Poland Today Business Review+ No. 55 by Poland Today Business Review+

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No. 055 / 6th October 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Manufacturing PMI remains in contraction territory in September page 2 BANKING & FINANCE mBank & Orange launch joint mobile banking project page 2 SERVICES & BPO RWE to hire hundreds of graduates at Kraków shared services center page 4

Polish geology is proving too challenging for global shale gas companies.

French IT outsourcing firm Sii to hit 2,000 employee mark in 2015 page 5 Image: 3Legs Resources

3Legs Resources abandons Polish shale

London-listed 3Legs Resources, one of the most active shale gas players in Poland, has decided to wind up operations following disappointing drilling results. The decision is a major blow to Poland's hopes for a US-style shale gas revolution. page 3

New government passes confidence vote

Poland's new government is now officially in power, following last week successful confidence vote. In her policy speech Prime Minister Ewa Kopacz promised a greater emphasis on social issues and a total overhaul of Poland's tax system. page 12

PROPERTY & CONSTRUCTION Strabag Real Estate debuts in Poland with EUR 75m office project page 6 Adgar adds 6th office property to its Warsaw portfolio page 7

tel. +48 881 650 600

TRANSPORT & LOGISTICS DCT Gdańsk awards EUR 90m terminal expansion contract to Belgium's Besix page 8 DPD gets regulatory blessing for takeover of Siódemka parcel firm page 9 RETAIL PROPERTIES A never-ending market: Interview with Leszek Sikora, managing director at ECE Projektmanagement Polska page 10 OPINION The Kopacz doctrine: consolidate power, win elections page 13 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 14-16

weekly newsletter # 055 / 6th October 2014 / page 2

POLITICS & ECONOMY

Manufacturing PMI remains in contraction territory in September Poland's manufacturing sector purchasing managers' index PMI inched up by 0.5 points on the prior month to 49.5 points in September, a report by HSBC and Markit showed. Although this marginal improvement was described as a "faint positive sign" by HSBC's CEE economist Agata Urbańska-Giner, the reading still "signaled a deterioration in Poland's manufacturing economy in September, in line with the trend shown throughout the third quarter," the report reads. A PMI figure below 50 indicates contraction, while one above that level signals expansion.

The 50 mark separates growth from contraction 60

45 Sep 13 Nov 13 Jan 14

Source: Markit & HSBC

Mar 14 May 14

Jul 14

Interestingly, despite this overall pessimistic outlook, Polish goods manufacturers have raised headcounts every month since August 2013, according to the report. Other sources likewise confirm the improving situation on the country's job market. According to last week's release from EU statistics office Eurostat, Poland's seasonally-adjusted unemployment fell to 8.8% in August from 9.0% in July. Poland's own unemployment reading in August, based on registrations rather than a labour force survey, amounted to 11.7%, Poland's Central Statistical Office (GUS) said previously.

BANKING & FINANCE

mBank & Orange launch joint mobile banking project

Purchasing Managers' Index (PMI)

Jul 13

Production declined at a fastest pace since May 2013 and new orders fell for the fourth month in a row, the researchers wrote. New export orders fell for the fifth month running, they added. At the same time, firms adjusted their purchases to lower output requirements.

Sep 14

French-owned Orange Polska, Poland’s second largest wireless provider by subscribers at end-June 2014, has launched a mobile banking service in a joint venture with one of the country’s largest lenders mBank, a unit of Germany's Commerzbank. The two partners are hoping their 'Orange Finanse'-branded service, encompassing mobile payments, currents accounts, loans, deposits, credit and debit cards, will attract in the region of one million customers over the next three years. Orange will be responsible for marketing the venture and drawing in customers while mBank will establish

a new branch to provide banking services. The operator will offer the service as part of various telecom bundles as a means of attracting customers and says that setting up a mobile account – by opening a bank account or installing the mobile phone app – and using basic operations will be free of charge. Under the agreed cooperation model, Orange Polska will distribute financial services via its sales network consisting of around 900 outlets. According to Orange and mBank, their joint project should give their clients access to cheaper credit and help lower their telephone bills, which seems somewhat in contrast with the revenue-generating and customer retention-oriented objectives of the initiative. Orange has a customer base of 15m while mBank boasts 8m clients. "If revenue is comparable to current levels, we're talking a few hundred million zlotys of additional income in the third year, mBank's CEO Cezary Stypulkowski, told reporters. "We expect that after three years this offer will contribute the equivalent of 7% of our current total revenue," added Bruno Duthoit, chief executive at Orange Polska. In Poland, a country of 38m people, there are an estimated 57m SIM cards and 38.5m bank accounts, and amid a shrinking market for voice services operators are desperate to tap into new sources of revenue. The market is also becoming increasingly difficult for banks, due to tough competition and low interest rates. The Polish unit of Deutsche Telekom set up a joint mobile banking project with Alior Bank, while mobile operator Polkomtel has bundled its offer with that of Plus Bank, both sharing the same majority shareholder, Polish billionaire Zygmunt Solorz-Żak.

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Estimated recoverable shale gas reserves in bn cb.m

EIA (2011) EIA (2013)

Italy's Eni, US Exxon Mobil and Marathon Oil, as well as Canada's Talisman exit Poland, leaving only small independent exploration firms and statecontrolled Polish operators on the market. The number of share gas exploration licenses in Poland has dropped to 69 from 115 for the last two years. At the moment, Poland's top fuel and gas firms PKN Orlen and PGNiG are the only entities in Poland still ready to invest substantial amount of money in shale gas projects. PGNiG is cooperating with US Chevron on a number of concessions.

Wo o d M ackenzie (2010)

6,000

5,000

4,000

3,000

*P IG (2012) 2,000

One of the most active foreign players in Poland's unconventional hydrocarbons industry, the Londonlisted explorer 3Legs Resources has decided to close up shop after pulling out of a Polish shale joint venture with ConocoPhillips due to disappointing drilling results. The voluntary liquidation of 3Legs Resources, whose CEO Kamlesh Pramar only a few weeks ago spoke of very promising gas flows on some of its Polish wells, is a major blow to Poland's budding shale gas sector.

Assessing Poland's shale riches

1,000

3Legs Resources' exit shatters Poland's shale gas hopes

ENERGY & RESOURCES

"This limit has now been reached," 3Legs said in its statement.

*) Poland's Geological Institute PIG estimates the country's recoverable shale gas reserves at 346-768bn cb.m Source: EIA, Wood Mackenzie, PIG, PT archives

The company told investors that although the recently drilled and fracked Lublewo well continues to flow natural gas and light oil, it is not confident that the well's performance will improve sufficiently to be commercially viable. According to 3Legs, in the period between August 8 and September 17, the well produced at an average rate of 396,000 cubic feet of gas and 157 barrels of light oil per day. This follows a series of interventions and remedial activities that aimed to enhance output. The company said that the amount of oil recovered was actually higher than anticipated; however, gas flows were lower than it had hoped for.

"We were optimistic - but our continued investment was always going to depend on the results of the Lublewo flow test. As those results came in, we had to make a decision on what we should do next. I think the 3Legs position is clear on its ability to progress its interests - 3Legs did not believe it would be able to demonstrate commercially viable rates from the Lublewo well. While our actions are clearly not helpful for the development of Polish shales, our position should be viewed strictly as our company position only," Kamlesh Pramar told Poland Today.

Having spent more than USD 19m for its share of the project costs, 3Legs told investors it now has a onetime opportunity to end its participation in the project and it believes it is in best interest of shareholders it to do so. 3Legs had a drilling program agreement with ConocoPhillips, the last US major present in the country, that includes an option to end the contract once the former's net share of expenses topped USD 19m.

At the end of the past decade many saw Poland as a potential game changer on the European gas market, as according to some historical data its geological structure was said to resemble that of some of North America's gas-richest shales. However, revised estimates published in 2011 and a string of disappointing drillings have driven most of the largest foreign players out of the country. The exodus saw France's Total,

3Legs Resources joins a growing group of foreign exploration firms that have lost faith in Poland's shale gas potential. Image: 3Legs Resources

Desperate to reduce its dependence on Russian gas and oil, the Polish government demanded the country's largest utilities pour money into shale exploration, but this approach is proving problematic, as the very same firms are also expected to finance huge power generation and grid expansion projects. Treasury Minister WĹ&#x201A;odzimierz KarpiĹ&#x201E;ski said in late August that state companies would invest PLN 5bn into shale projects by 2016. Unlike their American counterparts, however, Polish companies lack the technology and experience needed to squeeze gas out of tight rock formations.

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The Polish authorities took a long time to work out a regulatory and fiscal regime the shale industry would find attractive, which many observers blamed for the lack of progress on the drilling front . A draft bill was approved as recently as July this year. Meanwhile, however, it is becoming clear that no matter how large Poland's shale gas reserves really are (the most recent Polish estimates see them at 768bn cb.m), the geology appears to be much more complicated than initially expected, making commercial production problematic, if not impossible.

Shale exploration wells in Poland 25 20 15 10 5 0 2010

2011

2012

2013

*2014

*) projected Source: Ministry for Environment

It seems that in the short term the only viable path to energy security for Poland will be to develop crossborder connections with its neighbors, and secure LNG supplies via the soon-to-be completed marine terminal in Świnoujście, thus boosting imports from countries other than Russia. A united European energy policy, something that Poland has been pushing for in recent months amid growing tensions between Moscow and the West, could also prove very beneficial, but it remains highly unlikely for some of Russia's other European clients to dare to upset the Kremlin. In the long-term (before the end of the next decade) Poland is hoping to add nuclear energy to its energy mix.

SERVICES & BPO

RWE to hire hire hundreds of graduates at Kraków shared services center RWE Group Business Services, the shared services arm of German energy giant RWE seeks to recruit 100 new staff at its Kraków center that provides accounting, finance and HR management services to other RWE group companies. The announcement came last week when the Kraków unit celebrated its first year of operation. At the moment, the Kraków-based RWE GBS Poland, which was the German group's first ever shared services unit, handles bookkeeping & finance processes for six RWE subsidiaries as well as HR management services for 19 group companies from Poland, Germany, Netherlands and the UK. The project had been so successful that the company decided to transfer accounting & finance operations from a further ten RWE companies to the Kraków centre over the next two years. By the end of 2014 RWE GBS Poland will be responsible for selected HR & payroll functions for all RWE group companies. Asked whether they are not facing shortage of suitable candidates in the highly competitive Kraków market, RWE's spokesperson Jan Pilewski replies: "We are having no problems whatsoever finding the right people and the fact that we managed to onboard 150 staff in less a year serves as proof of that." Besides Kraków and its immediate vicinity, RWE's recruitment campaign will target mainly southeastern Poland (Małopolskie, Śląskie, Podkarpackie and Świętokrzyskie regions), but also the rest of the coun-

try. The center is currently seeking 100 finance & accounting professionals with fluent English and/or German, both fresh graduates as well as experienced staff. According to the company, finance/accounting experience is secondary, due to in-depth training offered by the centre, but language skills are absolutely essential to get a job at RWE GBS Poland. Next year the center will relocated to new offices that will enable RWE GBS Poland to grow its headcount up to as many as 400 positions. "Our immediate focus is to recruit and train 100 new staff by the end of February 2015 so that they are able to start working in March next year. Over the next year we will continue to relocate further bookkeeping, finance and administration, as well as payroll functions to Kraków. Decisions on the directions in which the centre will expand after that. will be made after 2015, when we plan to finalize the current stage of process migration," Pilewski tells Poland Today. With as many as 69% of its staff belonging to the 24-30 age group, for most of its employees the center is their first serious job. Some 95% of its current employees are university graduates and the remaining 5% are students. Kraków remains Poland's top destination for business process outsourcing projects. The city is home to 85 foreign-owned BPO/SSC/ITO centers which employ an estimated 30,600 staff. In the newest Tholons list of the world's top 100 outsourcing destinations, Kraków ranks as number nine globally, ahead of Dublin. RWE Group Business Services is a wholly-owned subsidiary of RWE AG, one of Europe's five leading electricity and gas companies. In fiscal 2013, RWE turned over EUR 54m. It has 66,000 employees, 16m electricity customers and 7m gas customers.

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With a staff of more than 1,200 employees, RWE's Polish businesses turned over ca. PLN 2.5bn last year. Its Polish operations include the main unit RWE Polska (which supports the group's development in the country and sells energy to some 0.9m clients primarily in the Warsaw area), Warsaw power grid company RWE Stoen Operator, as well as wind farms that geenrate 400 GWh of clean power every year. With 5,718GWh sold last year, RWE Polska had an estimated 5% share in the market. Earlier this year RWE Stoen Operator (see BR+ No. 038) announced plans to invest more than PLN 1.6bn in the development of the Warsaw power grid, following a estimated PLN 1.9bn worth of investments in the past decade.

SERVICES & BPO

French IT outsourcing firm Sii to hit 2,000 employee mark in 2015 Eight years after its debut on the Polish market, IT outsourcing company Sii is showing no signs of slowing down. Back in 2012, when we last spoke to Sii, it had six locations and 1,000 staff in Poland and plans to double the headcount. Now, with some 1,800 employees and eight offices in key Polish cities, the company is very close to achieving that goal. "Reaching the 2,000 employees milestone is just ahead of us. Another key goal for us is to further develop cooperation with foreign clients and provide them with top services from our Polish delivery centers," says Grégoire Nitot, French entrepreneur who established Sii Polska in 2006, and who remains the company's CEO and co-owner. Although the Paris-listed IT firm Sii is a shareholder in Sii Polska, the latter remains an independent company, registered in Poland, where it

pays taxes. Sii Polska generates a half of its revenues domestically, and the other half - from contracts with foreign clients. The Polish business was Sii's first foreign endeavor and it has since remained its fastest-growing operation. The company was one of the pioneers of the multi-site delivery model in Poland, tapping into many regional talent pools at the same time. In merely five years its workforce has grown from 200 to 1,800 - an impressive achievement in the highly competitive IT sector. "Decentralization enables us to stay closer to our customers. Our clients and prospects are scattered all over Poland so regional branches make Sii more accessible for them. Our regional units are very independent, which makes the Sii structure flatter, more agile and flexible. We act fast: we do not need much time to make a decision and take action," Mr. Nitot explains the logic behind Sii's multi-site approach. "Last but not least, our branches are in the biggest academic centers. It would be difficult to achieve the growth we have seen based on just one city."

"We are hiring 5060 new employees every month," Grégoire Nitot, CEO of Sii Polska tells Poland Today Photo: Sii

At the end of September the company announced it would create 150 new positions at its Kraków unit, which currently employs 130 staff. Launched in 2011, Kraków is one of Sii's youngest centers, although the company has since opened units in Łódź, Lublin, and Katowice. Sii is hoping to recruit 70 new employees in

Kraków by March next year and further increase its staff numbers over the subsequent months. Sii's remaining Polish centers are located in Warsaw, Gdańsk, Wrocław and Poznań. According to its CEO, the company is not considering any further new locations at the moment. "All of our units are growing fast, not just Kraków. We are recruiting 50-60 new employees every month across Poland and we can see how competitive the IT staffing market has become in all the cities where we operate. The competition between employers is boosting candidate expectations with respect to wages and non-wage benefits. This poses a risk to the Polish market: if wages continue to grow, Poland loses its competitive edge and global corporations start seeking service providers from other countries," Grégoire Nitot tells Poland Today. As an IT outsourcing and engineering company, Sii provides consultancy, analytics, and testing services, software development, infrastructure management, system integration and maintenance services. Its Polish customers include top names from the banking, insurance, and finance sector, telecommunications, power supply industry as well as heavy industry and FMCG. Sii turned over PLN 225m in 2013. "Our service range continues to evolve and we are doing more and more business with foreign clients. We are working under various cooperation models which guarantees flexibility. Sii is developing new competences, for instance in electrical and mechanical engineering and expanding," says the CEO. As for its shareholder, SII Group, the French company generated revenue of EUR 294m in the financial year 2013-2014, up 3.3% on the prior period. With 50 branch offices in France, a number of other European countries, as well as North Africa and South America, the group employs more than 4,850 staff.

weekly newsletter # 055 / 6th October 2014 / page 6

PROPERTY & CONSTRUCTION

Strabag Real Estate debuts in Poland with EUR 75m office project Cologne-based Strabag Real Estate GmbH (SRE), the property development arm of German construction giant Strabag has broken ground on a EUR 75m project in Warsaw's city centre. Located on Przeskok street, a stone's throw from the Nowy Świat and Chmielna shopping streets and the landmark Palace of Culture, Strabag's mixed-use Astoria scheme is to reach completion in 1H 2016 with 17,600 sq.m of office space and 1,400 sq.m of retail space on the ground level.

"We will provide the same range of services in Poland as we do in other countries. These are primarily office, retail and commercial properties as well as residential buildings, hotels and special use properties. Besides our own developments, we are also open to act as a service provider for third parties. This means that we do not act as intermediate investor, but take on the development through to the completion of construction for third party property owners We already recruited a team that will handle the Astoria project and also acquire other projects." Timo Haep of SRE's head office in Cologne tells Poland Today.

The LEED Gold-certified building will include 100 parking spaces in an underground garage, flexible floor plans, LED lighting, two entrance lobbies, as well as all of the usual class-A amenities. Due to the project's location near some of Warsaw's key landmarks and most important public institutions (Poland's central bank and a number of ministries are in its immediate vicinity), as well as the subway and train stations, the investor is hoping it will attract top-notch tenants. Although Strabag's construction arm has been one of the most active players on the Polish market for many years, particularly in infrastructure, its only episode as a property developer was in the late 1980s, when it was part of a joint venture that built the LIM Center complex in downtown Warsaw. Astoria is the first Polish investment for Strabag Real Estate, marking its entry to the highly competitive Polish market. The company intends to launch its own property development unit in Poland.

DATA BOX: WARSAW OFFICE MARKET IN 1H 2014 Warsaw's modern office space stock rose to more than 4.3m s. m at the end of June 2014. In H1 2014, more than 190,000 sq.m of modern office space was delivered onto the Warsaw market in 17 schemes, nearly 40,000 sq.m more than in H1 2013. The largest completions were HB Reavis’ Gdański Business Center near the Warsaw Gdańska railway station (two buildings totaling 44,500 sq.m) and phase one of Capital Park’s Eurocentrum Office Complex in Al. Jerozolimskie (two buildings totaling 38,700 sq.m). Other major completions included phase one of Echo Investment’s Park Rozwoju, (16,000 sq.m), Skanska’s Atrium 1 (15,700 sq.m) and OKRE Development’s Green Wings (10,800 sq.m). Overall, more than 140,000 sq m of office space is to come onto the Warsaw market by end of 2014, bringing this year’s total supply to 330,000 sq.m, the highest since 2000. Leasing activity at the end of Q2 2014 totaled 259,000 sq.m, representing 41% of 2013’s total take-up. Absorption in Warsaw in H1 2014 stood at 99,000 sq.m, which marked an increase of 24% on the level in the same period of 2013. The rising office supply pushed the vacancy rate in Warsaw up to 13.35% at the end of Q2 2014, a rise of around 1.6 pps since end of 2013.

Astoria (right of the centre) boasts one of Warsaw's best locations, near the city's top attractions. Image: Strabag Real Estate GmbH

"At the moment Astoria is our only tangible development in Poland, though we have others in acquisition. We want to focus on the strongest property markets in Poland. First of all this means Warsaw. However cities such as Wrocław, Gdańsk, Kraków or Poznań are also interesting to us," he adds.

With office supply outstripping current demand, rising void rates are leading to further downward pressure on rents, but prime headline rents remained flat in H1 2014. In Warsaw’s Core rents stood at less than EUR 25/sq.m/month, while the lowest rents in Central Locations were in the EUR 16.5-18/sq.m/month range for modern office buildings. Non-Central Locations fetch EUR 11-16.5/sq.m/month, but prime office buildings outside the city centre command EUR 13.5/sq m/month or more. Source: Cushman & Wakefield Marketbeat Autumn 2014

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Since its founding in 1965, Strabag Real Estate has developed more than EUR 5.9bn worth of projects, that include Milaneo in Stuttgart, Upper West in Berlin, and Dancing Towers in Hamburg. "We are currently working on our first foreign investments in Austria and Sweden. Astoria is the next step in our international expansion," says Thomas Hohwieler, CEO of Strabag Real Estate. The company chose Poland because Strabag group already has all the necessary means to design and develop a project in this market. "In that way we not only get to draw up on our 50 years of experience in property development on the German market, but also continue to successfully cooperate with Strabag's construction arm, the way it has been done so far," Hohwieler adds.

complete transformation, we were interested in acquiring another office investment in an attractive Warsaw location. We planned to purchase an existing project and increase its market value, making use of Adgar’s experience, extensive knowledge of the office market and expertise in the latest technologies. We decided to purchase the Cirrus building, which we have renamed Adgar Wave, because we see it as an excellent investment. The building is 100% leased by renowned international companies and is situated in the capital’s most important business district," said Eyal Litwin, CEO of Adgar in Poland.

bring it in line with the Adgar standards we have in place in other office projects in our portfolio. This will include a tenant service program, new parking system and and signage systems. We will also modernize the structured cabling, as well as the surrounding space outside the building. In addition, we plan to install a bicycle room and showers to encourage people to commute by bicycle," added Eyal Litwin. Adgar Investments & Development Ltd. is a public company traded on the Tel Aviv Stock Exchange, and acts as the real estate arm of the Zur Shamir Group. It operates in Israel, Canada, Poland and Belgium, and owns 30 income-producing properties with a total area of some 276,000 sq.m.

Poland Today talks to: Eyal Litwin. CEO of Adgar in Poland

PROPERTY & CONSTRUCTION

Adgar adds 6th office property to its Warsaw portfolio

Photo: Adgar

Adgar Wave is 100% leased at the moment.

Photo: Adgar

Israeli property firm Adgar has completed its sixth investment in Warsaw with the acquisition of the Cirrus building in the heart of Warsaw's Mokotów business district, across the street from the popular Galeria Mokotów shopping center. Cirrus, which has been renamed Adgar Wave, offers a total of 14,007 sq.m of office and retail space and 283 parking places in an underground car park. The seller was Castle Carbery Properties, on behalf of Mazovia Holdings II sp. z o.o. which was represented in the transaction by Colliers International.

The projects managed by the Adgar Group in Poland include the 38,600 sq m Adgar office complex (Adgar Plaza and Adgar Business Center) in Mokotów, Adgar Business Centre II on Konstruktorska St., with 8,100 sq m of office space, and a property on Prymasa Tysiąclecia Ave. in Warsaw’s Wola district, where BMW Inchcape’s showroom and service point are situated. Adgar is currently in the process of modernizing the 44,600 sq.m Adgar Park West, which the company purchased in 2013.

"After the purchase of Adgar Park West last year, which is now being re-imagined and undergoing a

"In the near future we plan to introduce a number of new features and improvements at Adgar Wave to

• PT: What was the final value of the deal? In the memorandum the seller distributed a few years ago the asking price was in the region of EUR 42m... Eyal Litwin: The parties have agreed not to disclose the price of the deal, but I am pleased to say this is a very good investment for Adgar. • PT: How would you describe Adgar's investment approach? EL: Adgar is focused on buying either high yield assets or assets that require some upgrades, as was the case with for example Adgar Park West.

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DATA BOX: COMMERCIAL PROPERTY INVESTMENT IN 1H '14 Polish commercial investment market volume in H1 2014 reached EUR 1.4bn, an increase of more than 27% y/y. This improvement was particularly notable in the office sector, which accounted for 51.5% of the total transaction volume, followed by retail with 26.5% and the logistics and warehouse sector taking 22%. Although demand for prime assets remains robust across all the sectors, the office sector owes its strong performance to the ample supply of attractive properties both in Warsaw and in regional cities. Office investment volume in H1 2014 reached EUR 719m, which represents an increase of around 9% on the same period of the previous year and a rise of two and a half times on H1 2012. Despite the continued modern office space growth outside Warsaw, the capital city remains the top destination for investors with its share of around 75% in the total transaction volume noted in this sector. Out of the eight office buildings transacted in Warsaw, the largest deals included DeAWM’s acquisition of Rondo 1 in the city’s core for around EUR 300m, W. P. Carey’s acquisition of Lipowy Office Park for EUR 108m and Deka’s acquisition of Atrium 1 for EUR 94m. The latter two properties are home to banks: Lipowy Office Park is fully taken up by Bank Pekao SA, while bank BZ WBK SA is the anchor tenant of Atrium 1. The largest deals in regional markets were recorded in Krakow, where a fund managed by Griffi n Real Estate acquired Office Centre Lubicz, and in Wrocław, where the Green Day office building, fully leased to Credit Suisse, was acquired by GLL Real Estate Partners for EUR 42m. Source: Cushman & Wakefield Marketbeat Autumn 2014

• PT: You make value add acquisitions but at the same time you are building a long-term portfolio. What's the formula? EL: For Adgar the real added value is reached from the second cycle of the leasing and we also believe that tenants are beginning, like in other more mature markets, to appreciate long term landlords and no longer want to switch to a new one every few years. • PT: With the amount of new space that's being developed in Warsaw at the moment, we are likely to see tenants move from older buildings to new ones at attractive rent rates. Does this create opportunities for value add investors such as Adgar? EL: Yes, that is likely, but our main goal is convincing tenants to stay in the buildings we currently own. That’s why we are investing in amenities, upgrading the infrastructure and expanding the functions in the properties we own. For example in Adgar Park West, which is currently undergoing a through modernization, we are creating AgdarFit – a zone dedicated to sport, relaxation, retail and other pursuits for fans of an active lifestyle. We even plan to install a 900 m running track, which will circle the whole complex. • PT: Are you actively seeking properties in need of an upgrade? EL: Of course, we are always on the lookout for great investment opportunities.

TRANSPORT & LOGISTICS

DCT Gdańsk awards EUR 90m terminal expansion contract to Belgium's Besix Poland's leading container terminal, the Australianowned DCT Gdańsk, has chosen a general contractor for a key expansion project that will boost the facility's annual handling capacity beyond 3m TEU. The EUR 89m contract for the construction of a new berth along with the adjacent container stacking yards, went to Belgium's Besix. "The entire investment, including equipment, will amount to EUR 200m. Besix will be responsible for design and construction work. The initial capacity of the new berth will be 1.5m TEU annually, which means it will match that of our existing terminal, bringing the total handling capacity of DCT Gdańsk up to 3m TEU. We intend to subsequently expand the facility by a further 1m TEU, but the timing of phase two will depend on market situation," Adam Żołnowski, Chief Financial Officer at DCT tells Poland Today. The brand new, 656m-long berth will be ready to operate in 2016. It will be equipped with 5 STS cranes, delivered by Liebherr Container Cranes Ltd., 15 RTG cranes and additional yard equipment. Unlike the existing T1 terminal, which is an artificial box pier protruding into the sea, T2 will be positioned along the waterfront, reducing costs and offering better access to larger ships, even the kinds that are still on drawing boards. The draught will be up to 17m, along the quay.

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"We are directly employing 530 staff at the moment and we are expecting this number to double gradually following the launch of T2. This does not include jobs to be created by our partners in logistics, construction, In general direct and indirect effect, combined with induced effect could reach 8-10 thousand jobs "says Żołnowski.

DCT Gdańsk 's handling capacity will more than double with the new investment.

Image: DCT Gdańsk

Besix is Belgium’s largest group operating in the construction of infrastructure, environmental projects and roads. Its largest marine projects include The Ras Laffan Port expansion in Qatar, the construction of quay walls and dredging in Sohar, Oman and in Port Amazone Rotterdam in the Netherlands as well as the expansion of the Belgian Port of Zeebrugge. As a joint venture member, N.V. BESIX was responsible for the modernization of the South Hook LNG Terminal in the United Kingdom. The latter project, worth over EUR 250m, encompassed renovation and modernization of an existing quay, construction of a 200-meter long extension of the existing berth as well as development of new mooring and berthing facilities. DCT Gdańsk's position as a key Baltic hub received a considerable boost in 2011, when Maersk decided to establish the first direct deep-sea container service

from China to the Baltic Sea, serviced by the Danish company's first E-class type vessel Emma Maersk. Last year the terminal joined the prestigious group of merely 14 ports worldwide that regularly receive the giant Triple E fleet. In the first half of 2015 Gdańsk will start receiving ships covered by the 2M vessel sharing agreement Maersk Line and Mediterranean Shipping Co inked earlier this year, further strengthening DCT's position in the region. In 2013 DCT Gdańsk handled more than 1m TEU, up from nearly 0.9m in 2012. Amid record-breaking transshipment volumes, DCT Gdansk has embarked on large-scale investments that will see its capacity increase significantly over the coming years, responding to market demand for higher capacities and larger vessel sizes. Following utilization of additional storage area, DCT expanded its capacity by a half, to approx. 1.5m TEU in 2012 and 2013. According to estimates, in a couple of years Gdańsk will be able to handle a half of the volume that currently gets transshipped in Hamburg. DCT Gdańsk belongs to Global Infrastructure Fund II, managed by the Australia-based Macquarie Group. The construction of DCT1 began in 2005 and the terminal welcomed its first ship in June 2007. Total investments to-date have come in excess of EUR 200m. The terminal offers year-round ice-free access with a 17.0m deep approach channel and up to 16.5m depth along the berth. The adjacent rail terminal, 4 x 1000m long is also operated by DCT Gdańsk. As far as additional infrastructure in the area is concerned, Australian developer Goodman has recently completed phase one of its Pomeranian Logistics Center, a giant warehouse & distribution project located at a 100ha site directly by the DCT.

TRANSPORT & LOGISTICS

DPD gets regulatory blessing for takeover of Siódemka parcel firm Poland's competition watchdog UOKiK has greenlighted one of the largest transactions in years in Poland's parcel delivery sector that will see the French-owned courier firm DPD acquire Polish Siódemka from private equity fund Abris Equity Partners. Estimated at PLN 0.5bn, the merger of DPD Polska and Siódemka will create a number two player in the sector with a market share of approximately 24% and a combined turnover of more than PLN 1bn. "We have built our strength on B2B services but in times when business relations with the end-user migrate to online channels, we find Siódemka's capital particularly valuable," said DPD's CEO Rafał Nawłoka. "The merger with Siódemka will expand our offering to include innovative, customer-friendly solutions, particularly in the e-commerce business area. Siódemka has vast experience and tested know-how in this market segment," he added. A major international provider of parcel and express services, DPD ships 2.5m parcels daily, with a workforce of 24,000, fleet of 18,000 vehicles and more than 800 locations throughout Europe. The majority shareholder in DPD (83.32%) is the GeoPost Group, a wholly-owned subsidiary of French Groupe La Poste. With a consolidated turnover of EUR 4.39bn last year (up from EUR 4bn in 2012 and 3.67bn in 2011) GeoPost is currently Europe's third-largest provider of express parcel services.

weekly newsletter # 055 / 6th October 2014 / page 10

DPD Polska's predecessor was established by Polish entrepreneurs back in 1991 as Masterlink Express, which in 1998 was acquired by the Swedish Post to finally become part of GeoPost, as a result of global ownership reshuffles. With 50 regional depots, one central hub and four sorting centers, DPD's Polish unit boosted its turnover by close to 6% last year, reaching PLN 707m. It has a fleet of 3,000 vehicles (operated by subcontractors) and a staff of 5,500 employees and partners. As of end of 2012 e-commerce deliveries represented approximately a third of DPD Polska's business.

A Polish brand, Siódemka has been present on the local market for 15 years and offers parcel delivery service to all customer groups: individuals, microenterprises, SMEs and large firms. In recent years the company has focused on online retailers, ranking as number three in a recent list of most preferred logistics operators for the e-commerce sector. Siódemka employs 1,400 staff and 2,100 couriers and has a network of 40 depots, including a central sorting hub in Rawa Mazowiecka. DPD representatives said the bulk of the merger, details of which are being currently hammered out, will take place next year. "We expect the combination of both networks to improve the efficiency of connections. We can only say that a broader scale of operations will require adjusting employment levels to the new circumstances. We wish to make the best possible use of the competences and experience of DPD and Siódemka employees," Rafał Nawłoka replied to our question about possible redundancies.

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

Image: DPD

In the end of 2012 DPD Polska opened a giant central sorting center in Stryków, developed at the cost of EUR 39m. One of the largest and most advanced facilities of this kind in Central and Eastern Europe, the project completed DPD's network of distribution centers in Poland. Its 2014 investment pipeline included relocation of one of its Warsaw depots as well as a new unit in Gliwice, adding a combined 14,000 sq.m to the company's warehouse stock, CEO Rafał Nawłoka told Poland Today,

RETAIL PROPERTIES

A nevernever- ending market Poland Today sits down with Leszek Sikora, managing director at developer ECE Projektmanagement Polska, to talk about the condition of the retail property market in Poland. • PT: Developers are announcing and launching all kinds of new retail projects across Poland. How sustainable is the current demand for retail space in the country?

Leszek Sikora: Retail chains continue to expand. Admittedly, they have become more selective and the process of choosing new locations takes more time than in the past. The growth today is slower than it used to be. The times when any new project in the market could easily and quickly be filled with tenants are over, which is good. Tenants are now much more careful when it comes to their expansion strategies. This is not a problem for us as we ourselves are very selective with regard to the locations we want to be in as a developer. • PT: Many of the new retail schemes in Poland are relatively small projects, including convenience shopping centres. Is there still room in the market for the regular large-scale shopping malls? LS: There is still room for large shopping centre projects in the largest cities, in good locations which allow for the development of an investment that will remain dominant in a given city for many years. We are currently developing a large-scale shopping centre scheme in Bydgoszcz. Of course, there is more risk involved in these kinds of developments. Small retail formats are growing in Poland, but this is not a segment of the market that we would like to be present in. • PT: All or most of the large cities in Poland probably already have at least one large dominant shopping centre. How can developers compete today with those existing malls? LS: The best sites in the largest Polish cities have probably already been developed. However, I think that there is a lot of development potential in new locations, created through the constant improvement of transport infrastructure. For example, the construction of new ring roads in Poland’s largest cities, and the second subway line in Warsaw, will create new areas with a high concentrations of pedestrian and car traffic and thus generate new investment opportunities.

weekly newsletter # 055 / 6th October 2014 / page 11

• PT: Has the size of new, large shopping centre projects in Poland changed in recent years? LS: There are fewer new large shopping centre projects – but they have become larger. Statistics shows that the average size of new shopping centres in Poland and elsewhere in Europe has grown by approximately 30% over the last 10 years.

Leszek Sikora, managing director at ECE Projektmanagement Polska, says that public investments in Warsaw could benefit through retail development Image: ECE and a PPP model.

• PT: Why is that? LS: It is because developers, who want to make sure that their projects will succeed in a competitive and relatively saturated market, focus on the development of dominant schemes – and those need to be large. • PT: Do you see potential in the redevelopment of the existing malls in Poland? LS: Definitely. Last year, our owner actually decided that when it comes to the development of new shopping centre projects in Poland, ECE Projektmanagement will be very selective and will practically limit its choice of locations to Warsaw. In the regional cities, the company will mostly focus on the redevelopment

and repositioning of the existing shopping malls, which is, in some respects, even more difficult than the development of a new centre because you have to remodel a centre that continues to operate. This also pertains to our own centres – in Gdań sk, for instance, we will be redeveloping and expanding the Galeria Bałtycka mall, which will get another 16,000 sqm of leasable space. This market never ends and new opportunities are emerging all the time. • PT: What are the latest trends in designing new shopping centre projects? LS: First of all, shopping centres today have to be multi-functional and satisfy both the shopping and entertainment needs of their visitors. When it comes to the architectural aspect, people increasingly expect that a new shopping centre will be integrated with the neighbourhood it is developed in. Green building solutions have become a standard in the sector. Another thing is the application of modern It technologies in shopping centres – studies are now underway on the use of applications and devices including smartphones as sales and marketing tools. • PT: Has the e-commerce market already had a major impact on shopping centres in Poland? LS: There are tenants who have decided to withdraw from shopping centres. In Germany, which is the main market for us, around 16% of all shopping is now done online and in Poland we can see things going in the same direction. We are thinking of ways of addressing the issue, of how shopping centre developers and investors could benefit from the development of ecommerce. I do not think that e-commerce is or will ever be a major threat for shopping malls that offer a unique shopping experience. I would rather call it an evolution of shopping habits. • PT: ECE Projektmanagement Polska is one of the companies that want to redevelop the former War-

szawa Główna railway station site in Warsaw. What is your vision of the place? LS: We are focusing on the retail function because the site is in a very good and well-connected location, on the fringes of the Central Business District of Warsaw, which continues to expand westwards, and close to a stop of the second subway line. We are thinking of a dominant shopping centre with at least 80,000 sqm of leasable space that would be integrated with the railway station. We would probably decide to develop the office and residential functions in cooperation with another developer. • PT: What if Polish State Railways selects one of the other bidding developers? Will you still be looking for a site for a large shopping centre scheme in Warsaw? LS: Yes, we will. We are actually looking for such sites all the time. We are looking at opportunities to acquire existing facilities in Warsaw and in the largest regional cities across Poland. We have a new fund which will spend almost EUR 2 billion on existing retail facilities in Germany, Poland, the Czech Republic and Slovakia, as well as in southern Europe. The fund is not going to finance the acquisition of sites for new projects. We are looking at major existing centres which can be redeveloped and repositioned. It does not matter so much which generation such a facility would belong to – what matters is whether we could add value to it. The problem is that it is not that easy to find good retail product in Poland at the moment. • PT: What about sites for a completely new project in Warsaw? LS: We are looking at a number of locations, both in the centre of Warsaw and on the outskirts of the city. I think that what would be worth considering is a public-private partnership (PPP) formula. There are many potential public investments in Warsaw, including the construction of sports facilities, which would be much easier to develop if they could be financed through the development of retail facilities near them. This is a

weekly newsletter # 055 / 6th October 2014 / page 12

win-win situation – you can deliver something that serves the local community and finance it with private money. The first attempts to carry out such projects have already been made in Poland but they have failed. Nevertheless, I think that with a little bit of determination and a well thought-out PPP formula, this can and will one day be done. by Adam Zdrodowski

"We must remember that the euro zone only recently experienced the biggest crisis in its history. Both Poland and the countries of the euro zone have some homework to do " Kopacz told the MPs. "A strengthened euro zone and a stable economy; these are the two criteria which will define the best moment for adopting the single currency," she added.

According to finance Minister Mateusz Szczurek, the initiatives will be financed from savings the government expects to make elsewhere and therefore they would not push up state debt.

POLITICS & ECONOMY

New government wins confidence vote; PM Ewa Kopacz pledges greater focus on social issues Poland's new government, led by Ewa Kopacz, who took over the prime minister's job from Donald Tusk, won a confidence vote in parliament last week. Kopacz, a 57-year old former pediatrician who until last month was speaker of parliament, and her government were backed by 259, with 183 against and 7 abstentions. The vote was the final stage of procedures set out under the constitution for installing a new prime minister. Prior to the vote, the new PM delivered her inaugural policy speech in the lower house of parliament, touching upon a long list of issues ranging from global politics to school lunches. Although some observers had been hoping to hear something more concrete about Poland's euro zone entry plans, Kopacz said she would adhere to her predecessor's cautious approach in that matter. According to the new PM, besides Poland needing to meet the technical criteria for euro entry, the euro zone needed to show it was stable.

in schools, to provide free textbooks for primary schools, and to create day care centers for the elderly. The decisions of the previous government regarding tax breaks for families with children and new indexation system for retirement and disability benefits are to remain in force.

Kopacz has also ordered her ministers to accelerate business deregulation and completely overhaul the country's inefficient and overtly complicated tax system. "What was originally meant to be done in three years, we will achieve in 12 months," Kopacz said, referring to the brand new tax system and a bill on business freedom. Trading places: Former Speaker of Parliament Ewa Kopacz in her new role as Prime Minister of Poland (bottom; center), and Former Foreign Minister Radek Sikorski as the new Speaker of Parliament Photo: M. Śmiarowski/KPRM (top; center).

As far as foreign policy is concerned, Kopacz promised more continuity, saying her government would not stand for a break-up of the neighboring Ukraine and it would keep supporting Kiev's pro-European direction. She said her government would push for greater US military presence on the Polish soil as a deterrent to potential Russian aggression. On the domestic front, the new Premier stressed her commitment to social policy, addressing families with children and pensioners ahead of the 2015 general election. She promised her government would double funding for childcare for pre-kindergarten children, and allocate some PLN 1.8bn to create more nursery places in workplaces. Kopacz pledged to ban junk food

Kopacz has also appealed for a truce with Jarosław Kaczyński, leader of the conservative opposition and bitter enemy of her predecessor Donald Tusk. >> See below (page 13) for Poland Today Editor Andrew Kureth's commentary on Poland's new Prime Minister.

IN BRIEF: According to the ESA2010 methodology and taking into account the an estimated size of Poland's shadow economy, the country's GDP increased in 2013 by 1.7% versus ESA'95 estimate at 1.6%. The new way of calculating gross domestic product, recommended by the EU to standardize and broaden the data, comes after a "best practices" directive laid out in 2008 by the United Nations.

weekly newsletter # 055 / 6th October 2014 / page 13

OPINION

The Kopacz doctrine: consolidate power, win elections by Poland Today Editor Andrew Kureth

Who is Ewa Kopacz and what exactly does she believe in? Those were the questions observers were asking last month when it became clear that she would become Poland’s next prime minister. We are now closer to knowing the answers to those questions. Her two major moves since her nomination – the creation of a new cabinet and her first policy speech – have painted a revealing picture. Kopacz is intent on consolidating power behind her in a party divided into several factions. Her policies, at least for the next year, will focus on domestic and social issues, in a bid to ensure her party wins its third consecutive parliamentary elections. Foreign policy – to the extent allowed by events on the ground – will take a back seat. This is a significant departure from the policies of former Premier Donald Tusk, who had mostly given lip service to social issues while doing his best to maintain the status quo. While Tusk focused on fiscal policy and building strong international ties, especially within Europe, the Kopacz government will have a singular goal: winning the upcoming local and parliamentary elections.

The first evidence for this in her cabinet decisions. Replacing the polished, perfect-English-speaking Radosław Sikorski with political insider Grzegorz Schetyna as Poland’s top diplomat was met with much forehead-slapping amongst foreign policy columnists. But it makes a lot of sense from a political point of view. As the leader of a large faction inside the ruling Civic Platform party, Kopacz needed Schetyna’s support. Giving him a high-profile ministry achieved that while limiting his power: he won’t have control over any purse strings, meaning he can’t spread cash around to allies. The same goes for Cezary Grabarczyk, who is also said to lead a strong faction within the ruling party. Booted from the government in 2011 for poorly managing the Infrastructure Ministry, he will now take over the justice portfolio, replacing the staunchly conservative Marek Biernacki. The two cabinet members who will have significant funds at their disposal are relative unknowns who will now owe their political advancement to Ms Kopacz. Both are women. Maria Wasiak will leave the management board of Poland’s state-owned rail company to run the Ministry of Infrastructure and Development, while Teresa Piotrowska, an unheralded member of parliament who is said to be a close friend of Kopacz, will take over the powerful position of interior minister. There were two more changes. Andrzej Halicki, the leader of Civic Platform in the Mazowieckie voivodship, where Warsaw is located, will now head the Ministry of Administration and Digitisation. Finally, Tomasz Siemoniak, who is said to have the staunch support of President Bronisław Komorowski, has received a promotion to deputy prime minister while retaining the defence portfolio. This is a government that will keep PO’s power brokers happy but will still give Kopacz plenty of leverage.

Policy shift

In her policy speech last Wednesday, Kopacz emphasised continuity, security, economic growth and profamily principles – priorities that align with those of the Polish electorate. Much of what she outlined hewed closely to stances Tusk had set out. Among these were maintaining the US-Poland security relationship, decreasing energy dependence on Russia and continuing to play an active role in the EU. She also held to the previous government’s policy that euro zone entry is a priority for Poland, but would happen only when the country was ready. Where Kopacz departed from her predecessor’s approach was in her emphasis on domestic and social issues. She promised to work for a ‘balanced’ tax policy and to extend full parental leave rights to employees working under so-called ‘trash contracts’. She also downplayed Ukraine. While vowing not to allow any change of borders in Europe by force, she promised to take a “pragmatic” approach to the crisis. Tusk and Sikorski had taken a much harder line. Kopacz clearly believes that voters are tiring of hearing about the Ukraine crisis, which is becoming more drawn out and diplomatically complicated. Instead, she is offering them red meat, betting that they will vote on quality of life issues in the upcoming elections. All in all Kopacz is putting politics first, and policy second. She has done her best to balance PO’s competing factions, keeping the party from splitting or revolting against her ahead of local elections in November and parliamentary elections next year. Now she is making promises the electorate wants to hear, all in the hope of leading Civic Platform to its third consecutive parliamentary election victory. For now at least, might trumps merit in the Kopacz government. Whether that will change remains to be seen. It all depends on whether she is anything more than a politician who believes in holding on to power.

weekly newsletter # 055 / 6th October 2014 / page 14

KEY STATISTICS Consumer Prices

Inflation Jun '14

Jul '14

Aug '14

Sector

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

Food & bev

-0.8

-1.1

+3.8

+1.2

+2.1

+1.7

2% 1%

Year

2009

2010

2011

2012

2013

-0.8

-2.8

-5.1

-2.7

Turnover in PLNbn

582.8

593.0

646.1

676.0

685.7

0.0 +0.6

+0.1

-1%

+4.3

+5.5

+11.6

+5.6

+2.3

+1.3

Aug 14

+1.2 +3.9

-0.2 -0.2

y/y (%) Jun 14

0.0

Apr 14

+1.3 +2.4 +2.6 +0.3 0.0

-1.5

Feb 14

-1.0 +0.8

Oct 13

-0.1 +0.6 -0.2

Dec 13

+1.6 -0.6

Jun 13

-4.9

Aug 13

0.0 -0.4 -0.1

+4.7

+8.4

0.0

-0.1

-1.1

0.0 +3.8

+1.6

-1.1

Jul '14 Aug '14

-2.7

+0.1 +4.0

Transport

+0.2

May '14 Jun '14

+2.3

y/y (%)

Housing

Gross CPI

-4.7

Apr '14

m/m (%)

-1.6

-4.6

-1.1

m/m

-2.1

Clothing, shoes

Communications

-0.1

-1.7

Apr 13

+0.2 +4.0

-0.3

Feb 13

Alcohol, tobacco +3.9

-0.9

Month y/y

Dec 12

-0.4

Retail Turnover

Oct 12

May '14

Aug 12

Data in (%)

-0.3 -0.4

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-Aug y/y

178.8

174.9

184.1

165.1

138.7

158.1

162.2

141.8

(in '000 units)

Producer Prices

Industrial Industrial Output

Permits

2014

(%)

105.8

+15.6 +16.5

Commenced

142.9

127.4

99.5

m/m (%)

-0.1

-0.2

-0.1

+0.3

m/m (%)

-1.8

+9.4

-2.3

-1.7

-0.1

+2.0

-8.5

U. construction

670.3 692.7 723.0

713.1 694.0

705.7

-0.1

y/y (%)

-1.4

-1.3

-0.7

-1.0

-1.8

-2.1

-1.5

y/y (%)

+5.3

+5.4

+4.4

+1.7

+2.3

-1.9

Completed

160.0 135.7

152.5

88.7

-2.9

Year

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product (ESA2010)

Month

Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14 Aug'14

Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14 Aug '14

Construction Output

Construction Prices Month

Month

Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14 Aug'14

Month

Period

Feb '14 Mar '14 Apr '14 May '14 Jun '14 Jul '14 Aug '14

m/m (%)

-0.2

-0.1

0.0

m/m (%)

+18.7

+24.2

+3.2

+14.0

+16.9

+0.9

-5.4

y/y (%)

-1.7

-1.6

-1.5

-1.4

-1.2

-0.9

y/y (%)

+14.4

+17.4

+12.2

+10.0

+8.0

+1.1

-3.6

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Year y/y (%)

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

y/y (%)

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

Source: The Central Statistical Office of Poland, GUS

Gross Gross Wages

131.7

146.1

GDP in PLN bn current prices

Growth y/y unadjusted

Current account def. in % of GDP

Q2 2014

+3.3%

413,457

-0.9%

Q1 2014

+3.4%

397,429

-1.0%

Q4 2013

+2.7%

455,528

-1.3%

Q3 2013

+2.0%

405,554

-1.9%

2013

+1.7%

1,662,052

-1.3%

2012

+1.8%

1,615,894

-3.7%

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

Sentiment Indicators

2011

+4.8%

1,553,582

-5.0%

Sector

Economic sentiment and consumer confidence indicators

2010

+3.7%

1,437,357

-5.1%

8,615

196 6,333

144 6,382 145

3,625

158 3,690

161 3,663

160 3,743 163

Energy

6,021

183 6,736 205 6,358

193 6,020 183

Construction

3,766 160 3,895

166 3,706

158 3,884 166

Retail & repairs

3,408

145 3,456

147 3,544

151 3,577 153

Transportation

3,589

127

3,913

138 3,666

IT, telecoms

6,654

173 6,695

174 6,987

181 6,835

177

Financial sector

6,109

137 6,602

148 6,747

152 6,738

151

National average 3,652

145 3,823

152 3,895

155 3,740 149

Source: Central Statistical Office (GUS)

130 3,650 129

100

-20

-40

60 Se p 14

138

120

Jun 14

6,061

Manufacturing

C onsumer confidenc e (le ft a xis) Economic se ntiment (right axis)

M ar 14

Dec 13

Sep 13

Jun 13

Ma r 13

Dec 12

Se p 12

Q2 2014

Jun 12

Q1 2014

Mar 12

Q4 2013

Dec 11

Coal mining

Q3 2013

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

Key Economic Data & Projections Indicator

2011

2012

GDP change

+4.5%

+1.9%

+1.6%

+3.1%

Consumer inflation

+4.3%

+3.7%

+0.9%

+0.1%

+0.9%

Producer inflation

+7.6% +3.4%

-1.3%

-1.0%

+1.1%

CA balance, % of GDP

-5.0%

-3.7%

-1.4%

-1.3%

-2.0%

Nominal gross wage

+5.2%

+3.7%

+3.4%

+3.5%

+4.0%

Unemployment**

12.5%

13.4%

12.2%

11.7%

4.12

4.19

4.20

4.17

4.09

EUR/PLN

2013

*2014

*2015

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

weekly newsletter # 055 / 6th October 2014 / page 15

56.14 ↑

100 SEK

45.85 ↑

100 NOK

51.08 ↓

10,000 JPY

USD EUR

350

300

15.21 ↑

100 CZK 10,000 HUF

400

303.78 ↑ 135.08 ↑

Money Supply in PLN m

May '14

Jun '14

Jul '14

4.4%

4.5%

4.4%

PLN (up to 5 y )

4.9%

4.8%

4.7%

4.8%

↑ Alior Bank

PLN (over 5 y)

4.7%

↑ Asseco Pol.

46.1

+1%

PLN (total)

4.7%

↑ Bogdanka

112.75

+4%

-10%

EUR (up to 1m EUR) 1.9%

2.0%

1.9%

1.7%

1.6%

↓ BZ WBK

391.8

-1%

+1%

EUR (over 1m EUR) 3.3%

3.0%

2.7%

3.4%

3.1%

2.5%

↑ Eurocash

+3%

-33%

WIG-20 blue chip index

27.71

-3%

-22%

↑ JSW

32.43

+4%

-39%

2,4 2,44 4.06

↓ Kernel

24.92

-1%

-35%

Change 1 week

-2% ↓

↓ KGHM

122.65

-4%

+4%

Change end of '

+5% ↑

Overnight

1 week

1 month

3 months

6 months

2.59%

2.49%

2.38%

2.25%

2.22%

NBP deposit

Rediscount

4.00%

1.00%

2.75%

173,096

164,008

167,008

570,507

574,529

119,649

120,828

975,001 980,090 435,386 991,120

426,351

122,209

124,986

985,769 1,003,128 434,256

448,037

996,171 1,002,137 1,020,561

- Net foreign assets 142,260 144,033 152,864 162,129 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

↓ LPP ↓ mBank ↑ Orange Pol.

Credit

↓ Pekao

The financial sector's net lending in PLN bn,

↓ PGE

loan stock at the end of period

+1%

83.06

↓ Grupa Lotos

Warsaw Inter Bank Offered Rate (WIBOR) as of 3 Oct 2014

Lombard

572,376

4.4%

2.59%

557,651

53,754. 754.63

4.5%

Reference

162,246

- Time deposits

WIG Total index

PLN (up to 1 year)

Aug '14

Monetary base

WIG-20 stocks Price Change Change in alphabetical 3 Oct 26 Sep end of order '14 '14 '13

Mar '14 Apr '14 May '14 Jun '14 Jul '14 Aug '14

Central Bank (NBP) Base Rates

M1 - Currency outside banks

as of 3 October 2014

+2%

9,000.2

-7%

481

-2%

-4%

11.68

+3%

+19%

189.85

-1%

+6%

20.29

-2%

+25%

56,000 55,000 54,000

5.08

-1%

+1%

52,000

↓ PKO BP

38.55

-1%

-2%

50,000

-3%

+5%

49,000

-4%

-17%

Aug' 14

Loans to customers

930,652

940,703

939,641

950,774

- to private companies

273,360

276,709

274,549

277,482

↓ PZU

470.05

- to households

574,800

578,639

581,447

587,136

↓ Synthos

4.55

1,660,583 1,667,783

1,678,129

1,718,251

↓ Tauron

5.17

-2%

+18%

Source: Central Bank NBP

last three months

41.22

Jul' 14

+5% ↑

WIG Total closing index

↓ PKN Orlen

Jun' 14

Total assets of banks

Change end of '13

↓ PGNiG

May' 14

Type of loan

-2% ↓

Change 1 week

53,000 51,000

3 Oct 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

11 Sep 14

345.72 ↓

3 Oct 14

532.17 ↓

100 CHF

28 Jul 14

100 GBP

11 Mar 14

417.89 ↑

20 May 14

100 EUR

Key indices

Term / currency

450

31 Dec 13

330.79 ↑

18 Oct 13

100 USD

Stock Exchange

Average weighted annual interest rates

20 Aug 14

as of 3 October 2014

I nterest rates

4 Jul 14

100 USD/EUR against PLN

Central Bank average rates

28 Jul 14

Currency

Source: Warsaw Stock Exchange

Trade Poland's ten largest trading partners, ranked according to 2013

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

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Jul 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Jul share 2014

IMPORTS in PLN bn 2013

share No

Country

Jan-Jul share 2014

2013

Food and live animals

42,121

+6.3

10.7

69,304

10.9

28,562

+5.2

7.3

47,906

7.4

1 Germany

101,201 25.8% 162,548 25.1%

1 Germany

85,393 21.7%

Beverages and tobacco

5,724

+15.8

1.5

8,624

1.4

2,366

+2.8

0.6

4,150

0.6

2 UK

25,021

2 Russia

44,274 11.3% 79,578 12.1%

9,655

+3.6

2.5

15,744

2.5

12,436

-1.6

3.2

21,585

3.3

3 Czech Rep.

23,969

6.1%

40,110

6.2%

3 China

38,226 9.7%

16,270

-6.1

4.1

30,013

4.7

42,903

+3.3

10.9

75,539

11.7

4 France

22,469

5.7%

36,367

5.6%

4 Italy

21,433 5.5% 34,940 5.3%

Crude materials except fuels Fuels etc

6.4%

42,138

6.5%

142,161 21.7% 61,127 9.3%

1,115

+9.2

0.3

1,864

0.2

1,531

+04

0.4

2,646

0.4

5 Russia

17,355

4.4% 34,069

5.3%

5 Netherlands

14,647 3.7% 25,409 3.9%

Chemical products

36,076

+4.6

9.2

59,103

9.3

58,772

+6.5

15.0

92,917

14.3

6 Italy

18,212

4.6%

4.3%

6 France

15,374 3.9%

Manufactured goods by material

78,475

+3.1

20.0

129,915

20.3

70,529

+6.5

18.0

112,392

17.3

7 Netherlands

7 Czech Rep.

13,558 3.5% 24,054 3.7%

Machinery, transport equip.

150,231

+7.5

38.3

239,434

37.5

129,867

+3.7

33.1

216,608

33.4

8 Ukraine

n/a

18,020

2.8%

8 USA