Poland Today Business Review+ No. 034 by Poland Today Business Review+

1 year subscription: EUR 690 (PLN 2760) Newsletter Editor: Lech Kaczanowski lech.kaczanowski@poland-today.pl tel. +48 607 079 547 Sales Contact: James Anderson-Hanney james.anderson-hanney@poland-today.pl

No. 034 / 12th May 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING April PMI data weaker than expected on Ukraine worries page 2 BANKING & FINANCE BNP Paribas boosts free float to please regulator ahead of BGŻ takeover verdict page 3 ENERGY & RESOURCES PKN Orlen doubles Canadian upstream capacity with new acquisition page 3 Gaspol acquires Orlen's LPG cylinder business page 4 Skanska has developed several buildings under the "Atrium" logo in Warsaw.

Image: SPP

Skanska to build more offices in Warsaw

Merely days after Skanska Property Poland offered details of its giant office project Generation Park, the company has unveiled another large scheme in Warsaw – Atrium 2. The two projects will contribute some 100,000 sq.m to the city's office stock. page 5

Tarkett acquires Gamrat flooring firm

France's Tarkett has acquired the vinyl flooring unit of Polish building products maker Gamrat for PLN 92m, adding a second manufacturing plant to its Polish operations. page 2

PROPERTY & CONSTRUCTION PKP picks Ghelamco for PLN 1.5bn project Warszawa Gdańska page 6 Orco divests German arm to buy more time for Złota 44 sale page 7 Big deals push Q1 property investment volume to EUR 900m page 8 Building land market to pick up in 2014 page 9

tel. +48 881 650 600

SERVICES & BPO IT outsourcing firm Mobica to employ 100 at new Lublin center page 9 Radom hoping to become Poland's next BPO hotspot page 10 TRANSPORT & LOGISTICS Danish e-retailer MyTrendyPhone moves main warehouse to Szczecin page 11 Warehouse developers report highest Q1 take-up since 2008 page 12 RETAIL CHAINS Empik reaches 200 locations, wants another 15 by year-end page 13 POLITICS & ECONOMY European commission raises GDP growth forecast for Poland page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

weekly newsletter # 034 / 12th May 2014 / page 2

MANUFACTURING & PROCESSING

France's Tarkett acquires Polish vinyl flooring producer Gamrat French-owned flooring company Tarkett has acquired a 100% stake in Gamrat Wykładziny (Gamrat Flooring), Poland's leading producer of high performance vinyl flooring, for PLN 92.4m. The seller was Gamrat, the PVC and polyethylene construction materials unit of the Warsaw-listed Lentex group, which had valued the vinyl flooring business at PLN 55.3m in its books. "Thanks to this acquisition, Tarkett strengthens its industrial and commercial footprint in Poland and Central Europe. With this new plant, we increase our vinyl production capacity and reinforce our competitiveness, which will enable us to better answer the growing demand for high performance products in Central and Eastern Europe as well from other European countries," Véronique Bouchard Bienaymé, Group External Communications Director atTarkett Group tells Poland Today. "The plant will benefit from Tarkett's manufacturing expertise and knowledge, and we will deploy our world class manufacturing program for safety, productivity, quality and environment improvements. At this stage, it is too early to provide further information on investments or production transfer," she adds The Gamrat takeover strengthens Tarkett's position in added-value and growing segments, such as healthcare, aged care and education, predominantly in

countries across Central Europe and especially in Poland where Gamrat Flooring already holds recognized positions. With a factory in Jasło, in south east of Poland, Gamrat Wykładziny has generated profitable growth over the past three years with net sales of approximately EUR 20m and 220 employees in 2013. The company produces and sells homogeneous and heterogeneous floorings, wall covering and foils dedicated to the commercial segment. The transaction includes the production as well as the distribution activities of the existing product ranges. Tarkett is one of the world's leading suppliers of flooring and sports surfaces solutions. With a wide range of products including vinyl, linoleum, carpet, rubber, wood & laminate, synthetic turf and athletics track, the group serves customers in more than 100 countries worldwide. With 11,000 employees and 30 production sites, Tarkett sells 1.3m sq.m of flooring every day, for hospitals, schools, housing, hotels, offices, stores and sports fields. Its 2013 net sales of EUR 2.5bn were balanced between Europe, North America and new economies. Tarkett is listed on Euronext Paris. "Tarkett has production and sales activities in Poland, serving the Polish and Central European markets. In Central Europe, we sell flooring for commercial applications mainly for health care, aged care facilities and education, as well for hotels and offices. We also sell flooring for the residential market. End-consumers can buy Tarkett products through distributors. Prior to the Gamrat acquisition we had a staff of 350 in Poland, including 280 at our wood products plant in Orzechowo. Our sales office in Warsaw was established in 1994, initially as Sommer Polska, then Tarkett Sommer Polska and finally Tarkett after the merger of these two companies. The Gamrat acquisition adds a vinyl products plant with 260 staff to our Polish organization," says Véronique Bouchard Bienaymé.

POLITICS & ECONOMY

April PMI data weaker weaker than expected on Ukraine worries Poland's manufacturing sector purchasing managers' index PMI fell to 52.0 pts in April, the lowest level since July 2013, from 54.0 pts just one month prior, a PMI report by HSBC and Markit showed. April was the 10 th consecutive months when the indicator remained above the the 50 points threshold that separates economic expansion from contraction. "The PMI release surprised on the negative side, falling below our (53.8pts) and market (54.3pts) forecasts. All major sub-indexes of the PMI declined, which might partly result from negative impact of uncertain situation in Ukraine on logistic managers’ expectations," BZ WBK analysts said in an e-mailed commentary.

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

45 Feb 13

Apr 13

Jun 13

Source: Markit & HSBC

Aug 13

Oct 13

Dec 13

Feb 14

Apr 14

weekly newsletter # 034 / 12th May 2014 / page 3

"Growth rates for production, new orders, new export business and purchasing activity all slowed for the second month running, while employment in the goodsproducing sector also increased at a weaker pace," HSBC and Markit said in an overview of the results. At the same time, growth of new orders remained positive for the 11th consecutive month, and the growth of total new orders "remained strong in the context of historic survey data, aided by robust domestic demand," authors wrote. Production of goods also rose (for the tenth consecutive month), although at "the weakest rate over this sequence," while backlogs declined at a fastest rate since April 2013, the researchers noted. On a positive note, a "further robust increase in manufacturing employment" was visible, "extending the current phase of job creation to nine months." The report finds no inflationary pressure in the economy, the report also showed.

has been increasingly critical of large bank mergers. The issue raised approximately PLN 231m. "Most of the proceeds we intend to use to support our lending , both to corporate and retail clients. A portion will be spent on this year's investment program, including modernization of our IT infrastructure," said BNP Paribas Bank Polska CEO Frédéric Amoudru. If approved by Poland's regulator KNF the PLN 4.2bn transaction will springboard BNP Paribas to No. 8 position in Poland. The regulator, which said it would not rule on the BGŻ deal before August, has not explicitly linked the share issue to giving a go ahead for the takeover, but BNP does not want to do anything to risk getting on KNF's wrong side at a time when it is seeking the latter's approval. The regulator is applying the 15% free float requirement to all banks with foreign parents, because it is concerned about their ownership being concentrated in too few hands.

BANKING & FINANCE

BNP Paribas boosts free float to please regulator regulator ahead of BGŻ takeover verdict France's largest listed lender BNP Paribas has carried out a share issue at its Polish arm, bowing to a request from Poland's financial regulator KNF to raise its free float to 15%. The Polish BNP unit has so far been 99.89%-owned by its French parent, but since signing a deal with Dutch Rabobank last year to acquire the latter's subsidiary Bank BGŻ, Poland's No.11 bank by assets, the French lender has been under intense pressure to please the financial watchdog, which

zone in recent years. Major recent exits from Poland's banking market included Belgium's KBC and Ireland's AIB which sold their Polish units to Spain's Santander, Greek Eurobank EFG (their Polbank EFG merged with Raiffeisen Polska), and Swedish Nordea (their Polish arm is to be acquired by Poland's largest lender PKO BP for PLN 2.83m). The Polish unit of BNP Paribas posted net earnings of PLN 102.3m in 2013, up from PLN 30.8m in 2012. With 222 retail units and nine business centers, the bank serves 363,000 retail customers and 33,000 small and medium-sized companies. Globally, BNP Paribas has a presence in nearly 80 countries with 190,000 employees, including 145,000 in Europe, focusing on retail banking, investment solutions as well as corporate & investment banking. With combined assets of more than PLN 56bn, the new BNP Paribas-BGŻ will remain far behind the top four lenders (PKO BP: PLN 200bn+Nordea's PLN 30bn; Pekao SA: PLN 150bn, mBank and BZ WBK (each with PLN 100bn in assets), but it will become a worthy rival for the likes of Raiffeisen Bank, Getin Noble, Millennium Bank and even ING BSK. The top ten of Poland's banking sector is therefore looking increasingly well-defined.

ENERGY & RESOURCES BNP Paribas seeks to become one of Poland's Top Ten banks.

Photo: BNP Paribas

Foreign banks control about 70% of the Polish banking sector, but several have looked for an exit to boost capital positions hit by the global economic crisis, with others being keen to strengthen their foothold in an economy which has outperformed much of the euro

PKN Orlen doubles Canadian upstream capacity with new acquisition TriOil Resources, the Canadian upstream unit of Poland's oil giant, PKN Orlen, last week acquired its lo-

weekly newsletter # 034 / 12th May 2014 / page 4

cal rival Birchill Exploration for an undisclosed price from Luxembourg-based Bregal-Birchill Investments. PKN wants to finalize the transaction this quarter and expects it to double its Canadian upstream capacity. Orlen Group's existing producing assets in Canada are concentrated in the Pouce Coupe, Kaybob and Lochend fields in the province of Alberta, with total proved and probable reserves (2P) of 22m barrels of oil equivalent (boe). In Q1 2014, TriOil’s average daily production amounted to 3,700 boe, 60% of which were liquid hydrocarbons (crude oil and condensate). Statecontrolled PKN booked its first net profit from oil production in Q1 2014 with its last-year purchase of TriOil booking core earnings of PLN 37m.

PKN Orlen seeks to diversify into upstream and energy generation to offset falling refinery margins. Photo: PKN Orlen

The oil and gas fields operated by Birchill are also located in Alberta, Canada, in the Ferrier/Strachan area, in proximity of TriOil's existing fields. Closing of the transaction is subject to certain conditions including clearance from the Competition Bureau in accordance with Canadian laws.

"Our acquisition of TriOil last year paved the way to further development of Orlen group’s E&P operations in North America. The agreement, which initiates the acquisition of additional producing assets, fits into the Group's strategy for the production segment. Diversification and expansion of production capacity is our pathway to increasing our Group's value," said Jacek Krawiec, President of the PKN Orlen Management Board. "At the same time, we continue exploring shale gas and oil in Poland. We have already drilled ten exploratory wells within our shale license areas, including seven vertical and three horizontal wells, and performed two full hydraulic fracturing processes. We also intend to drill a fourth horizontal well on the Wierzbica license, and to carry out another hydraulic fracturing process in August," added Jacek Krawiec. The proposed Birchill acquisition is consistent with PKN Orlen's strategy for 2013-2017, which envisages development of the upstream segment by diversifying the group's worldwide portfolio of assets. Orlen has allocated PLN 2.7bn to advance this strategic objective. The company said its acquisitions do not reduce the amount of funds earmarked for exploration and production activities in Poland, including those in unconventional oil and gas plays. In the coming years, total investments in the upstream segment under the Company's strategy may amount to as much as PLN 5.1bn. PKN Orlen turned over PLN 114bn last year, some 5% less than in 2012. Its EBIDTA dropped 42% y/ to reach PLN 2.5bn, while its net earnings plunged by 96% and topped a mere PLN 90m. PKN Orlen blamed a very challenging environment in the refining industry (mainly the lowest refining margin and Ural/Brent differential since 2002) for its disappointing result. On the flipside, however, Orlen's capital expenditure rose by a fifth and came in excess of PLN 2.5bn and at the

same time the group managed to its debt by PLN 2.2bn, down to PLN 4.6bn. A leading producer and retailer of fuel in the CEE region, PKN Orlen operates three refineries (in Poland, Lithuania and Czech Republic) with a combined maximum capacity of 32.4m tons a year. Last year the three sites processed 28.2m tons of oil, 90% of which was Russian Export Blend Crude Oil (REBCO). Besides investments in the upstream segment, PKN Orlen has made inroads into the power generation sector with a PLN 1.4bn combined cycle gas turbine plant (463MWe) in Włocławek and plans for a similar project in Płock.

ENERGY & RESOURCES

Gaspol acquires Orlen's LPG cylinder business Orlen Gaz, a subsidiary of Polish downstream oil giant PKN Orlen has finalized the sale of its LPG cylinders unit to Gaspol, the Polish unit of Dutch SHV Energy. Financial details of the transaction have not been disclosed. Orlen and Gaspol inked the preliminary deal nearly two years ago but hammering out details of the agreement took time and the parties had to wait for Poland's competition authority UOKiK to give a green light to the transaction. Orlen Gaz is the leading supplier of LPG to the Polish market, selling propane, butane and their mixture. In 2011 the company decided to pull out of the cylinders segment, in order to focus on autogas, wholesale, and industrial installations. Gaspol, which is Poland's number one LNG distributor, has taken over all of Orlen's assets related to the cylinders business. The

weekly newsletter # 034 / 12th May 2014 / page 5

company will be the sole supplier of LPG canisters to Orlen's vast petrol station network and at the same time one of the key recipients of LPG from Orlen's filling facility in Płock. Orlen Gaz has six filling plants as well as a border terminal in Sokółka as well as an marine terminal in Szczecin, which enables the company to unload and load LNG tankers.

Poland's LPG market by segment 2012 Autogas Gas in cylinders Bulk (tanks) Total LPG usage in Poland

2013

y/y

1,600

1,575

-1.6%

315

305

-3.2%

265

270

+1.9%

2,180

2,150

-1.4%

2.15m tons, Poland is Europe's number two market after Italy (3.2m tons), particularly due to the popularity of LPG-powered vehicles. Last year Poland's 2.76m LPG-powered cars consumed 1.58m tons of the fuel, more than in any other European country. There are an estimated 82,600 residential LPG tanks currently in-stalled throughout the country and growth on this market segment is expected to continue.

The other key player in Poland's LPG sector is US company AmeriGas, which last year acquired British BP's LPG distribution business in Poland. The transaction gave AmeriGas an estimated 23% share in the bulk & canisters segment and 13% of the autogas segment. As a result, its turnover were to leap from PLN 593m in 2012 to PLN 1.244bn in 2014, making AmeriGas one of Poland's top 300 largest corporations. The company now has six LPG filling plants, six regional distribution centers (separate from the plants) and two transshipment terminals for LPG, all with a combined workforce of 350 employees. Cylinders represented 14.2% of the entire LPG market in Poland last year, the rest being autogas (73.3%) and bulk LPG in tanks (12.5%). With annual LPG sales of

2012 Domestic production

2013

y/y

358

340

-5.0%

Imports

1,945

2,080

+6.9%

Exports

123

270

+119.5%

2,180

2,150

-1.4%

Total LPG usage in Poland Source: POGP

Autogas dominates LPG market Poland's LPG market in 2013

PROPERTY & CONSTRUCTION Cylinders 14.2%

Source: POGP

"The lengthy negotiations had to do with the complicated structure of the takeover and complex procedures. The agreement concerns not only the acquisition of cylinders and distribution channels from Orlen Gaz but also guarantees the sale of Gaspol's cylinders across the entire PKN Orlen network," said Sylwester Śmigiel, CEO of Gaspol.

Poland's LPG market

A uto gas 73.3%

Bulk (tanks) 12.5%

Source: POGP

Besides Gaspol and AmeriGas, the other players in the sector include France's Total (importer of LPG to Poland from the Leuna and Schwedt refineries in Germany), Polish Petrolinvest (owner of an LPG terminal in Gdynia as well as a network of autogas and canister filling stations throughout the country), and Russia's Novatek, which entered the market some a few years ago with the acquisition of Intergaz-System, a distributor from south east of Poland. As part of the latter transaction, the Russians got hold of a transshipment terminal with access to the wide-gauge railroad from the East. What they are said to be lacking, however, are filling and storage facilities as well as broader market footprint.

Skanska breaks ground on Atrium 2, its new 20,000 sq.m office project in Warsaw Two weeks ago, when we spoke to Arkadiusz Rudzki, Leasing And Asset Director at Skanska Commercial Development Europe, about Generation Park, their brand new office project in Warsaw, he mentioned a second development in the Polish capital the company was going to break ground on this year. Details arrived earlier than expected, as Skanska has just broken ground on Atrium 2, a 20,000 sq.m office tower in the heart of the city's central business district. The 15-storey Atrium 2 will be located at the Rondo ONZ roundabout, across from Warsaw's top office skyscraper, the Rondo 1, which sold recently for EUR 300m. It will represent another installment of the Atrium complex Skanska has been building on the Western side of the Jana Pawła Avenue since the late 1990s. With completion scheduled for Q1-Q2 2016, Atrium 2 has already been LEED precertified at the highest, Platinum level. The Swedes own at least one more site in this area, the one directly by the ONZ

weekly newsletter # 034 / 12th May 2014 / page 6

roundabout, where they intend to erect an office skyscraper in the future. "Warsaw is a market with enormous potential and we have ambitious plans for the city. We have not given up our plans for a high rise next to Atrium 2. There is still space left for a tall building that is currently at the concept design stage. However, we are focusing on other projects at the moment, for instance Atrium 2 and Generation Park, which will also include a highrise section," Katarzyna Zawodna CEO of Skanska Property Poland, Tells Poland Today.

Atrium 2 will be sandwiched between the recently completed Atrium 1 building and the future high rise by the ONZ roundabout. Image: Skanska

Skanska Property Poland has recently completed Atrium 1, its flagship 18,000-sq.m office project in the city centre, which the Swedes have recently sold to the German open-ended property fund Deka Immobilien-Global for EUR 94m (see BR+ No. 011 page 5). Later this year it will break ground the first of

three buildings that will make up the 80,000-sq.m Generation Park, Skanska's largest project in Warsaw to-date. Atrium 2 and Generation Park will both be located by the new east-west subway line, only one stop away from each other. Besides Warsaw, Skanska Property Poland is very active in Poland's regional cities, with investments in Poznań, Łódź, Kraków and Katowice, where it has broken ground on its largest Polish office project todate, the 46,000 sq.m Silesia Business Park. It has recently delivered its third scheme 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," Arkadiusz Rudzki told Poland Today. Their two new Warsaw projects alone will have a combined GLA of some 100,000 sq.m. 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).

PROPERTY & CONSTRUCTION

PKP picks Ghelamco for PLN 1.5bn project Warszawa Gdańska Following a few months of talks, Polish railways giant PKP SA has selected Belgium-based Ghelamco as the developer for a large mixed-use project at the site of the Warszawa Gdańska suburban railway station. According to PKP, the estimated total capex on the scheme will come to PLN 1.5bn. "We are pleased that the negotiations with Ghelamco came to a successful close," said PKP SA's Real Estate Director, Jarosław Bator in a press release, adding that "we are undertaking more and more developer investment projects, and this is a solution which is profitable for both parties."

Ghelamco envisages nine office buildings at the site, one sitting on top of the station, as the latter is to be Image: PKP/Ghelamco moved underground. The actual construction work is to get underway by the end of 2014 or at the beginning of 2015. The whole complex will be constructed in stages, with the new

weekly newsletter # 034 / 12th May 2014 / page 7

suburban train station to be delivered first. The new Warszawa Gdańska is likely to become one of the largest and most attractive mixed-use developments in the Polish capital, mainly due to the size of the plot (4.7ha) as well as its unique location with direct access by rail, subway, tram, buses and cars. Besides Dworzec Gdański, only the Central Station and its surroundings offer an equally broad selection of transportation options. Ghelamco's competitors in the final stage of the tender were Belgium's Immobel as well as a consortium led by the Czech private equity fund Penta Investments. One of the contenders from the earlier stages of the procedure, Polish Marvipol, which owns a longterm lease of a plot directly adjacent to the planned station investment, argues that the tender should be annulled and repeated and has taken the case to the Supreme Audit Chamber. The latter has announced that it will look into the PKP tender for the Warsaw Gdańska station in the second half of 2014. "We currently are looking for partners to help us develop the Warszawa Główna area, where we have some 10ha of largely vacant, centrally located space that would be ideal for a visionary mixed-use project," Jarosław Bator, said at the Primetime Warsaw II conference Poland Today hosted back in April. "With all the development that's taking place in the Wola area at the moment, I think an attractive leisure and retail project would be a perfect fit there." PKP hired property consultants Cushman & Wakefield to assess the potential of the Warszawa Główna site on Towarowa St., which currently houses a former train station and a train museum. PKP owns a large portfolio of well-located property assets across the country and in recent years it has participated in a number of large-scale mixed-use developments including Poznań City Centre (with Hungary's TriGranit), Galeria Katowicka (with Spanish

Neinver), and the soon to-be launched Warsaw West (with Slovakia's HB Reavis). Flemish developer Ghelamco is one of the most active players on Poland's commercial property market. Over the past 22 years Ghelamco has built nearly 0.5m sq.m of offices and warehouses in Poland. Their ongoing projects include the BREEAM-certified Warsaw Spire complex, which will consist three office buildings (the main 220-metre tower plus two 55m-tall blocks) with a combined office space of 100,000 sq.m. and an underground parking lot for 1,200 vehicles. Their other major recent and ongoing developments include Łopuszańska Business Park with 17,000 sq.m, and the new T-Mobile HQ, a 40,000 sq.m office complex on Marynarska 12. Outside of Warsaw, Ghelamco is developing a 60,000 sq.m. class A project Synergy Business Park in Wrocław. Last year the company sold its Warsaw office projects Mokotów Nova (to Curzon Capital Partners III fund for EUR 121m) and Senator (to Union Investment for EUR 120m). The Belgians have also made inroads into the residential segment with and upscale Warsaw project Woronicza Qbik (350 soft lofts), and they are about to break ground on their first retail projects in Warsaw (see BR+ No. 015 page 11).

PROPERTY & CONSTRUCTION

Orco sells German arm to buy more time for Złota 44 sale Real estate developer Orco Property Group had agreed to sell its stake in its subsidiary Orco Germany for EUR 55m to an undisclosed buyer in order to fund an acquisition of receivables on its flagship Złota 44

residential project in Warsaw from bank Pekao SA, the Polish unit of UniCredit. "As opposed to the initial intent to obtain a bridge loan to finance the acquisition, (Orco) will secure financing via the disposal of some of its most liquid assets," the company said.

Złota 44 has been a disappointment both for Orco's shareholders as well as fans of Daniel Liebeskind's architecture. Image: ARUP

Orco said the sale of the Orco Germany shares will take place in the future but Orco will receive the payment in advance, subject to certain conditions. Back in March, Orco admitted that the luxury residential project had been a huge failure and that it would seek to sell the project, leaving its completion to a new owner. "The acquisition of the loan by OPG prevents bankruptcy of Zlota project and allows OPG to proceed with an ordered sale of the project to another developer or investor without an excessive time pressure. Such process is expected to reduce the loss for the Group compared to a sale orchestrated by the lending bank and the related exercise of the corporate guarantees granted by Orco Property Group," the developer said in a statement.

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Designed by Polish-born celebrity architect Daniel Liebeskind, Złota 44 aimed to be the most luxurious apartment building in Poland, offering a wide range of additional services and facilities available exclusively to its residents, including a 25m indoor swimming pool, sauna, and spa. Located between the Palace of Culture and the Central Railway Station, the 192m tower were to become Europe's second-tallest allresidential sky-scraper, with 54 storeys and 251 apartments. However, its completion has been delayed several times and sales of apartments have been rather disappointing. Meanwhile, Orco ended up on the verge of bankruptcy with Czech billionaire Radovan Vitek rescuing the collapsing business with an equity boost. Last year, its revenue decreased to EUR 146m from EUR 245m in 2012. The loss in fair value adjustments on investment properties and the impairments of development assets amounted to EUR 193m over 2013 with the Złota 44 project alone being responsible for EUR 121m worth of impairments. Orco's net loss amounted to EUR 227m last year, com-pared to EUR 42m in 2012. Its gross asset value stood at EUR 1.035bn last year, down by EUR 313m from the prior year, largely due to a like-for-like drop in assets' value.

PROPERTY & CONSTRUCTION

Big deals push Q1 property investment volume to EUR 900m The commercial real estate investment market in Poland put up a very good performance in the first quarter of this year, with transactions valued at a total of approximately EUR 900m having been signed in the period, according to the major agencies. That marked

a 50% increase upon the combined value of the deals concluded in the same period of last year and suggests that the total volume of transactions will this year amount to more than EUR 3bn.

Large transactions

Several big transactions largely contributed to the very high Q1 investment volume which, according to DTZ experts, was the best quarter for the investment market in Poland in the last nine years. These included, first of all, the sale of the Rondo 1 office tower in Warsaw for around EUR 300m and the sale of the Poznań City Center mall in Poznań for an undisclosed amount. According to Łukasz Maciak, director of the capital markets department at DTZ, the value of the latter deal, in which TriGranit, Europa Capital and PKP were the selling party and a consortium of Resolution and ECE Funds was the buyer, exceeded EUR 200m. Meanwhile, the sale of Rondo 1, which was acquired by two funds managed by Deutsche Asset & Wealth Management from BlackRock Europe Property Fund II, set a new record in the commercial property investment market in Poland. The deal involved the sale of the best office asset in Warsaw and was the largest single-asset office transaction ever closed in Poland and one of the biggest in Central and Eastern Europe, said Mike Atwell head of CEE capital markets at CBRE. Maciak pointed to market speculation that the sale of the Metropolitan, another prestigious office asset in downtown Warsaw, whose value easily exceeds EUR 100m, will be announced soon. With a number of investors currently planning further office building acquisitions, the total commercial property investment volume in Poland in 2014 is expected to comfortably exceed the volume recorded last year (approximately EUR 3.3bn), Atwell said. Maciak was of a similar opinion, saying that taking into account all the negotiation processes that are already underway, the year 2014

should be at least as good as, or even better than last year.

Product shortage

Altogether, the office sector accounted for 58% of the total investment volume in Q1 2014, according to Colliers International data. The retail and logistics sectors respectively accounted for 32% and 10% of the volume. Piotr Mirowski, director, CEE investment services, at Colliers International, noted that the demand for logistics assets is currently on the rise. A number of new deals in the sector are now in due diligence, he said. The transactions signed in the first quarter of 2014 were almost evenly distributed between Warsaw and the regional cities. The Polish capital accounted for 51% of the total investment volume recorded in the period. According to Mirowski, investor interest in the regional cities is now rising due to factors including the shortage of product in Warsaw. Many of the investment funds that have bought new assets in the city in recent years are long-term holders, he said.

New investors

Those who invested in commercial real estate in Poland in Q1 are mostly entities which – like GLL Real Estate Partners, Griffin, Hillwood, IVG, RREEF and W.P. Carey – already have properties in the country. The German investment funds, which are some of the most important market-makers in Poland, continue to witness the inflow of new capital from private and institutional investors, Mirowski said. However, he stressed that they are now also seeing capital diversification. There are emerging new buyers who are interested in both the "safest" projects and more opportunistic schemes. "Some of the funds will be using capital raised in China and South Korea. This is money which has not yet been present in the Polish market, or has been present to a limited extent," Mirowski said. by Adam Zdrodowski

weekly newsletter # 034 / 12th May 2014 / page 9

PROPERTY & CONSTRUCTION

Building land market to pick up in 2014 The value of transactions for building land in Poland is expected to rise to PLN 1.75bn this year, up from about PLN 1.5bn in the past two years. The increase will come on the back of strong demand from office and residential developers, as well as from international investors set to make their first purchases in Poland. Already in the first quarter of this year, several major transactions for building land have taken place. Among the major consultancies, Colliers International brokered deals valued at approximately PLN 215m in the first quarter, while CBRE participated in transactions worth around PLN 100m. But there is still plenty of supply. Among some of the major consultancies, Colliers International expects to close deals valued at a combined PLN 500m within the next few years, while CBRE is currently working on transactions whose total value exceeds PLN 700m. JLL is currently working on a portfolio whose total estimated value amounts to approximately 1bn zł. Nevertheless, demand in Poland has not yet been sated, because there is a shortage of plots that meet commercial and residential developers’ requirements, experts say. According to Emil Domeracki of Colliers International, developers are now even ready to overpay for land if they manage to find a suitable plot. The prices of good residential and office sites increase in the near future, albeit slightly, he said.

Residential rising

According to Colliers International data, the residential market accounted for as much as 55% of the combined value of the building land transactions closed in

Q1. The office and retail markets accounted for 40% and the warehouse market for 5% of the total investment volume. Warsaw accounted for approximately 80% of the total value but investor interest in the regional cities is now also on the rise. Developers are currently looking for residential sites in markets including Wrocław, Tri-city, Kraków and Poznań. Domeracki noted that the large demand for residential sites results from the good apartment sales results which developers have been showing in recent months. Investors are therefore looking for plots which will generate relatively quick returns. Prime office sites are also in demand, but retail developers are now mostly focusing on the revitalization of the existing facilities, rather than on the purchase of land for new projects.

SERVICES & BPO

IT outsourcing firm Mobica to employ 100 at new Lublin center British IT company Mobica will open its fifth Polish unit in the southeastern Polish city of Lublin. The investor plans to recruit some 100 software testers and programmers for two expert teams: mobile technologies and quality assurance. Mobica's existing Polish offices in Warsaw, Łódź, Bydgoszcz and Szczecin, employ 600 programmers, who work on projects for global clients.

New capital

"We have high hopes for our presence in Lublin," says Tomasz Krawczyński, managing director of Mobica in Poland. "Lublin is a university town but so far local IT graduates often found employment in Warsaw. We are offering them competitive pay for work on very interesting projects right here, in Lublin. Although at the moment we are seeking mainly experienced staff, who can immediately start working on our projects, we are not excluding the possibility of establishing cooperation with local universities in the future."

Generally, after several years of a decreased investor activity, there are now more and more entities in the market that have already raised a substantial amount of capital and are looking for opportunities to invest in building land in Poland. These are often investors who are planning to enter into joint-venture partnerships with the developers already active in the Polish market, both in Warsaw and the major regional cities, Puchalski added.

Established in 2004, Mobica is a software development and integration services company with a global customer base in a host of sectors including automotive, mobile, semiconductor, finance and banking, TV and broadcasting, marine and Aviation. Many of their solutions are used in everyday life, from smartphones and TVs, to cars and intelligent buildings. The Lublin office is seeking Java/Android programmers, iOS experts, JEE, Ruby on Rails and Python/Django developers. In the future it may need also experienced C/C++ engineers.

A number of new international entities are now planning to make their first building land acquisitions in Poland within the next few years. Several such transactions were discussed at the recent MIPIM property fair in Cannes, France, said Daniel Puchalski of JLL. He added that at least nine new foreign investors, coming from markets including the Scandinavian countries and Ukraine, will acquire office and residential sites in Poland in the near future.

by Adam Zdrodowski

weekly newsletter # 034 / 12th May 2014 / page 10

Poland Today talks to: Tomasz Krawczyński, Managing Director at Mobica Poland • PT: Your Polish business will now be divided between five cities. What's the logic behind this setup? Wouldn’t it be easier to operate a single large center? Tomasz Krawczyński: It most certainly would, but the way we do it, we get to tap into many regional talent pools at the same time and also diversify our cost base. In some of the more mature markets, like Kraków, competition between employers is becoming too tough, whereas in some, for instance in Łódź, the existing talent pool is beginning to dry out. Mobica's motto is to offer western European quality at Central European prices and therefore we are always on the lookout for talent-rich markets with competitive wage levels. I don't think Lublin is our last center in Poland anyway. • PT: Why do you think Lublin is only starting to appear on investors' radar, despite the city's size and considerable academic potential? TK: My guess is that Lublin's proximity to Warsaw is to blame. Plenty of skilled people from Lublin find work in Warsaw, even if many of them would have preferred to stay. Moreover, for foreign investors Lublin is still rather difficult to access. They like to set up centers in cities that can be easily reached by plane, convenient for day-trip visits from the HQ. Furthermore, investors are now beginning to recognize Lublin's potential as the larger cities are becoming increasingly saturated. Too many big names arrive there, driving wages to unreasonable levels. According to our sources, in Lublin there are an estimated 50 IT companies with more than nine employees, but only four with more than 100 staff. As a result, the city offers solid IT skills at a lower cost than elsewhere.

• PT: What other cities do you find potentially attractive for the likes of Mobica? Are there any regional markets that haven't been discovered yet? TK: For instance Białystok, Rzeszów or Zielona Góra. The latter has two good universities but it's more easily accessible from Germany than from Poland. Also, some towns in Upper Silesia, such as Gliwice or Chorzów might attract some projects. • PT: Why would skilled IT people choose to remain in those smaller cities, instead of pursuing careers in Warsaw, Kraków or Wrocław, where, as you said, the pay is likely to be better? TK: The Poles are not as mobile as the Americans. There is always a certain percentage of talents who choose not to migrate, be it for personal or other reasons. The quality of life in smaller towns is often better. There is also a large group of those who left their hometowns at some point, gained experience elsewhere in Poland or abroad, but would very much like to return, as long as there are opportunities to return to. We believe we can provide such opportunities, give employees in Bydgoszcz or Lublin access to the newest technology and let them take part in global projects, without having to move. • PT: Mobica has been on the market since 2006. Has the quality of candidates improved since? Are Polish universities catching up with the needs of business?? TK: Only some 20-25% of our new recruits are fresh graduates – the rest are experienced professionals. The availability of experienced candidates has certainly improved, but I am not sure this has much to do with the academia. The coordination between universities and companies remains rather poor, although I must admit that more and more schools have been opening up recently, inviting business to help them teach skills that are sought after on the market. Mobica has been cooperating with a number of universities, providing workshops, dissertation topics and tutoring, contributing to syllabuses and we can see

some progress. There is still a lot of inertia in the academia, however. Technologies change way faster than teaching programs and teacher mindsets.

SERVICES & BPO

Radom hoping to become Poland's next BPO hotspot Proximity to Warsaw, attractive recruitment potential and pro-business city officials are putting this medium-sized Polish city on the investment map. Radom, a city of over 200,000 people located just 100 kilometers south of Warsaw, offers many opportunities for investors looking to expand their business activities in Poland, according to business leaders and city officials who spoke at a Poland Today Power Breakfast in April. Attendees, including representatives of businesses interested in investing in the city, heard an extensive discussion on the city’s unique features and its ability to become a major source of foreign and domestic investment in the near future. One of the city’s biggest advantages, experts said, is its proximity to Warsaw and the international airport there. The short distance, taking just about 60 minutes to cover by car on the newly renovated S7 motorway, means firms based in Radom have easy access to other markets throughout Europe. Outsourcing industry expert Wiktor Doktór noted how many small and medium-sized cities in Western Europe have already taken advantage of similar proximity to large urban centres. On the domestic front, Radom’s central location and proximity to other Polish cities such as Łódź, Lublin,

weekly newsletter # 034 / 12th May 2014 / page 11

Rzeszów, Kielce and Kraków mean that its location is also very favorable for conducting business within the country.

‘People are number one’

However, PwC partner Roman Lubaczewski noted that "proximity to Warsaw’s airport is not the top priority for businesses – people are number one." On this point Radom also excels. Of the city’s 220,000 people, some 15,000 are students of higher education, providing a large pool of qualified potential employees for businesses looking to invest. The city's advantage in human capital is even stronger considering the high percentage of students receiving education in technical and career-oriented fields. City officials have worked with business leaders to establish vocational training programs for students interested in seeking employment in the BPO sector. Radom Mayor Andrzej Kosztowniak said that city officials understand that often, post-graduate vocational training is a requirement for businesses and that offering vocational training at public institutions was the city’s way of offering businesses a helping hand. Kosztowniak noted that this indirect way of financially supporting area businesses is still a novel concept in Poland, but said that his city was "mentally prepared" to cooperate with business.

Recruitment potential

Radom's recruitment potential is not just due to its high educational standards, but also its relatively low wages – some 50% lower than in Warsaw and 40% lower than in Kraków. AIG/Lincoln development manager Dariusz Domański pointed to this as one of the biggest factors his company had recently developed office space in Radom, believing businesses would be attracted by the cost effectiveness. In addition, Domański described the small city's workforce as "eager, ambitious, numerous, and loyal."

Radom's recruitment potential has proven to not only be an attractive for businesses but even for public institutions such as the Data Processing Centre for Poland's Ministry of Finance. When asked why the Finance Ministry would choose to have one of its centers in Radom instead of in the capital, director Robert Pasiński explained that even the Finance Ministry was "attracted by Radom’s recruitment potential."

Room to grow Anna Polak-Kocińska, vice president of the Polish Information and Foreign Investment Agency (PAIiIZ) agreed, noting that recruitment potential in the city had always been high. She added, however, that until recently, the main problem in Radom was the fact that there was not sufficient office space to house the numerous potential employees being educated in the city, "In the past, business activity in Radom was never at its full potential because there were no class-A buildings. That is no longer a problem." AIG/Lincoln CEO Mirosław Szydelski, whose company is the one responsible for the creation of the muchneeded office space in the city through its Radom Office Park, said that he expects workers who had migrated to other cities in the past will now return to Radom. "We have found that when workers have the option to return to their home towns, they do so even if salaries are lower." Szydelski also said that his company was prepared for a potential influx of workers in the future, "We are able to build another office building in Radom within eight to nine months if such a need arises." Radom’s competent workforce, excellent location and low costs offer hope for the city’s future. Poland Today’s event on Radom provided little opportunity to be skeptical about the city’s potential, especially considering already existing investments in the city and the good cooperation with city officials. As Polak-

Kocińska of PAIiIZ said, "now is the time for Radom’s 15 minutes of fame."

TRANSPORT & LOGISTICS

Danish ee-retailer retailer MyTrendyPhone moves main warehouse to Szczecin Although the lease agreement between MyTrendyPhone and North-West Logistic Park in Szczecin was signed back in December, the Danish mobile phone accessory retailer has taken some time before disclosing more information regarding their plans for the site. "We will be moving our primary warehouse to Szczecin, hoping to start operating from there in June," Agnieszka Baloban, Managing Director of MyTrendyPhone's Polish unit tells Poland Today. "Initially we are planning to hire around 30 people in different departments." Founded and owned by Silvan Popovic, an entrepreneur of Serbian extraction, MyTrendyPhone is a Denmark-based online retailer of mobile accessories, operating in 10 markets, mainly in Scandinavia. "Szczecin it’s an excellent place for providing this kind of business. It is close to Scandinavian countries and Germany, which is a great logistic advantage. There is of course the human resources potential, as Szczecin offers well qualified and educated people. It’s also a very good business environment for investors. Plus we will have modern facilities of European level," says Agnieszka Baloban. "We would like to maintain our

weekly newsletter # 034 / 12th May 2014 / page 12

excellent position with satisfied customers all across Scandinavia and other regions. But in the same time we need to focus on the Polish market where in our opinion we should be more than competitive with our services." North-West Logistic Park is Szczecin's first class-A warehouse and industrial complex. The Cyprus-based Waimea Holdings, delivered (and fully leased) the first section of the project in July 2013. The 6,850 sq.m unit attracted three tenants (InCom Polska, Premium Distributors, and IQ Metal Polska) which employ 110 staff at the site. Currently work is underway on the 13,380-sq.m phase two of the project, which is situated on a 14ha site in the Szczecin's south-eastern Dąbie district, by the A6 highway (Szczecin-Berlin) and the S3 expressway (Szczecin-Świnoujście port). The entire project is to total 64,000 sq.m with an estimated total capex of PLN 110m.

in Germany and the CEE region. After all, it takes merely 1½ hours to get from Szczecin to Berlin by car, which makes the Polish port town a natural logistics hub for the German capital. The Rhenus Contract Logistics unit in Prologis Park Szczecin is in fact the distribution center for German online retailer Limango, handling more than 30,000 parcels a day. Danish online fashion retailer SmartGuy Group (operator of the stylepit.com web-site) has recently launched a distribution center in Goleniów near Szczecin, creating more than 150 jobs. Most recently, Danish logistics firm Prime Cargo, which offers logistics services to Scandinavian e-commerce clients, has signed a lease for an 11,200 sq.m distribution facility at Prologis Park Szczecin. With a modern warehouse stock of merely 49,000 sq.m as of end of 2013 (according to Cushman & Wakefield), Szczecin remains one of Poland's smallest regional industrial property markets, but the robust take-up of 27,000 sq.m last year signaled a potential for considerable growth in the future. Last year saw the delivery of warehouse A of North-West Logistic Park with subsequent stages of the project being under construction. The vacancy level in the Szczecin area stood at 7.5% as of end of last year.

TRANSPORT & LOGISTICS Once fully completed, North-West Logistic Park will have a leasable area of 64,000 sq.m. Photo: North-West Logistic Park

The Szczecin area has attracted a number of Western European e-commerce operators in recent years. Thanks to its strategic location Szczecin represents an attractive warehouse and manufacturing destination for northern European companies seeking to expand

Warehouse developers report highest Q1 taketakeup since 2008 The first quarter of 2014 was the best beginning to a year on Poland's industrial & warehouse property market since 2008 with the gross take-up exceeding 400,000 sq.m, of which 269,000 sq.m (67%) was in

new lease agreements and the rest – lease renewals, according to a report by property consultancy JLL. "After the record-breaking 2013, when demand for industrial and warehouse space peaked, the market still seems to be keeping the momentum. Taking into account developers’ activity and the good shape of the economy, we see no reason to change our forecast, and that the net demand for industrial space will reach 1m sq.m in 2014," said Tomasz Olszewski, Head of Industrial Department at JLL. The strongest demand was recorded in Upper Silesia; a total of 126,000 sq.m (31% share in total take-up). Especially noteworthy was the high share of renewals in this region (71%) and the Warsaw Suburbs (49%), which according to JLL demonstrates the maturity and attractiveness of these markets for tenants already operating there. In terms of new demand, Poznań was ranked first with over 74,000 sq.m leased. Szczecin is also an interesting case, with new demand in Q1 hitting 21,000 sq.m. The largest transactions in Q1 encompassed Carrefour (renewal of 46,000 sq.m in Distribution Park Będzin) and Goodman’s 40,000 sq.m lease contract, with a tenant for whom the developer will construct a new facility near Konin. Once again the two most active sectors among all industrial tenants were logistics operators (43% share in new demand) and retail chains (29%). In Q1, 245,000 sq.m of new space was delivered to the market, of which the largest portions were completed in Central Poland (74,000 sq.m), Poznań (68,000 sq.m) and Wrocław (35,000 sq.m). As of end of Q1 2014, Poland's entire stock of leasable industrial floor space stood at 7.73m sq.m. In terms of ownership structure, over half of the supply is in the hands of the four largest market players and their JV partners (Prologis – 2.01m sq.m, SEGRO – 0.97m sq.m,

weekly newsletter # 034 / 12th May 2014 / page 13

Blackstone – 0.56m sq.m and Panattoni – 0.52m sq.m). JLL reports also growing interest from foreign investment trusts who look to buy prime assets across Poland. At the beginning of April 2014, 678,000 sq.m remained under construction across the country, of which 530,000 sq.m in the Wrocław and Poznań regions, largely due to deals signed by Amazon in 2013. According to warehousefinder.pl, the share of speculative projects in the construction pipeline remains low (5.5%). However, the Wrocław market is now showing clear signs of a rebound in this respect. As of the end of Q1, 24,000 sq.m were being constructed on a speculative basis in this region, and some additional developers expressed their interest in commencing such projects in the near future. The vacancy rate stood at 10.9% at the end of Q1, and registered a decrease on Q4, when it totalled 11.3%. The largest share of immediately available space was found in the Warsaw Inner City – 20.5% (a drop of 1.8 p.p. on Q4) and Central Poland – 14.2% ( a drop of 1 p.p.). The steepest reduction in vacancy rate was registered in the Wrocław region, where it dropped from 11.7% in Q4 to 7.9% in Q1. In Q1 2014, most of the rents remained stable, with the exception of Szczecin. In the upcoming months, a stronger upward pressure on rents in Poznań and Wrocław is expected. According to JLL data, published on the warehousefinder.pl, at the end of 2013, the highest effective rents for SBU (small business units) were typically found in the urban regions Warsaw Inner City (EUR 3.5-5.0 /sq.m / month), Wrocław (EUR 3.4-3.9 / sq.m / month) and Łódź (EUR 2.75-3.7 / sq.m / month). Lower effective rents are to be found in the "big box" projects in the Warsaw Suburbs (EUR 2.1 –2.8 / sq.m / month) or Central Poland (EUR 2.1-2.8 / sq.m / month).

RETAIL CHAINS

Empik reaches 200 locations, locations, wants another 15 by yearyear-end Poland's leading books and multimedia retailer Empik has recently launched its 200th store and the company plans to add a further 15 new locations to the chain by the end of the year, both in large cities such as Warsaw and Kraków, as well as smaller towns, where Empik will make its first appearance (for instance Mława, Brodnica, Grójec or Kutno). Since the beginning of the year Empik has opened six new outlets with an average floor area of 250 sq.m. In April alone new Empik stores appeared in Turek, Wodzisław Śląski and Kraków. Empik is pushing a new "Express" format, with stores measuring between 100 and 200 sq.m, smaller than traditional Empik outlets. So far the company has opened eight shops under that formula and additional few are to be launched later this year. "One year after we introduced the Empik Express concept we can confidently say that it has been well received by customers. Empik Express has the most local character of all Empik formats and therefore we are still monitoring customer reactions in all locations, which enables us to better tailor our offer," says Olaf Szymanowski, CEO of Empik. "We are monitoring the retail property market, looking for new available spaces with high customer traffic, such as shopping malls, city centers, and railway stations. In the coming months we will open Empik outlets at Warsaw's central station and the PKP station in Wrocław."

Asked whether Empik intends to replace some of its existing, larger shops, with the new "Express" outlets, spokesperson Monika Marianowicz declined. "There are no such plans. We are dynamically developing the entire chain, simultaneously opening regular and partner-operated stores as well the "Express" ones," she told Poland Today.

EM&F Group at a glance* No of stores/ locations Empik Group

198

Total floor space

Countries

(sq.m) 85,840

Poland Poland, Germany,

Smyk Group 199 186,076

Russia, Turkey, Ukraine, Czech Rep.

Learning Systems Fashion Group E-commerce

113 118

n/a 42,930

Poland, Russia, Turkey, Ukraine Poland, Russia, Ukraine

empik.com, smyk.com, gandalf.com.pl,

Poland

empiktravel.pl, empikfoto.p Optimum Group

Chanel, Azzaro,

(wholesale)

Clarins, Thierry Mugler, Converse, CAT, Rip Curl, etc

Poland, Russia, Ukraine, Slovakia, Belarus, Czech Rep.

Source: EM&F *) as of end of 2013

Empik's outlets sell books, multimedia, gifts and home goods, both in brick & mortar outlets and online. The chain, which turned over PLN 1.015bn last year, belongs to the Empik Media & Fashion Group (EM&F), which operates also leading children's goods retailers Smyk (143 stores in Poland, Russia, Germany.

weekly newsletter # 034 / 12th May 2014 / page 14

Czech Republic, Turkey, and Ukraine) and Spiele Max (56 locations in Germany), 113 language schools, wholesale cosmetics & sportswear business (Optimum Group) and 118 fashion outlets, including 61 in Poland. The group's e-commerce division (which includes the online Empik and Smyk stores) has PLN 202m worth of sales revenues last year. EM&F's business generated losses of PLN 371m in 2013 and 110m in 2012, prompting EM&F to abandon this part of its business, looking for its franchise partners or new investors to take over the GAP, River Island, New Look, Aldo, Esprit and River Island chains in Poland, Russia and Ukraine. 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. Overall, the EM&F group 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. The key shareholders in EM&F are the Eastbridge Group and the CEE private equity fund Penta Investments.

POLITICS & ECONOMY

European commission raises GDP growth forecast for Poland According to brand new projections by the European Commission, the Polish economy will outperform its largest post-communist EU peers through next year as

subdued inflation and an improving labor market bolster consumption. Gross domestic product will accelerate to 3.2% this year and 3.4% in 2015 from last year’s 1.6%, the European Union's executive body said in its spring forecasts released last week. The Czech and Hungarian economies are set to grow 2% and 2.3% this year, respectively the report showed. The 2014 estimate for Poland is the third-fastest in the EU behind Latvia and Lithuania.

The discussion was hosted by the Executive Club, an initiative started by former Polish President Aleksander Kwaśniewski. Poland Today was a media patron of the Executive Club event. Other members of the panel included President Kwaśniewski himself, as well as former US National Security Advisor General James L. Jones, former Polish PM Jan Krzysztof Bielecki, and Polish business magnate Jan Kulczyk. The panel agreed that more political and economic unity within the European Union would help it to better face the challenges of the present and future.

Poland is set to benefit from domestic demand picking up and with public investment rising, which will help offset possible threats related to escalating conflict in neighboring Ukraine and a possible recession in Russia, according to the EU.

"This is a big chance for Europe to now wake up and show that we are serious about responding to our challenges,” said President Koehler, adding that Europe should use an approach to the Russia-Ukraine crisis that showed unity and decisiveness.

"The risks to the forecast are broadly balanced," the commission said. "On the upside, a stronger depreciation of the zloty would further boost exports and enhance import substitution. On the downside, new tensions in Ukraine could weigh on economic activity."

POLITICS & ECONOMY

Europe's wakewake-up call The Russia-Ukraine crisis is a test of European leadership – and a chance for the EU to truly unite The West must make a more concerted effort to form a united front to show that the power politics being used by Russian President Vladimir Putin will not succeed, said Horst Koehler, former president of Germany, at a panel discussion in Warsaw in April.

Kulczyk's evaluation was harsh. “Russia has shown us that the ‘united’ Europe is more united in name than in fact. Brussels concerns itself with many details, but not the most important issues,” he said. General Jones bemoaned the fact that more NATO countries had not lived up to obligations to dedicate two percent of their GDP to defense spending. "We now have a symmetric threat, not just asymmetric threats," he said. "This is a defining moment in history that requires defining leadership," he added. "This is a great opportunity, if we seize it, to show that leadership." For his part Prime Minister Bielecki said that he would even like to thank President Putin for his moves in Russia, because he ultimately believed they would serve to spur greater unity in the European Union. "This situation offers another chance for Europe to try to answer the question of whether it can live up to its obligations," he said. by Andrew Kureth

weekly newsletter # 034 / 12th May 2014 / page 15

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

A: avg monthly wages in PLN B: indexed avg wages, 100=2005 Q2 2013

Q3 2013

Q4 2013

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 (%)

+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

138

-12.0

8,615 196

3,491

152 3,560

155 3,625

158 3,690

161

Energy

6,196

188 5,828

177 6,021

183 6,736 205

-20

3,432 146

157 3,766

3,421 146 3,408

145 3,456 147 3,913 138

3,439

122 3,547

125 3,589

127

IT, telecoms

6,685

174 6,707

174 6,654

173 6,695 174

Financial sector 6,356

143 6,702

151 6,109

137 6,602 148

3,613 144 3,652

145 3,823 152

Source: Central Statistical Office (GUS)

100 80

160 3,895 166

Transportation

National average 3,741 149

120

-40

60 Ap r 1 4

152 3,693

J ul 1 1

3,556

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

Jan 14

143 6,061

Manufacturing

Retail & repairs

-64.0

O c t 13

138 6,290

Construction

+21.5

Jul 13

6,060

Current account def. in % of GDP

+1.9%

-2.9

A pr 1 3

Coal mining

Q1 2013

GDP in PLN bn current prices

+2.7%

+14.3

J an 13

Sector

146.1

Q3 2013

+9.4

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages

Growth y/y unadjusted

131.7

Q4 2013

m/m (%)

O ct 1 2

y/y (%)

-0.1

Period

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

J ul 12

Year

-0.1

Month

A pr 12

y/y (%)

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

J an 1 2

m/m (%)

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

Construction Output

Construction Prices Price s Month

Month

Oc t 1 1

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 # 034 / 12th May 2014 / page 16

55.98 ↓

100 SEK

46.36 ↑

100 NOK

51.37 ↑

10,000 JPY

USD EUR

350

300

15.25 ↓

100 CZK 10,000 HUF

400

297.24 ↑ 137.64 ↑

as of 9 May 2014

WIG-20 stocks Price Change Change in alphabetical 9 May 25 Apr end of order '14 '13 '14

WIG Total index

Money Supply

PLN (up to 1 year)

4.5%

4.3%

4.2%

4.5%

PLN (up to 5 y )

4.9%

4.8%

4.9%

PLN (over 5 y)

4.8%

4.7%

4.8%

4.7%

↓ Asseco Pol.

PLN (total)

4.8%

4.7%

4.8%

4.7%

↓ Bogdanka

1.9%

↓ BZ WBK

364.9

-5%

-6%

↑ Eurocash

39.29

-2%

-18%

WIG-20 blue chip index

37.1

-5%

+5%

+1%

-21%

2,534 2,534. 534.02

Overnight

1 week

1 month

3 months

6 months

2.60%%

2.60%

2.62%

2.72%

2.75%

2.59%

960,361

947,443

954,284

964,624

421,160

418,259

423,296

422,990

↓ Grupa Lotos

Warsaw Inter Bank Offered Rate (WIBOR) as of 9 May 2014

173,213

- Time deposits

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

-2% ↓

3.3%

Mar '14

Change end of '13

3.4%

Feb '14

116,657

-10%

2.0%

158,330 114,680

-2% ↓

-8%

3.6%

Jan '14

113,455

Change 1 week

113.8

2.0%

161,544

114,401

43.55

1.9%

Dec '13

558,954

50,451. 51.79

-5%

2.9%

164,010

548,033

-4%

1.9%

Monetary base

546,487

-3% -3%

3.0%

↑ JSW

Central Bank (NBP) Base Rates

555,851

78.10

EUR (over 1m EUR) 2.5%

in PLN m

- Currency outside banks

↓ Alior Bank

EUR (up to 1m EUR) 2.0%

Reference

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

Lombard

NBP deposit

Rediscount

4.00%

1.00%

2.75%

→ Kernel

28.87

-24%

→ KGHM

110.65

-6%

↓ LPP

7,700

-3%

-14%

↓ mBank ↑ Orange Pol.

Change 1 week

+4% ↑

Change end of '13

+6% ↑

488

-6%

-2%

WIG Total closing index

10.25

+4%

+5%

last three months

Credit

↓ Pekao

189.25

-1%

+5%

55,000

The financial sector's net lending in PLN bn,

↓ PGE

20.08

-3%

+23%

54,000

4.82

+8%

-6%

↓ PKN Orlen

42.82

-5%

+4%

40.45

-2%

+3%

50,000 49,000

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

- to private companies

259,061

263,063

263,941

267,553

↓ PZU

425.85

-1%

-5%

- to households

562,381

567,984

567,257

569,334

↓ Synthos

4.7

-3%

-14%

1,601,293

1,628,197

1,616,891

1,628,519

→ Tauron

5.11

+17%

Loans to customers

Total assets of banks

Source: Central Bank NBP

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

342.92 ↓

9 May 14

511.31 ↑

100 CHF

28 Feb 14

100 GBP

18 Dec 13

417.87 ↓

9 Oct 13

100 EUR

Key indices

Term / currency

450

1 Aug 13

302.47 ↓

24 May 13

100 USD

Stock Exchange

Average weighted annual interest rates

10 Mar 14

as of 9 May 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