Warsaw Business Journal August/September 2018

WARSAW

BUSINESS JOURNAL S i n c e 1 9 9 4 Po l a n d ’ s l e a d i n g

AUGUST/SEPTEMBER 2018 ~ No. 08/09 (47)

business magazine in English

For daily news visit us at wbj.pl

25 POLAND JOINS

FIGHTING THE SMOG PROBLEM

PLN 28.50 (VAT 8% included) ISSN 2543-9529 INDEX-RUCH-332-127

SUSTAINABILITY ISSUES AND TRADE WARS

DEVELOPED ECONOMIES

THE BIGGEST PENSION OVERHAUL IN YEARS

WBJ sits down with Piotr Kochański and Rafał Zięba of Kochański Zięba & Partners to talk about the impact of the planned pension reform

AUGUST/SEPTEMBER

IN REVIEW

News highlights from the previous month from wbj.pl

OPINION

HR: Failed recruitment...................................13 Management: ‘Relational discipline’............15 Legal: Tax vertigo............................................16 Interview: Chocolate royalty..........................18 Interview: Jadwiga Emilewicz......................22 Interview: Henryka Bochniarz........................24 Cover Interview: KZP......................................28

34 41

FEATURE

Poland joins developed economies .............34

The smog conundrum

Feature: Is PLN 103 bln enough to tackle smog in Poland? 38

TECH INSIGHTS

Tech news.........................................................41 Interview: Martin Zalewski............................46 Interview: Dariusz Świąder...........................48

LOKALE IMMOBILIA

Real estate news.............................................51 Inner-city logistics...........................................60 Interview: Octava Property Trust.................64 Tenement house apartments........................68

EVENTS

6th New Age Banking Summit......................76 9th Charity Real Estate Beach Volleyball Tournament......................................................77 Polish-French Economic Forum...................78 Global Impact Challenge................................79

LAST WORD

Utopia for the privileged............................... 80

Pension systems

Cover Interview: The biggest pension reform in years 28 Last word: Utopia for the privileged 80

W B J AUGUST/SEPTEMBER 2018

FROM OUR EDITOR

Welcome to the grown-ups’ table

Morten Lindholm Editor-in-Chief/Publisher mlindholm@valkea.com

Beata Socha

Managing Editor

MORTEN LINDHOLM Morten has been equipped by Reykjavik District – Warsaw’s unique menswear design shop on ul. Burakowska 15. Check out Reykjavik’s latest collection at reykjavikdistrict.com

AUGUST/SEPTEMBER 2018 W B J

bsocha@wbj.pl

Adam Zdrodowski

Managing Editor, Lokale Immobillia

azdrodowski@wbj.pl

Kevin Demaria Art Director

Michael Evans Copy Editor

Contributors

Ewa Boniecka Karolina Papros Sergiusz Prokurat Anna Rzhevkina Alex Webber Sales

Magdalena Klimiuk mklimiuk@valkea.com Katarzyna Pomierna kpomierna@valkea.com PR & Marketing

Agata Wolny awolny@valkea.com Book of Lists

Monika Rozner mrozner@valkea.com Magdalena Czopur Subscriptions

mczopur@valkea.com Krzysztof Wiliński Print & Distribution

dystrybucja@valkea.com Magda Gajewska Event Director, Valkea Events

mgajewska@valkea.com Contact: phone: +48 22 257 75 00 fax: +48 22 257 75 99 e-mail: wbj@wbj.pl

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PORTRAIT BY KEVIN DEMARIA

AMBITIOUS, SMART AND FRIENDLY – some of the key characteristics I hear from foreigners when I discuss their meetings with Polish people. The description fits quite well with my own experience working with Poles in Poland over the past 20 years. Therefore, I am also confident that when Poland today enters the stage as a mature and developed economy, the talent, eagerness and smart work that has brought the country here will not stagnate. On the contrary, I think there are plenty of opportunities for Polish businesses to really flourish. In this issue we analyze the last three decades of the Polish success story, as Poland joins FTSE Russell’s list of top 25 developed economies. A topic that has recently surfaced as a game-changer is the planned pension reform. Poles will soon get another go at building a private pension system, an ambitious task but definitely worthwhile. We talked to business leaders and experts in the field about what is to change and how it will affect society and the markets. It’s been a hot summer in Poland, and when things heat up, clouds and storms soon follow, exactly as it is with the economy. Here are a few key indicators pointing at some concerns that may soon unfold: Unemployment is continuing to drop, it now hovers at around 6 percent and we hear that many companies are struggling to find employees where expectations and competencies are matching companies’ needs. Poland’s GDP will exceed 2018 expectations and may reach 5 percent in 2018, with domestic consumption being the major driver. The challenge of more growth from exports and international trade is surely an issue Poland must address in the years ahead. The mood (based on Kantar public survey in August 2018) in Poland says that 43 percent of Poles have a negative view of the direction Poland is taking. Some 56 percent are positive on the economic situation in Poland, with only 31 percent being decidedly negative. This is still a huge gap between how the economy is performing and how it is perceived, which indicates a growing issue for Poland to tackle. There are many prospective sectors for international expansion. Gaming, healthcare innovation, retail, furniture and IT are some of the sectors where Poland is already making significant impact abroad and where the opportunities for growth are enormous. But whether companies have the speed, the talent and the economic backing to keep growing is yet to be seen. This year will surely go down as a good one for the majority of Polish businesses, so let’s stay positive and help each other stay on the path the country has been on for nearly 30 years. I wish you a pleasant read and the best of luck with further business success in the autumn.

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NEWS HIGHLIGHTS OF THE PAST MONTH FROM WBJ.PL

The proposed law goes too far from the required rule of proportionality. Its introduction would result in a large number of citizens not having their representatives in the European Parliament and would result in a low turnout due to citizens’ discouragement” President Andrzej Duda explained as he decided to veto a law proposed by the ruling Law and Justice (PiS) party that would benefit bigger parties in European Parliament elections next year. According to experts in the Polish Senate, the change would have made it necessary for parties to receive 16.5 percent of the vote to get a European lawmaker elected (the threshold set by European law is 5 percent). Duda also said that he believes that the current election system is too complicated and needs reforms. “The simplification of the existing system is possible and if I get such a bill, I’ll gladly sign it into law,” the president said.

RETAIL

FOOTFALL DOWN 4.2% y/y in June The number of clients in shopping centers dropped in June by 4.2 percent y/y. In month-on-month terms it increased by 2.7 percent, according to FootFall Index Polska. June was the fourth month since the Sunday trade ban came into force. In 2018, stores remain open on two Sundays each month, as well as the two Sundays before Christmas and Easter. RETAIL

SHUTTERSTOCK

TESCO to close 13 stores in Poland British supermarket chain Tesco has confirmed that it plans to close 13 loss-making stores in Poland and liquidate up to 2,200 workplaces. The company has informed

employees, trade unions and relevant labor offices about the plan, Tesco’s press-service said. Tesco also said that it plans to strengthen its offer in Poland by improving its product range and price offer. RETAIL

SUNDAY TRADE BAN accelerates e-commerce growth The Sunday trade ban will accelerate penetration of e-commerce in Poland by 0.5 percent this year, by 0.9 percent in 2019 and by 1.2 percent in 2020, Haitong Bank estimated in a report. Most market participants expect that the ban’s impact will be limited, but ecommerce, service outlets, and small stores will receive part of the market share from

supermarkets and hypermarkets. Currently, traditional and specialty stores still account for around 40 percent of the grocery market in Poland. Last year, the share of e-commerce in the Polish food market reached 0.9 percent, well below the average of Western Europe (5.6 percent according to Kantar). “There is no consensus on the consequences for traditional trade,” the report added. Some analysts believe that some traditional stores will not decide to open on Sundays, and even may fall victim to the intensive promotional activities of discounters. RETAIL

LPP plans further ISRAELI EXPANSION WSE-listed fashion retailer LPP plans to open its second Reserved store in Israel in

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>>> 5

In Review H1 2019. Furthermore, the company is considering opening a Sinsay brand store there as well. LPP ultimately wants all its brands to debut on the Israeli market and, together with its franchise partner H&O, is currently holding talks with local developers. “The opening of our Reserved outlet in Tel Aviv strengthens our position in this region. This is the next stage of our strategy of international expansion. We assume that our turnover will grow by at least 15 percent globally. Without such new markets, such dynamics would not be possible,” said Sławomir Łoboda, vice-president of LPP. The company plans to enter at least one new market per year.

TRENDING STATS

efits, which is why in the second quarter of each year we analyze information on remuneration in similar positions in all locations where we operate. We then announce the results of these surveys in the third quarter and implement changes in our remuneration system. We are constantly developing our logistics network in Poland and are looking for talented people who will join our teams in Poznań, Wrocław, Szczecin, and Sosnowiec,” said vice president of operations at Amazon, Europe, Steven Harman. Last month, workers in several European countries, including Poland, went on strike demanding better working conditions. This prompted Labor Minister Elżbieta Rafalska to inspect the Amazon logistics centers operating in Poland and the conditions of the employees. After the raises, entry level employees will get PLN 17.5-19.5 per hour, while team managers will earn PLN 22.5-24.5 per hour in addition to a monthly bonus of up to 15 percent.

5.9%

unemployment in July (Labor Ministry)

7.2%

salaries increase in July (y/y, GUS)

10.3%

industrial production growth in July (y/y, GUS)

AUTOMOTIVE

NEW CAR REGISTRATIONS UP by 25% y/y in July

FOOD

Poland 9th in global HONEY PRODUCTION Poland ranks 9th in terms of global honey production. The country is 8th among global honey importers and 13th in the list of exporters of the product. This is according to BGŻ BNP Paribas analysis. According to the estimates of the European Commission, 600,000 Beekeepers and 16 million beehives across the EU each year produce 200,000 metric tonnes of honey. The leader in the global production of honey is China with a 28-percent share.The total value of Polish honey exports in 2017 amounted to €35.9 million (an increase of 18.3 percent y/y), while the value of imports to Poland amounted to €47.6 million (up by 12 percent y/y).

7.8%

The number of new registrations of passenger cars and vans in Poland in July amounted to 51,958, according to data from sector research firm Samar. The figure grew by 24.86 percent y/y and fell by 0.96 percent m/m. This was the 40th consecutive month of growth and best result in July in the 21st century. “Persistently high sales are (traditionally) mainly due to high activity on the part of the institutional customer. For a long time, it is companies that have been the driving force behind the registration of new cars. In July this year their share in the total number of new passenger car registrations has so far been one of the highest in 2018. In July this year companies bought almost 31 percent more cars than last year,” Samar said. The top-selling brands are Skoda with 12.9 percent market share, followed by Volkswagen (10.64 percent) and Toyota (10.61 percent). The most popular model is the Skoda Octavia.

exports increase in June

(y/y, National Commerce Chamber KIG)

CPI inflation in July (y/y, GUS flash estimate)

1.5%

prices of agricultural products increase in July (m/m, GUS)

5.5%

retail sales growth in June (y/y, Eurostat)

LOGISTICS

AMAZON TO INCREASE WAGES in Polish logistics centers Amazon will raise wages for employees in all five e-commerce logistics centers in Poland from September 1 this year by up to 16.7 percent, the company said. “We want to provide our employees with competitive salaries and very attractive ben-

AUGUST/SEPTEMBER 2018 W B J

STOCKS

SMYK files IPO prospectus Toy and children’s clothing retailer Smyk filed an IPO prospectus with the Financial Market Supervision KNF on July 24, the regulator said on its website. Back in June, media reported that the owner of the company, private equity fund

>>>

SHUTTERSTOCK

WBJ

In Review Bridgepoint, was considering such move. Smyk was bought from Empik in May 2016 for PLN 1.08 billion.Smyk has 179 outlets in Poland, Romania and Ukraine. ENERGY

EC approves €145 mln funding for POLISH GAS LINK The European Commission has approved €145.5 million in funding to build the 168-kilometers gas pipeline Pogórska Wola-Tworzeń. The gas link is part of the North-South corridor of the European Network of Transmission System Operators for Gaz (ENTSOG).“This gas pipeline supported by the EU funds is a new cornerstone to the European energy market and to the diversification of the Union energy sources. It will contribute to bringing to the Polish citizens a more affordable, safe and sustainable energy,” Commissioner for Regional Policy Corina Crețu said. The project is expected to be completed by end-2020. INVESTMENT

31% of companies plan to use R&D TAX BREAKS in 2018 – KPMG Nearly a third of companies (31 percent) plan to use the R&D tax breaks in 2018, while 64 percent intend to increase R&D spending within the next three years, according to a report published by consultancy KPMG. Out of the companies that plan to increase investments, 49 percent are going to increase their investment budget by no more than 5 percent compared to current outlays. Compared to last year’s results, where no companies were planning on decreasing innovation spending, this year as much as 12 percent admitted that they want to cut down on investment in innovation. According to KPMG, in 2017 only 14 percent of companies used the R&D tax break, 3 pp more than in 2016. ECONOMY

NUMBER OF INSOLVENCIES up by 14% y/y in H1 The number of insolvencies of Polish companies increased by 14 percent y/y to 580 in the period from January to July 2018, according to Euler Hermes on the basis of official data from Court and Economic Monitor. The transport sector saw the most insolvencies where the y/y increase amounted to 29 percent. The

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LABOR MARKET

UKRAINIANS want to work in Poland for over 6 months Some 73 percent of Ukrainians want to work in Poland for more than half a year, according to the latest report by Personnel Service. Both Ukrainian employees and companies expect further changes in migration policy. “At the beginning of this year, the government took the first steps towards a good change in migration policy, including a new type of seasonal work permit, which turned out to be a great idea. According to data from the Ministry of Family, Labor and Social Policy, as many as 157,000 such applications were submitted in the first half of 2018. However, taking into account the scale of the phenomenon of Ukrainian economic immigration, further changes are necessary,” said Krzysztof Inglot, head of Personnel Service. Ukrainians are most often hired by large companies, with the share at 40 percent. In medium-sized enterprises, this percentage is 29 percent, while 18 percent of small enterprises declare that they employ people from Ukraine.

current problems of the Polish transport sector are the result of the introduced regulations on the EU markets (minimum wage and stricter standards for drivers), increase in costs (mainly wages) and low margins, which is due to the huge fragmentation of the industry and the associated price war. LABOR MARKET

Nearly 60% of Ukrainian employees would MOVE TO GERMANY Over half (59 percent) of Ukrainians working in Poland would leave for Germany, once the migration policy of Poland’s western neighbor changed to offer conditions similar to those in Poland, a study conducted by Work Service revealed. “The fact that Ukraine’s citizens are coming to the Polish job market in masses does not need to be a stable trend,” the report emphasized. Only 6 percent of respondents stated they definitely would not consider the move. “This is related to the reasons why Ukrainian citizens decided to migrate. For them higher pay is a key element, and Polish employers have no way of competing with

those in Germany,” the report added. SOCIETY

Poland lacking about 20,000 ELDERLY CARE positions There are not enough carers for the elderly in Poland – there is a deficit of around 20,000 – and this problem will grow every year due to the rapid aging of the population, experts say. According to forecasts by the Ministry of Family, Labour and Social Policy (MRPiPS), the number of people aged 80 and over will increase rapidly in 2026. The post-war baby boomer population will then be entering old age. Between 2026 and 2040, the number of people aged at least 80 is expected to increase to around 3.4 million from about 1.7 million. As Tomasz Pilat from Akademia Opiekunów noted, the lack of carers makes it difficult for the elderly who need help. “Especially when it comes to people over 75. According to estimates, many of them can no longer count on a family guardian or institutional help,” he emphasized.

SHUTTERSTOCK

WBJ

Technology in banking

WBJ

In Review

AUGUST/SEPTEMBER 2018 W B J

Heatwave and algae Poland, just as the rest of Europe, suffered a major heatwave in July and August, prompting many city dwellers to flock to the seaside. Unfortunately, the hot weather also exacerbated the proliferation of blue-green algae (a.k.a. cyanobacteria) in the Baltic Sea, making many beaches off limits for weeks.

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Opinion EXPERT VIEWS ON CURRENT BUSINESS AND SOCIAL TRENDS

Failed recruitment – what then?

SHUTTERSTOCK

Real financial losses, project delays, a drop in efficiency and low morale – these are only some of the consequences companies have to face after a failed recruitment. What support can employers count on from a recruitment agency? How do you set the rules right? >

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WBJ

Opinion HUMAN RESOURCES/MANAGEMENT

hen outsourcing recruitment, an organization decides to use a professional service performed by specialized consultants, which saves time and guarantees faster and better results. However, it may also happen, that for whatever reason, the newly recruited employee or the employer are not happy with the outcome. HOW MUCH DOES LOSING AN EMPLOYEE COST? The moment we part ways with an employee is when each HR manager has to crunch some disheartening numbers of lost costs. How much will the organization lose? We paid X to the recruitment agency, implementation costs Y, and each day with an unfilled vacancy generates losses of Z. The notice period as well as the time necessary to recruit a new person – 20 days being the best-case scenario – all adds up to a lot of manhours. And finance is just one part of the equation. There are losses that cannot be easily quantified: lower morale in the team, strained company image, deteriorating turnover statistics attracting a lot of unwanted attention from the HQ. Each company has its own figures, but on average the failed recruitment of a specialist with a gross salary of PLN 5,000 who leaves before the end of the three-month trial period is at least PLN 40,000. Naturally, it’s better to prevent this from happening in the first place, but we can’t foresee everything. THE CANDIDATE IS GONE – WHAT NOW? Whether it is the employer bidding farewell to the new hire or the employee leaving the employer, it is the company that bears the brunt of the failed recruitment cost. In both cases, the employer has the right to receive a guarantee service from the recruitment agency they used, but its scope depends on the contract. The guarantee compensates for the failure in various forms.

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Only a thorough analysis can allow a recruiter to provide a high-quality service and the company itself can learn a lot in the process.

The recruitment agency could be obliged to carry out the recruitment again within the same fee payment. Another solution is presenting the employer with a set number of candidates fitting the profile, in which case the guarantee is fulfilled whether the client hires a candidate or not. Other options include: money return, fee being settled as part of another recruitment or a discount for a subsequent recruitment. A guarantee is available for a time period specified in the agreement. For the SSC/BPO industry, it is usually between one and 12 months depending on the position and other negotiated conditions. Payment is a very important aspect, because in many cases the client is not eligible to receive a guarantee service if the payment is not made in time. NEW RECRUITMENT OR MAYBE A RECOMMENDATION? The form of guarantee that is beneficial for the company depends on the circumstances. If we need an employee urgently, we will opt for a new recruitment process. In this case, usually the best candidates from the previous recruitment are again taken into account. If that fails, we start the process again. In some cases, the guarantee only encompasses recommendations of candidates meeting the profile and skills criteria. Sometimes, the job offer is pulled, either because it is filled internally, there is a successful recommendation from another source, or the position itself is redesigned. If that happens and there is no actual guarantee service required, it can still be provided in the form of another, similarly defined recruitment process. It has to be discussed with the agency. Refunds are rare, mostly because such agreements are more restrictive for the client and for the agency.

Karolina Korzeniewska

Account Executive Europe Antal SSC/ BPO

Estimated cost of failed recruitment Salary: PLN 5,000 = cost PLN 40,000

Salary: PLN 25,000 = cost PLN 250,000

were. Only a thorough analysis can allow a recruiter to provide a highquality service and the company itself can learn a lot in the process. Antal’s observations show that feedback about the onboarding process, the selection itself or the combination of soft and hard competencies required for the position are readily available. Quite frequently, the recruiter also receives feedback from the selected candidate. Such a multi-layered view of the situation can greatly improve every aspect of the recruitment and onboarding process. The purpose of the post factum work is to prevent failed recruitment in the future and limit unwanted employee turnover. Both sides analyzing the case together can identify the weakest points in the process. It is a consultant’s job to actively participate in the analysis to increase hiring efficiency for each ROUGH BEGINNINGS client. I know from experience that a Another candidate, money back or guarantee service done right is often a stack of CVs – whatever form of the beginning of a good cooperation compensation we have for the serbased on trust, because every orvice, we should first understand what ganization and every person learns the reasons for the failed recruitment best from their mistakes.

further and radically search for different flavors of self-steering teams and individuals.

Poles need ‘relational discipline’

here are many positive things to say about Poland: for example, the ubiquitous clean streets in Polish cities in comparison to Brussels, the city where I have my sole proprietorship. Also, I sometimes call Poland “the China of Europe,” for the relative high speed with which for instance construction works are being executed. Consulting in a variety of company cultures across Europe, a number of things strike me about Polish organizations. In Poland, being on the economic rise, I see three patterns of behavior that I think are preventing Polish companies and the people working in them from flourishing. 1) Blame-storming: looking for circumstances or for internal or external parties to blame. Stop the blame game and brainstorm for solutions instead. I love questions like: “What can we do instead?” (Now that we know the problem and perhaps have undertaken some problem analysis), “What could a solution look like?” or “Who can do what to make progress with this?” 2) “The big nothing:” avoiding discussions that should be held with the right person, simply not answering e-mails, or gossiping negatively instead of having a discussion with

the person being gossiped about. Every entrepreneur knows how much vague communication, or worse, no reply at all, can affect their day-today business. I prefer a clear “yes” or “no,” and even a “yes, maybe,” with enough context provided by the party I’m expecting an answer from. 3) Short-term thinking: roughly put, this is when our line of thinking is: “what’s in it for me or for our organization in the short-term?” You can see it in negotiations, where parties focus mainly on getting the lowest price, instead of weighing a number of other criteria such as long-term partnerships, transparency about working processes, actively looking together for a win-win solution. Unless you want to have a short-term (transactional) relationship with your business partners, obtaining the lowest price right now is hardly ever in the best interests of all the parties in the long-term (win-lose). In short, we need fewer transactional relationships, more structural ones. What I think helps to overcome the above behaviors is implementing an organizational culture of relational discipline and sticking to it. By default, this will imply less top-down leadership and more co-creative and coaching leadership. Companies like Spotify, Zappos. com and Buurtzorg even go a step

WHAT IS ‘RELATIONAL DISCIPLINE’? It’s a culture where all of us have the discipline to address each other directly and as quickly as needed to discuss anything critical. “Critical” can mean more or less positive feedback, even negative feedback – anything that is worthwhile discussing with one another. It implies that we don’t need planned events (e.g. team days), paralyzing stress (“this will damage our relationship”), or anyone else as a middle-man (“I’ll ask X to relay the message”), to address each other. People shouldn’t have to guess what other people’s perceptions about themselves are. We should be applying “the-lawof-the-two-feet,” which means that you should use your judgement to decide whether you are contributing to the meeting you are participating in it, and if not – move on to a discussion or a project where you are needed. We should be able to have a direct discussion with others about what impresses, bothers or concerns us, irrespective of anyone’s rank or fear of being punished. It’s unacceptable that we don’t say what we want to say or write what we want to write, sometimes for weeks or even months. It should be completely natural and encouraged to have real conversations with one another instead of interacting through intermediaries or indirect actions. In a culture where we talk with each other as much as possible Peter instead of about each other, the Musschoot next time you “catch” people talking is a Belgian about you, you’ll know that there trainer, public is some sort of positive gossiping speaker, team & taking place about your private or personal coach public persona. What sustainable, well-perworking interforming teams and organizational nationally. cultures have in common is that there is a widespread, high degree of Website: relational discipline across the team mindthesolution.be and the organization. The Polish E-mail: corporate landscape could benefit pmusschoot@ greatly from this type of discipline gmail.com to help it flourish even more.

W B J AUGUST/SEPTEMBER 2018

WBJ

Opinion TAXES

Tax vertigo

his year there has been an abundance of new tax developments, amendments, interpretations and announced changes. Meanwhile, the construction and real estate market has developed certain standards regarding the effective, yet still relatively new, regulations. What were the recent hot topics and what awaits the industry in the future? MINIMUM INCOME TAX (ON COMMERCIAL REAL ESTATE) It has been given various names in publications of consulting companies: “cadastral tax,” “shopping center tax,” “tax on commercial real estate,” etc. Its new version will appear in 2019; however, some changes introduced mid-year have already become effective as of 2018. What remains the same is the tax rate of 0.035 percent per month on the initial value of the fixed asset (gross). The main change is what is subject to taxation. As of now, the minimum income tax applies to buildings classified as commercial and service buildings (shopping centers, department stores, self-contained shops

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or boutiques as well as other commercial and service buildings) or office buildings. The amended regulations additionally provide for taxation of hotels, warehouses, residential buildings (although residential buildings constructed under government or local government social housing programs are exempt from the tax).

The new version of the minimum income tax covers practically all leased and rented real estate. However, it will be possible to have the tax refunded upon the taxpayer’s written request. The tax will generally apply to all real properties being subject to lease, unless the share of leased space does not exceed 5 percent of the total usable area (GLA). What is new for taxpayers is the right to a refund of overpaid minimum tax on income from buildings on top of their corporate income tax. The minimum tax will be refundable following confirmation by the tax authority of the company’s

annual tax settlement. Fiscal authorities will mostly focus on verifying the marketability of the debt financing cost level as well as remaining costs and revenues. A tax inspection is to be expected following an application for a minimal income tax refund. Pursuant to amendments being introduced, the minimum income tax will also apply to residential real estate. The idea behind the changes is to tax revenues from rental, lease or other similar agreements, but only of corporate entities. As it has been, leasing and renting by natural persons is not considered grounds for applying the new tax to leased or rented buildings. Therefore, the minimum income tax will not apply to private leasing of residential units, which is subject to the 8.5 percent or 12.5 percent flat-rate income tax. MERGERS: FINANCING PROBLEMS It will no longer be possible to deduct interest costs on debt used to purchase shares (or stocks) of a company if they are to be ultimately settled together with the operating income of the acquired company. The described mechanism is

commonly known as “debt push-down.” The above-mentioned regulation has been widely criticized, as it is another limitation (and ultimately encumbrance) when calculating tax results of entities operating in tax capital groups.

“The scope and size of the amendments does not guarantee simplicity and clarity of the already complicated tax system.” Although in the justification of this amendment to the Corporate Income Tax Act the lawmakers put forward a very specific example of a situation where the said regulation is to apply, there is no doubt that this law will have a major impact on the M&A market, where structures using the debt push-down mechanism are very common and not without a legitimate business reason. The possibility of recognizing interest on debt as deductible against the operating income of the acquired company is undoubtedly a tax advantage. However, classifying all such restructurings as tax optimization is an over-rigorous interpretation of purely economic solutions used, among others, by joint venture entities (which, after all, are not created exclusively to generate tax advantages).

It is likely to backfire on the merger and acquisition market due to the increased unpredictability of the debt costs of the M&A process. LIMITATION OF THE FINANCIAL AND INTANGIBLE SERVICES COST TAX DEDUCTIBILITY As of the beginning of 2018, pursuant to the last major amendment to the Corporate Income Tax Act, the tax deductibility of the cost of debt financing, as well as of expenses on certain services and intangible assets from related parties, was considerably limited. These restrictions have particularly affected taxpayers with a low operational income level against corresponding costs (low EBITDA rate). Among the latter, there are special purpose vehicles operating in the real estate market, which to a

large extent use both external financing as well as numerous insurance, guarantee and surety services provided by related parties in order to ensure their functioning at the investment stage/in an early phase of operations. It is worth noting that the Ministry of Finance is considering introducing further restrictions on tax deductibility of the costs of debt financing. The published draft bill of July 15, 2018 provides for a reduction of the level above which the excess of financing costs shall not be included in the tax result from 30 percent to 20 percent of tax EBITDA. Unfortunately, the draft amendment still fails to resolve doubts concerning the maximum threshold up to which the surplus of financing costs shall remain tax deductible – will it be PLN 3 million + 30 percent of tax EBITDA, or rather costs of up to PLN 3 million not to be limited and the surplus subject to the restriction of 30 percent EBITDA? Another fundamental change introduced by the major amendment to the Corporate Income Tax Act is the limitation of tax deductibility of costs related to the taxpayer's acquisition of intangible services and assets from related parties or from non-related parties when the actual recipient of receivables on that account would be a related entity. Contrary to the controversial regulations concerning restrictions of the costs of debt financing, in this case lawmakers have clearly set a limit applicable to the costs of services of PLN 3 million (exempt amount) + 5 percent of tax EBITDA.

widespread in the market. In the real estate transaction market, on the other hand, it is worth keeping track of the quite strongly established practice of acquiring leased commercial real estate in the form of an enterprise deal. What is of significance to all taxpayers is the new draft of the Tax Ordinance Act that, according to the lawmakers, is to be simple, transparent and taxpayer-friendly. The scope and size of the amendments definitely does not guarantee simplicity and clarity of the already complicated tax system. Entrepreneurs are often confused by the complexities of the system, whereas foreign investors struggle to keep up to date with the constant changes. However, as long as the game is on and the positive economic situation continues, every point scored counts. The time for cleaning up will come later.

WHAT ELSE IS WORTH MONITORING? The list of changes that are already happening or are expected goes on. Among other important issues, there are further changes with respect to determining transfer pricing and the transfer pricing documentation. Also in the pipeline is another edition of Polish REITs, tailored to the market of apartments for rent, student housing and senior care homes. Another quite important topic for the construction market is a set of guidelines pertaining to VAT tax due diligence and the VAT split payment mechanism. While looking at the announcements of the companies owned by the State Treasury, it is to be expected that the voluntary split payment mechanism will become

Małgorzata Dankowska

Partner responsible for the real estate team and the Warsaw tax division of TPA Poland. Małgorzata specializes in transaction advisory and tax restructuring. She has extensive experience in handling commercial real estate transactions related to acquisition, disposal and finance restructuring. She has conducted numerous restructuring projects involving optimization of international holding structures and achieving tax optimal solutions, including mergers, liquidations or exchange of shares. She is a specialist in the field of investment fund advisory.

W B J AUGUST/SEPTEMBER 2018

WBJ

Opinion CHOCOLATE INDUSTRY

Chocolate royalty

The chocolate market may be mature, but there is still room for growth and room for novelties. E.Wedel is a brand with decades of tradition, and it does not shy away from trying out new things. WBJ talked to Maciej Herman, Managing Director at LOTTE Wedel, to talk about what landmarks the company has already achieved and where it is headed

AUGUST/SEPTEMBER 2018 W B J

INTERVIEW BY BEATA SOCHA

WBJ:

Is the chocolate market in Poland still growing? Maciej Herman: The chocolate market has reached maturity. In terms of volume, consumption is more or less stable, but in terms of value it increases by a few percent each year. In 2017, we recorded extraordinarily high growth of over 7 percent compared to 2016, which means that Poles spent almost PLN 1 billion more on candy. However, it was likely a one-off effect related to the introduction of additional social benefits.

big as in Western countries. Where is LOTTE Wedel in the Polish market? In the chocolate market in Poland, there is no clear leader. There are three major players: Wedel, Mondelez and Ferrero, which altogether hold an almost 50-percent share of the market, followed by Polish companies Goplana and Wawel. LOTTE Wedel is the strongest chocolate brand in Poland, offering Poles and unforgettable chocolate experience for nearly 170 years.

How difficult is it to introduce a novelty in the market? The candy market is highly fragmented, divided between international and domestic manufacturers. This creates room for portfolio diversification and introducing product innovations, which Poles seek out and to which they are open. It is novelties that drive the market segments, and that is why it is up to the key players to continue to come up with new solutions and to respond to consumer needs What are Poles’ preferences when quickly – even anticipate them. The it comes to chocolate? chocolate market values quality and The Polish market’s specialty is a innovation. On the one hand, we very wide range of chocolate bars. make sure our ingredients are of the The most popular type is milk highest quality: for example, we use chocolate bars, but we’ve also been cocoa seeds from Ghana, which give observing a rapid increase in bitter our chocolate a distinct taste, and chocolate sales. This is caused by the we maintain traditional recipes. Jan growing popularity of health aware- Wedel created the perfect recipe for ness and functional foods. the Ptasie Mleczko® mousses way To meet the demands of our con- back in 1936! On the other hand, sumers, Wedel has introduced a new we keep looking for new solutions line of bitter chocolate containing that are attractive for younger 50 percent, 64 percent and even 80 consumers. Here, a good example percent cocoa. We’ve also noticed would be decorated Ptasie Mlecthat with increasing average income, zko®, chocolate tubes and Wedel more and more Poles can afford a creams. moment of pleasure and are buying more expensive products, but also What are your plans for further their favorite ones. development? We also consume a lot of chocoFor nearly 170 years Wedel has late-covered marshmallows. Ptasie been synonymous with innovation, Mleczko® is the market leader in this which I think is the right direction class, a product that is very regional, for the company. We’ve been watchconsumed mostly in Poland and ing the market and introducing noveastern countries. In the West, the elties that meet current customer product is less well known. Pralines needs. Producing new categories of are also growing in popularity very products means we have to adapt quickly, but the market is still not as our solutions to new challenges and How much chocolate do Poles consume each year? On average, a Polish citizen consumes 4.7 kilograms of chocolate a year according to Nielsen data, which places us in 22nd spot in the world. By comparison, an average Swiss citizen consumes 9 kilograms, and a German citizen – 8 kilograms. Theoretically, this offers further potential for growth; however, in a longer perspective.

W B J AUGUST/SEPTEMBER 2018

WBJ

Opinion CHOCOLATE INDUSTRY invest in new technologies. We are expanding our portfolio, and we’ve recently completed a major investment in a production plant which has increased our production capacity and warehousing space. The Polish market is the main area of our operations, but we also want customers in other countries to be able to taste our products and discover their quality. What novelties are you introducing? Recently, we entered entirely new categories, which I believe is a very promising direction for us. Since July, the Żabka chain stores carry Wedel’s Ptasie Mleczko® vanilla ice cream, a groundbreaking product and the first of this kind in our portfolio. While

The Polish market is the main area of our operations, but we also want customers in other countries to be able to taste our products and discover their quality Maciej Herman, Managing Director at LOTTE Wedel

Zebra boy is the E.Wedel communication platform’s main character. The creation is based on Leonetto Cappiello’s iconic poster, ordered in 1926 by Jan Wedel. The company used this symbol in promotional materials in Poland and abroad (Paris, New York). The Zebra boy as a neon sign is still displayed on the historic tenement building at Szpitalna street in Warsaw, where the oldest E.Wedel cholate lounge is located.

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creating the recipe, we wanted the ice cream to reflect the taste and the look of the classic Ptasie Mleczko® marshmallows. We put great care into ensuring the ice cream and the chocolate cover formed a perfect combination creating a unique whole. Another innovation we introduced are functional chocolate bars called TAK PROSTO (Eng. “So Simple”), based on sesame seeds and Wedel bitter chocolate, combined with delicious and healthy ingredients such as cranberry, quinoa, sunflower and pumpkin seeds. The bars are a natural source of magnesium, fiber and unsaturated fat, which makes them an ideal snack. Wedel also offers jelly beans and hard candy for kids, as well as limited editions of our bestsellers, e.g. the summer version of the Ptasie Mleczko® marshmallows: mango and coconut covered with white chocolate. Poland is not immediately synonymous with chocolate but it does have strong export products. What does LOTTE Wedel export the most and where to? Poland is the 8th largest exporter of candy in the world, with a share of 4.8 percent, according to a PKO study. Wedel’s expansion to international markets is possible, as our offer and packaging are compatible with the regulations of individual countries. Wedel’s chocolate can be found all over the world, and we export our products to over 60 countries, including: Australia, New Zealand, Russia, Ukraine, Ireland, Germany, the Netherlands, Bosnia, Greece, the UAE, Qatar and Mexico. The key markets for LOTTE Wedel are the US, Canada and the UK. Our exports to Russia, Ukraine, Uruguay, the Philippines, Chile and Brazil are also growing rapidly. It’s also noteworthy that we do not target stores frequented by the Polish diaspora, but also widespread distribution in cooperation with local retail chains. We export Wedel’s classics, which in our opinion should already be familiar not only among Poles,

but also to people across the world: Ptasie Mleczko®, Torcik Wedlowski and various versions of Wedel’s chocolate. We are also present at international food fairs such as: Anuga in Cologne, ISM in Cologne, Gulfood in Dubai, Alimentaria in Barcelona and FHA in Singapore. The employee’s market is affecting practically every industry. Is the employee shortage also an issue for LOTTE Wedel? How is the company attracting and retaining employees? It’s true that employee shortage has become one of the major and significant problems and barriers for growth. Unfortunately, for us too. We source employees from abroad, although they are also scarce. We are, however, a responsible employer and we follow the mission set out by Jan Wedel (one of the company’s founders), who took great care of his employees. It is so until this very day. LOTTE Wedel is unlike any other organization in the Polish market. On the one hand, we are a company with a long tradition, on the other, a company that has operated within the structures of several global corporate giants (Pepsico, Cadbury, Kraft). Now, for the past eight years, we have gone back to local management, with strong capital support from the LOTTE group. The nature of the relationship is based on partnership, which is related to the Japanese culture that is an integral part of our owner’s strategy. We have strong process base and work standards of some of the best international organizations. Wedel is a unique combination of autonomy that works in a specific market, based on the best international practices. It is also joy, akin to childlike joy, which we emphasize not only in our campaigns but also in everything we do. That is why the working atmosphere is so special: it combines the faith in cooperation between different departments as well as great pride of our brand and the history behind it.

We invest in Research & Development in our organization, we continue to work on innovations, and we look for highly-qualified employees. At the same time, as a modern company, we try to automate processes wherever possible (some of our products are made by hand and we do not intend to change that). We are open to young people, we hold recruitment programs for people straight out of college with no practical experience. For a few years, we’ve been carrying

out a program called CzekoStart, which offers 15-month internships in different departments across our company. The production department is an integral part of our activity. We appreciate them for their involvement and input in the company’s development. Production employees are with us for many years and in many instances are continuing a family trade, which shows us that Wedel is an extraordinary brand that brings joy at every step of the process.

W B J AUGUST/SEPTEMBER 2018

Opinion ECONOMIC DEVELOPMENT

A new chapter for entrepreneurs

Jadwiga Emilewicz, minister of entrepreneurship and technology, talked to WBJ about changes in special economic zones, attracting innovative investment and the countryâ&#x20AC;&#x2122;s future development in times of mounting EU challenges

WBJ:

The system of special economic zones in Poland has recently been overhauled to include the entire territory of Poland. How will the new structure work? Jadwiga Emilewicz: Like before, an entrepreneur planning to invest in an economic zone has to turn to the body governing the chosen territory. Then, the investment project will be analyzed, considering firstly the amount of funds being invested. And in the new structure that amount will be evaluated differently, depending on the size of investment and the level of development of the region. The investor will receive assistance from the body governing the zone. The new system of economic zones allows for more flexibility. Small and

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medium-sized businesses investing in less developed regions can count on more support. For instance, in the case of micro entrepreneurships and the regions where unemployment is high, over 25 percent of the national average, support will be delivered amounting to PLN 200,000. Thanks to these changes, we expect the flow of investments to be more evenly spread across the country. Another important criterion will be linked to Polandâ&#x20AC;&#x2122;s national economic policy. According to the Strategy for Responsible Development, the most important task in investment policy is stimulating high-quality investments and innovations, and creating stable, well-paid jobs. Granting tax relief in economic zones

efficiently and quickly, within a period of a month, will further facilitate investment. And abolishing territorial limits will finally solve the problem of having to expand the areas of economic zones. How is the structure of Polish and foreign investments changing? In the first stage of economic transformation foreign capital played a very significant role. Thanks to its influx, Poland was able to make up for the lack of its own capital. The level of capital influx was particularly high in the latter part of the 1990s, and then again once Poland joined the European Union in 2004. Poland is open to foreign investment, which bring positive results: technology transfer, improving competition, creat-

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WBJ

INTERVIEW BY EWA BONIECKA

ing new jobs. But we also want to increase investments of our own firms and it is being done. At the same time, the number of foreign investments is growing and in the past year the total value was $14.8 billion, which puts Poland in the third place in Europe. The year 2017 was the best in a decade as far as the flow of foreign investments is concerned, particularly greenfield projects and in the automotive sector, which involve a lot of technology transfer. The 335 direct foreign investments carried out will create over 86,000 jobs, which is the best result in the European Union. Poland also reached second place in the ranking in terms of attracting investments from European countries and 90 percent of investors declare they will invest in Poland in the future. Our assets include a stable economic situation, our central location and well-educated workers. Challenges within the EU are growing. How important is Poland’s cooperation with the EU for Poland’s further development? Poland and the European Union have strong trade ties. In 2017, 80 percent of our exports went to EU markets and EU countries account for 60 percent of our total imports. As far as general economic policy is concerned, the latest economic crisis showed that the EU needs mechanisms for protecting and coordinating its markets. There are no doubts about it. This function is fulfilled by the European Semester, established in 2010, which is responsible for coordinating economic and social policies in the EU. Over the past few years, we’ve observed improvement in dialogue. There are more meetings on various levels. Important matters in that process are being discussed, but there is still a lot of work to be done. What steps taken by the government do you consider to be the most vital for developing innovation in Poland’s economy? I think that innovation requires a proper economic ecosystem; one that promotes solutions and interconnections that respond to current challenges and problems. Cooperation in the form of public-private partnerships (PPP) is one way of promoting innovation, as is establishing a spokesperson for small and

medium-sized businesses, fighting the VAT gap and developing foreign direct investment. They are all complimentary parts of a pro-innovation system. Each element has its place in the Strategy for Responsible Development, which sees development as a process of integrating actions for building macroeconomic stability, an efficient state and a proinvestment policy. How do you view the Strategy for Responsible Development? Is it one of the Government’s current priorities that will see some effects now, or is it a long-term strategy that will take years to realize? The goal of the Strategy for Responsible Development is to achieve long-term effects and a lasting improvement of the development model for Poland. It is inherently connected with action spread over many years. Previous tactics for economic development have been supplemented with an increased role of knowledge and technology, development and greater expansion of Polish companies, the construction of a savings system and improving the functioning of institutions and their relations with society. We pay greater attention to including all social groups and all regions in the development process. The document combines a strategic dimension with an operational approach and outlines means of how to achieve it. This includes, among others, 185 flagship projects. Some of them have already been implemented, e.g. the Business Constitution, the Start in Poland program, a program for medium-sized cities. The other part is at a very advanced stage. How do you plan to link economic innovation with scientific research? We’ve created a special body – the Council for Innovation – that spans across all ministries. Its goal is to increase funds and encourage entrepreneurs to invest in innovation. This involves legal changes, including the Business Constitution. We are creating an entrepreneur-friendly tax system. Through the “small” and “big” bills on innovation, we are introducing new tax reliefs for research and development. We have built a stable system of financing to bring scientific research and development into the market. We are also working on the innovation box, a package

of tax incentives which will lower CIT on income gained from commercializing scientific and development research. What does the Start in Poland program mean in practice? Start in Poland is the biggest program of its kind in Central and Eastern Europe, with a budget of PLN 3 billion. Thanks to Start in Poland, a total of 1,500 companies will be given a chance to create high-quality innovative technology. In many areas, this program already has its achievements, for example the Acceleration Program, a network of “schools for entrepreneurs” of sorts. We bear in mind that creative activity is linked with cultural diversity. That is why we launched the pilot program Poland Prize. We want to help entrepreneurs who introduce new technology under the conditions of big market uncertainty. To help them do that we have prepared a project called a Simple Joint Stock Company (Prosta Spółka Akcyjna), a new type of company which will be better suited for innovative companies. Its basic feature will be the flexibility of owners in shaping relations in the company, its property and organizational structure. What will the Business Constitution change? The Business Constitution brings a qualitative change in conducting economic activity in Poland. First of all, it is the first complex reform of economic law in nearly 30 years; the goal is to adjust it to the realities of economic life. Poland successfully went through economic transformation, but it is now at a different stage of development. The Business Constitution was created in response to what entrepreneurs were asking for. It focuses on two aspects: reforming the legal environment for doing business in Poland and removing the bureaucratic obstacles to development. The Business Constitution ensures that law is understood and interpreted in the same way everywhere. It also means less bureaucracy and fewer formalities. It guarantees that all business activity not explicitly prohibited by law is allowed and all doubts in procedures should be resolved for the benefit of entrepreneurs. The Business Constitution launches a new stage in conducting economic activity in Poland.

W B J AUGUST/SEPTEMBER 2018

WBJ

Opinion ECONOMY

The world upgraded

What role will business play in facing the challenges of a circular economy, increasing energy efficiency and implementing a new strategy on plastics? Will current global trade conflicts and the anticipated fallout from Brexit disturb the status quo in Polish business? How big an impact are robots going to play in the economy and in our societies? These are some of the issues that will be the focus of this year’s European Forum for New Ideas in late September in Sopot. WBJ talked to Henryka Bochniarz, president of the Polish Confederation “Lewiatan,” the organizer of the event

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WBJ:

One of the main themes of this year’s European Forum for New Ideas (EFNI) is sustainable development, energy and climate issues. Are Polish companies open to dialogue about how business affects the environment? Henryka Bochniarz: Naturally, not all companies are, and the degree of their engagement in the dialogue also varies. But the trend is clear. Companies are not only discussing environmental issues, they are rebuilding their strategies and taking action. Regulations remain the main stimulus for change, but pressure from customers, the public sector and particularly local governments is also increasing.

INTERVIEW BY BEATA SOCHA

The debate at EFNI will not be on whether to meet sustainable development requirements, but how to do so while keeping a company profitable and how to finance such development. The discussion will be launched by a keynote speech from Jyrki Katainen, European Commission Vice-President for Jobs, Growth, Investment and Competitiveness. Can Poland realistically think of reaching a closed-loop economy? When we look at the diminishing natural resources and the growing population of our planet, it becomes apparent that we have to create a more circular economy globally, and not only in Poland. Of course, it will be a tedious and long-term process, because we need a shift in growth philosophy from “more” to “less and more wisely.” A circular economy entails lower consumption of resources, less waste, well-designed products with a longer lifespan instead of cheap, lowquality items. This requires strong intra-sectoral cooperation and more awareness from the regulator, producers and consumers, both private and public. Where to start? In Poland, we should focus on renewable energy sources and improving buildings’ energy efficiency, which will also significantly influence air quality. We need to develop digital and material technology, increase the responsibility of producers to be able to finance waste recycling and educate consumers. How have entrepreneurs reacted to the withdrawal of plastic packaging? They have responded very positively to the European Commission’s Strategy for Plastics in a Circular Economy, which was published in January this year. It is well balanced, it diagnoses the role of plastics in the economy and the environment. They are, after all, both a blessing and a curse. Therefore, we have to limit plastic production and consumption wherever it makes sense considering the environmental im-

Plastic containers protect the food but then they end up in landfills, where their durability stops being a benefit and becomes a terrible drawback

pact throughout the entire lifecycle of a product. We need to do it wisely, because – as indicated in a study from a Danish government agency – the production of a plastic bag requires so little energy and produces so little CO2 that we would have to use a cotton bag 7,100 times to offset the emissions from its production. A third of all the food produced in the world is wasted and ends up as landfill, emitting harmful methane. Plastic containers protect the food but then they also end up as landfill, where their durability stops being a benefit and becomes a terrible drawback. We need both research into materials and their required properties, as well as a system for collecting and processing plastics. In many cases, a simple ban (on drinking straws, cotton swabs or wet wipes) seems the best solution, as suggested in the directive on disposable plastics.

monitored in a transparent way. This year at EFNI in Sopot, we will hold a roundtable talk devoted to the role business will play in implementing COP24 decisions. It will include leaders from the Ministry of the Environment and our partners: UNEP/GRID-Warsaw, UN Global Compact, Employers’ Group, the European Economic and Social Committee, as well as Political Insight.

The Forum will also focus on other important topics, such as trade wars. For instance, how is the current US-China trade war affecting Poland? The trade war between the US and China is only one of the aspects of the new trade “disorder.” The impact on our economy will be mostly indirect, unless it affects copper, which is a major export that Poland sells to China. For instance, Chinese customs have recently been stopping shipments of US cars produced What role should business play by German automotive concerns. in implementing the COP24 This could create ripples across the decisions that will be taken this Polish automotive car part industry. December in Katowice? But these effects are secondary and First of all, businesses should be difficult to measure. present at the table where climate Poland should be more interested decisions are made. Undoubtedly, in the trade conflict between the EU industry, transport and agriculture and the US. We can see some real are the source of greenhouse gas threats here, such as customs duties emissions, but industry can also cre- on EU-manufactured cars that could ate technological and organizational hit Polish car part suppliers. Polish solutions to limit such emissions. Confederation “Lewiatan” believes Financing low-emission technolothat President Trump’s goal is to gies will not be possible without renegotiate the NAFTA deal with private capital involvement. Canada and Mexico, but also to The EU has ambitious goals for create a trade balance with Germany 2030 and 2050. It is important for and Japan. We should remember European businesses that other lead- that the European market is not ing economies in the world also set an attractive target for American equally ambitious goals and that the producers, because it is unlikely process of their implementation be that US car exports to Europe will

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Opinion ECONOMY Companies active in or trading with Iran may face severe sanctions from the US, including losing US contracts and being forced out of the American market

Norman Davies receives a special award at the EFNI 2017 opening gala. (L-R) Henryka Bochniarz, Norman Davies, Jerzy Buzek (Chair of the EFNI Programme Council, Chair of the Committee on Industry, Research and Energy at the European Parliament).

increase, even with lower duties. US cars simply don’t meet the European market’s needs. US sanctions on companies trading with Iran is yet another issue. The European Commission still upholds the nuclear deal with Iran, which allows for trade in exchange for the country abandoning its nuclear program. The US rejected the deal. The EC is trying to protect EU companies active in or trading with Iran, as they may face severe sanctions from the US, including losing US contracts and being forced out of the American market. We have yet to see how effective the EC’s instruments will be. The UK’s exit from the EU is drawing closer. What impact is Brexit having on the logistics industry and on Polish transport companies? Efficient road transport has been our calling card in the EU for years and our organization continues to support legislative solutions that benefit the industry. Polish Confederation “Lewiatan” brings together companies in the industry, including the Polish Transport and Logistics association. In fact, many other industry associations within the Confederation supported our appeal to MEPs to exclude all trans-border cargo traffic from the regulation on

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posted workers before the July vote in the European Parliament. Unfortunately, regulations like the mobility package damage the competitiveness of European transport and affect our companies. Brexit is another problem the Polish road transport industry will have to face. Forecasts suggest that even as much as 50-60 percent of cargo between the UK and the EU will have to switch from road transport via the “Eurotunnel” to sea transport, mainly to Belgium and the Netherlands. We also cannot foresee what the border and customs checks will finally look like, because we still don’t know on which side of the English Channel the check points will be located. There is still no agreement as to how the EU and the UK will share responsibility for the checks on both sides of the channel. There are still more questions than answers, and logistics is not the only headache for Polish and European firms before the London-Brussels divorce takes effect. Brexit has been one of the major topics EFNI for two years now and will once again come up on the agenda this year. Increasing automation and its impact will also be featured among EFNI themes. Is Polish business quick enough in implementing

new technologies to maintain the current growth rate? Polish companies have tremendous potential. Poles have the knowledge and skills necessary to develop products and services with the latest technologies. We have to remember that implementing innovation happens in several stages. A great idea or a working prototype is not enough. A company needs to design the production process, identify customer needs, secure a good quality supply chain both to procure resources and to deliver the product to the customer. And of course, financing is crucial, at the incubation phase, through implementation as well as at the growth stage. To maintain a high growth rate, we need to look at educational policy, which has to start incorporating new technologies and the changes that they entail. Naturally, technology creates challenges, also outside of the business world. Some of the questions we have to answer are who takes responsibility for what robots do, what is their status and how it translates into taxes. Undoubtedly, technology will limit the amount of time we work, which will be a sociological challenge. We will discuss these issues at the eighth edition of the European Forum for New Ideas in Sopot.

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EXCLUSIVE INTERVIEW

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INTERVIEW BY BEATA SOCHA

The biggest pension reform in years

A major pension overhaul is about to take place. Though still in preparation, its execution will likely be very swift. Will it indeed encourage Poles to save up for retirement? How much will labor costs increase and how will it impact the investment market? WBJ sat down with Piotr Kochański and Rafał Zięba of Kochański, Zięba & Partners to discuss what the future of Poland’s pension system will look like in practice

WBJ:

Work on the new pension system reform, introducing Employee Capital Pension Schemes (Polish abbreviation: PPK), is gaining momentum. It has just been adopted by the government. How important is it and when is it going to see the light of day? Piotr Kochański: This will be the biggest pension scheme overhaul since 2013, when the Open Pension Funds (OFEs) were largely liquidated. The program will cover 11 million Poles, 9 million from the private sector and 2 million in the public sector. It will include not only those working on employment contracts, but also those on civil-law contracts. It is set to come into force as soon as January 2019. Big employers will then only have six months to sign agreements with investment funds and start collecting contributions. It seems to be a very good initiative that can help to build a capital component in

the pension system. It’s been attempted before, e.g. with the voluntary Employee Pension Schemes (Polish abbreviation: PPE). But they had only a marginal impact. Only a little over 1,000 PPE schemes have been established. Why do you think PPKs will fare better than PPEs? Rafał Zięba: First of all, they are obligatory for all employers, even those who employ only one person. They will have to sign contracts with relevant funds and offer their employees PPKs. What is particularly important is that it will include all employees, even contract employees, as long as their contracts require social security contributions to be paid (this includes mandate contracts). P.K.: The system will include employees by default. They will automatically be subscribed to a PPK (or multiple ones).

W B J AUGUST/SEPTEMBER 2018

EXCLUSIVE INTERVIEW PENSION SCHEMES

CONTRIBUTIONS obligatory contribution

2%*

Employee:

of the salary

voluntary contribution

of the salary

*0.5% percent for those earning less than 120 percent of the minimum wage

Employer:

1.5% of the salary

The State:

2.5% of the salary

Welcome subsidy: PLN 250, Annual loyalty subsidy: PLN 240 * * set each year, in 2019 at PLN 240

An employee can leave the scheme at any time but will be again subscribed every four years and then will have to make the decision to leave again. Do you think they will be popular among employees? P.K.: When I first came to the US as a young lawyer, I came across employee pension plans for the first time. As I was being recruited by a law firm, the pension scheme was one of the things that my future employer used as a bargaining chip. That is another facet of these schemes – they can be used by employers to attract employees. As an employer in a Polish law firm and in our other advisory and software companies, we have been applying a number of financial incentives to strengthen the bonds with our protégés and our most valued employees within our organization. The best incentives are those that they can take advantage of over the long term, generating safe profits from stable interest on the capital invested. PPKs seem to be aligned with this vision and inspire us to create more incentives for the employees that create actual bonds with the employer. At the same time, they provide an actual tangible

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reward system for the employee and for the employer for the work we do together. What happens if an employer does not want to sign an agreement with a fund? R.Z.: There will be fines of between PLN 1,000 and PLN 1 million for those who fail to sign an agreement or fail to pay contributions. Also, if an employer “encouraged” an employee to leave a PPK, they would face fines as well – up to 1.5 percent of their entire yearly salary fund. How well do you think would this be enforced? We know that labor courts are quite effective when it comes to protecting employees from employers’ misconduct. P.K.: Taking into account the level of potential penalties – up to PLN 1 million or up to 1.5 percent of entire yearly salary fund – employers cannot afford to ignore the PPK regulations. Similar mechanisms are already applied in Polish legislation, such as in the case of the GDPR or anti-trust regulations, where the penalties directly refer to the revenues achieved. The control mechanisms provided for in the PPK Act, including the flow of information

about employers obliged to create a PPK and new control powers of the National Labor Inspectorate, are to guarantee the application of new regulations. It seems that the threat of sanctions at this level can indeed be an effective motivator to comply with the regulations. One of the most obvious questions is how much it will cost the employer and the employee. R.Z.: The minimum contribution from the employee will be 2 percent of their salary. Those who make less than 120 percent of the minimum wage (in 2019 that will amount to PLN 2,664) will have the option to limit the contributions to 0.5 percent. If an employee wants to save up more, they will have the option to set aside another 2 percent. The employer will be obliged to contribute 1.5 percent of the salary, and will also be allowed to contribute an extra 2.5 percent, which could be an extra incentive used by employers to attract talent. So in total, the minimum contribution will be 3.5 percent (2 percent for those with lowest wages) up to even 8 percent. Also, the State Treasury will contribute

to the fund: the so-called “welcome subsidy,” where the Treasury adds PLN 250 to each employee’s account. Also, each year, there will be a so-called “loyalty subsidy,” set for 2019 at PLN 240. Do you think this extra cost will be a significant factor to consider for companies looking to invest in Poland? P.K.: The new system does impose extra labor costs. Companies are already analyzing – even before the system has been implemented – if perhaps it is more costeffective for them to launch PPEs instead. If an employer already offers a PPE, pays a contribution of at least 3.5 percent and at least 25 percent of employees joined PPE, they won’t have to pay contributions for employees already included in their PPE scheme. R.Z.: Looking at it from a global perspective, these costs will not be substantial. However, you have to take into account the financial results of individual companies. For instance, in the mining industry, the total cost of PPKs is estimated at PLN 107 million. This may seem relatively insignificant compared to the revenues the industry brings in, but when we take into account how demand and prices fluctuate in the mining sector, the cost could prove quite substantial for some companies and could affect their financial results. Who will be responsible for managing the new pension funds? P.K.: Investment funds, employee pension funds and life insurance societies will be allowed to offer PPKs. These institutions will have to apply to be listed on the so-called PPK register, which will be maintained by the Polish Development Fund. And who chooses the fund that is to take care of employees’ future pensions? P.K.: The employer together with trade unions, or employees’ representatives if there are no trade unions in a company. What happens when you change your job? Where does the money go? Is it transferred to your new employers’ fund? P.K.: The funds accumulated in the PPK will follow the employee. If the employer changes, the funds already collected may be transferred to another PPK account with the new employer. The system as-

Looking at it from a global “ perspective, these costs will not be substantial

W B J AUGUST/SEPTEMBER 2018

EXCLUSIVE INTERVIEW PENSION SCHEMES

sumes the continuation of raising funds, and the change of employer will not have a negative impact on the funds already accumulated.

he pension scheme was one of “ Tthe things that my future employ-

er used as a bargaining chip. That is another facet of these schemes – they can be used by employers to attract employees

AUGUST/SEPTEMBER 2018 W B J

Poles have not had good experiences with private pension schemes. Private OFE pension funds, introduced in 1999, were all but dismantled in 2013, with many Poles left bitter that their savings were practically appropriated to cut the budget deficit. How do you expect them to respond to this new regulation? R.Z.: OFEs were criticized for a number of reasons. Most of these issues have been addressed in the new proposed scheme. For instance, the legislator has explicitly stated that the money accumulated in the schemes are the private property of the employee. It will not be subject to court execution, except for alimony execution. The money will also be inherited by the employee’s family. Also, management fees of pension funds, which were widely criticized in the wake of the 2008 crisis, have been capped. Fund managers will only charge up to 0.5 percent of the fund’s assets as a management fee. They will be allowed to increase the fee to 0.6 percent only if their returns are positive and above the reference rate of returns, set by the Finance Ministry and based on interbank reference rate and five-year bonds. By comparison, in 2016, the remuneration for managing investment funds was even up to 4 percent. If PPKs are indeed Poles’ private money, under what circumstances will they be allowed to withdraw it? R.Z.: First of all, when they reach 60 years of age, they will be entitled to withdraw 25 percent of their money as a lump sum and the remainder in at least 120 monthly installments. They will also be eligible for lump sum payouts of 25 percent in case of illness – either their own, their spouse’s or children’s. If they want to buy or build a house, they will be allowed to take out even all of the money collected, but they will have to put it back in the fund over the following 15 years. We all still remember what happened with a lot of these funds in 2008 and 2009. During the financial crisis, a large portions of these pension funds evapo-

DEBT PORTFOLIO At least

70%

of assets in securities issued or guaranteed by the State Treasury, NBP, territorial government units, an EU central bank or the EU itself

rated. Do you think that Poles will feel safe investing in pension funds? P.K.: It all depends on how these funds are managed. The legislator took precautions to ensure that money in these funds is invested in a safe way. For instance, the closer an employee is to reaching retirement age, the less risk will be allowed in their investment portfolio. So the structure of the investment will be different for a 25-year-old than for a 40-year-old or a 60-year old. If there are so many constraints on how these funds are managed, will investment funds and insurance societies be in fact interested in running them? P.K.: This is where theory will meet reality. We all hope for the best. Definitely it cannot be left to chance. There has to be a system put in place that will ensure these funds are run in a professional and sensible way. I’m afraid the time for the rollout may be too short for institutions to be able to build teams, tools and know-how in order to launch PPKs in time. Then there is the question of whether we can round up a sizable group of system managers who will be able to step in and ensure successful management of these funds. Personally, I’m afraid it may be a tall order. But the

determination and the farsightedness of the project’s authors deserve praise. R.Z.: Surely, these funds should only be entrusted with and managed by professional entities, which have historically proven to be diligent and effective. Over the past 25 years we have gained enough experience to make the right choice. We must bear in mind that nothing is 100 percent certain on the financial market. Still, a sensible and diversified investment policy can effectively protect against fluctuations in the capital markets and exchange rates. Do you think the money from PPKs will be able to breathe new life into the Warsaw Stock Exchange, which has been largely marginalized after the OFEs withdrew their capital in 2013? P.K.: I think we all believe that the new system will provide a robust source of capital for the WSE. Currently, the liquidity of the Polish bourse is far lower than it was a few years ago, a situation to large extent caused by the legal changes to the open pension funds. Similarly, the number of new IPOs is nowhere near last year’s figure. PPKs could be a “new opening” for the WSE, which is otherwise well-regulated and deserves a chance to thrive.

R.Z.: It would be fair to mention that insufficient funds are not the only barrier that the WSE is facing. There are other regulations that affect the investment volume on the bourse, like for instance for shares of companies that have perpetual usufruct of arable land. These companies have to inform investors in their prospectus of the pre-emption rights of the Agricultural Market Agency to any newly issued shares. And that poses additional risks to potential investors. Abolishing these restrictions would in no way weaken the regulations protecting arable land and would make investing in these companies more attractive. Similarly, State Treasury companies that are listed as strategic are also under overly stringent regulations. Shares that are owned by the State Treasury are excluded from trading, which is understandable, but the exclusion is also extended to subscription rights, seemingly against the law. In practice, it limits the buyer pool to the State Treasury. No doubt, in order to improve the condition of the WSE, the legislator, the Financial Supervision Authority or the District Attorney office need to address how these provisions should be applied.

PPK TIMELINE Entry into force

January 1, 2019

Employers with at least 250 employees

Employers with at least 50 employees

Employers with at least 20 employees

Other employers

July 1, 2019

January 1, 2020

July 1, 2020

January 1, 2021

W B J AUGUST/SEPTEMBER 2018

AUGUST/SEPTEMBER 2018 W B J

FEATURE / ECONOMY

A developed country, but how rich?

Starting in September 2018, Poland will become the first country from Central and Eastern Europe to be included in the exclusive group of 25 developed markets, according to FTSE Russell. What does this mean for our economy and capital markets and should it change anything in the eyes of investors? By Sergiusz Prokurat

W B J AUGUST/SEPTEMBER 2018

FEATURE / ECONOMY

oland as a society is becoming wealthier year by the year. A dozen years ago the average monthly salary in the business sector, according to the Central Statistics Office, stood at PLN 1,900. Now it is at PLN 4,500. More than 1 million Poles earn over PLN 85,000 a year. But the road to prosperity has been a winding one for the vast majority of the country’s history. Poland was launched on a path of economic development as recently as 1989. Almost 100 years ago, Józef Piłsudski, a key historical figure in Poland, claimed that Poland is like a pretzel, so everything that is of any value lies alongside its borders. And on the map during the interwar period this was true: the TriCity with its access to the sea, Łódź with its booming textile industry, Katowice and its coal deposits. Over time, the role of Warsaw increased. After World War II some pieces of the pretzel were missing: Lviv and Vilnius – instead Poland got Wrocław and Szczecin. The catalog of 20th-century economic fiascos started with the two world wars, which caused huge losses in the national wealth (they cost 25 percent of GDP), and then continued with the economically unimpressive period of communism. In 1990, when Poland transformed into a market economy, the level of GDP per capita was approx. 30 percent of the average levels seen in Western Europe. The threshold of 50 percent, which Poland had tried to leap over for the entire previous century, was finally broken in 2008 and today Poland is at the level of 75 percent of the West. For the first time in the country’s thousand-year history, it has become imaginable that it could catch up to Western Europe in 20-30 years. Never before have Polish citizens lived in such prosperity as they do today. ON THE RADAR For many observers, Poland has been an economic star over the past two decades. Continuous economic growth, dynamic improvement of the quality of human capital and the development of capital market have given investors in Poland better economic growth rates in comparison to other developed countries. Long-term market observer FTSE Russell Agency (or “footsie,” as it is commonly known), a British provider of stock market indexes and associated data services, classified Poland for the first time in 2004 as a secondary developing market with the following improvement areas: currency trading market, market for lending securities, the availability of adequate fiduciary accounts and the derivatives market.

AUGUST/SEPTEMBER 2018 W B J

In 1990, when Poland transformed into a market economy, the level of GDP per capita was approx. 30 percent of the average levels seen in Western Europe

In 2011 Poland was transferred to the watchlist for possible reclassification as an emerging market. Since 2015 the Poland’s position was again considered a potential new member of the FTSE index of developed markets. The decision to promote Poland to the status of developed market was taken in fall 2017 and it takes effect in September 2018. For classification purposes, the Fund takes into account i.a. the regulatory environment, infrastructure and the quality of the capital market, the structure of the deposit and settlement system, the development of the derivatives market and also income per capita, the level of exports and whether the country has already joined the eurozone or intends to join it. In order to stand among developed countries, one basic condition must be met – achieving income per person of at least $15,000-18,000 per year. In Poland this indicator now oscillates around $13,000-15,000, but only 25 years ago it stood at $2,000. MORE CAPITAL COMING What does it actually mean for Poland to be classified in the group of developed countries? FTSE Russell indexes are used by leading global investment funds. Soon, Poland will stand in line with such countries as Germany, France, Japan, Australia and the US. This is good news, because it means that Poland will be a destination for a greater group of foreign companies looking to invest their capital. A larger pool of institutional money will be funneled to the Polish market, which may generate the spiral of demand for capital and shares and thus improve the quotations of companies listed on the Warsaw Stock Exchange. There are many ETF funds (exchange-traded funds) based on indexes such as FTSE Russell, listed on stock exchanges on the same basis as shares. Poland ascending to the ranks of developed countries also means that the risk of recession, objectively analyzed by inde-

pendent parties, or the risk for conducting business activity, declines. It is not without significance that Poland was one of the few countries that did not witness recession in 1991. This was also the case in Brazil and Indonesia. Poland’s accession to the EU was another stimulus and the fact that Poland was one of the few countries that did not slump into recession in 2009 gave it another boost. NOT UNANIMOUS FTSE’s decision, however, was not unexpected. Poland was already announced as developed country by the UN, and the World Bank recognized Poland as a wealthy country. We need to remember, however, that there is no single definition, standard or clear distinction between a developed and a developing country. The boundary is conventional. It is primarily the Polish financial market and in particular the capital markets which have been qualified by the FTSE Russell as developed, as Poland has the largest financial market in the region. For the past few years, companies willing to join the main trading floor have been analyzed with a fine-tooth comb. The diversity of different financial instruments has increased, modern transaction systems have been implemented and the standards in the banking sector have improved. Poland has all the advantages of the developed markets, including trading and transaction services safety, and a well-developed infrastructure. Does that automatically mean that the Polish economy is eligible to be on the list of developed countries and that the country can be classified as rich? It is noteworthy that according to the second largest index, MSCI, calculated since 1970 by the American investment bank Morgan Stanley – maybe even more important than FTSE – Poland is still a developing country. GRASS IS GREENER The promotion to the group of developed countries does not mean a sudden transformation. The level of GDP per capita does not directly translate into living conditions for the majority of Poles. Is Poland in fact wealthy and developed? As usual, everything depends on whom you compare it with. For the European Union’s core states, Poland is still a poor relative, a good source of high quality labor and a perfect destination for greenfield investments. Poles still like to compare themselves to their western neighbors, rightly stating that the average German is far better off. Incidentally, Germans have also never in history lived in such prosperity as they do today. Also, just as any country, Poland has to deal with social stratification, disparities between large cities and small towns. For instance, the earnings of 2/3 of working Poles are below the average remuneration in the economy as a whole, being less than €1,000 a month. A Pole’s wallet is even 10 times thinner than that of an average Liechtenstein citizen, according to a report

prepared by Gf K Purchasing Power Europe 2017, which shows the real purchasing power of Europeans. Currently, the average inhabitant of the Old Continent earns €14,000 yearly, which is something around PLN 60,000. This sum is unattainable even for the average resident of the Polish capital, Warsaw, the richest city in the country, where the average income amounts to 89.5 percent of the EU average. Still, FTSE Russell’s decision is backed by a host of other indicators. Poland now has historically low unemployment, the level of which is the lowest since the transformation (approx. 6 percent), the highest growth in the past six years (approx. 4 percent), and despite large social expenditures, the budget is in good shape due to effective sealing of tax revenues. For the first time since national pollster CBOS started measuring it, the percentage of households living on credit is lower than the percentage of households with savings. It cannot be overlooked that, in the last 10 years, the financial assets of Poles have almost doubled and reached almost PLN 2 trillion, according to data collected by the National Bank of Poland. And despite the disparities, in 2015 Poland joined the elite group of 40 countries (ranked in 36th place) with the highest quality of life. American political scientist Samuel Huntington placed Poland among Western countries a long time ago. When we take cultural background into account, Poland has been there almost since its very beginnings. From a political point of view, if you look at the whole world, it turns out that Poland also belongs to the part of the world that is far better off than the vast majority and which should rather think about how it can help others. Particularly because in the coming years Poland could well join the ranks of the 20 largest economies in the world.

Poland is ranked in 27th place in the region of Europe and Central Asia in terms of wealth per capita estimated to be $155,000 per capita, as indicated in the report “The Changing Wealth of Nations 2018,” which analyzes the level of wealth in 141 countries in the years 1995-2014. In our region Poland was overtaken by Hungary – $156,000 per capita, Lithuania – $169,000 per capita, Slovakia – $230,000 per capita and Latvia – $230,000 per capita.

W B J JUNE 2018

FEATURE / ENVIRONMENT

Is PLN 103 BLN enough to tackle SMOG IN POLAND?

Poland claims the unflattering title of the smoggiest country in Europe. While the government has pledged serious money to fight it, coal standard regulations seem to be counter-productive. And while Poles wait for the heating system subsidies to roll out, millions of outdated, fuming furnaces will continue to burn this winter BY ANNA RZHEVKINA

oland has the most polluted air among all EU countries. Out of 50 European cities with the dirtiest air, 33 are in Poland, according to a World Health Organization report. The problem comes mainly from the use of coal as a key heat source in winter. According to air quality watchdog Polski Alarm Smogowy, coal burning in homes causes 52 percent of PM10 (solid particles and liquid droplets) emissios in the air. Industrial pollution accounts for about three times less, i.e. 17 percent. Other major polluters are transport and the energy sector. In February 2018, the European Commission sued Poland for persistent breach of air quality standards during 2007-2015. Poland has not complied with PM10 (particles that can be harmful to lungs and aggravate asthma) concentration limits in the vast majority of “air quality zones” and has been slow to introduce necessary

AUGUST/SEPTEMBER 2018 W B J

measures, the Court of Justice stated. Several months later the Polish government introduced some major initiatives to fight smog. Clean Air costs In June, Prime Minister Mateusz Morawiecki promised to invest PLN 103 billion in the “Clean Air” program. Under the program, over 3 million households should receive financing for cleaner heating systems. The subsidies will vary from 40 to 90 percent per household, depending on income, the Ministry of Environment stated. According to the plan, the applications for the program should start being accepted starting in September. However, it is not clear yet whether participants will receive money in 2018. “I think this year the initial funds will be distributed, but it depends on the number of people and how fast the program will progress,” the

“Out of 50 European cities with the dirtiest air, 33 are in Poland, according to the World Health Organization report”

Alert) said. He also expressed concerns that administrative costs would consume a significant part of investments. Coal standards In August, President Andrzej Duda signed a bill setting coal quality norms, which had not previously existed in Poland. The new rules forbid the sale of coal waste and impose fines of up to PLN 500,000 or even imprisonment for non-compliance. Individual households will have a two-year transition period to switch to more ecological solutions. Activists for clean air have generally supported the initiative, but said the norms are too lax. “We are very critical of the norms proposed by the Ministry of Energy, which allow coal with high content of ash (up to 28 percent) and moisture (up to 24 percent),” Siergiej said. According to Polski Alarm Smogowy, the norms were designed in such a manner that almost all the coal produced in Poland remains on the market. With such poor parameters, the air quality may improve only slightly or not improve at all, the activists stated. Low coal quality standards eventually call into question whether investing billions of złotys in modernizing heating systems is reasonable. This could be compared with buying a modern engine and filling it with the worst quality fuel.

Ministry’s spokesperson Aleksander Brzózka said. He emphasized that the program is long-term. “In 10 years, the air in Poland should be 80 percent cleaner,” Brzózka added, without specifying the criteria for measuring air quality. Wait-and-see A 10-year perspective may sound ambitious and promising; however, the coming winter could well see a slowdown in how quickly Poles’ heating systems are being modernized. Those who had intended to replace their furnaces using their own financing are now more likely to wait for the promised government subsidies. “We already hear from citizens that they are refraining from changing their heating systems, because they are waiting for the funds to come. There was a promise, but the money is not there yet,” Piotr Siergiej from Polski Alarm Smogowy (Eng. Polish Smog

‘Kopciuch’ still in use In addition to adjusting coal quality norms, environmentalists call for anti-smog resolutions in each individual region of Poland. Currently, such a resolution was adopted for Małopolska – its capital Kraków has some of the worst air quality in Poland. Under the resolution, the lowest quality furnaces, so-called “kopciuch” (meaning “emitting a lot of smoke”), should be replaced in the next five years. The sale of “kopciuch” furnaces has recently been forbidden in Poland, but about two million are still in use. In most regions there are no rules on when those furnaces should be replaced. Without the guidelines, about 15 years or even more could pass before they are decommissioned. It’s unrealistic that pouring even billions of złotys into the smog issue could solve the problem either this or next winter. If the money is spent wisely, Poles may hope for cleaner air in at least the next five years. And if not, anti-pollution masks will become even more commonplace in the coming years. Perhaps at some point, Poland will even become a prospective market for entrepreneurs selling bottled fresh air, like they do in China. At $29 (PLN 110) per canister, who could resist buying a few breaths of clean air?

W B J AUGUST/SEPTEMBER 2018

TECH i n s i g h t s

INNOVATIVE PROTOTYPES CREATED BY WOMEN A 3D-printed prosthetic hand, a breath regulator for people under stress, a shopping cart for the elderly, furniture and accessories – these are just some of the projects completed within the Maker Woman initiative, which aims to helps women launch their careers or get back into the job market with new competencies. The participants created prototypes that could well turn into new start-ups and become very useful in many areas of life. The Maker Woman project is organized by the Robisz.to Association in cooperation with the Orange Foundation. It takes place in the FabLab powered by Orange studio in Warsaw. The 36 participants gained theoretical knowledge and practical

know-how on how to create the prototype of a new product. They learned the basics of prototype design, programming, operating CNC machines, laser plotters and 3D printers. Assisted by mentors, they created websites, photographed their products and learned the key facts about running a company. “I cheer for all our participants. I believe the skills they gained, combined with their own creativity, will become great assets in their future. Technology is becoming an integral part of our everyday lives and using it wisely, and with ingenuity, could change our lives for the better. You can see it happen in the FabLab,” said Ewa Krupa, head of the Orange Foundation at the finals of the third edition of Maker Woman, on July 10 in Warsaw.

>>>

W B J AUGUST/SEPTEMBER 2018

TECH NEWS

TECH “FabLab is a place where you don’t need a design background to start designing. Thanks to the technologies available there and with the support of other people, you can turn even the boldest ideas into reality. Many participants of Maker Woman started from scratch and now they can proudly say they are ‘makers’ and can design and create a complex item, including one connected to an app,” added Maciej Naskręt from the Robisz.to Association. Some of the most notable designs include a 3D printed prosthetic hand designed by Magda Zaraś. The hand is three times cheaper than products on the market. Zaraś is now developing the product with the Amazing Woman grant she received from the French Orange Foundation. Another innovative prototype, created by artist Anna Wójcik, is a breath regulator. A small handheld object that you watch as it increases and decreases in size at a rhythm controlled by an app. The device helps people suffering from stress or insomnia regulate their breath. Prototypes created as part of the Maker Woman project are all innovative solutions in health, interior design, children’s accessories, art and culture.

AUGUST/SEPTEMBER 2018 W B J

TECH Alibaba Cloud and ABC Data with strategic digital transformation agreement Alibaba Cloud, part of the Alibaba Group, has established a strategic cooperation with ABC Data, the company has announced. The aim of the cooperation is to provide cloud products and services to Central and Eastern Europe markets, which is to help companies take advantage of the opportunities offered by digital transformation. As part of the agreement, ABC Data became the exclusive distributor of Alibaba Cloud solutions in Poland and seven other countries of the region: the Czech Republic, Estonia, Romania, Lithuania, Latvia, Slovakia and Hungary. Through the ABC Data Cloud platform, the full range of Alibaba Cloud products and services will be available, including virtual servers, hosting, backup, storage, network solutions, IoT, Big Data and AI. ABC Data is a distributor of IT equipment. The company has been listed on the Warsaw Stock Exchange since 2010.

AIP Seed Capital leaves CallPage investment with 22-fold return AIP Seed Capital has sold its shares in tech start-up CallPage with a 22-fold return, earning PLN 2.2 million. “The sale of CallPage shares is one of the highest returns from seed investments in Central and Eastern Europe and the highest return received by the fund,” said Dariusz Żuk, founder and CEO of AIP Seed Capital. AIP may still receive further return, as it is entitled to 15 percent of sale of shares by the subsequent investor. This was another portfolio transaction for the API Seed Capital. The fund earlier divested from start-up Qpony with a tenfold return. Kraków-based CallPage, founded in 2015, offers a widget in the SaaS model, helping e-commerce firms increase conversion rates by allowing the company to callback potential clients within 28 seconds of their visit on the website. It currently has nearly 4,000 clients in its portfolio, including Virgin Mobile and Mercedes. It employs 50 employees

AUGUST/SEPTEMBER 2018 W B J

we are thrilled to support NUADU,” said said Tomasz Cichowicz, partner of Luma Ventures.

CD Projekt sets up mobile games unit WSE-listed video games developer CD Projekt has acquired a majority stake in the company Spokko. The new subsidiary will work on a yet-to-be-announced project for mobile devices, the company said. “We’ve known people behind Spokko for a few years and they came to us with an interesting idea based on one of our brands that we decided to invest in. We want it to have its own identity and creative space, obviously guided by the philosophy underlying the activities of the CD Projekt Group,” said the company’s CEO Adam Kiciński. The new studio will have the rights to use CD Projekt IPs, including the Witcher series.

BoomBit plans 22 mobile apps by end 2018 Mobile game Tanks A Lot!, created by BoomBit, became available in Apple and Google stores on August 23, the company said. Apart from Tanks A Lot!, the group intends to publish 22 titles for mobile devices by the end of the year. At the beginning of August, BoomBit filed a prospectus with the Polish Financial Supervision Authority (KNF). The company aims to debut on the WSE main market by the end of 2018.

Ultimate Games plans debut on main WSE market in Q1 2019 Ultimate Games has decided to transfer company shares to the main Warsaw Stock Exchange market (WSE) and plans to do it in Q1 2019, the company said. Speeding up the plans to debut on the WSE results from extending the portfolio of games that will be released in 20182020, it specified. Currently, Ultimate Games is working on over 30 productions for various platforms (i.e. mobile, PC, Switch, PS, Xbox), premieres for which are scheduled for 2018-2020.

and is currently working on a product with functionalities based on Machine Learning and Artificial Intelligence. The company is planning further global expansion.

CI Games new release in 2019 CI Games plans to release a new game “Sniper Ghost Warrior Contracts” in 2019, the company said. The game will be released simultaneously for PC, PS4, XboxOne and will be available for both single and multiple players. “Sniper Ghost Warrior Contracts” is the fourth game in “Sniper Ghost Warrior” series of tactical shooter video games.

Edutech start-up raises $1.2 mln Polish edutech company NUADU has closed a $1.2 million funding round from Luma Ventures, a Poland-based VC fund which focuses on data science and supports late-seed to growth stage start-ups from a variety of industries. Launched in 2016, NUADU provides an interactive online Personalized Learning Environment platform, allowing teachers to use a ready-made, core curriculumaligned question base; create assignments; assign exercise sets, tests, and quizzes to students; gather data about students’ progress, and quickly identify strengths, weaknesses and learning gaps. “1.3 billion students around the world, the 17 percent annual growth of the EdTech market, and the global need for state-of-the-art digitalized education – these are just a few reasons why

TECH NEWS

Sener Polska mechanism to be part of Mars mission

ExoMars is a two-part space mission whose aim is to search for traces of life on Mars and prepare for future manned missions. ExoMars is a joint venture of the ESA and its Russian counterpart Roskosmos. The umbilical cord system designed by Sener consists of a basic and backup power system and can operate in extreme conditions of interplanetary space, which is characterized by high radiation and temperatures close to absolute zero. Sener Polska operates in the aerospace sector. The company has participated in the ExoMars, Proba-3 and JUICE missions, as well as the “ESA Incentive Scheme” program, which supports the development of the space industry in Poland.

Sener Polska has designed and manufactured one of the key mechanisms of the Mars rover. The “umbilical cord,” or mechanical-electrical connection between the rover and the lander, was created as part of the ExoMars mission, in Braster signs distribution conwhich Poland participates as a member tract in South Africa reklama Space IS ecommerce2018 ver2 ang krzywe.pdf 1 2018-07-31 11:42:52 of the European Agency174x114 (ESA). Braster and Labstix Diagnostics Pty, one

of the leading distributors of medical devices in South Africa, have concluded a distribution agreement for the sale and distribution of the Braster Professional device in South Africa, Braster announced in a statement. The agreement provides for cooperation in the scope of importing and selling Braster devices together with research packages. According to the contract, it enters into force upon signature by both parties and is concluded for a period of three years from the date of conclusion. Braster is the only company in the world that has proven technology for the production of liquid crystal matrices, on the basis of which it developed a prototype Braster Tester – an innovative medical thermographic tester used for early detection of breast pathology, in particular breast cancer. The company has been listed on the main WSE market since 2015.

CMY

W B J AUGUST/SEPTEMBER 2018

TECH

LEVERAGING KNOW-HOW

A LOT OF CHANGE HAS COME TO THE TECH MARKET OVER THE COURSE OF 2018. PSD2 IS SUPPOSED TO OPEN THE E-COMMERCE MARKET TO SMES, GDPR MADE A LOT OF NOISE BACK IN MAY, WHILE BLOCKCHAIN IS GAINING BOTH TRACTION AND NOTORIETY AT THE SAME TIME. WBJ SAT DOWN WITH MARTIN ZALEWSKI, EXPERT ON DESIGN THINKING, BUILDING AND GROWING ORGANIZATIONS INTERVIEW BY BEATA SOCHA

WBJ:

PSD2 has been in place for six months now. Can we see any forerunners of another FinTech revolution? Martin Zalewski: A landscape of players is starting to form, and I’m sure in the next 6-12 months leaders will start emerging. When it comes to PSD2, we need to ask fundamental questions about its purpose: creating real value, not just opening up immense data sets. I’ve been engaged on a number of projects where the organization didn’t know what to do with their data. It’s got access, but the data isn’t always clean and manageable enough to give you insights, or driven by clearly defined strategy supported with the right competencies to design and deliver this strategy, in order to realize value. I’d like to stress here the importance of talent with competencies closest to leveraging data to deliver sustainable value to customers of the business to foster loyalty, as too often organizations go for technical competencies, which is wrong in my mind. You need a “customer-focused mindset with technical know-how.”

What matters is how you can leverage these data sets to understand your customers better, to create more value for them, and to understand what their needs are. I use Design Thinking to unravel the custom-

AUGUST/SEPTEMBER 2018 W B J

ers’ needs and then to figure out what tech solution can deliver on that need. Figure out what the need is and outsource the rest to people who can actually deliver the product. Is the relationship between banks and FinTechs symbiotic or are they competitors?

There are FinTech technology firms, and FinTech “challenger banks.” On the tech side, those FinTechs are great at solving the problems traditional banks struggle with because of their creativity and agility in thinking and doing. I see them as certainly helping shake things up and ensuring innovation and progress. On the FinTech Banking side, many are too small to make it on their own, and the cost of acquisition is high. These start-up banks give the traditional industry something to think about – new operating models and ways of servicing customers. Some of the FinTechs that are being launched will succeed on their own, others will be absorbed. These banks don’t have enough money to finance and deliver on the vertical and horizontal needs of their customer, but they have a vision – a sense of

FINTECH purpose, and that matters. They can scale up quickly through acquisitions. But every M&A decision should start and end with the question “how is this going to add value to your customer?” Traditional banks are innovating their own models and changing infrastructure to get to market quicker. They can (and in my mind, should) start absorbing FinTech banks to give them a strong financial platform to grow on, and in return incorporate their product offering and learn from their agile way of servicing the customer. However, they should give the acquired brand complete autonomy and allow them to keep their brand, or those acquisitions will fail. Nowadays FinTechs are good at finding new solutions and products, but they often lack experience that comes with time. When you’ve seen two booms and busts, you start to see patterns. It doesn’t necessarily follow that the same conditions will be repeated, but you know how to ask the right questions.

Let’s take trust, for example, and apply it to the consumer category of digital products. I’d love to be able to take my Airbnb or Uber ratings, which are confirmed and authenticated by those data providers, to other businesses where I get benefit from being a good consumer. This is a trusted piece of data that can be written on a block and transferred. Let’s look at speed and transparency and think of those two benefits in the insurance industry. Insurance needs to be transformed, particularly regarding the amount of paperwork and email exchanges that are necessary when filing a claim. You can make it more efficient and pleasant by digitizing it all, and your customer will always know where the application is at any given time. That improves the whole experience.

What solutions are in demand then?

My inbox was inundated with these permission emails and I think I responded to just two or three. I would have appreciated a clear explanation about why they need the data. And notice that all these mailings happened on the day of or the day before May 25. All at once. That’s not the way to do it. You’ve just thrown out your entire marketing list. And that’s because no one bothered to explain to the customer the value their consent would bring them. These companies will have to start building their client bases all over again. It’s just such a waste.

Everyone, whether it be FinTechs or established banking organizations, needs to realize what matters to them, and that’s the relationship they hold with the customer and the elements of quality and compliance around it. FinTechs are much quicker at delivering on that need. Can the banks do the same thing? Yes, but they have to change their infrastructure. Also, sometimes banks don’t deliver the same solutions as FinTechs because they don’t care for the same market segment. And that’s a mistake. We need to think about financial inclusion. We can’t just focus on the Facebook, Instagram and Snapchat generations for financial services, we need to think about other generations too. We cannot disengage the rest of the population. My favorite solutions that have a real impact on today’s and evolving needs are all supported with intelligent technologies to partner with the customer (AI), improve the experience of the engagement (CX supported with Virtual Reality), and deliver better outcomes (new digital products), by making the process more efficient (machine learning, automation). How do you accomplish that?

Innovation, and the value it generates, needs to be communicated. Every organization needs to communicate clearly and with confidence to establish trust in their products. We keep spinning products and services without explaining why they exist, how they work and what they do. Any single organization is too small to do it at scale. It needs a collective effort supported by the government at large. You could say that the entire blockchain revolution is based on distrust in institutions: people would rather trust mathematic formulas than institutions and governments. Where can blockchain build value?

Blockchain is revolutionizing all industries. Its values are speed, transparency and trust. Its applications are countless. Let’s look at a couple.

When the GDPR was implemented in late May, our inboxes filled with emails asking for permission or informing you of your rights. Don’t you think that the end result was that rather than reassure people, they were annoyed and scared that so many companies had access to their data?

Do you think the US will adopt similar data protection laws?

My whole professional life has been centered around the “voice of the customer,” embedding it into every conversation to create products and services, and I do it so successfully because I’m delivering on my customers’ needs. This is evidence that customers have a lot of power to demand better protection in the US. This is not unlike to what is happening with the #MeToo movement. There will be some impact of the Cambridge Analytica scandal on a global scale. Changes are being made by companies working across different legal jurisdictions. I don’t think US companies are going to abandon the European market. They will have to adapt.

Martin Zalewski has held a number of senior management and leadership roles at start-ups, as well as large global corporates, including GE Global Banking and Lloyds Banking Group, and currently follows his passion as a Chief Innovation Officer for a major UK FinTech. Martin’s foundation of leadership is Mindfulness, about which he writes on Twitter and Instagram (The Mindful Eye). He will share his views on the FinTech industry at the FinTech Digital Congress set to take place on November 13-14, 2018 at The Westin Warsaw Hotel.

W B J AUGUST/SEPTEMBER 2018

TECH

WE’VE COME A LONG WAY

OVER TIME, OPEN SOURCE HAS GONE FROM BEING SEEN AS A FLEETING CURIOSITY TO THE DEFAULT TECHNOLOGY USED EVEN BY THOSE WHO WORK ON PROPRIETARY SOFTWARE. WBJ TALKED TO DARIUSZ ŚWIĄDER, CEO OF LINUX POLSKA, ABOUT THE OPEN SOURCE MOVEMENT AND THE COMPANY’S PRESENCE IN THE POLISH MARKET INTERVIEW BY BEATA SOCHA

WBJ:

The Open Source Initiative is celebrating its 20th anniversary this year. What are the biggest highlights so far? Dariusz Świąder: Indeed, it’s been 20 years since the principles of the Open Source movement were formalized and the Open Source Initiative was founded. The past 20 years have shown the world that technological progress based on openness is the most innovative, efficient, safe and effective in business terms. Even those who were skeptical in the beginning – including Microsoft – today participate in the movement. Over the two decades, open solutions have been widely implemented in business, science, administration and the military. Also, we as consumers are surrounded by these solutions in everyday life. Open source applications are available in our phones, TVs, fridges, alarm systems and cars.

For me, the biggest change is that today, unlike only 10 years ago, I don’t have to explain at business meetings what open source is. I don’t have to show how profitable the technology is and that there are no safer systems than open source ones. Now, these talks revolve around the functionality, the quality of support, community engagement and profits, not only financial ones. We’ve proven that sharing knowledge and building value creates momentum. Where does Open Source stem from and how much has it evolved over the past two decades?

Without going into too much detail, Open Source stems from the Free Software movement, without which the open source community would never have existed. A group of open software enthusiasts, one of whom was Eric S. Raymond, proposed the Open Source name as an alternative to free software. It wasn’t just the label that changed, but also the way software that is useful and available to anyone is created.

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OPEN SOURCE Most open source solutions are now being developed by companies offering their own, closed solutions. Not so long ago, they weren’t interested in either free or open software. Now, open source technology is the leading driver behind technological advancement. According to Forrester research, as much as 80-90 percent of new software developed is based on open components. How many companies use Open Source in their business?

Personally, I don’t know of a company that is not using it. Even if they aren’t aware of it, they are using browsers like Chrome, Firefox, and systems such as Android, Linux etc., all of which have open source components. Most internet stores and portals are also based on open solutions. According to research carried out by Black Duck, 90 percent of organizations use open software and 60 percent have increased the scope of its use over the past several months. Also, 63 percent of those polled believe that open source accelerates the implementation of innovation. Analysis also points to higher quality of such solutions. Poland is not at all behind global trends. As much as 99 percent of Poles surveyed in the Polish Open Source Market 2018 study, which we prepared for this year’s Open Source Day conference, stated that their company uses open source solutions. The study included specialists, engineers, managers and IT project leaders in telecommunications, finance, FMCG and the public sector. This shows how flexible open source solutions are and how easily they can be applied to companies active in different industries. What components are they using most commonly?

Operating systems are most commonly used; for 25 percent of our survey respondents, followed by databases (19.4 percent). Every sixth person polled admitted to using open technologies for automation (14.9 percent), which e.g. help maintain control over implementations in data centers. Also, 14.6 percent of respondents use so-called “containers,” which simplify distribution and deployment of new code. Open source solutions are used as components for existing software and creating proprietary IT solutions. There is a very large community of millions of engineers and coders all over the world developing open software. They keep improving it; correcting bugs and expanding functionalities. That’s why implementing a new program or an app with open source tools is usually easier and faster.

and increasing security of both data and applications, as well as flexibility and increasing the pool of potential providers. Additionally, thanks to open source, each institution can develop its IT on their own. As leader in open source, we have a lot of experience in selecting and implementing open source technologies. We help public institutions going through IT transformation, consult on solutions architecture, present the advantages and educate entire teams of engineers. We did all that for the Agency for Restructuring and Modernization of Agriculture (ARiMR), the largest subsidy payment agency in Europe, which successfully rebuilt all of its IT systems. Linux Polska participated in customizing the largest systems and app changes, including the container technology implementation. The Agency is a good example of a global change in IT strategy. In my opinion, it can be seen as a leader of digital transformation in the public sector. But it is not the only institution that has started its adventure with open source. Our clients also include the National Health Fund, the Finance Ministry, state-owned lender BGK, and the Police. Last year, the Social Security Office joined the list of public sector leaders, choosing an open database for its applications from our offer. They chose it to ensure stability, efficiency and security, as well as flexibility and compatibility with closed solutions, not to mention a lower Total Cost of Ownership. Linux Polska has been present on the Polish market for nearly a decade. What have you accomplished so far?

Next year we will be celebrating ten years on the Polish market. When we were starting out, we wanted to become an important competence center for open source technologies in our country. We’ve come a long way: from a reseller of IT solutions to strategic consulting. We also carry out projects for international companies, including from Dubai, Qatar, Switzerland, Sweden and Germany. We aim high, quite literally. We are participating in the European Space Agency’s international projects. We’ve recently introduced a new logo as a symbol of change and our future development plans. What remains unchanged is our commitment to increasing our team’s competences and sharing knowledge.

What is your experience in working with the public sector in Poland?

Implementing open solutions in the public sector was a major challenge for us. For the first few years, we mainly carried out awareness-building campaigns, workshops and practical showcases. Then, we started going to reference site visits. I think that the key arguments that finally convinced the public sector to start using open source were: becoming independent from a single IT provider, avoiding vendor lock-in, lowering administrative costs

Dariusz Świąder, CEO of Linux Polska

W B J AUGUST/SEPTEMBER 2018

Latest news in the logistics, retail, office and residential sectors

Urban warehouse projects

Interview with Henryk Rytwiński of Octava Property Trust

Interview with Dariusz Węglicki of Catella

Apartments in renovated tenement houses

Investment market

Interview with Cyprian Chałupczak of Koneser Group

GDAŃSKI BUSINESS CENTER buildings sold for over €200 mln Developer HB Reavis has sold buildings “C” and “D” of the Gdański Business Center office complex in Warsaw to Savills Investment Management (Savills IM) for more than €200 million. “The deal marks another large investment into Poland, a country in which we have made significant investments totaling nearly €1 billion in the last two years,” commented Jon Crossfield, head of strategic partnerships at Savills IM. In December 2016, the buyer acquired the first two buildings (totaling 48,000 sqm) of Gdański Business Center for €186 million and thus currently owns the entire complex. Gdański Business Center was completed in 2016 and is BREEAMcertified at the “Excellent” level. Buildings “C” and “D” offer a total of almost 53,000 sqm. >>>

19. Dzielnica residential project in Warsaw

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | NEWS

Investment market (continued) BRIEFS ALMOST €3.9 BN TRANSACTED SO FAR IN 2018 – JLL

The total value of investment transactions signed in the commercial property market in Poland in the January-July period amounts to approx. €3.88 billion, according to a report by JLL. The company expects the aggregate 2018 transaction volume to exceed €5.5 billion. The retail sector attracted the most investor attention in the period in question, accounting for transactions valued at around €2.07 billion. The office, warehouse and hotel sectors accounted for deals valued at some €1.21 billion, about €530 million and approximately €70 million respectively. JLL itself brokered agreements valued at a combined total of more than €2 billion.

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C&W to help sell Zepter Business Center in Warsaw Cushman & Wakefield has been appointed as the exclusive agent responsible for the sale of the Zepter Business Center office building in Warsaw. The property is located on ul. Domaniewska in the Służewiec business area of the Mokotów district of the Polish capital and offers 13,000 sqm of leasable space. “The project is an interesting investment opportunity with good value-added prospects,” said Michał Wachowicz, a consultant at the capital markets department of Cushman & Wakefield.

Retail ATRIUM’S Warsaw malls to offer new shopping experience this autumn Shopping center owner, operator and developer Atrium Group continues to extend and redevelop its flagship Warsaw malls – Atrium Promenada, Atrium Targówek and Atrium Reduta – with new phases of all three upgrade projects set to be completed by the end of this year. The extensive schemes are being developed in response to the latest global retail trends, including the emergence of shopping centers as meeting and lifestyle destinations that combine shopping, dining, business, leisure and entertainment, and thus address the needs and lifestyle of today’s city dwellers. Atrium Promenada will get an additional 13,400 sqm of GLA, housing a new food court area. The main gallery of the mall will be transformed into the Fountain Alley with spacious eight-meter-high double shop fronts. This is where the top fashion stores are located and retailers not yet present in Poland will soon debut. Atrium Targówek will also see the addition of new retail area, and its retail, service and entertainment offer will become more comprehensive. A new fashion lane with stores of well-known foreign and Polish brands will be created, and the food court area will also get a modern facelift. Last but not least, Atrium Reduta will extend its leisure and entertainment offer with two major brands. Visitors will soon be able to spend their free time in a 24/7 Cityfit gym and enjoy a multi-screen movie theater featuring six auditoriums and state-of-the-art technology.

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LOKALE IMMOBILIA | NEWS

Retail (continued) BRIEFS ANOTHER ATUT MALL UNDER CONSTRUCTION IN KRAKÓW

Investor KG Group has recently launched construction work on its Atut Złocień convenience shopping center project in Kraków which will comprise approximately 3,000 sqm of leasable space. The first phase of the scheme is scheduled to be completed in late November. Tenants will include Stokrotka, Pepco and Rossmann with BOIG Property Consulting being responsible for the commercialization process. There are currently six operating Atut-branded malls across Poland that are located in Sosnowiec, Łódź, Jaworze, Węgrzce near Kraków, Pruszków and Kraków. In the pipeline are two more Atut developments in Kraków and one in Sucha Beskidzka.

METROPOLITAN INVESTMENT to launch Kwidzyn project in Q4 Developer and investor Metropolitan Investment will launch construction work on its planned Galeria Metro Kwidzyn shopping and entertainment center in Kwidzyn in northern Poland in the final quarter of this year. The mall will comprise almost 13,000 sqm of GLA and house approximately 35 stores and points of service. Major tenants will include a grocery supermarket, a multi-screen movie theater and a fitness club. The scheme is scheduled to be completed at the end of 2019 or at the beginning of 2020. It is currently around 50 percent leased out.

TREI REAL ESTATE OPENS NINTH VENDO PARK PROJECT IN POLAND

Developer and investor Trei Real Estate has opened its ninth Vendo Park-branded retail park project in Poland. The park is located in Chodzież, approximately 70 kilometers north of Poznań. The scheme comprises more than 4,000 sqm of space and houses tenants such as Media Expert, KiK, Martes Sport, 4F and Pepco. The value of the development amounts to €5.7 million. Trei Real Estate opened its first Vendo Park-branded investment in Poland in 2013 in Nysa. Apart from that city and Chodzież, the company’s retail parks in the country are located in Chełm, Milanówek, Mińsk Mazowiecki, Skierniewice, Łódź, Świdnica and Dąbrowa Górnicza. The developer is also working on Vendo Parks in Slovakia and the Czech Republic. The company plans to have a total of around 50 such projects in the three countries.

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More than

180,000

sqm

the amount of new retail space completed in Poland in H1 2018 Source: Cushman & Wakefield

Logistics MOUNTPARK to build 135,000-sqm logistics park in Wrocław Industrial and logistics space developer Mountpark Logistics has secured a revised building permit for its planned Mountpark Wrocław project, which allows for the construction of up to 135,700 sqm of warehouse space. “There is steady demand for modern logistics facilities in the Wrocław area, particularly from e-commerce operators and 3PLs,” commented Roger Sporle, managing director, corporate and European, at Mountpark Logistics. The planned scheme will be sitting on a 32-hectare site located near the A4 motorway.

Record LEASING ACTIVITY in warehouse sector – JLL Approximately two million sqm of warehouse space was leased in Poland in the first half of this year, which is the best result in the entire history of the Polish market, according to a recent report by JLL. Retail chains, logistics

companies and companies from the light production sector generated the most net demand (excluding deal renewals) in the period, accounting for 80 percent of the H1 net volume of almost 1.6 million sqm. Most new space (net demand) was leased in central Poland (370,000 sqm) and the Wrocław area (265,000 sqm). The vacancy rate for the whole of Poland decreased to a record low 4.9 percent. Rents have been stable with an upward pressure on rental levels now visible in some locations.

PANATTONI developing 10,000-sqm BTO project in Nysa Developer Panattoni Europe has launched construction work on an over 10,000-sqm warehouse project for snacks producer Intersnack Poland, the owner of such brands as Felix and Crispers. The scheme, which will be located in Nysa in south-western Poland, next to the client's existing production plant, is being developed in the build-to-own (BTO) formula. The development is scheduled to be completed in March next year. JLL brokered the agreement between Panattoni Europe and Intersnack Poland.

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | NEWS

Office

27% the pre-lease level in Warsaw office projects scheduled to be completed in H2 2018 Source: Cushman & Wakefield

BRIEFS ADGAR POLAND PORTFOLIO LEED GOLD-CERTIFIED

Investor Adgar Poland has revealed that all of the company’s eight office buildings now have LEED Gold certificates for energy efficiency and environmental performance. Buildings of the Adgar Park West complex in Warsaw’s Ochota district are the latest properties in the company’s portfolio to have received such certification. Colliers International was responsible for getting the entire Adgar Poland portfolio certified. In total, there are now 19 LEED Gold-certified buildings in Poland.

MAJOR LEASE DEAL AT MENNICA LEGACY TOWER IN WARSAW

Cornerstone laid for DSV offices in Warsaw A cornerstone-laying ceremony has been held at the construction site of an office building in Warsaw’s Mokotów district, which will be occupied by the shared services division of Danish TSL sector company DSV. The six-story property, which will be able to accommodate more than 1,500 employees, is being developed at the intersection of ul. Taśmowa and ul. Marynarska and will comprise over 30,000 sqm of space with completion having been scheduled for the first quarter of 2020. The project is being built by a consortium of FineTech Construction and Fundamental Group.

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Co-working office space operator WeWork has leased all of the office area available in the lower building of the Mennica Legacy Tower complex that Golub GetHouse and Mennica Polska are now developing in the Wola district of Warsaw. Cushman & Wakefield and DLA Piper represented the tenant during the lease negotiations, while Colliers International and Greenberg Traurig LLP advised the landlord. The Mennica Legacy Tower complex will consist of a 140-meter skyscraper and an accompanying 43-meter structure. Other tenants of the project, which is expected to feature BREEAM Outstanding certification and is scheduled to be completed in the autumn of next year, will include law firm Allen & Overy.

VIII EDITION

LOKALE IMMOBILIA | NEWS

Residential

EIFFAGE TO BUILD MORE ECHO APARTMENTS IN WARSAW Echo Investment has appointed Eiffage Polska Budownictwo (EPB) as the general contractor of phases “D” and “F” of its Browary Warszawskie mixeduse project in downtown Warsaw. The company will build five connected residential buildings comprising a total of 451 apartments with a combined 19,000 sqm of usable space. They are scheduled to be completed in 2020.

DOM DEVELOPMENT STARTS NEW WARSAW PROJECT Dom Development has launched sales of apartments in its Stacja Grochów residential project located in the Praga Południe district of the Polish capital. The first phase of the scheme will offer a total of 148 units in two buildings, which are scheduled to be completed in the second quarter of 2020.

AUGUST/SEPTEMBER 2018 W B J

BOUYGUES with second residential project in Poznań Developer Bouygues Immobilier Polska has launched sales of apartments in its Cerisier Résidence residential project located in the Grunwald district of Poznań. The scheme offers 106 housing units in a three-story building, and they are scheduled to be completed in July 2020. Cerisier Résidence is the second development of the French company in the city. Bouygues Immobilier Polska has completed a total of 32 residential investments in Warsaw and Wrocław to date. .

ROBYG launches new Warsaw scheme Developer Robyg has launched sales of apartments in its planned Praga Arte residential project located on ul. Żupnicza in the Praga Południe district of Warsaw. On offer are a total of 246 housing units in two buildings, which are scheduled to be completed in the third quarter of 2020. Construction work on the scheme will start in Q1 next year. Since the beginning of 2018, Robyg has already put up for sale approximately 650 units in Warsaw. Apart from Praga Południe, the company is currently also selling apartments in developments located in the Bemowo, Białołęka, Mokotów, Ursus, Wilanów, Włochy and Wola districts of the Polish capital.

PRCH

RETAIL AWARDS

GALA

October 11, 2018, 7:00 PM

POLISH COUNCIL OF SHOPPING CENTERS www.retailawards.org.pl

LOKALE IMMOBILIA | LOGISTICS

AUGUST/SEPTEMBER 2018 W B J

URBAN SHEDS

In response to the growing need for fast deliveries, developers have started launching more warehouse projects located within city limits. This segment of the market is set to keep developing in the near future BY ADAM ZDRODOWSKI

he ongoing growth of the e-commerce sector has long been predicted to bring about significant changes in the real estate industry, including in the warehouse property market, which will need to address the increasing need for storage space located close to urban clients. The changes indeed now seem to be taking place in Poland, with two of the logistics space developers active in the country having announced ambitious urban warehouse development programs in recent months. Experts expect the trend to grow further in the coming years.

URBAN PROGRAMS

Panattoni Europe's City Logistics Warsaw I

Panattoni Europe revealed in May that it plans to invest approximately €1.2 billion in urban logistics projects across Europe over the next three years. In Poland, the company is currently working on four such schemes, which are valued at a total of around €65 million. The latest of the developer’s City Logistics-branded investments in the country – City Logistics Warsaw I in the Bielany district of the Polish capital – has recently attracted online supermarket Frisco.pl, which will take up 11,000 sqm of space at the 26,000-sqm property. By the end of this year, Panattoni Europe will have delivered some 150,000 sqm of urban logistics space within the program, focusing on the Polish

market, said Robert Dobrzycki, CEO Europe at Panattoni Europe. Besides the City Logistics Warsaw I development, construction is now underway on projects in Wrocław and Łódź, as well as near Warsaw’s Chopin Airport. Dobrzycki added that similar schemes will also soon be launched in Germany, the UK and the Czech Republic. Meanwhile, 7R earlier this year announced its City Flex program, which involves the construction of a network of more than ten relatively small warehouse investments located in some of the biggest cities across Poland. The planned developments will range in size from about 8,000 sqm to some 15,000 sqm. They will be located in such cities as Gdańsk, Szczecin, Warsaw, Łódź, Katowice, Kraków, Wrocław, Poznań, Rzeszów, Kielce, Częstochowa, Białystok, Bydgoszcz and Gdynia. City Flex projects will be targeted at tenants including e-commerce companies and logistics operators and will offer warehouse, office and exhibition space under one roof. The smallest units will be sized from approximately 900 sqm. All the schemes are expected to obtain BREEAM certificates for energy efficiency and environmental performance. 7R’s clients will be able to sign one lease agreement covering several warehouses in different locations, which will be developed within the program.

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LOKALE IMMOBILIA | LOGISTICS 7R's City Flex Szczecin

GROWING TREND

Wojciech Zoń, head of industrial agency at Savills in Poland, admitted that there is interest in urban warehouse projects. The trend is not completely new – schemes such as the Ideal Idea parks in Warsaw have been around for some time now – but it has been growing of late. The growth is expected to continue as e-commerce keeps gaining in significance. It is tenants from that sector and their readiness to invest in so-called last mile delivery that are driving the demand for such space, Zoń explained. Urban warehouses, which are called small business units (SBU) There are projects, offer the opportunity to several barlease smaller areas than those riers to the found in big out-of-the-city logis- development tics parks, but larger amounts of of urban warehouse space can be secured warehouse projects in there too. Interestingly, urban Poland warehouse developments are not confined to the largest agglomerations and the most popular logistics locations across Poland. Such investments are also developed in smaller markets including Słupsk, Rzeszów and Szczecin. How big could this market segment become? Maciej Szczepański, business development manager in the industrial

AUGUST/SEPTEMBER 2018 W B J

and logistics space department of Cushman & Wakefield, pointed out that most urban warehouse projects are sized from 10,000 sqm to 15,000 sqm. Therefore, the share of the segment in the total annual warehouse space supply will likely amount to around 5-6 percent. According to Cushman & Wakefield data, 2.36 million sqm of warehouse space was completed in Poland last year. The costs of building urban SBU warehouses are considerably higher than the costs of developing standard out-ofthe-city logistics parks. This is because of factors including the high prices of plots located within the administrative boundaries of cities. As a result, the difference in rents between the two types of warehouse projects is approximately 30-40 percent. Maintenance costs are also higher in cities, which results from such factors as high property taxes and the need to pay perpetual usufruct fees.

GROWTH BARRIERS

Admittedly, there are several barriers to the development of urban warehouse projects in Poland. Perhaps the most formidable of them is the limited avail-

ability and high costs of land for such schemes. According to Zoń, we will soon likely witness the development of more brownfield investments in this segment of the warehouse market. Developers will redevelop sites in locations whose attractiveness will be able to offset the demolition and construction costs. There are already examples of such projects in the Polish market. In Ruda Śląska in Silesia, for instance, developer Hillwood has bought an older facility and plans to construct a modern logistics and industrial center on the site. In Zoń’s opinion, it is also possible that – in the longer perspective, as the segment develops – developers will build taller warehouses in cities whose height will exceed today’s standard of ten meters. This would allow smaller urban sites to be used more efficiently. Another major barrier is the administrative issues related to the granting of building permits for new developments. The shortage of zoning plans is a big problem in many of the largest cities in Poland, Szczepański noted. Meanwhile, planning investments on the basis of socalled planning decisions, which are granted in situations when there is no zoning plan in place, is risky. “Many developers do not even consider buying land that is not covered by a local zoning plan,” Szczepański said. At the moment, urban warehouse schemes are mainly located on the outskirts of cities. Could warehouse space possibly also be developed closer to downtown areas, for example as part of mixed-use investments that are now popular with developers? Szczepański was skeptical and pointed to practical difficulties such as the lack of proper transport infrastructure (easy access and parking spaces for trucks) and the burdensome nature of warehousing operations for the surrounding area.

E X P E RT O P I N I O N

ADDRESSING ONLINE COMMERCE CHALLENGES Technology has created e-consumers and now they are setting new trends for the quality of sales. They expect the kind of solutions that will enable them to verify the product before purchase but also receive it in the shortest time possible. That is why the number one challenge for both internet shops and logistics operators providing services for e-commerce businesses is to be able to deliver products on the same day and minimize the waiting time to only a few hours. In the face of such expectations as well as the dynamic growth in the e-commerce trade, the demand for storage buildings is constantly on the rise and we can

see it with our own eyes. The new Panattoni Europe City Logistics Parks concept is a natural and indispensable step that adapts the industrial facilities market to the expectations of our customers and their clients. Already today in Poland, four such parks are under development, totaling €65 million in value and we are going to begin the construction of approx. 600,000 sqm of our City Logistics projects located within the city limits. We have recently started City Logistics Warsaw I, which is the fourth investment within the concept. The investment is the best example of inner city logistics dedicated to fulfilment of online orders – its first tenant was the online supermarket Frisco.pl. To date, Panattoni has invested €65 million in the new concept, and in the future, this figure is set to grow to €1.2 billion and will include projects in the German, UK and Czech markets. It is very difficult to determine the share of this sector in the warehouse space market for at least two reasons. Firstly, it is the current dispersion of the sector in terms of ownership of this type of facility: some of them are built on small plots by the owners themselves, and additionally there are many old post-industrial locations created around the 1970s. Secondly, the question arises what to measure and what criteria to adopt while comparing both sectors. The inner-city market in Warsaw and the market of logistic facilities in Stryków, where the price per sqm is three times lower, cannot be reduced to the common denominator. Perhaps the comparison would be different if we took into account the income of the enterprises, but it will not give us a full picture of the situation either. As for the main barriers to the development of the inner-city market, these are the availability and the securing of plots where the competitors of city logistics in their acquisition are the residential and office building construction industries. Robert Dobrzycki, CEO Europe, Panattoni Europe

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | OFFICE

WBJ:

OLD CAN BE BEAUTIFUL

WBJ sat down with Henryk Rytwiński, the COO at investment company Octava Property Trust, to talk about older office buildings and their performance in today’s market, which is defined by an abundant supply of new projects INTERVIEW BY ADAM ZDRODOWSKI

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Octava Property Trust leased 7,000 sqm in Q1 2018 and 40,000 sqm in 2017. Your leasing performance seems to belie the claim of some developers that it is aging office buildings that will suffer the most in the increasingly competitive market... Henryk Rytwiński: We do see room for older office property in the market, which is becoming more and more segmented – there are tenants who are willing to pay monthly rents amounting to more than €20 per sqm and there are tenants who want to pay much less. For the most part, we are not a developer and our strategy does not envision realizing new office buildings. We invest in older, welllocated buildings that may not be fully commercialized, require renovation or financial restructuring but which offer value-add potential. What is the difference in rents between new and older office buildings in the same area? I think we charge at least 20-25 percent less than the owners of some new office buildings located

Our tenants come from a whole range of sectors and do not differ from those leasing in new buildings

close to our properties. Meanwhile, we offer a very good standard and continually invest in the renovation of our properties, including fitting out spaces for new and renewing tenants. Who leases space in older office buildings? Our tenants come from a whole range of sectors – they include IT and telecom companies, banks and medical centers, and do not differ from those leasing in new buildings. Generally speaking, these are companies that are looking for reasonably priced office space of a good quality. It is not that old buildings are for smaller and lesser known companies – in fact, we are leasing space to a number of big and prestigious tenants. Thomson Reuters, for one, takes up most of the space in our building in Gdynia. Crédit Agricole and PZU are our main tenants in Wrocław. What is the average age of your office buildings? The bulk of the buildings were completed in the 1990s and the early 2000s, but the portfolio also includes Red Tower in Łódź, a property dating back to 1978. Admittedly, that building was thoroughly refurbished in the early 2000s when its former anchor tenant – mBank – was about to move into it. The tenant moved to a new building last year and we are now in the process of securing new tenants for Red Tower. We are also working on rebranding the property as many people in Łódź continue to associate Red Tower with mBank. What is the average occupancy level across your office portfolio? The occupancy level stands at around 80 percent for the portfolio (and it is rising), including both buildings that are almost fully leased out and properties such as the above-mentioned Red Tower in Łódź that are now being re-commercialized. Do you see any major regional differences as far as the perception of older office buildings is concerned? No. In general Warsaw is seeing much more demand for office space than any of the regional cities and, being a much larger market, there is a wider range of tenants for the available office space in the Polish capital. Outside Warsaw, tenants seem

to be a bit more cautious, irrespective of whether they are looking for space in a new building or an older property. You have mentioned the renovation of your buildings – do you have a specific detailed program in that respect? Yes, we prepare capex programs every year for each property that take into account the due diligence analyses we performed prior to acquiring our assets from which we knew that some elements of a given building – such as the façade or the reception area – would need to be improved. With regards to particular office space within a building, it is an ongoing process that depends, to a large extent, on the lease deals that we sign with our tenants and the fit-out work we usually do for them. Most of the renovation work is done on the particular office floors inside the buildings when new tenants are about to move in or when we see that some installations or systems need updating. Renovation processes never affect the entire building – wusually, we are revamping space for a particular client on a particular floor or floors of the building or in a given common area, while the rest of the building operates normally. Does your strategy envision selling properties as soon as you have increased their value? No, the strategy is to keep our properties and to acquire more assets. We are always ready to look at offers that may arise (such as for the sale of some of the smaller assets in our portfolio), but we are not actively looking for buyers. Will you buy any new assets this year? We are looking at a number of opportunities currently; however, it isn’t clear whether something will close this year. We are still working on upgrading the major BPH portfolio that we acquired last year. We are obviously always ready to consider interesting new offers.

DIVERSIFIED PORTFOLIO Established in 2014 and managed by Octava Asset Management, Octava Property Trust is an entity investing in commercial property in Warsaw and large regional cities across Poland. The company’s portfolio currently comprises a combined 18 assets in Warsaw, Kraków, Wrocław, Łódź, Poznań and the Tri-City. The portfolio totals approximately 208,000 sqm of leasable space, including around 139,000 sqm of office space and some 69,000 sqm of retail area.

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | RESIDENTIAL

THE RENTAL ALTERNATIVE

WBJ talked to Dariusz Węglicki, Country Manager Poland at investor Catella Residential Investment Management, about the prospects for the institutional rental apartment market in Poland and the company’s further plans in the sector. INTERVIEW BY ADAM ZDRODOWSKI

WBJ: Over two years have passed since Catella decided to acquire a package of 72 luxury apartments in Warsaw’s Złota 44 skyscraper. Has the company’s decision to enter Poland proved to be the right move? Dariusz Węglicki: Yes, by all means. Poland is a large and interesting market that keeps developing and offers a lot of attractive real estate product. Of course, we are talking about a very young sector – we are actually a pioneer in it with our two projects in Warsaw and one in Kraków – and renting in Poland is not as easy as in Western Europe. We need to put a bit more effort to rent here, but 66

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we do see good prospects for the market in Poland and plan to acquire more projects in the country. Will that be luxury or upperstandard projects? The luxury segment is by definition very small and we are pleased with the size of our current portfolio in that segment. Another thing is that the luxury rental property market is much more demanding now than it was ten or fifteen years ago when you could rent every project very quickly and easily. Many foreign companies have smaller budgets now and send fewer employees to Poland, so you need to try a bit

harder to find clients. We have to remember that the supply in this segment in big markets like Warsaw, the Tri-City or Kraków is on the rise. In the near future, we want to focus on projects that are not defined as luxury but are still in very good locations. How many No.44-branded apartments in Złota 44 have you rented so far? I cannot reveal the total number, but I can say that we now sign from four to five deals per month, which is a satisfactory pace for us. Our clients include CEOs (who tend to choose the biggest apartments), senior and middle managers, and entrepreneurs.

How high are the rents in those apartments? With rental prices we are on the market level. They range from approximately PLN 8,000 to more than PLN 22,000 per month and include utilities and maintenance fees. By comparison, the rents in our second project in Warsaw – Pereca 11, which is also located in the center of the city but is targeted at a much bigger pool of potential clients – start from around PLN 2,000 per month. In the case of that scheme, we aim to attract all those who want to live in a central location but prefer to rent rather than buy their own apartment. How big could the institutional rental apartment market in Poland become? There is certainly room for growth. In Poland, the rental sector currently accounts for only around five percent of the residential market and is dominated by individual investors. By comparison, in Germany it is some 40-50 percent. I do not think we will reach the German level in any foreseeable future. The nascent institutional rental apartment market will not see the kind of boom that we have witnessed in the retail market in recent decades, but it will rather continue to grow steadily in the coming years.

THE LUXURY RENTAL PROPERTY MARKET IS MUCH MORE DEMANDING NOW THAN IT WAS TEN OR FIFTEEN YEARS AGO You would rather buy completed buildings than pipeline projects… Of course, but this is virtually impossible in the current market situation. With new apartments selling like hot cakes you cannot find buildings at an advanced construction stage in which no apartments have been sold. We have to either buy planned residential projects and wait or look at other types of buildings that can be rebuilt. We are now actually considering the acquisition of office projects which could be relatively easily redeveloped and converted into rental apartments.

has the pre-sale level required to obtain bank financing. Of course, developers have their own problems today – the prices of land and construction services have increased significantly in recent months, which is having a negative impact on developers’ ability to start new investments. We hope to build stable relations with developers. The first project is always a test, after making a deal it is more simple to make future purchases as the parties know each other and their requirements.

In which Polish cities do you plan to invest in the near future? Some developers do not want to We are looking at Gdańsk and sell packages of apartments to Wrocław, which are growing investors, as the latter expect office markets. Where there are discounts and developers know offices, there are also our clients. they will sell the individual units As the commercialization of our at the regular price anyway… rental apartments in Złota 44 and That is true, but sometimes the Pereca 11 proceeds, we will also margin is not everything. Cash be thinking about starting a third flow matters too. If a developer project in Warsaw, which will be launches a project which has located in the center of one of the many phases, he may wish to sell districts. For sure, we will conone or two buildings to an investinue our growth with new purtor like us so that he automatically chases.

How much do you want to invest in Poland in the coming years? This always depends on the strategies of the funds that we manage. The BERF fund, for instance – which owns Pereca 11 and the project in Kraków – can allocate approximately 10 percent of its capital in Poland. This translates into around €100 million, which is enough to acquire a few new schemes. When we make those acquisitions will mainly depend on the availability of proper product. The fact is that even if we make the acquisitions now, we will get the finished and partly furnished flats in about two years.

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | RESIDENTIAL

ALLURE OF THE OLD

Developer interest in the renovation of historic tenement houses and their adaptation to modern residential functions is on the rise. Investors do not have any difficulty in offloading apartments located in such buildings, with their prices reaching record levels BY ADAM ZDRODOWSKI

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eveloper Ghelamco earlier this year announced the sale of two luxury apartments covering a combined 470 sqm, located in the Foksal 13/15 historic tenement house renovation project in downtown Warsaw for a total of more than PLN 17 million. This is one of the biggest transactions to have been closed by an individual buyer in the residential property market in Poland in recent years. While not all deals in historic buildings are so spectacular, the prices of units in such properties tend to exceed those in new schemes. Ghelamco may be better known for its numerous office developments, but the tenement house segment also attracts many specialized regional developers focused on the

renovation of neglected historic jewels and their conversion into upscale boutique housing investments. Ofka Piechniczek, management board president at Śląskie Kamienice, a developer active in Silesia, argued that the region is an increasingly attractive place to live and work, while the prices of properties there are still lower than in Warsaw or Kraków. Investors’ activity results from solid demand for luxury units in historic buildings. “There is a pretty large group of clients in Poland who are looking for this kind of product, but the product is not that easy to find,” said Daniel Puchalski, head of land advisory services at JLL. In the opinion of Marcin Marczak, a senior property advisor at Poland Sotheby’s International Realty, tenement houses

that are renovated and finished to a high standard currently attract more interest from affluent Poles than modern high-rise buildings comprising hundreds of apartments.

THERE IS A PRETTY LARGE GROUP OF CLIENTS IN POLAND WHO ARE LOOKING FOR THIS KIND OF PRODUCT, BUT THE PRODUCT IS NOT THAT EASY TO FIND

NICHE SEGMENT

More and more such projects are being developed in Warsaw, Kraków, Wrocław and Gdańsk, but the market does not seem to be saturated. Not all the available historic property is adapted to residential functions. Puchalski noted that the hospitality sector now also generates demand for such real estate and that hotel developers are currently very active. “A tenement house is the ideal starting point for an investment process resulting in the development of a boutique hotel,” he said. In big Polish cities, from several to over ten historic tenement house renovation schemes are launched every year. REAS data show that in 2017, in the six largest housing markets in Poland, developers put up for sale a total of more than 1,100 units in 28 such investments. At the end of June, developers had on offer over 900 apartments in tenement houses and other historic buildings in those six markets, said Katarzyna Kamińska, manager, market research, at REAS. By comparison, the total number of new units on offer stood at 44,400. The annual number of apartment sale transactions in this segment (in the primary market) is not high as the average tenement house comprises less than 20 units. In a big city, the figure is lower than 100, Marczak argued. REAS estimates that in 2017 more than 1,200 apartments located in tenement houses were sold in Poland. “However, it is worth stressing that a considerable portion of transactions in the most prestigious locations are signed in the secondary market,” Kamińska said.

PRICEY PRODUCT

Living in a refurbished historic property which is in short supply comes at a cost. According to Marczak, the prices of housing units in renovated tenement houses can be even 20 percent higher than the prices of apartments in new buildings in a similar location. The high prices of tenement house apartments result from the fact that such buildings are usually located in central and very attractive areas, as well as from the very high standard and boutique nature of such projects. Admittedly, the prices vary a lot depending on the particular market and its scale. According to REAS, in the second quarter of this year the highest average price (nearly PLN 40,000 per sqm) was recorded in the TriCity, where the supply was the smallest. The lowest average price – slightly over PLN 11,500 per sqm – was recorded in Kraków. REAS classified only 15 percent (138 units) of the over 900 units available in tenement houses at the end of June as apartments belonging to the upper-middle and high-end market segments.

CAUTIOUS DEVELOPERS

One could expect the muchpublicized reprivatization scandals in Warsaw, which are currently the subject of a special investigation in the Polish parliament, to have had a negative influence on this sector, but nothing of this kind seems to have happened to date. The

Polish capital is notorious for its complex property ownership issues, a situation that has in recent years led to a number of what, it now seems, were illegal transfers of titles to historic properties. Several developers may have been involved or at least aware of those actions. However, with the scandals confined to Warsaw and regarding only some of the renovation projects launched or completed in the Polish capital of late, the market as such has not been hurt. According to REAS data, H1 sales results do not show any slowdown in the sector. In the first six months of this year, some 650 housing units located in tenement houses found buyers, which is more than in the same period of 2017. Also, developers of such projects do not seem to have been put off planning new schemes. Marczak pointed out that those who are interested in the acquisition of historic properties are most often experienced investors who already have a number of such assets in their portfolios. They always thoroughly analyze the legal status of the buildings which they want to buy. The recently revealed information on reprivatization processes in Warsaw has not negatively impacted their willingness to buy, but some of them are now indeed more cautious while planning purchases in Warsaw and commission additional legal analyses, Marczak admitted.

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | RESIDENTIAL

UNIQUE, PRESTIGIOUS, EXPENSIVE

WBJ talked to Cyprian Chałupczak, co-founder of the Kraków-based developer Koneser Group, about the renovation of historic tenement houses, the size of the market in Kraków and the company’s further plans in the sector INTERVIEW BY ADAM ZDRODOWSKI

WBJ:

After a period of Poles’ fascination with the suburbs, the centers of Polish cities seem to be enjoying something of a renaissance and attracting more and more retail and housing projects. Is this trend indeed visible in your segment of the market? Cyprian Chałupczak: The center of Kraków has always attracted a lot of interest because of the limited number of projects that can be developed there. As a result, each new building constructed in the area has, somewhat automatically, been deemed prestigious. At the moment, most of the investments entail the renovation and modernization of the existing urban fabric, not only because of the protection of the Old Town

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area by the historic buildings conservation officer, but also because it is very difficult to find any development land there. Investors are following the renovation trend, and this is visible on the map of Kraków, not only in the very center. What is attracting the most interest is projects combining the beauty of historic buildings with modern building solutions. Have the reprivatization scandals in Warsaw, now being investigated by a special parliamentary commission, had any negative impact on this segment of the market? Are today’s buyers concerned about the legal status of historic properties?

Absolutely. Potential buyers nowadays have many more doubts and enquiries about the entire historic tenement house market than they did a few years ago. The problem is that many clients are not aware of the nature of the reprivatization processes in Kraków. Those processes actually have little to do with reprivatization as such, and the ownership issues in the city rather entail compensation that is awarded to the previous owners of historic tenement houses. The legal status of each tenement house that becomes part of Koneser Group’s portfolio is thoroughly analyzed by lawyers who cooperate with us, so our clients need not be afraid that one day someone will

want to take the property which they have purchased away from them. How big is the tenement house market in Kraków? The number of projects in this market has increased significantly of late. When you take a look at the leading property websites you will find advertisements for approximately 1,000 apartments located in the Old Town area of Kraków alone. If we exclude duplicate offers and offers for apartments in tenement houses which are yet to be renovated, we are still left with almost 500 properties. This corroborates what I have already said – that apartments in renovated tenement houses are now attracting more and more interest. One should also remember that it is increasingly difficult to acquire buildings of this kind in the city center, which in turn affects the prices of the particular units. What are the prices of such units in Kraków? Are all of them seen as luxury products? We can talk about truly luxury projects when they are in the best locations in the city. Most often these are also projects in which the majority of the apartments have windows facing the bend of the Vistula river or the Wawel Castle. The standard of the renovated building also counts – it needs to be very high. The prices of apartments in such luxury schemes can reach PLN 40,000 per sqm. When it comes to our portfolio, examples include the Plac na Groblach 19 investment, in which almost every apartment features a balcony or a terrace looking towards the Wawel Castle. However, there are also developments in which apartment prices amount to around PLN 7,000-PLN 8,000 per sqm. Those are usually unrenovated tenement houses or tenement houses located farther away from the city center.

Tenement house renovations are difficult projects – how much do they cost? The costs depend on the condition and size of the building as well as the standard of the planned project. Minor renovations may cost from one to several thousand złoty per sqm, but such projects do not count as luxury schemes. When it comes to a high finishing standard, the costs rise to even PLN 4,000-PLN 8,000 per sqm. Formalities such as securing all the necessary permits and complicated administrative procedures present the most difficulties, although these can already be seen as a specific feature of work in the real estate industry. We can talk about truly luxury projects when they are in the best locations in the city

How long is the development process in this segment? Judging by the projects which we have completed so far, I can say that the entire process usually takes about two years. Of course, the time needed to thoroughly renovate a tenement house depends on the size of the building, the standard of the project and – above all – the length of the administrative procedures that one needs to go through before launching construction work. When it comes to apartment sales, we usually do not have any available units in a given tenement house by the time we are

halfway through the investment process. How many projects do you usually work on at any given time? From four to six, and those projects are at various stages of the development process – from the finalization of the acquisition process to the finishing touches and the turning over of the apartments to their new owners. At the moment, we are finishing the renovation of a tenement house located on ul. Sarego, while work on the Plac na Groblach 19 investment is at an advanced stage. Renovation work is also underway in a building on ul. Szpitalna. On ul. Św. Sebastiana work has just started, while on ul. Dietla the project is at the design stage. What are your plans for this and next year as far as new projects are concerned? We are now focusing on finishing those renovation projects which are nearing completion. At the same time, we are preparing projects and securing permits for tenement houses that we have already purchased and in which renovation work is to start next year. And, of course, we are also constantly looking for new unique schemes. So, as you can see, we will be busy.

W B J AUGUST/SEPTEMBER 2018

LOKALE IMMOBILIA | RESIDENTIAL

AUGUST/SEPTEMBER 2018 W B J

DOWNTOWN LIVING O

nce one of the most industrialized parts of Warsaw, the Wola district is now increasingly seen as the new business center of the Polish capital. It is a district of contrast where the old – the remnants of former factories and neglected historic tenement houses that used to accommodate its working-class inhabitants – meets the new, symbolized by shiny office towers and prestigious apartment buildings. Thanks to numerous new office and residential projects, as well as many infrastructural improvements, including the completion of the central stretch of Warsaw’s second subway line, Wola has in recent years become one of the fastest developing neighborhoods in Warsaw and is popular with both companies and those looking for a place to live. The 19. Dzielnica scheme, which developer Pro Urba is now developing in the Rondo Daszyńskiego area of Wola, epitomizes the ongoing revitalization of what was, until recently, one of the largest swathes of post-industrial land in the city. It is the redevelopment of centrally located post-industrial sites and the creation of a model housing estate featuring high-quality architecture and greenery, and the combination of various urban functions that Pro Urba was recognized for in 2015 when it received the main prize in the Ministry of the Environment’s competition “Projekt: Przestrzeń” (“Project: Space”). Earlier this year the developer launched construction work on the fourth phase of the upscale investment. The latest phase of the development offers 289 apartments and 26 commercial units, which are scheduled to be completed in Q2 2020. The 19. Dzielnica project, offering easy access to both Warsaw’s subway and numerous tram and bus lines, as well as to Warsaw Chopin Airport,

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LOKALE IMMOBILIA | RESIDENTIAL

reflects the growing attractiveness of Wola as a residential destination and nicely complements the district’s new commercial functions, becoming one of the most fashionable addresses in the Polish capital. The development of high-quality residential schemes in Wola is also part of a wider trend: the renewed interest in living in city centers. People are more and more interested in convenient living – they want to have easy access to all the types of infrastructure and amenities that a big city offers, from restaurants, cinemas and theaters, through shopping centers to kindergartens, schools and medical centers. Designed by the renowned JEMS Architekci architectural studio, 19. Dzielnica features modern, minimalist architecture with the particular phases varying in form while at the same time constituting a coherent whole. What is common in the otherwise contrasting buildings is their cubelike forms, spectacular glazed walls, wooden elements and the raw texture of the façades. The project is not gated and includes publicly accessible green spaces and recreational areas. The comfortable, open and modern space of the estate becomes naturally integrated into the existing urban fabric. It is worth noting that 19. Dzielnica has already won a number of prestigious Polish architectural awards and was also nominated for the 2013 edition of the EU’s Mies van der Rohe Award.

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19. Dzielnica in numbers (when fully developed)

NUMBER OF PHASES (three completed, fourth phase is now under construction)

10 Over 1,700 Ca. 4,000 Over 200

NUMBER OF BUILDINGS (six completed, building “I” is now under construction)

NUMBER OF APARTMENTS NUMBER OF INHABITANTS

NUMBER OF ABOVE-GROUND PARKING SPACES

W B J AUGUST/SEPTEMBER 2018

EVENTS

Warsaw Business Journal relives the most important recent business and industry events

NEW AGE BANKING SUMMIT The 6th edition of the New Age Banking Summit took place in Warsaw on June 19-20. It hosted a number of key players from the banking and tech industries, who discussed emerging channels such as blockchain, next-generation payments, Artificial Intelligence, Big Data and cybersecurity. Experts at the summit expressed their views and doubts on the GDPR regulation adopted in May and its effects on the banking industry. “It increases time-to-market. We have to wait for the local transposition. I fully support GDPR, as a customer, as a user, as a human being. But you have to wait so long to understand what it means,” said Fernando Garcia-Quismondo, CTO – Security & Digital Identity at Banco Santander. “You need your suppliers and third parties in your GDPR dashboard, you need to audit them, control them. Start-up FinTechs based in the US are saying that they’re not ready for GDPR yet. More and more European start-ups are coming back – they are better prepared for GDPR,” he added. When talking about the banking sector being ready to implement the GDPR, author of “Be Ready for GDPR,” Punit Bhatia, who also led the setup of GDPR implementation program at ING Belgium, said: “When the internet started, we asked questions whether we should go online. Then, whether we should have a secure website, should we have encryption and what type. Now, it’s all standard – you have to be online, you need encryption. You are now asking ‘Do I need a compliance department? A huge security team?’ The answer is: You will have a privacy team. That’s will be the norm. [GDPR] will become much more standard in a few years’ time.” He also stated that auditing will be a vital component of the system: “It’s a one thing to say that you will delete the data in a number of years or when the contract is due, but it’s a different thing to actually do it.” The PSD2 regulation was also among the hot topics of the summit, with experts agreeing that it was both an opportunity and a challenge for the banking industry. Piotr Marciniak, Managing Director – Digital and Mobile, BGŻ BNP Paribas, admitted he had mixed fillings about PSD2, but he also saw potential for banks. “Liberalization, opening the market to new players is a positive thing. Even for us banks – we will be more interesting to the client as well,” he stated. One of the key topics discussed at the event was the blockchain revolution, its threats as well as potential in different industries, not only in finance. “There’s a general misconception about blockchain. We’ve seen a huge wave of cryptocurrencies over the past few years and we started to wonder ‘Can we really trust this?’ There are 5,000 different types of cryptocurrencies, many of which have different applications,” said Adebayo Surakatu, founder & group CEO, Subaj Global Network, a blockchain-powered loyalty program for retailers. He pointed to three segments where blockchain could see mass adoption: infrastructure and utilities, payment and security. As part of the summit, Subaj Global Network received an award for Excellent Adoption of Blockchain. “As much as 70 percent of loyalty points never get redeemed. That’s because they are a decentralized award system. We’ve created a global loyalty program for the shopping industry where you collect tokens from one retailer and you can redeem them with another one that is part of the network.” The New Age Banking Summit is a knowledge-sharing platform that explores innovative tech solutions key to shaping the future of banking in Europe. The lead sponsors of the event were Infosys and Finacle, while Subaj Global Network was the official blockchain partner. Liferay and Cloud4C were gold sponsors, and Finastra and Hortonworks acted as Silver sponsors of the summit.

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REAL ESTATE SECTOR BREAKS ANOTHER CHARITY RECORD A record-breaking PLN 767,000 was raised at the 9th Charity Real Estate Beach Volleyball Tournament, which took place on August 2 at La Playa Music Bar in Warsaw. Some 56 teams and 392 players took part in the tournament, while the event was attended by approximately 2,000 people. DEKADA S.A./BOIG, PZU and MLP GROUP S.A. claimed the top three positions. Honorary patronage for the event was overseen by the Polish Volleyball Federation. According to JLL, the total amount raised by the event over its nine years now stands at PLN 2.3 million. “The total raised at this year’s event went way beyond our expectations. We expected the 9th edition of the tournament to attract even more participants and allow us to collect a record-breaking amount, but we had no idea that this year’s total would surpass last year’s result by a staggering PLN 388,000. In addition, this year’s fundraising was just as competitive as the action on the court. I wish to thank all the players, attendees, sponsors and patrons for their active participation and generosity, and the representatives of Panattoni, Globalworth, Gleeds, BNP Paribas Real Estate and JLL for their enormous contributions. It is a truly fantastic feeling to see how each year the entire real estate industry comes together for such a great cause – helping the youngest members of our society,” said Tomasz Trzósło, Managing Director, JLL Poland. The event’s grand total of PLN 667,000, raised through team registration fees, an auction of items from sponsors and individual donations collected on the day, with an additional PLN 100,000 later added by Globalworth, was donated in its entirety to the Rainbow Association of Parents and Friends of the Blind and Visually Impaired Children. The money raised will support the modernization of the children’s center, the construction of a sensory therapy garden which will be situated alongside the building, as well as the purchase of ophthalmologist diagnostic equipment.

W B J AUGUST/SEPTEMBER 2018

EVENTS

Warsaw Business Journal relives the most important recent business and industry events

POLISH-FRENCH ECONOMIC FORUM Industrial revolution 4.0, Artificial Intelligence, autonomous vehicles, the impact of new technologies on the labour market, geopolitics and GDPR dominated the discussions during this year’s edition of the Warsaw Debates. The largest Polish-French economic forum was attended by representatives of leading enterprises from France and Poland, as well as members of the highest Polish authorities, including Prime Minister Mateusz Morawiecki. The event was organized by the French-Polish Chamber of Commerce. A very important meeting Apart from Prime Minister Mateusz Morawiecki, this year’s edition of the event was attended by, among others: Marek Zagórski, Minister of Digitisation; Pierre Lévy, Ambassador of the French Republic to Poland; Adam Hamryszczak, Undersecretary of State at the Ministry of Investment and Development; Luc Ferry, world-famous philosopher and former Minister of Education of France; Stéphane Richard, President of the Board of Orange Group; Arnaud Ribault, DS Brand Marketing Director (PSA Group); Hervé Guillou, President of Naval Group (former DCNS); Olivier Durix, CEO of Bouygues Immobilier Polska; and Jean-François Fallacher, President of the Management Board of Orange Polska SA, who is also President of the French-Polish Chamber of Commerce. The Polish companies were represented by Prof. Dr. Janusz Filipiak, President of the Management Board of Comarch SA; Paweł Surówka, President of the Management Board of PZU SA; and Sławomir Golonka, Director of Strategy of the Kaczmarski Group. Artificial Intelligence is the steam engine of the 21st century Stéphane Richard, President of the Orange Group, who opened the Warsaw Meetings, said that 2007 was a breakthrough year in the field of Artificial Intelligence development, but that it was from 2017 on that “Artificial Intelligence gathered momentum.” Richard pointed out that intelligent homes and autonomous vehicles are not a thing of the future, but one of the present. All the experts also had no doubt that the Industrial Revolution 4.0 was already underway and that Artificial Intelligence was a breakthrough comparable to the steam engine. Critical of GDPR Forum participants also often referred to the General Data Protection Regulation (GDPR), which was implemented in May. Despite the understanding of the general idea behind this important legal act –the protection of citizens’ personal data – the vast majority of panelists criticized the final content of the regulation, which still does not provide protection against global tycoons and their access to EU citizens’ personal data. Cooperate or disappear In his speech, Luc Ferry repeatedly pointed out the need to unite Europe in the field of AI. In his view, the lack of a common policy could be detrimental to the EU, as the EU’s largest competitors – the US and China – are already at a much more advanced stage in the development of such technology. Without a gigantic investment of hundreds of billions of euros, Ferry believes that Europe will become a colonial area in the future. “It is a question of the survival of European civilization,” concluded Ferry. Polish-French cooperation as a motor for responsible development During his speech, Prime Minister Mateusz Morawiecki repeatedly stressed the importance of long-lasting and positive Polish-French relations. The Prime Minister expressed his conviction that in the face of great global challenges, cooperation in Europe – including in the context of defense or of building technological advantage – is a necessity. In this respect, according to the Prime Minister, both countries want to cooperate and are doing it in the era of the industrial revolution 4.0.

AUGUST/SEPTEMBER 2018 W B J

LUNA AND CARDIO TECHNOLOGY WIN FIRST POLISH EDITION OF GLOBAL IMPACT CHALLENGE The first edition of the SingularityU Poland Global Impact Challenge attracted over 100 applicants, with 10 being shortlisted for the finals. The winning projects were Luna, created by Wojciech Daniło and Marcin Kostrzewa, and Cardio Technology by Kamil Adamczyk. Both winning projects are high-tech in nature. Luna is a data processing platform that could make Big Data as popular as Excel. Its applications could be limitless, from optimizing business decisions, bioinformatics, security (computer vision) through to architecture and computer graphics. “We hope that working with the greatest innovators in the world will help us change the landscape of data processing forever,” said Marcin Kostrzewa from Luna. The other winner, Cardio Technology, is a project that could help cure malignant brain tumors. Its Tumor Treating Field technology will allow for effective therapy without the typical side effects that come with standard cancer treatments. It has already been successful in prolonging a patient’s life from one year to two years and could potentially improve on that result. “When I was in my second year of university, I saw a doctor deliver a tragic diagnosis to a patient and I decided I want to give hope to people dealing with cancer. I believe that the trip to Silicon Valley will allow us to fulfill that dream,” said Kamil Adamczyk from Cardio Technology. The winners’ prize was a trip to Silicon Valley and a 10-week Singularity University incubation program (seven weeks at NASA Research Center and three weeks’ implementation in Poland). Most of the shortlisted projects focused on health, including: Zettagene, which aims to prolong life by more efficient analysis of gene sequencing data; Vibro View, which helps the blind; and DrOmnibus, which makes living with autism easier. “Singularity University opened my eyes to the fact that even the most traditional industries I’m involved in could have a breakthrough, an innovation waiting just round the corner that could be a game changer for the business. You have to be vigilant not to miss that moment,” said Sebastian Kulczyk, investor and entrepreneur, and one of the richest Poles. The winners were chosen by a jury consisting of: Sebastian Kulczyk, Jowita Michalska (Digital University), Supreet Singh Manchanda (VC investor and Business Angel), Regina Njima (Singularity University), Maciej Noga (Grupa Pracuj) and Tomáš Krsek (Škoda). “The first edition of the competition will be remembered for its incredibly high level. It was extremely hard to choose the winning projects. I’m sure we will hear more about each of our 10 finalists,” said Jowita Michalska, founder of Digital University, the organizer of the event. The competition received financial support from Sebastian Kulczyk, Grupa Pracuj, the PFR Foundation and Finastra. The Embassies of the United States and of Israel, as well as the Copernicus Science Center and Startup Poland were honorary patrons of the event.

W B J AUGUST/SEPTEMBER 2018

LAST WORD

Poland and Greece have found themselves on the other side of the spectrum. This is where the cost of privileged retirement systems is the highest and account for 2.6 percent and 2.7 percent of GDP respectively. In our country this has translated into an extra PLN 50 billion of public money and includes as much as 22 percent of beneficiaries (the highest percentage in the EU). WHO IS PRIVILEGED? According to the EC report, three main groups that take advantage of these special benefits are: those who work in dangerous conditions, the armed forces and others, such as farmers. The EC does not have full data on the expenditures on each of these categories, but the Poland has the highest share of pensioners with special privileges, and armed forces and those working in dangerous conditions take the biggest piece of the cake. they cost the budget some PLN 50 billion a year – that is 2.6 percent of GDP. If the expenditure on special pension privileges were cut to 1 percent Their preferential treatment costs 1.7 percent of GDP (PLN 32 billion annually). of GDP, which is the EU standard, each pensioner could get an extra The EU has been on track towards reducing PLN 3,000 a year pension privileges. And while it seems reasonable to keep them in the case of some groups “THE 2018 AGEING REPORT” prepared by the (e.g. firefighters), technological advancement European Commission leaves no room for doubt: over the helps mitigate a lot of these dangers. In Poland next few decades the demographic situation will detethis trend is nowhere to be seen. Coupled with riorate dramatically. Poland’s public spending due to the the aging society, this will only exacerbate the aging of society will increase the most in the whole of the strain on public finances. EU. It will also affect the level of pensions, which in 2040 will drop to 27.6 percent of the last monthly salary. By WHO IS PAYING? comparison, in 2016 it was 61.4 percent. Doing away with all the privileges makes no However, Poland faces another serious and pressing sense. However, when we look at EU data, issue: the EC report put the pensions of privileged groups preferential treatment of some groups should under the microscope, and in that ranking we have no one not exceed 1 percent of GDP, which for Poland to contend with, save for Greece. means PLN 20 billion. Privileges in the way contribution periods are calcuThe remaining PLN 30 billion is therefore lated, a higher replacement rate, preferential indexing rate, an additional and unjustified cost that is borne lower retirement age and state subsidies to separate penby Poles each year. These are mainly current sion plans – these kinds of privileges are practically nonretirees whose incomes are mostly very low. If existent in Sweden, according to the EC. To a very limited you spread the extra PLN 30 billion across the extent they can be found in the Czech Republic, Ireland, pool of pensioners, which is fewer than 10 milGermany or Slovakia. The expenditures of these countries lion, each person would get an extra PLN 3,000 do not exceed 0.5 percent of GDP annually, mostly due to every year. better treatment of some retirees. - Marcin Lipka, chief analyst at Cinkciarz.pl

AUGUST/SEPTEMBER 2018 W B J

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