competitive position," the company said. The proposed projects, which could reduce the group’s workforce by 900, are part of a cost optimization program, which is expected to deliver savings of GBP 300m a year from September 2018, it added. "The proposed closures reflect declining industry volumes in Europe, impacted by tough economic conditions, increasing regulation and excise and growth in illicit trade. Production has been affected at the Nottingham and Nantes sites, which now utilize less than half their manufacturing capacity," Imperial Tobacco explained. The Nottingham factory and distribution centre, which employs around 540 people, has capacity to make 36bn cigarettes a year but will only produce 17bn in 2014. The Nantes unit employs 320 people and has capacity to make 21bn cigarettes a year but will only produce 9bn in 2014. Imperial Tobacco plans to close down both units, relocate production to "other European factories," and outsource distribution. A further 120 jobs could be affected by proposals to close the French R&D facility in Bergerac and restructure the sales force and support functions in Paris, although 80 new roles could be created. As a result the total poten-

tial impact on roles in France would be a net reduction of around 360. According to the company, the cuts are to be implemented progressively over the coming two years.

The quintessentially French Gauloises, and Gitanes brands, which so far have been made exclusively in France, may soon be produced in Poland. Image: Archive

"The production from Nottingham and Nantes will be most likely relocated to factories in Poland and Germany, but since the process will be spread over two years it is difficult to assess its impact on volumes and workforce at each of the Polish plants," Grażyna Sokołowska, corporate and legal affairs director at Imperial Tobacco Polska tells Poland Today. She said it was too early to say whether additional investments would be needed in Poland to handle the new production. While cutting jobs in Western Europe, Imperial Tobacco has been investing heavily in Poland in recent years. Its Jankowice plant near Poznań has been extended twice over the past three years, by a total of 23,000 sq.m, becoming of the largest Imperial Tobacco sites in the world. The latest extension, which added some 13,000 sq.m of floor space to the plant, cost PLN 240m and reached completion last year. Back in 2010 the company added a new 10,000 sq.m production and

weekly newsletter # 032-033 / 28th April 2014 / page 6

warehouse building to the facility and introduced more efficient production processes for loose tobacco. Since 1996 Imperial Tobacco has invested in excess of PLN 1.3bn in Poland, where it employs 1,400 staff across two subsidiaries in Jankowice and Radom. Their combined turnover came close to PLN 7.4bn in 2012.

rettes in Poland, reducing it at a further 11%, similar to last year. At the same time we are not anticipating rolling tobacco sales to improve. Another substantial increase of the excise duty is likely to bring down legal sales by a further 9%."

Imperial Tobacco Group PLC is a multi-national tobacco company with international strength in cigarettes and world leadership in fine cut tobacco, premium cigars, rolling papers and tubes. The Group has 46 manufacturing sites, 37,000 employees and operates in 160 countries worldwide.

MANUFACTURING & PROCESSING

Although Imperial Tobacco ranks as number three cigarette maker in Poland, it is the leading producer of hand-rolling tobacco, which has gained popularity in recent years due to more favorable taxation. Its share in this market segment, according to Nielsen, stood at 51% in January-September 2013. When it comes to ready-made cigarettes, Imperial Tobacco ranks as number there in Poland with an 18.5% share. The company exports tobacco products made in Poland to 35 markets. With six out of a total of 31 European cigarette factories located in Poland, the country is the EU's leading cigarette producer and exporter. Last year legal sales declined 10.6%, down to 46.6bn units. Illegal cigarettes and tobacco are said to have totaled 13bn units last year according to industry estimates. Tobacco producers argue that every rise in taxation (this year excise duty on cigarettes rose 5% bringing the price of the cheapest pack of cigarettes in excess of PLN 12.4, up from some 11.4 last year) strengthens the shadow economy. Over the past decade cigarette prices in Poland have gone up by more than 150%. "We expect this year's excise hike to have a further negative effect on sales and consumption of legal ciga-

Economic recovery continues, industrial output data show Poland's industrial output increased by 5.4% year on year in March vs. 6.5% y/y growth expected in the consensus survey run by PAP Polish news agency, as output increased 9.4% from the prior month, the Central Statistical Office (GUS) said. Analysts surveyed by PAP had expected a monthly increase of 9.6%. Polish seasonally adjusted industrial output in March was up by 5.7% y/y on a 0.2% monthly increase.

"The industrial output figure in March was slightly below expectations, whereas construction output accelerated to 17.4% y/y, beating consensus. Both numbers were influenced by weather conditions," commented BZ WBK analysts. "In our opinion, these releases draw quite a positive picture and indicate a further recovery of economic activity, also in investments. Producer prices declined by 0.2% m/m and 1.3% y/y confirming the non-inflationary recovery scenario. These readings should be neutral for the Monetary Policy Council and do not change our scenario for the monetary policy for 2014 and 2015. We continue to expect stable NBP rates until the year-end and the first rate hike in early 2015," they wrote.

BANKING & FINANCE

PZU buys British RSA's Polish and Baltic insurance business for EUR 360m

Industrial output & producer prices Industry output, y/y change Producer Price Index, y/y change 8% 4% 0% -4% -8% -12% Jul 12

Sep 12

Nov 12

Jan 13

Mar 13

May 13

Source: GUS, the central statistical office

Jul 13

Sep Nov 13 13

Jan 14

Mar 14

Polish insurance giant PZU has beaten Austria's Vienna Insurance Group as CEE's leading insurer with the acquisition of the Polish and Baltic operations of Britain's RSA Insurance group. PZU is to pay RSA a total consideration of approximately EUR 360m for the Polish direct insurer Link4, top Lithuanian insurer Lietuvos Draudimas AB as well as Latvia's AAS Balta, and the Estonian branch of Codan Forsikring A/S. RSA, which issued a series of profit warnings last year amid problems at its Irish unit, is selling the divisions, as part of its efforts to focus on the UK and other core markets. The transactions are subject to regulatory approvals and their completion is expected before the end of this year.

weekly newsletter # 032-033 / 28th April 2014 / page 7

The transaction makes PZU the top player in the Batics, with a particularly strong position in Lithuania, where the Polish company has been operating for a number of years and currently holds a 14% share with EUR 52m in gross written premiums last year. Since Lietuvos Draudimas has a 31% market share in Lithuania with 2013 gross written premiums at EUR 118.6m, following the transaction, the Poles will control nearly 45% of the local market. The Latvian company controls more than a fifth of the country's insurance market, whereas the Estonian business is a startup with an 8% market share.

Polish PZU conquers the Baltics Codan Forsikring (Estonia)

AAS Balta (Latvia)

Lietuvos Draudimas (Lithuania)

PZU Lietuva (Lithuania)

Agents

289

389

322

Employees

254

691

249

Branches

100

Market share

21%

31%

14%

GWP* EURm

32.3

49.5

118.6

52..1

Source: PZU *) gross written premiums

Compared to the Polish insurance market, which was estimated at EUR 15.3bn in 2012, the Baltic market is tiny (worth a combined EUR 1.3bn in the same period), but according to PZU it is expected to expand rapidly with GDP growth, as the insurance penetration in both Lithuania and Latvia is much lower than the regional average and way below Western European levels. Lietuvos Draudimas posted net earnings of EUR 16m in 2012 and EUR 12m in Q1-Q3 2013. The Polish business Link 4, for which PZU is to pay EUR 90m, is to complement the company's core business as a separate brand. Already holding the number one position in traditional distribution channels, PZU seeks to be a leading player also in direct insurance, targeting a different customer group under a separate

brand. According to PZU, building a new brand from scratch would be costly and troublesome, whereas the acquisition of an existing player, with Poland's third most recognizable insurance brand and strong direct sales know-how, is a perfect fit for the company. Many of its key European peers are pursuing a similar multibrand approach, PZU said.

"With over EUR 45bn in managed assets, Poland is the premier asset management market in Central Europe having grown by 150% in five years. These figures, together with our historical presence in Poland, have led to the decision to create Amundi Polska,” said Fathi Jerfel, Deputy CEO of Amundi and Head of investment Solutions for Retail Network division.

PZU improved its consolidated net earnings by 1.3% y/y to PLN 3.29bn in 2013 thanks to, among others, an increase in written gross premiums arising from the high rate of growth of sales of certain products, as well as the lack of major disaster and natural claims in agriculture, the company said in March. In 2013, the group's gross written premium rose to PLN 16.48bn from PLN 16.24bn in 2012 (its CAGR was 3.5% in 2009-2013). Last year, the premium fell by 2.1% y/y to PLN 8.27bn as a result of a decline in written premium of motor insurance, while in life insurance, it rose by 3.9% y/y to 7.75bn. PZU's market share in the non-life segment was 31.1% after Q3 of 2013 (down by 1.2pps y/y) and in the life insurance segment - 43.7% (up by 1.0pp). The PZU Group's total assets grew to 62.36bn at the end of 2013 from PLN 55.91bn a year earlier. Its ROE inched up by 0.1pps on the year to 24.1%.

"Poland is the asset management leading country in central Europe but also a growing retail market. By setting up a local presence with both a strong sales department and a skilled investment team, our aim is to offer our clients a close point of contact to tailor and propose investment solutions specific to their needs and to provide services at every point of the value chain. This is why our sales are based locally in the regions to be a close as possible to the distributors to offer the best services," Eric Bramoullé, CEO of Amundi Polska tells Poland Today.

Asset manager Amundi opens Warsaw branch branch

Amundi ranks first in Europe and ninth worldwide in the asset management industry with AUM of close to EUR 780bn worldwide. Besides an estimated 100m retail clients worldwide, Amundi serves institutional clients with a range of tailor-made investment products. The company is 75% owned by Crédit Agricole SA and 25% by Société Générale. With offices in almost 30 countries, Amundi offers a comprehensive range of products covering all asset classes and major currencies. Based in Warsaw, with a team of five investment managers, Amundi Polska will prioritize the customers of its shareholders’ banking networks, Crédit Agricole Polska SA and Eurobank SA.

Europe's top asset manager Amundi has launched its Polish subsidiary Amundi Polska TFI, seeking to become a major player in the Polish asset management market with EUR 1bn in AUM and a market share in retail funds of over 3% by 2016. Amundi Polska has 20 employees and plans to recruit a further 5-10 to strengthen its sales and support teams.

"We are developing a simple, straightforward product range consisting of five locally-domiciled funds which focus on clients’ needs”, says Eric Bramoullé. "Our first objective is to reach a significant position in the retail asset management market by distributing the Polish funds. Then Amundi Polska TFI will support primarily Credit Agricole Bank Polska SA and Eurobank SA in

BANKING & FINANCE

weekly newsletter # 032-033 / 28th April 2014 / page 8

the development of their asset management offer. But in a market driven by open architecture, we aim also at offering our skills and services to other distributors based in Poland. Subsequently, we will propose distributors our global products, develop employee saving schemes (PPE/PPO) and promote Amundi Polska TFI"s Polish funds to foreign clients."

to secure a performance bond. Eventually, the consortium secured guarantees for the job from three statecontrolled financial institutions: insurer PZU, bank PKO BP and state development bank BGK, Rafako said in a separate filing.

Tauron is the second largest energy producer in Poland as well as the largest distributor of electricity. In 2013, the company made several investments including a modern power unit using cogeneration at its plant in Bielsko-Biała and two wind parks in Wicko and Marszewo with a combined power output of 122 MW. A 450 MW power unit is also currently being constructed in Stalowa Wola as well as a 413 MW unit in Łagisza. The latter is a PLN 1.5bn investment, of which up to PLN 750m may be contributed by Polskie Inwestycje Rozwojowe (PIR), a state investment vehicle (see BR+ No. 027 page 6).

Crédit Agricole Polska SA (formerly known as Lukas Bank) is one of Poland's top consumer financing providers. Its loans are available at some 16,000 points of sale. At the end of 2012 the bank employed 5,550 staff and 440 branches. Its 2012 net earnings came to PLN 200m. As for Eurobank, the Polish Société Générale subsidiary, it posted a net profit of PLN 138m in 2012 and had a network of 446 proprietary and franchiseeowned units across the country. Once specializing mainly in cash loans, Eurobank has evolved towards a universal retail bank model in recent years.

ENERGY & RESOURCES

Tauron signs PLN 4.4m contract for new coalcoalfired unit at Jaworzno Less than two weeks after it broke ground on a PLN 618m cogeneration project in Tychy (see BR+ No. 029 page 4), Polish energy group Tauron has inked a longawaited PLN 4.4bn contract with the consortium of engineering firm Rafako and builder Mostostal Warszawa for the construction of a 910 MW power block at Tauron's Jaworzno power plant. The contractors, who include also Germany's Siemens, have slightly less than five years to complete the project. The deadline for signing the contract has been pushed back several times as the winning consortium sought

ed generation capacities with new, high efficiency units. Our new coal-fired unit in Jaworzno will be one of the most efficient facilities of its kind in Europe," said Tauron's CEO Dariusz Lubera.

Polish Prime Minister Donald Tusk was one of several high-profile guests who attended the Jaworzno signing ceremony. Image: Tauron

"The Jaworzno project is one of three investments that are key to ensuring Poland's future electricity supply. The new units in Jaworzno, Opole and Kozienice, with a combined capacity of 4,000 MW, to be developed by Poland's leading energy groups, will provide electricity to 7m Polish households," commented treasury minister Włodzimierz Karpiński. The new coal-fired unit will replace older, much less efficient facilities at Jaworzno, bringing the site up to date with stricter EU emissions limits. With a total capex of PLN 5.4bn, the project is to provide work for several thousand people, including miners in the Silesian coalmines that will supply the fuel. "The construction of Jaworzno III is part of Tauron's corporate strategy that aims at replacement of outdat-

Despite its ambitions investment pipeline, Tauron reported an 11% drop in net profit in 2013, with expectations of even weaker results in 2014 due to the statecontrolled utility's struggle with falling energy prices and weak demand caused by the sluggish Polish economy. In March, Chief Executive Lubera said, "We hope that energy prices will hit their lowest level in 2014 after which they will start to rebound slowly."

PROPERTY & CONSTRUCTION

Skanska unveils details of giant new office project in Warsaw If you're still wondering where to look for Warsaw's future City, take a walk in the Rondo Daszyńskiego area, at edge of the industrial Wola area and the central business district. The surrounding plots are being held

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by some of the leading property developers, who in the coming years will turn them into one of the country's busiest building sites. By the end of the year, Rondo Daszyńskiego, which marks the intersection of two of Warsaw's key thoroughfares, Towarowa St. and Prosta St., will be the westernmost station on the new subway line, making it one of the best communicated places in the city.

Skanska Property Poland is currently finalizing work on Atrium 1, its flagship office project in the city centre, which the Swedes have recently sold to the German open-ended property fund Deka ImmobilienGlobal for EUR 94m (see BR+ No. 011 page 5). Scheduled to reach completion in the coming weeks, Atrium 1 will offer 18,000 sq.m of leasable office and retail space.

Besides Belgium's Ghelamco, which is currently developing its most ambitious project to-date, the giant Warsaw Spire complex, also Sweden's Skanska is gearing up to break ground on its flagship development, the 80,000 sq.m-Generation Park in that location. Skanska has just unveiled the architectural design for the project, prepared by the renowned Warsaw studio JEMS Architekci. Generation Park will be comprised of three buildings: a 140m-tall main tower (40,000 sq.m of GLA), and two lower blocks (each with approx. 20,000 sq.m of GLA), with a shared underground car park for 600 vehicles. "We intend to break ground on the project over the coming months. We have a valid zoning permit for the site and we are in the process of applying for a building permit. The development will be divided into three phases, the first of which is to reach completion in Q1 2016. The demolition of the last existing building at the site, which we acquired from Ruch, is currently underway," Arkadiusz Rudzki, Leasing And Asset Director at Skanska Commercial Development Europe tells Poland Today. "The strongest asset of Generation Park will be its location, right by the subway, bus and tram stops, with very good visibility. As in all our other projects, the general contractor will be Skanska SA, which guarantees top quality. The design is simple and modernist and the three buildings will be connected by a green patio that will open to the public, encouraging leisure activities on weekdays as well as weekends."

DATA BOX: WARSAW OFFICE MARKET IN Q1 2014 Ten buildings totaling 84,500 sq.m were added to the Warsaw office market in Q1 2014, bringing total modern office stock to 4.2m sq.m. The largest completion was phase one of Park Rozwoju offering 16,000 sq.m of office space. The vacancy rate rose by over 0.5 pps to 12.2% in Q1 2014. In central locations it stood at 10.9% compared with 10.6% at the end of Q4 2013, while in non-central locations it was 12.8% (12.2% in Q4 2013). Take-up in Q1 2014 reached 136,400 sq.m, a nearly 20% increase on the previous quarter. The largest office leasing volumes were noted in the Upper-South zone (37.5%) and in the Fringe zone (18.2%). New leases (71,500 sq.m) accounted for 52% of all deals, with pre-lets making up just 16% of these (11,600 sq.m). Renegotiations and extensions accounted for 37% of total volume, a similar level to that of Q4 2013.

Skanska's Generation Park (right) will be located right next to Warsaw Spire by Ghelamco (the roundish tower left of the center). Image: Skanska Property Poland

"We received the occupancy permit for Atrium 1 in January and to-date we have leased 17,450 sq.m, almost 100% of the available space in the project, to tenants that include the Santander Group subsidiary bank BZ WBK, insurer Pramerica, and IT firm Gravura Solutions. Atrium 1 will be also home to companies from the Skanska group," says Arkadiusz Rudzki.

The largest deal in Q1 2014 was Netia’s extension of 13,200 sq.m in the Marynarska Business Park office complex. Another deal involved owner occupation of 6,800 sq.m of office space in Powiśle Park by Polska Spółka Gazownictwa. In addition, Citibank leased 4,700 sq m in Marynarska 12 office building and Altkom renegotiated a 3,100 sq.m lease in Warsaw Trade Tower and expanded it by additional 1,200 sq.m. Source: Warsaw Research Forum

Skanska Property Poland is very active in Poland's other regional cities, with investments in Poznań, Łódź, Kraków and Katowice, where it has recently broken ground on its largest Polish office project todate, the 46,000 sq.m Silesia Business Park. It has re-

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cently delivered its third project in Wrocław, Green Day (see BR+ No. 028 page 5) and it is currently working on number four, the 40,000 sq.m Dominikański office building. The first lease has already been signed by Deloitte. "We have recently sold four office parks for a combined EUR 300m or PLN 1.2bn. Moreover, all those buildings had been sold prior to their completion. We intend to maintain this ambitious pace, with five new projects to be launched in 2014, including Generation Park. Of the remaining four projects one is located in Warsaw and three in regional cities." Skanska Property Poland has been operating in Poland since 1997 and is part of the Skanska Group, one of the world's leading project development and construction groups, which currently has 57,000 employees in selected home markets in Europe, the US and Latin America. Skanska’s revenue in 2013 totaled SEK 136bn (EUR 15.8bn).

The company seeks to build an office building with some retail units on the ground floor, with a gross leasable area (GLA) of 24,500 sq.m at the site. Penta intends to break ground on the project, estimated at some EUR 45m (including the cost of land) in autumn 2015 and to complete it some 18 months later. The area is covered by a zoning plan and therefore the investor should have no problem obtaining a building permit, once it all the design work has been completed. "Penta has an experienced team of real estate professionals in the Czech and Slovak markets and we are currently in the process of building one in Poland," Damian Grzywacz, Business Development Manager at Penta Investments in Warsaw tells Poland Today. "Our focus will be solely on office projects located in Warsaw. We are not looking to buy any existing assets but focus on development projects that offer a much more attractive rate of return."

PROPERTY & CONSTRUCTION

Penta acquires land in Warsaw for large office development Penta Investments, the Central European investment group, which has so far has been known as one of the most active private equity players in the region, has entered Poland's property sector with the acquisition of an investment site in the heart of Warsaw's Mokotów business district, and the intersection of the Domaniewska and Postępu streets, close to the Galeria Mokotów mall.

Penta's Florentinum project in Prague city centre was named "Office Development of The Year" at this Image: Florentinum month's CEEQA Gala.

Real estate represents roughly 20% of Penta portfolio value. The Group manages 18 projects located in the Czech Republic and Slovakia with a total GLA/NSA (net sales area in the case of residential projects) of 158,600 sq. m as of 2013, of which 92% was in the of-

fice segment. Its best known class- A office developments include the 74,000 sq.m Digital Park in Bratislava and 57,000 sq.m Florentinum project in Prague. "We have been looking at a number of opportunities in Warsaw for a couple of months now and the Mokotów project is our first completed deal. Unlike many other developers, who wait to secure pre-leases before breaking ground on a project, we will be building speculative. We have enough confidence in our project to deliver it to the market and show any potential tenants what it's worth. The Warsaw market shows consistently high take-up rates and therefore we are not worried about future demand for office space, despite the projected robust supply of new buildings. There is sufficient space here for any high quality project." On April 15th Penta Investments has announced its audited financial results for the year 2013. The Group´s aggregated asset value increased to EUR 6.5bn, while under Fair Value accounting its net profit in 2013 amounted to EUR 100m. The net asset value (NAV) increased to EUR 1.564bn. In 2013, the Group invested more than EUR 200m in new projects and expansions as well as modernization and development of its existing portfolio companies, which operate mainly in healthcare, financial services, manufacturing, retail and real estate development and employ more than 30,000 people. The healthcare sector represents the largest share in Penta’s portfolio (37%). Established in 1994, Penta manages an evergreen fund sustained by its partners, the company's only shareholders. Penta operates in more than 10 European countries and has offices in Prague, Bratislava, Warsaw and Munich. Penta's current investments in Poland include the Dr. Max pharmacy chain, EMC Instytut Medyczny hospital operator, and retail group EM&F. Its best known past investment was the Żabka convenience store chain, which Penta sold in 2011 to Mid Europa Partners.

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PROPERTY & CONSTRUCTION

Residential developers report solid Q1 sales The largest Warsaw Stock Exchange-listed residential developers saw significant increases in their apartment sales results for the first quarter of 2014, showing that the rebound in the housing sector is well underway. The uptick in the demand has already resulted in increased development activity. Major developers are now replenishing their land banks and announcing ambitious investment plans.

Looking up Housing giants Robyg and Dom Development, which respectively offloaded 1,731 and 1,605 apartments last year, both saw their apartment sales improve year-on-year in the first quarter of 2014. Robyg sold a record 576 apartments in Warsaw and Gdańsk, the two cities in which it is active, in the first quarter of 2014. That marked an increase of more than 90% compared to the same period of last year. The company hopes to continue this trend in the upcoming months and sell a total of more than 2,000 housing units in 2014, said Oscar Kazanelson, president of the supervisory board at Robyg. That prediction will ultimately depend on the continued health of the market – a global economic shock could change the situation drastically. But the results the firm recorded in the first quarter of the year indicate that the 2,000-unit goal is realistic, said Kazanelson. For its part, Dom Development sold a combined 400 housing units in Warsaw and Wrocław in Q1 2014, marking an 18% increase over the same period of last year, according to preliminary data published by the company. Even though the first quarter of this year did

not bring record sales of new apartments, Dom Development views it as a successful period for the industry, Jarosław Szanajca, president of the management board at the company, said in a statement. Other Warsaw Stock Exchange-listed residential developers have shown good Q1 apartment sales results. While they slightly undershot the figures from Q4 2013, they bested the results from the first quarter of last year by far. The aggregate sales results of eight major listed developers – Budimex Nieruchomości, Dom Development, Inpro, JW Construction, Marvipol, Polnord, Robyg and Ronson – increased by 63% y/y in the first quarter of this year, according to DM BZ WBK data. According to a recent report by residential real estate analysis firm Reas, in Q1 2014 a total of over 11,000 apartments were sold in the six largest residential markets in Poland – Warsaw, Kraków, Wrocław, TriCity, Poznań and Łódź. The demand was driven by factors including low interest rates, relatively low prices and, to some extent, the introduction of the new Mieszkanie dla Młodych (Apartment for the Young) subsidized mortgage program for first-time home buyers.

Ambitious plans The positive figures are already leading developers to buy sites for new projects. The major agencies are reporting that residential developers now generate the most demand for building land in Poland. As early as last autumn, Robyg adopted an investment plan which envisions the spending of up to PLN 150m on the acquisition of plots in Warsaw over the next three years. Dom Development earlier this year announced the acquisition of plots for four new schemes in Warsaw. The company has also already made down payments for a number of sites whose acquisition has not yet been finalized.

In the first half of 2014, Dom Development plans to launch construction on a combined eight projects in Warsaw and Wrocław. These will include three new development – two in Warsaw and one in Wrocław – and five new phases of the already ongoing investments. During the first three months of the year, residential developers launched sales of a total of almost 9,500 apartments in the six largest residential markets in Poland, according to the Reas report. This was more than in the previous quarter (over 7,800 units) but due to the good sales the total volume of the apartments on offer in those six markets decreased by approximately 4% q/q in the period, study said. by Adam Zdrodowski

TRANSPORT & LOGISTICS

DPD acquires parcel delivery firm Siódemka The Polish unit of European parcel delivery operator DPD has agreed to acquire one of Poland's top parcel delivery companies Siódemka, creating a number two player in the sector with a market share of approximately 24% and a combined turnover of more than PLN 1bn. A conditional preliminary agreement with Siódemka's owner, the private equity fund Abris Capital Partners, was inked earlier this month. "Assuming we get regulatory clearance for the transaction from the state antitrust office UOKiK, the merger with Siódemka will expand our offering to include innovative, customer-friendly solutions, particularly in the e-commerce business area. Siódemka has vast experience and tested know-how in this market segment," says DPD's CEO Rafał Nawłoka. "We have built our strength on B2B services but in times when business relations with the end-user migrate to online

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channels, we find Siódemka's capital particularly valuable." A major international provider of parcel and express services, DPD ships 2.5m parcels daily, with a workforce of 24,000, fleet of 18,000 vehicles and more than 800 locations throughout Europe. The majority shareholder in DPD (83.32%) is the GeoPost Group, a wholly-owned subsidiary of French Groupe La Poste. With a consolidated turnover of EUR 4.39bn last year (up from EUR 4bn in 2012 and 3.67bn in 2011) GeoPost is currently Europe's third-largest provider of express parcel services.

Europe, the project completed DPD's network of distribution centers in Poland, which the company refers to as its "diamond structure." As of end of 2012 ecommerce deliveries represented approximately a third of DPD Polska's business. "We continue to expand our logistics network and make it more efficient," CEO Rafał Nawłoka tells Poland Today. "This year we intend to launch a new location of one of our Warsaw depots as well as a new one in Gliwice, with a respective storage space of 7,500 sq.m and 6.500 sq.m." A Polish brand, Siódemka has been present on the local market for 15 years and offers parcel delivery service to all customer groups: individuals, microenterprises, SMEs and large firms. In recent years the company has focused on online retailers, ranking as number three in a recent list of most preferred logistics operators for the e-commerce sector. Siódemka employs 1,400 staff and 2,100 couriers and has a network of 40 depots, including a central sorting hub in Rawa Mazowiecka. Asked whether the merger with Siódemka will lead to closure of overlapping distribution facilities and redundancies, Mr. Nawłoka replies:

DPD 's key competitors in Poland include Germany's DHL and US-owned UPS.

Image: DPD

The Polish unit was established by Polish entrepreneurs back in 1991 as Masterlink Express, which in 1998 was acquired by the Swedish Post to finally become part of GeoPost. With 50 regional depots, one central hub and four sorting centers, DPD's Polish unit boosted its turnover by close to 6% last year, reaching PLN 707m. In the end of 2012 DPD Polska opened a giant central sorting center in Stryków, developed at the cost of EUR 39m. One of the largest and most advanced facilities of this kind in Central and Eastern

"We first need to obtain the regulatory approvals before we get down to analyzing details of the merger, so we cannot really comment on this. We expect the combination of both networks to improve the efficiency of connections. We can only say that a broader scale of operations will require adjusting employment levels to the new circumstances. We wish to make the best possible use of the competences and experience of DPD and Siódemka employees."

TRANSPORT & LOGISTICS

Integer.pl raises EUR 53m for phase two of global expansion Polish postal services group Integer.pl in mid-April raised EUR 53m from a private placement aimed at nearly 150 Polish and international investors. The funding will be used to support the global rollout of InPost's easyPack-branded automated self-service parcel pick-up and drop-off points, in Europe, Asia and North America, the company said. "Our plan is to install 10,000 parcel lockers in Europe in the coming three years and at the moment we are working to add an extra 6,000 parcel lockers to our global network. In the US we want to have 10,000 locations by the end of 2016, and our Asian expansion will begin in China." Rafał Brzoska, CEO of the Integer.pl Group tells Poland Today. "We have more than 800 machines in UK – they will be also installed in the London underground and we have started the launch on the Italian market in cooperation with such key partners as Banzai – the biggest e-commerce platform, as well as TNT Italia. Moreover, we have finalized an agreement regarding the installation and maintenance of InPost parcel lockers in Hong Kong. Additional countries on almost each continent are at advanced stages of partnership negotiations. Finalizing the next phase of fundraising was pivotal to further boost our international expansion," he adds. The global expansion, which has taken Integer.pl's parcel lockers to 20 countries and 500 cities around the world, from Europe to Australia, Saudi Arabia, and

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Latin America, has been partially financed by PineBridge Investments, the global multi-asset class investment manager. Two years ago the two companies agreed to invest EUR 108m in the easyPack venture that drives the international expansion, with PineBridge contributing EUR 50m, and the Warsawlisted Integer.pl – the outstanding EUR 58m. But the original funding began to run dry, especially since by 2016 the total investment outlays may reach EUR 1bn. Mr. Brzóska told Poland Today earlier this year that he was looking for a second private equity partner to support easyPack's growth, in a process that's entirely separate from this month's equity boost.

Turno ver in PLN m, left axis Net prof it in P LNm, right a xis 350

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200

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TRANSPORT & LOGISTICS

Warsaw's growing pains Can Warsaw improve transportation and public spaces in the city while it is so focused on the second subway line?

Integer.pl Group key figures

200 5 200 6 20 07 200 8 20 09 20 10

and its next targets are the US, where Integer.pl wants to launch 10,000 locations by 2016, as well as Asia. In 2013 the Integer.pl group net-earned PLN 8.63m (down from PLN 47.2m in 2012) on revenues of PLN 347.32m (PLN 281.93m).

2013

Source: Integer.pl

"If we raise less than EUR 100m, our focus will be on Europe and entry to the USA. Should we get EUR 100150m, Canada, Brazil and China will be added to the mix. Last year alone our capex came to PLN 300m and this year we are projecting a similar amount," Mr. Brzóska told Poland Today. There are an estimated 3,500 parcel lockers that rely on the Integer.pl technology in operation globally at the moment, most of them in Europe. The Polish company has recently made inroads into Latin America

As Warsaw grows into its status as the leading city in the region, one of the biggest questions it faces is how to better manage its public spaces and transportation. At Poland Today’s Primetime Warsaw II conference in April, experts discussed these issues, and didn’t pull any punches. While there seemed broad agreement on the goals, how they should be accomplished and who should work to achieve them were a subject of lively debate. In the end, these discussions became the formats where there was the most open dialogue between the government and the private sector.

Tunnel vision When it comes to transportation in Warsaw, the central issue was clearly the construction of the second line of the Warsaw subway system – the Metro. The project is the single biggest infrastructure investment implemented directly by a local government in the country. The central section of the line, which is currently under construction and due to finish later this year, will cost PLN 4bn by itself. Deputy Mayor Jacek

Wojciechowicz said the city chose to commit to such a large investment because the city centre simply would be unable to function without it. Architect Andrzej Chołdzyński, who was responsible for designing several of the first line stations, mentioned that anywhere between 20,000-25,000 people use the Warsaw Metro on a daily basis and implied that the subway system is the backbone to a strong public transportation system and therefore the basis of a "European model of transit." The construction of the second line of the Warsaw underground has been met with significant delays, with the original plans intended to open the line for use by autumn 2013. During the panel discussion, Wojciechowicz defended these delays by comparing Warsaw's efforts to the construction of Berlin Brandenburg airport, which has already been delayed by four years and is expected to open in late 2015 at the earliest. He noted wryly that this delay was in a country known for its organizational skills. But Jeroen van der Toolen, managing director for Central and Eastern Europe at real estate developer Ghelamco, moved the discussion beyond the second subway line. He pointed out how improved public transportation in general could make life better for many Varsovians, adding that the city’s system suffers from significant overcrowding. Those who use it have little choice but to squeeze into Warsaw’s jam-packed trams and buses during rush hour because they typically don’t own cars. While Warsaw has already done well to develop economically, it now needs to look toward improving the quality of life for its residents, he said.

Parks vs. cars Van der Toolen took his point further when discussing the development of Warsaw’s public spaces. He criticized Warsaw city officials for not taking more of an

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initiative in working with real estate developers to create public spaces in the city and advised that it not waste opportunities that will arise with the spate of development planned for Warsaw’s Wola district. Wojciechowicz defended the city, sarcastically remarking that it often seems as if developers are the ones who run the city. He added that not all real estate developers were as "enlightened" as Ghelamco and that establishing cooperation between them is often difficult. He also pointed out that the city’s efforts were limited by its budget, which is already severely hampered by the construction of the second subway line. The discussion of public spaces continued during a panel which included Deputy Mayor Michał Olszewski, who presented a number of potential ideas to establish public spaces with green areas for pedestrian use and to develop of high-street retail in the city. The locations mentioned included the area bordered by the streets Królewska, Marszałkowska, Jerozolimskie and Jana Pawła II in the centre of the city, as well as an area in the Praga district, which lies east of the Vistula River. Piotr Krawczyński, managing director at Kulczyk Silverstein Properties, mentioned the near omnipresence of cars in the city centre, especially those parked on sidewalks and curbs, as one of the main obstacles to overcome in order to create attractive public spaces. Olszewski agreed, adding that allowing parking on public streets was not always necessary. He pointed to Warsaw’s Royal Route (Trakt Królewski – a number of connected streets running south from Warsaw’s Old Town, some of which are reserved for pedestrians) as a successful example. by Piotr Narel

CONSUMER GOODS & RETAIL

River Island to remain in Poland despite EM&F's fashion failure The recent decision by the Warsaw-listed retail group Empik Media & Fashion (EM&F) to abandon the loss-making fashion part of its business, which includes a number of well-known brands, has left landlords and customers wondering what happens next. The company said it was in talks with the owners of the seven clothing brands it represents in Poland, Russia and Ukraine, as well as other operators who could be interested simply in taking over EMF's locations in some of CEE's most popular shopping malls and high streets. The decision were to impact the Polish arms of GAP, River Island, New Look, Aldo, Esprit and River Island, which left EM&F with a PLN 371m net loss last year, following a PLN 110m loss in 2012. The first brand to speak up was River Island, which in midApril published the following statement: "Following the recent announcement by the EM&F Group regarding their intention to exit retail distribution of clothing and footwear in the franchise model, we would like to emphasize that the decision of our partners in no way affects River Island's growth plans in Poland and Russia," said Zuzanna Dąbrowska, CEO of River Island Fashion Sp. z o.o. So far River Island's chains in Poland (11 stores) and Russia (9) has been developed under an agreement between River Island Clothing Co Limited and EM&F. In 2013 the British retailer opened two new stores in Poland (In Warsaw's Złote Tarasy and Gdynia's Riviera malls). Earlier this year the company revamped its two Warsaw outlets in Arkadia and Galeria Mokotów and

it is planning additional store openings in Poland and Russia by the end of the year. Poland Today approached River Island with questions regarding their new business model in Poland, independent from EM&F, but the company decline to provide any further details at this point.

EMF seeks buyers for 118 fashion stores Brand

Poland

Russia

Ukraine

TOTAL

Esprit

River Island

ALDO

New Look

GAP

OVS

Bodique (HKM)

Multibrand stores

118

TOTAL Source: EMF

EM&F said the restructuring would impact 118 retail outlets, including 61 in Poland (see chart). Its representatives told Poland Today the company intends to keep its cosmetics distribution business as well as retail and wholesale sales of sports footwear (Converse, CAT, Merrell) carried out by its subsidiary Grupa Optimum. "We wish to finalize the whole operation in 2014 and we are not expecting it to generate substantial revenues. The shops we won't be able to find buyers for shall be closed down," EM&F's CFO Jacek Bagiński told a press conference. Apart from the huge losses it generated, the company's fashion business has seen its sales shrink rapidly in recent quarters. Last year it contracted by 19% y/y, down to PLN 307m, including a 45% drop in Q4 2013.

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Overall, EM&F (which includes also the Empik multimedia store chain, Smyk kids goods outlets and other businesses) turned over PLN 3.037bn last year, marking a 2% increase on the prior year, but its net loss deepened from a mere PLN 6m in 2012 down to PLN 300m in 2013. Their EBITDA on continued operations increased slightly last year and came to PLN 276m.

"In the consecutive months we may expect an acceleration of consumer demand, which will be supported by growing demand for labor. The unemployment rate reached 13.5% in March, which is to be interpreted as a positive signal from the labor market," added Pekao SA economist Wojciech Matysiak.

Retail sales in Poland (y/y) CONSUMER GOODS & RETAIL

Retail sales growth slows in March, but unemployment surprises on the upside

With more than 2,400 stores nationwide, including 70 in Warsaw alone, Biedronka is establishing a network of dedicated distribution hubs for its largest markets. Earlier this year it launched a logistics centre in Modlnica near Kraków, with 240 staff, following a similar project in the Gdańsk area. The company is working on another two hubs, in Gorzów Wielkopolski and Sosnowiec.

15%

10%

-5%

Polish retail sales rose at an annual rate of 3.1% in March, on a 12.5% monthly increase, falling short of average projections, the Central Statistical Office (GUS) said last week.. The Polish news agency (PAP) analyst survey had shown consensus expectations for a 5.3% y/y increase and a 14.9% m/m growth. In real terms, Polish retail sales were up by 3.3% y/y in March after a 7.0% y/y increase in February, GUS added. "Retail sales reading was below expectations, but in our view this disappointment was due to overly optimistic forecasts of car sales stemming from changes in VAT regulations. A negative impact on sales was also exerted by the base effect connected to timing of Easter (negative growth rate of food sales). Still, sales in other categories were optimistic, so in our view March's data do not mean deteriorating consumer demand prospects, especially as the unemployment rate was lower than expected," BZ WBK bank wrote in a commentary.

Sep 11

Mar 12

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Source: GUS

CONSUMER GOODS & RETAIL

Biedronka to build new distribution centre near Warsaw Poland's top retailer Jeronimo Martins Polska, owner of the discount grocery chain Biedronka, has awarded a PLN 58.2m contract for the construction of a new distribution center in Parzniew near Warsaw to the Spanish-owned builder Budimex. The project, which is to reach completion by the end of this year, will include 21,500 sq.m of distribution & storage space as well as office and staff facilities and a carwash.

Jeronimo Martins, hopes to have 3,000 Biedronka stores in Poland next year. Image: JMP Jeronimo Martins Polska is Poland's 4th largest company by revenues. It operates more than 2,400 Biedronka groceries and 100 Hebe drugstores in 900 towns and cities and employs in excess of 45,000 people. According to preliminary estimates by its Portuguese owner Jeronimo Martins, Biedronka's sales rose by approximately 15% y/y in 2013 and came to EUR 7.7bn (PLN 32bn), representing two thirds of the company's global business, which turned over EUR 11.8bn (+11%). The like-on-like sales growth in Poland came to 4.2%. Biedronka opened 290 new locations last year and plans to maintain a similar pace of growth in 2014. "We stick to our plan of reaching 3,000 Biedronka locations in 2015. As for the Hebe chain, we are expecting its dynamic expansion to continue this year," Anna Papka, external relations manager at Jeronimo Martins Polska, told Poland Today.

weekly newsletter # 032-033 / 28th April 2014 / page 16

HEALTHCARE

South Africa's Life Healthcare acquires Scanmed Multimedis South Africa’s Life Healthcare has acquired 57.1% of the share capital in Polish healthcare group, Scanmed Multimedis for PLN 65.5m from Polish private equity company Black Lion Fund. According to Life Healthcare, the acquisition is part of their international expansion plans, which already includes the 26% interest in Max Healthcare – an acute hospital business in India. Scanmed Multimedis will be run by the existing management team, in association with Life Healthcare’s management team. "The ongoing consolidation of Poland's healthcare services market has encouraged us to start looking for a strategic investor for Scanmed Multimedis, especially since the company has reached a level of maturity that makes it an extremely attractive partner," says Maciej Wandzel, CEO at Black Lion Fund. "We have been in talks with a number of interested parties from all over the world and we have chosen an investor that has the financial muscle and know-how to create a strong healthcare group and become a true market integrator." "We have been looking at the Polish market for two years and within the last eight months have dedicated increased resources to investigate specific opportunities. Scanmed was one of these opportunities," Jonathan Lowick, Strategy and Development Executive at Life Healthcare, tells Poland Today. "Poland attracted Life Healthcare's interest because it is one of the most dynamically developing economies in the European Union."

Besides Kraków, where it operates a full-scale hospital, Scanmed Multimedis is present in nine other key Polish cities via a network of 27 proprietary outpatient units and 650 partner centers. Scanmed Multimedis had post-tax profits of PLN 3.3m on PLN 90.3m worth of revenues last year (against PLN 65.6 in 2012). In mid-April, Scanmed acquired Weiss Klinik, a specialist ophthalmological hospital and clinic in Chorzów and Gliwice. "We have entered the Polish market because we believe that the privately operated hospital market is expanding rapidly and that there is an opportunity for us to leverage our operational experience in building a multi-hospital network in Poland. Scanmed is a key entry point in executing this strategy. We see the opportunity as an expansion via acquisition of existing facilities with potential further investment in hospital assets," says Mr. Lowick. Life Healthcare operates 63 hospitals with more than 8,000 beds as well as a range of other healthcare services. For the financial year ended September 30, 2013, Life Healthcare posted net earnings of ZAR 1.76bn (PLN 506m) on revenues of ZAR 11.84bn (approx. PLN 3.4bn). "Our hospital business has been built up over a period of 30 years, through a combination of acquisition and greenfield growth. This has given us significant experience in developing a hospital network and in leveraging best operating practices across a network to improve efficiency and quality of operations of all hospitals in the network. We think we can bring some of this experience to the Polish private hospital market as it develops and consolidates. Life Healthcare and Scanmed share similar values particularly relating to the provision of world-class quality care," Jonathan Lowick tells Poland Today.

CEE HEALTHCARE MARKET OFFERS HUGE POTENTIAL FOR LONG-TERM INVESTORS Healthcare was one of the key topics at the Central & Eastern European M&A and Private Equity Forum 2013, which was held in Warsaw last September. Its participants included the Czech-Slovak private equity company Penta Investments, which is building a regional healthcare and pharma retail empire in the CEE. Penta's representatives shared their insights on the challenges involved in healthcare projects, but their overall message was rather encouraging. Investors interested in CEE's healthcare sector should certainly be prepared to adopt a longer than usual investment horizon, with 7-10 years in Penta's case being the necessary minimum, but the long-term rewards can be worthwhile. However, the regulatory risk remains very high in CEE, even if longer time frames as well as geographic diversification help to re-duce it, to some degree. When it comes to the most attractive segments of the healthcare market, hospitals seem to be the number one target, with some 30-40% of them being in the red and public owners running out of ideas on how to subsidize them for much longer. A significant portion of CEE's hospital segment, which receives roughly a half of the region's total healthcare spending, seems bound to be privatized in the coming years, so huge opportunities certainly exist, for the more daring and for the patient.

Poland's healthcare sector was put in the limelight by the EUR 400m acquisition of the country's top private healthcare operator Lux Med by Britain's Bupa from private equity fund Mid Europa Partners in what was one of the region's largest M&A transactions in recent years. Lux Med made Bupa the number one player in Poland's private healthcare funding and provision markets, adding one million new customers to

weekly newsletter # 032-033 / 28th April 2014 / page 17

Bupa’s international portfolio. In healthcare funding, Lux Med is Poland's market leader in medical subscriptions, a corporate product offering employees rapid access to outpatient services. In provision, Lux Med has a national network of outpatient clinics and diagnostic centers, as well as two day hospitals and a large nursing and residential care home in Warsaw. The company turned over PLN 700m in 2011, and the figure has surely gone up significantly since. Besides Bupa, the only major international health care player in Poland so far has been Medicover. Last year the Czech private equity company Penta Investments acquired the Warsaw-listed EMC Instytut Medyczny and confirmed its plans for further healthcare investments in Poland. Other private local chains (Enel-Med, Swissmed, Polmed) will sooner or later have to group together or find strong foreign backers in order to play an important role in consolidation and privatization of the sector. A growing number of local and regional hospitals are seeking private operators, but they represent an attractive opportunity only to cash rich investors. It does seem like in a couple of years the market will be divided between a handful of major chains, integrating outpatient, diagnostic, and hospital services. For the like of Bupa and Life Healthcare, Poland represents one of the most attractive markets in Central and Eastern Europe due to the size of its population, rising levels of disposable income and long-term growth potential. Spending on healthcare is increasing and the private healthcare market is forecast to grow by 10% per annum until 2016, according to PwC. The OECD estimates total health spending in Poland at 7% of GDP, compared to 9.6% in the UK, and 17.6% in the USA.

HEALTHCARE

GSK in hot water over Polish bribery case UK pharma giant GlaxoSmithKline has been accused of bribing doctors in central Poland to promote GSK's asthma drug Seretide following an investigation launched by Polish prosecutors. According to Poland's Central Anti-Corruption Bureau (CBA), 13 people had been charged in connection with the allegations. The case was first unveiled by the BBC Panorama TV program, which said that the investigation included 11 doctors and a GSK regional manager, charged over alleged corruption between 2010 and 2012. A former GSK sales rep in Łódź told the BBC that doctors were paid to give speeches and then expected to increase prescriptions. Although on paper the payments were for educational services, the doctors understood very clearly that they must produce a certain number of prescriptions in return, he said. "We have evidence that in more than a dozen cases it was a camouflaged form of a bribe. In return for the financial gains the doctors would favor the product proposed by the pharmaceutical company and they prescribed that medicine," Łódź public prosecutor spokesman Krzysztof Kopania told BBC Panorama. Following the BBC report GSK admitted that it had conducted an internal investigation as to the Polish claims in 2011 and "found evidence of inappropriate communication in contravention of GSK policy by a single employee. GSK said the employee had been disciplined and it was co-operating fully with the CBA.

The newly disclosed probe comes as GSK faces separate allegations its employees bribed doctors in China and Iraq. In 2012, GSK paid a USD 3bnfine in the largest healthcare-fraud settlement in US history after pleading guilty to promoting two drugs for unapproved uses and failing to report safety data about a diabetes drug to the Food and Drug Administration. If the Polish allegations are proved, GSK may have violated both the UK Bribery Act and the US Foreign Corrupt Practices Act. It is illegal for companies based in either country to bribe government employees abroad. Under a similar legislation, the US authorities have recently placed a USD 108m fine on the IT giant HP for corrupt practices in Poland, Russia and Mexico. With an estimated 5.6% share in prescription and OTC drug sales, GSK is Poland's largest drug producer and the leading investor in the country's pharmaceutical sector. Since the 1998 acquisition of Polfa Poznań, GSK has invested USD 475m in Poland. The total revenues of GlaxoSmithKline Pharmaceuticals came to PLN 4.6bn in 2013, of which exports represented some PLN 3m. GSK employs some 1,500 staff in Poland, including 900 in Poznań.

IT & TELECOM

Innova Capital offers PLN 450m for Polish telecom firm ATM Private equity fund Innova Capital, through its subsidiary Fisterra, has announced a tender offer for 100% of shares of the Warsaw-listed telecommunications company ATM, offering PLN 12.4 per share i.e. more than PLN 450m for the entire business. Sub-

weekly newsletter # 032-033 / 28th April 2014 / page 18

scriptions will be carried out between May 5 and June 4 by Unicredit CAIB. The tender will be successful if subscriptions exceed 80% of total votes, although Fisterra may choose to purchase them even if they don’t. Should subscriptions for at least 90% of all votes be made, the new investor will carry out a mandatory buyout of minority shareholders, delist ATM and focus on building its value organically.

ATM is currently working on building four of its ATImage: ATM MAN Data Center in Warsaw. "Additionally, Innova wants the company to continue with regional consolidation, by acquisitions of similar companies in Central Europe. Innova also wants to adjust the company’s balance sheet and use leverage to maximize its return on capital," the firm wrote in a statement. ATM has been providing ICT solutions (mainly collocation and hosting, broadband data transmission and Internet access) for business since 1991. Its customers include carriers, Internet portals, traditional media and financial institutions. Operating under the ATMAN and Thinx Poland brands, ATM has its own fiber

optic networks and is the only Polish operator present in four of Europe's largest interconnect nodes: AMSIX Amsterdam, DE-CIX Frankfurt, LINX London and MSK-IX Moscow. According to a recent report by market researcher PMR, ATM is Poland's number one data center operator with an 11% share thanks to its three existing data centers in Poland, with over 8,500 sq.m of colocation space. The company recorded total revenue of PLN 131m last year, reporting the fastest growth in colocation and hosting services. Revenue in that market segment rose by 17% y/y to reach PLN 58m. In particular, demand for dedicated servers for small and medium-sized enterprises was up by as much as 190%, reaching PLN 3.8m, ATM said. Its net profit from continuing operations increased by 43% y/y and totaled PLN 19.8m. "We are on the verge of rolling out our latest investment project – the F4 colocation building, with net space of 1,000 sq.m, at the ATMAN Data Center. A long-term contract has already been concluded with a company from the financial sector for one quarter of the total colocation space available in that building, and intense negotiations are under way with other potential customers," said Maciej Krzyżanowski, CEO of ATM S.A. ATM 's expansion plans also include the building of another server room as part of the ATMAN Data Center in Warsaw. The project is expected to be completed in mid-2015, and will enable the company to consolidate its position in the Polish data center market. According to PMR, data centers are one of the most promising segments of Poland's ICT market, due to low level of saturation of data center services in the SME sector. The market researcher argues that the Polish data center market, though already the largest in Central and Eastern Europe, is still in an early phase of development. Worth more than PLN 1bn – which is

about 15% more than in 2012 – the market is expected to continue showing double digit growth figures in the coming years. PMR data show that within the past five years the value of the market for basic data center has more than doubled, with the average annual growth rate reaching some 12%, irrespective of the macroeconomic factors. The server hosting market has been growing even more rapidly over the last two years. Every year from 4,000 to 7,000 sq.m of new space is being delivered to the market, which translates into higher revenues of service providers. Data center operators have been recently targeting technology parks and special economic zones, where their projects can count on EU subsidies, which help shorten the payback period and successfully compete with the existing centers.

IN BRIEF: Poland's average corporate gross wage measured PLN 4,017.75 in March, as it rose by 4.8% year on year and rose by 4.2% month on month, the Central Statistical Office (GUS) said. Poland's corporate employment measured 5.515m persons in March, as it rose 0.5% y/y and by 0.1% m/m. Poland's registered unemployment rate decreased to 13.5% in March from the prior-month level of 13.9%, according to the Central Statistical Office (GUS) figures. The number of registered jobless at end-March measured 2.182m, down by 73,700 month on month. February brought 186,800 new registrations, down from 294,100 in the prior month and down from 213,900 in the prior-year period. At the same time, 260,500 people were crossed off the register. Employers posted 108,700 new job offers for the month, up from 97,400 in the prior month and up from 89,000 on the prior year period.

weekly newsletter # 032-33 / 28th April 2014 / page 19

KEY STATISTICS Consumer Prices Prices

Inflation

-0.2

+1.2

0.0 +3.4 +0.8

+2.2

+1.4

+3.7 +0.7 -4.3 +0.8

Clothing, shoes

-4.9

-0.6

Housing

+1.8

0.0

Transport

-0.9

0.4

-1.2

-1.5

-1.1 +0.4

Communications -11.6

0.0

-7.8

-0.3

-3.2 +0.4

Gross CPI

+0.7

-5.0

-3.7

-4.7

-1.7

+1.9 +0.2

+1.9

+0.1

-0.3

+1.8

-0.1

-2.7

+0.1

Dec '13

Jan '14

m/m (%)

Nov '13 -5.8

+17.3

-21.3

-0.6

y/y (%)

+3.8

+5.8

+4.8

+7.0

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 (%)

-0.3 +0.6

Mar 14

+1.6

Jan 14

+1.6

Nov 13

Alcohol, tobacco +3.7

+1.8

m/m

Sep 13

+0.7

Jul 13

+1.5

y/y

May 13

Food & bev

Month

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

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

Jan 13

Sector

Retail Turnover

Nov 12

Mar '14

Sep 12

Feb '14

Jul 12

Jan '14

Mar 12

Dec '13

May 12

Data in (%)

+0.1 +0.5 +0.1 +0.7 +0.1 +0.7 +0.1

Feb '14 Mar '14

Industrial Output

+3.1 2013

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-Mar y/y

178.8

174.9

184.1

165.1

138.7

158.1

162.2

141.8

(in '000 units)

Producer Prices Prices

+12.5

Permits

2014

(%)

33.9

+49.4

Commenced

142.9

127.4

32.2

+56.4

m/m (%)

+0.1

-0.7

-0.3

-0.1

0.0

-0.1

-0.2

m/m (%)

+9.6

+6.0

-6.2

-9.7

+2.9

-1.8

+9.4

U. construction

670.3 692.7 723.0

713.1 694.0

691.3

-0.8

y/y (%)

-1.4

-1.5

-1.0

-1.4

-1.3

y/y (%)

+6.2

+4.4

+2.9

+6.6

+4.1

+5.3

+5.4

Completed

160.0 135.7

152.5

35.7

-3.9

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

Sep'13 Oct'13 Nov'13 Dec'13 Jan'14 Feb'14 Mar'14

-0.1

-0.2

-0.1

-1.8

-1.7

-1.6

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

442,167

-1.5%

393,725

-1.9%

Q2 2013

+0.8%

389,244

-2.3%

Q1 2013

+0.5%

370,089

-3.1%

2013

+1.6%

1,635,746

-1.5%

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 (%)

+21.5

-64.0

+18.7

+24.2

-4.8

-3.2

-8.9

+5.8

-3.9

+14.4

+17.4

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

Transportation

3,816

135 3,439

IT, telecoms

6,379

Financial sector 6,044 National average 3,878

6,021 183

3,421

146 3,408 145

122 3,547

125 3,589 127

166 6,685

174 6,707

174 6,654 173

136 6,356

143 6,702

151 6,109 137

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 M ar 14

Dec 1 3

Q3 2013

Sep 13

Q2 2013

Jun 1 3

Q1 2013

M ar 1 3

Coal mining

Q4 2012

Current account def. in % of GDP

+1.9%

-2.9

Dec 1 2

Sector

GDP in PLN bn current prices

+2.7%

+14.3

S ep 12

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

146.1

Q3 2013

+9.4

Source: The Central Statistical Office of Poland, GUS

Gross Wages

Growth y/y unadjusted

131.7

Q4 2013

m/m (%)

J un 1 2

y/y (%)

-0.1

Period

Sep '13 Oct '13 Nov '13 Dec '13 Jan '14 Feb '14 Mar '14

M ar 1 2

Year

-0.1

Month

Dec 11

y/y (%)

Sep'13 Oct'13 Nov'13 Dec'13 Jan'14 Feb'14 Mar'14

Sep 11

m/m (%)

Sep '13 Oct '13 Nov '13 Dec '13 Jan '14 Feb '14 Mar '14

Construction Output

Construction Prices Price s Month

Month

J un 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

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%

+1.0%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

-1.4%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.7%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.4%

Unemployment**

12.4%

12.5%

13.4%

12.4%

3.99

4.12

4.19

4.20

4.09

EUR/PLN

2011

2012

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

weekly newsletter # 032-33 / 28th April 2014 / page 20

56.31 ↑

100 SEK

46.17 ↑

100 NOK

50.74 ↑

10,000 JPY

297.15 ↑

10,000 HUF

400

USD EUR 350

300

15.31 ↑

100 CZK

136.79 ↑

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

WIG-20 stocks Price Change Change in alphabetical 11 Apr 4 Apr end of order '14 '14 '13

WIG Total index

Sep '13 Oct '13 Nov '13 Dec '13 Jan '14 Feb '14

PLN (up to 1 year)

4.5%

4.3%

4.2%

4.5%

PLN (up to 5 y )

4.9%

4.8%

PLN (over 5 y)

4.8%

4.7%

4.8%

4.7%

PLN (total)

4.8%

4.7%

4.8%

4.7%

EUR (up to 1m EUR) 1.8%

2.0%

1.9%

2.0%

↓ BZ WBK

EUR (over 1m EUR) 3.2%

2.5%

3.0%

2.9%

3.6%

3.4%

Warsaw Inter Bank Offered Rate (WIBOR) as of 25 Apr 2014 Overnight

1 week

1 month

3 months

6 months

2.60%%

2.60%

2.62%

2.72%

2.74%

Dec '13 164,010 555,851 114,401

Jan '14

Feb '14

161,544 546,487

158,330 548,033

113,455

114,680

960,361

947,443

954,284

964,624

- Time deposits

421,160

418,259

423,296

422,990

978,924

962,416

968,442

980,377

- Net foreign assets 143,430 140,617 135,759 132,849 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

-1%

51,497. 497.70

↓ Asseco Pol.

44.70

-3%

Change 1 week

-2% ↓

↑ Bogdanka

123.80

+1%

-2%

Change end of '13

0% →

385

-4%

-1%

↑ Eurocash

40.27

+4%

-16%

WIG-20 blue chip index

→ Grupa Lotos

39.05

+10%

41.41

-6%

-22%

2,4 2,429. 29.80 Change 1 week

-1% ↓

Change end of '13

+1% ↑

↓ JSW

-7%

-24%

↓ KGHM

111

-4%

-6%

↓ LPP

7,901

-5%

-12%

→ mBank

518.5

+4%

↓ Orange Pol.

9.87

-6%

+1%

Credit

↓ Pekao

191.2

-3%

+7%

55,000

The financial sector's net lending in PLN bn,

↑ PGE

20.65

+5%

+27%

54,000

4.48

+3%

-13%

45.1

+1%

+10%

-3%

+5%

50,000 49,000

Reference

Lombard

2.59%

173,213 116,657

-2% -2%

↓ Kernel

Mar '14 558,954

80.75

↓ Alior Bank

Central Bank (NBP) Base Rates

M2 M3

as of 25 April 2014

NBP deposit

4.00%

Rediscount

1.00%

2.75%

loan stock at the end of period Type of loan

↑ PGNiG

Dec '13

Jan '14

Feb '14

Mar' 14

903,890

914,189

914,068

923,709

↓ PKO BP

41.25

- to private companies

259,061

263,063

263,941

267,553

→ PZU

428.3

-5%

- to households

562,381

567,984

567,257

569,334

↓ Synthos

4.86

-6%

-11%

1,601,293

1,628,197

1,616,891

1,628,519

↑ Tauron

5.12

+1%

+17%

Loans to customers

Total assets of banks

↑ PKN Orlen

Source: Central Bank NBP

WIG Total closing index last three months

53,000 52,000 51,000

25 Apr 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

1 Apr 14

344.66 ↑

25 Apr 14

510.69 ↑

100 CHF

17 Feb 14

100 GBP

5 Dec 13

420.30 ↑

26 Sep 13

100 EUR

Key indices

Term / currency

450

19 Jul 13

303.78 ↑

13 May 13

100 USD

Stock Exchange

Average weighted annual interest rates

10 Mar 14

as of 25 April 2014

Interest rates

14 Feb 14

100 USD/EUR against PLN

Central Bank average rates

23 Jan 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-Feb 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Feb 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Feb share 2014

IMPORTS in PLN bn *2013

share No

Country

Jan-Feb share 2014

*2013

11,425

+7.0

10.6

69,304

10.9

7,921

+2.4

7.6

47,906

7.4

1 Germany

27,115 25.7% 159,622 25.0%

1 Germany

22,514 21.4% 139,334 21.5%

Beverages and tobacco

1,296

+22

1.3

8,624

1.4

564

-8.9

0.6

4,150

0.6

2 UK

6,789

6.4%

41,503

6.5%

2 Russia

13,686 13.0%

Crude materials except fuels

2,799

+0.9

2.8

15,744

2.5

3,551

-2.3

3.6

21,585

3.3

3 Czech Rep.

6,597

6.3%

39,421

6.2%

3 China

10,644 10.1% 60,914 9.4%

Fuels etc

5,001

-7.8

5.4

30,013

4.7

13,046

+7.5

11.9

75,539

11.7

4 France

6,453

6.1%

35,745

5.6%

4 Italy

321

+49.7

0.2

1,864

0.2

397

-4.4

0.4

2,646

0.4

5 Russia

4,684

4.4% 34,058

5.3%

5 Netherlands

3,799 3.6% 25,005 3.9%

9,592

+4.1

9.2

59,103

9.3

15,616

+3.2

14.8

92,917

14.3

6 Italy

4,759

4.5%

4.3%

6 France

4,086 3.9% 24,533 3.8%

Manufactured goods by material

20,989

+0.7

20.7

129,915

20.3

18,664

+4.2

17.6

112,392

17.3

7 Netherlands

4,217 4.0%

25,292 4.0%

7 Czech Rep.

3,674 3.5% 23,778 3.7%

Machinery, transport equip.

40,068

+7.8

37.0

239,434

37.5

33,679

+4.5

31.6

216,608

33.4

8 Ukraine

n/a

18,037

2.8%

8 USA

2,399