Poland Today Business Review+ No. 039 by Poland Today Business Review+

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

No. 039 / 16th June 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Toyota to boost engine production in Poland page 2

SERVICES & BPO Radom emerges as attractive destination for business services page 8

Belgium's Umicore to create 80 jobs at new catalytic converter plant near Wałbrzych page 2

RETAIL PROPERTIES Panattoni adding 24,000 sq.m to Park Łódź East page 9

Polish Press Glass expands Radomsko plant to keep up with growing exports page 3

Polish IKEA stores turned over more than PLN 2bn in fiscal year 2013.

Photo: ARC

IKEA buys site for new Polish project

The property arm of Sweden's flat-pack furniture giant IKEA has acquired a site in Zabrze for its eight Polish retail project. "The plan is for an enclosed shopping centre with an integrated IKEA store," Mikael Andersson, Managing Director of Inter IKEA Centre Group Polska tells Poland Today. page 12

Secret tapes put heat on top officials

A leaked recording of a conversation between Poland's central bank governor and a government minister over the nation's finances may throw the country's ruling party into one of the worst crises since it came to power in 2007. page 13

tel. +48 881 650 600

BANKING & FINANCE Warsaw Stock Exchange to get new boss by June-end page 4 Vienna Insurance Group gets green light to merge two Polish insurers page 4 ENERGY & RESOURCES PKN Orlen completes Birchill acquisition in Canada; Price tag: PLN 708m page 5 PROPERTY & CONSTRUCTION Ghelamco to sell three office properties to Starwood page 6 New Best Western Plus hotel to open in Brzeg page 7

MLP signs first tenant for new Lublin park page 9 Polish warehouse developer has 50,000 sq.m in pipeline for Kraków and Silesia page 10 CONSUMER GOODS & RETAIL FMCG giant Eurocash teams up with HDS in convenience retailing page 11 POLITICS & ECONOMY Government unveils 2015 state budget assumptions page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17

Poland & CEE Real Estate Summit Network Global Capital | Warsaw–London–Frankfurt

25 – 26 June 2014, Bristol Hotel, Warsaw DISCUSSION TOPICS INCLUDE: • How does central & eastern Europe fit into the global property picture? • Poland: Already overbought and overpriced? • Go East!.. But are the global investors ready? • WARSAW OFFICE: How much can the Polish capital absorb? • POLAND RETAIL: Is the nation already over-supplied? • POLAND LOGISTICS: Is Europe‘s centre a logical warehouse hub? • Speed dating: Meet new partners for capital, co-investment and deals • Central Europe: Where is the value in CE around Poland? • Investors in CE: Who are they and what do they want?

• CE OFFICE: Where’s hot and where’s not? • CE RETAIL: Variable speed consumption • CE LOGISTICS: Does it all depend on roads and rail? •O UTSOURCING: Still big but moving up the value curve •P OLAND RESIDENTIAL: Safe as houses .. or maybe not? • HOTELS: The rise and rise of CEE hospitality • Financing CEE: Are the banks playing ball?

This event is brought to you by our Partners:

HAVE YOU CONSIDERED SPONSORSHIP? Poland & CEE Real Estate Summit partners will have an unrivalled opportunity to promote to key industry players in this fast-growing region. Raise your company profile in this increasingly important region for property investment and associate your brand with the most up-to-date discussion and thought leadership. Bespoke packages are available upon request. Please contact sales@pie-mag.com or magdalena.gawlikowska@poland-today.pl

weekly newsletter # 039 / 16th June 2014 / page 2

MANUFACTURING & PROCESSING

the Wałbrzych plant is Toyota's largest engine and transmissions unit in Europe.

Toyota to boost engine production in Poland

y/y) and Diesel engines with 12.3% (EUR 2.2bn; +4.8% y/y).

Automotive exports inch up in 2013 Passenger & LCV production in Poland and automotive exports Auto motive exp orts in EUR bn, left axis Vehicle output in ' 00 0, right axis 20 19 18

Toyota Motor Manufacturing Poland, the Polish production arm of Japan's automotive giant Toyota, has officially launched the production of a new 1.0liter gasoline engine at its factory in Wałbrzych, Poland. The new unit will replace the extremely successful previous version of Toyota's 1.0-liter engine, which has been made in Wałbrzych for nearly a decade, during which time it was voted "engine of the year" in the US for as many as four times. According to Toyota, the capital expenditures related to the introduction of the new engine have come to EUR 30m (approx PLN 123m). Starting from October, the Wałbrzych factory, which currently employs 1,600 staff, will introduce a third shift, creating an additional 380 jobs. Since mid-April Toyota has been shipping the new engines to the Czech Republic, where they are being installed in Toyota Aygo, Citroen C1 and Peugeot 108. From July it will begin supplying them also to the Toyota plant in France, to be used in the popular Yaris model. The 'eco' version of the new engine burns merely 3.8 liters of gasoline per 100km, emitting 88g of CO2 per km, according to the producer. Production in Wałbrzych began in 2002 and to-date the Japanese giant has invested in excess of PLN 2bn at the site. Besides 1.0-litre gasoline engines, the factory makes manual transmissions for the Auris, Avensis, Verso, Corolla and Aygo models as well and multimode transmissions for the Aygo. With an annual capacity of 371,000 engines and 720,000 transmissions,

1,00 0 90 0 80 0

17 16 15 14

70 0 60 0 50 0 40 0 20 08

20 09

201 0

2011

2012

2013

Source: Samar, AutomotiveSuppliers.pl

The Wałbrzych plant is Toyota's largest engine and Image: TMMP transmissions unit in Europe.

Earlier this year General Motors said it would launch production of a new generation midsize diesel engine family at the GM Manufacturing Poland plant in Tychy. Their outlays are to reach EUR 250m, making it the largest investment the Tychy plant has seen to-date, and bringing total GM investments in Poland in excess of EUR 1bn. According to GM, production of the all-aluminum 1.6liter four-cylinder diesel engines is to launch in 2017, with maximum annual capacity being envisaged at 200,000 units. Poland's automotive exports came to EUR 17.9bn in 2013, 1% up on the prior year, and in 2014 the figure is likely to reach EUR 19bn, predicts Rafał Orłowski of market research company AutomotiveSuppliers.pl. According to their estimates, the largest products group were parts and components, representing more than 38.8% of the country's automotive exports (EUR 6.95bn; +5% y/y), followed by passenger cars and light commercial vehicles with 30% (EUR 5.13bn; -3.8%

Poland-based car manufacturers turned out slightly more than 575,000 passenger cars and LCVs last year, marking a 9.6% drop from 2012, according to market researcher Samar. Although Fiat Auto Poland retained its position as the country's number one carmaker, its share in the total vehicle output dropped by 3.4 pps, down to 51.4%. The Poznań-based Volkswagen plant came second with a 29.7% share (+4.2 pps), whereas Opel Polska's factory in Gliwice saw its share shrink by less than 1 pps, reaching 18.9%.

MANUFACTURING & PROCESSING

Belgium's Umicore to create 80 jobs at new catalytic converter converter plant near Wałbrzych Belgian materials technology and recycling group Umicore is investing EUR 40m into a greenfield plant in Poland that will initially create 80 jobs. Located in

weekly newsletter # 039 / 16th June 2014 / page 3

Nowa Ruda (20km southeast of Wałbrzych, near the Czech border), the facility will produce catalytic converters for cars and trucks. Construction of the plant will start in July 2014 and completion is planned for the beginning of 2016, Umicore's Elcke Vercruysse told Poland Today.

cells, and recycling. Its activities are focused on four business areas: catalysis, energy materials, performance materials and recycling. With industrial operations on all continents, the Umicore Group generated a turnover of EUR 9.8bn (EUR 2.4bn excluding metal) in 2013 and currently employs some 14,000 people.

According to the company, the investment will allow it to meet the growth in demand for catalytic converters from its automotive customers in Europe. This growth is driven mainly by the recent introduction of new emission legislation in the European Union.

Umicore's Polish unit, Umicore Autocat Poland, will be located in the Wałbrzych Special Economic zone, where one in three investors represents the automotive sector. Other major automotive firms in the zone include Toyota Motor Manufacturing Poland, Nifco, Male, GKN Driveline, Tristone Flowtech, Ronal, and Mando. Established 17 years ago, the Wałbrzych zone has attracted 170 investors, who have created 36,600 jobs and invested PLN 16.7bn to-date. The permit for Umicore was the 300th one issued by the zone.

"This investment demonstrates our commitment to serve our customers in the European automotive industry. The decision to invest in Nowa Ruda is the result of excellent cooperation with the local special economic zone and authorities as well as with the Polish government. We are proud that Umicore's investment will contribute to the economic development of the region," said Franz-Josef Kron, Senior Vice President Operations of Umicore's Automotive Catalysts business unit. The facility, which will be Umicore's first industrial operation in Poland, complements Umicore's existing European automotive catalyst production capabilities in Germany, France and Sweden. The plant will provide catalyst systems for both light duty and heavy duty vehicles and will be equipped with the newest generation equipment comprising two production lines and all peripheral installations and assets for logistics, quality assurance and analytical inspection of products. Umicore will also incorporate measures to minimize energy use and CO2 emissions at the plant. Umicore is a global materials technology and recycling group. The core of its business, both in terms of revenue generation as well as R&D expenditures, are clean technologies, such as emission control catalysts, materials for rechargeable batteries and photovoltaics, fuel

MANUFACTURING & PROCESSING

Polish Press Glass expands expands Radomsko plant to keep up with growing exports One of Poland's top producers of glass for the construction industry, Press Glass, has embarked on a large-scale expansion of its factory in Radomsko in central Poland. Once fully operational, the PLN 50m project will create an estimated 200 jobs, in addition to the 447 who currently work at the site. With exports (mainly to Northern Europe) representing 80% of its output, the Radomsko unit is already Europe's largest centre for processing glass for the building industry. Established in 2008 as the youngest

and largest of Press Glass' four Polish plants, it initially had a floor space of 12,000 sq.m, which was expanded two years ago to 30,000 sq.m. The subsequent extension, the work on which is to begin in Q3 2014, will boost the plant's floor space up to 63,000 sq.m.

The Radomsko unit is the largest of Press Glass' four manufacturing plants in Poland. Image: Press Glass

"The development of our plant in Radomsko will enable us to strengthen our position on Scandinavian markets to which we export the largest quantities of glass. However, at the same time we aim to increase our sales on other markets, including, most importantly, France and the UK," said Press Glass' communications officer Gerard Plaze. The new production halls will be equipped with cutting edge machinery for manufacturing glazed units and laminated glass, furnaces for tempered glass, as well as a production center for enameled glass and printed glass. Following the extension, the plant will manufacture, among others, 15 lines for glazed units, six furnaces for glass tempering, two lines for laminated glass as well as specialist processing centers. The plant's glass storage capacity will likewise see a significant expansion.

weekly newsletter # 039 / 16th June 2014 / page 4

Established in 1991, Press Glass has four factories in Poland with a combined production space of 64,000 sq.m. Its facility in Tczew near Gdańsk targets the Scandinavian market as well as window makers operating in northern Poland. The Nowa Wieś plant near Częstochowa supplies insulating glass for producers of windows and doors, whereas the Tychy unit makes the most specialized products such as façade and interior glass.

among whom Poland's State Treasury has a decisive say. Current CEO Adam Maciejewski, appointed to finish the term of office of his predecessor Ludwik Sobolewski, is to leave the post.

WSE capitalization in PLNm, year-end* 600 500

BANKING AND FINANCE

Warsaw Stock Exchange to get new boss by JuneJune-end

400

"I'm primarily counting on development of the market and the Polish bourse as a regional financial center," Karpinski said of the likely new CEO of the Warsaw Stock Exchange, adding that one of the new CEO's priorities would be to lead the process of a potential merger with Vienna . "This is a man who knows the Vienna merger project" and, as the first person to strike up the talks, is a "trustworthy partner in negotiations for the Austrians," Karpiński told the PAP agency. Polish deputy Treasury Minister Paweł Tamborski filed his resignation from his post in the beginning of June with intention of seeking the WSE post. The new CEO is to be elected on June 26 by WSE shareholders,

In April 2013 the WSE engaged in talks with the CEE Stock Exchange Group (CEESEG), which unites the stock exchanges of Vienna, Budapest, Ljubljana and Prague concerning "potential methods of strengthening cooperation between both entities." In May 2013 the WSE hired Citibank as financial advisor in talks on potential capital ties with CEESEG. In the PAP interview Karpiński called the project "difficult" citing issues ranging from technical matters, procedural issues, negotiations and the differing corporate cultures. Poland's top priority in the deal remains "the good of the Polish economy and, in turn, of the Polish state," the minister added.

300 200 100 0 1997

Poland will name outgoing deputy Treasury Minister Paweł Tamborski to head the Warsaw Stock Exchange to oversee the planned merger with the Vienna bourse and bolster Warsaw's role as the region's financial hub, Treasury Minister Włodzimierz Karpiński told reporters.

November 2013, enabling trading in top British, French and Dutch securities.

1999

2001

2003

2005

2007

2009

2011

2013

Source: WSE *) domestic stocks

Created in 1991 to facilitate privatization, WSE lists about 450 companies on its main market, including PKO BP, the largest Polish bank, and PZU, the country's biggest insurer, with a combined value of about PLN 841bn (including PLN 593.5bn worth of domestic stocks) as of end of 2013. The number of companies doubled in the last decade, with 81 new listings in 2007 and 23 last year. The main shareholder in the exchange is the Polish Treasury, which holds 35% of its shares and a voting majority. The bourse was privatized in 2010 through an IPO. Since 15 April 2013 the WSE has been running NYSE Euronext's Universal Trading Platform, which allows Warsaw to accept high-frequency orders but also binds it through a technological partnership with the global giant. Earlier this year the WSE has acquired 30% stock in the UK-based multilateral trading facility Aquis Exchange Ltd, which launched at the end of

BANKING & FINANCE

Vienna Insurance Group gets green light to merge two Polish insurers One of the most active foreign investors in Poland's insurance sector, Austria's Vienna Insurance Group AG (VIG) has obtained regulatory clearance for the merger of its life insurers Compena TUnŻ and Benefia TuNŻ. The operation is set to take place by the end of the year, making Compensa a number three player in Poland's life segment. "We are embarking on this at a time of a noticeable slowdown on the life insurance market. We wish to best utilize this time to better prepare for the challenges the sector is facing and maintain our strong and

weekly newsletter # 039 / 16th June 2014 / page 5

competitive position among the country's leading insurers," VIG Polska CEO Franz Fuchs commented on the merger earlier this year. The merged entity will be operating under the Compensa brand.

excellent opportunity to attract new customer groups, as well as enhance our long-term position as one of the country's leading insurers," Peter Hagen, CEO of Vienna Insurance Group, said of the deal.

Poland's top five life insurers

Poland's top five non-life insurers

Gross written premiums in PLN bn

PZU Życie

PZU

Talanx*

Warta*

VIG**

Ergo-Hestia

2012

Open Life

2012

VIG**

2013

ING Allianz

10 0

*) includes Europa and Warta life insurers owned by Germany's Talanx and Japan's Meiji Yasuda **) includes VIG's life insurers

*) owned by Germany's Talanx and Japan's Meiji Yasuda

Compensa, Benefia and Polisa-Życie

**) includes VIG's life insurers Compensa, Benefia, Interrisk

Source: KNF

A few weeks ago VIG concluded the acquisition of another life insurer Skandia Życie TU from UK's Old Mutual Group. In 2013 Skandia Poland recorded premiums written of around EUR 95m, corresponding to number 17 on the Polish life insurance market. Compared to the previous year, this represents an increase in local currency of approximately 3.8%. Skandia Poland has been operating on the Polish market for more than 14 years and sells its products – primarily unit-linked life insurance policies – particularly through financial intermediaries such as banks, insurance brokers and insurance platforms. The insurer employs about 150 members of staff. "The addition of the Skandia Poland product range will significantly expand our portfolio of unit-linked life insurance policies. The company also has an extensive sales network that will provide VIG with an

Following a number of acquisitions in recent years, the Vienna Insurance Group is represented in Poland by three non-life insurance companies, Benefia, Compensa and Interrisk, and three life insurers, Benefia Life, Compensa Life und Polisa Life. Premiums at VIG’s Polish group companies Compensa, InterRisk, Benefia and Polisa totaled some PLN 4.8bn (EUR 1.2bn) in 2013, making VIG one of the country’s top three insurers. The group companies recorded non-life premiums of about PLN 2.4bn. The company reported a particularly good result in the non-motor segment, where year-on-year growth reached about 13%. VIG’s premiums in the life insurance segment were also about PLN 2.4bn. Vienna Insurance Group Polska posted a PLN 58.1m gross profit in Q1 2014, up by 3%y/y, on PLN 1.09bn in

gross written premiums collected, the firm said last week. Of the PLN 1.09bn in gross written premiums (a 3.9% y/y decline), the company collected PLN 631.5m in the property segment, up 4% y/y, and PLN 457.5 million in the life segment, down by 1% y/y. Gross profit amounted to PLN 43.4m in the property segment (down 1% y/y) and to PLN 14.6m in the life segment (up 4% y/y), the statement showed. Listed in Vienna and Prague, VIG is the leading insurer in Austria and a major player in the CEE region with about 23,000 employees and 50 companies in 24 countries. The Austrian company considers Poland, where it has operated since 1998, its core market with a significant long-term growth potential. The insurance density (annual premium payments per capita) figure in Poland tops EUR 400m, compared to EUR 2,000 in Austria and close to EUR 600 in the Czech Republic.

ENERGY & RESOURCES

PKN Orlen Orlen completes Birchill acquisition; price tag: PLN 708m A month after the deal was first announced, Poland’s biggest oil company PKN Orlen, has completed the acquisition of Canada's Birchill Exploration Ltd, thus doubling its crude production in the country. Upon the closing of the acquisition, PKN Orlen finally disclosed its value (CAD 255.6m or approx. PLN 707.5m), which brings the total cost of the Polish giant's investments in Canada in excess of PLN 1.2bn. In September last year Orlen took over Canada's TriOil Resources Ltd for CAD 183.7m (approx PLN 508m).

weekly newsletter # 039 / 16th June 2014 / page 6

The Poles are boosting crude oil production to cut their reliance on Russian supplies. Orlen, which is also looking for oil and gas from shale deposits in Poland, plans to spend PLN 2.7bn on global acquisitions by 2017, it said in May. The company said its acquisitions do not reduce the amount of funds earmarked for exploration and production activities in Poland, including those in unconventional oil and gas plays. In the coming years, total investments in the upstream segment under the company's strategy may amount to as much as PLN 5.1bn.

PKN Orlen seeks to diversify into upstream and en-

ductive capability is more than 4,000 barrels a day, according to a February report by First Energy Capital, a Calgary-based research company. PKN Orlen turned over PLN 114bn last year, some 5% less than in 2012. Its EBIDTA dropped 42% y/ to reach PLN 2.5bn, while its net earnings plunged by 96% and topped a mere PLN 90m. PKN Orlen blamed a very challenging environment in the refining industry (mainly the lowest refining margin and Ural/Brent differential since 2002) for its disappointing result. On the flipside, however, Orlen's capital expenditure rose by a fifth and came in excess of PLN 2.5bn and at the same time the group managed to its debt by PLN 2.2bn, down to PLN 4.6bn. A leading producer and retailer of fuel in the CEE region, PKN Orlen operates three refineries (in Poland, Lithuania and Czech Republic) with a combined maximum capacity of 32.4m tons a year. Last year the three sites processed 28.2m tons of oil, 90% of which was Russian Export Blend Crude Oil (REBCO). Besides investments in the upstream segment, PKN Orlen has made inroads into the power generation sector with a PLN 1.4bn combined cycle gas turbine plant (463MWe) in Włocławek and plans for a similar project in Płock.

ergy generation to offset falling refinery margins. Photo: PKN Orlen

Prior to the TriOil acquisition Orlen generated almost its entire revenue and profit from oil refining and petrochemical businesses as well as retail fuel sales in central Europe. In the first quarter of 2014 the company posted its first profit from oil production as its EBITDA stood at PLN 31m. TriOil produced the equivalent of 3,700 barrels of oil a day and its total deposits were the equivalent of 22m barrels, according to Orlen. Birchill, whose wells are located next to TriOil’s fields in Alberta, has proved and probable reserves of 26.6 million of barrels of oil equivalent, while its pro-

PROPERTY & CONSTRUCTION

Ghelamco to sell three office properties to Starwood, sources say Flemish developer Ghelamco is poised to sell three office projects to SOF IX fund, a unit of Starwood Capital Group. The buyer has reportedly asked Poland's antitrust watchdog to approve the acquisitions.

Although there has been no official confirmation of the deals yet, media reports claim the deal includes Łopuszańska Business Park, T-Mobile Office and Katowice Business Point. Set up in 2013, the SOF IX fund has already acquired more than USD 4.2bn, of which USD 2bn has already been invested.

T-Mobile Office Park is one of three properties StarImage: Ghelamco wood will buy from Ghelamco.

Łopuszańska Business Park offers more than 17,000 sq.m of lettable space in two buildings. The project is currently 90 percent leased to Alior, Allianz and Cemex. T-Mobile Office Park was delivered last year, adding 40,000 sq.m of commercial space to Warsaw’s central business district. Katowice Business Point offers 17,000 sq.m of space. Tenants include Polskie Towarzystwo Wspierania Przedsiębiorczości, PTU, KSBC, PwC and Polska Grupa Dealerów. Ghelamco is one of the most active players on Poland's commercial property market. Over the past 22 years Ghelamco has built nearly 0.5m sq.m of offices and warehouses in Poland. Their ongoing projects include the BREEAM-certified Warsaw Spire complex, which will consist three office buildings (the main 220-metre tower plus two 55m-tall blocks) with a combined of-

weekly newsletter # 039 / 16th June 2014 / page 7

fice space of 100,000 sq.m. and an underground parking lot for 1,200 vehicles. Their other major recent and ongoing developments include Łopuszańska Business Park with 17,000 sq.m, and the new T-Mobile HQ, a 40,000 sq.m office complex on Marynarska 12. Outside of Warsaw, Ghelamco is developing a 60,000 sq.m. class A project Synergy Business Park in Wrocław. Last year the company sold its Warsaw office projects Mokotów Nova (to Curzon Capital Partners III fund for EUR 121m) and Senator (to Union Investment for EUR 120m). The Belgians have also made inroads into the residential segment with and upscale Warsaw project Woronicza Qbik (350 soft lofts), and they are about to break ground on their first retail projects in Warsaw (see PT Business Review+ No. 015 page 11.) Recently Ghelamco was selected by the Polish railways giant PKP SA to build a large mixed-use project at the site of the Warszawa Gdańska suburban railway station. According to PKP, the estimated total capex on the scheme will come to PLN 1.5bn.The actual construction work is to get underway by the end of 2014 or at the beginning of 2015, although the projects has been met with some objections from third parties, including Ghelamco's competitors as well as the military, which is using the said railway line to transport explosives. The whole complex will be constructed in stages, with the new suburban train station to be delivered first.

PROPERTY & CONSTRUCTION

New Best Western Plus hotel to open in Brzeg next year The global hospitality chain Best Western will open a new hotel in the southwestern Polish town of Brzeg (40km from Wrocław) in April 2015. Located in the historic centre of the city, close to all major tourist attractions, the planned Best Western Plus Hotel Brzeg will be part of a retail complex Galeria Brzeg. The hotel will offer 60 rooms equipped in line with Best Western's superior "Plus" guidelines, four conference rooms, restaurant, lobby bar, fitness centre and 30 parking spaces.

ier brands. Last year the chain added properties in Gdańsk, Lublin, Kraków, Piotrków Trybunalski and Modlin. This year's openings include Best Western Plus Q hotels in Wrocław and Kraków (with 154 and 127 rooms respectively) as well as a brand new 3-star hotel in Opole (30 rooms) and a 3-star Best Western Petropol in Płock (84 rooms), a conversion of a former Orbis property. "We are on track to have 50 contracts signed by the end of 2015," Best Western Poland director Gheorghe Marian Cristescu, told Poland Today. "We are securing contracts for new destinations as well as cities like Warsaw or Katowice were we are already present." The chain's expansion in Poland is being managed by BW Hotels Osuuskunta, also known as Best Western Hotels Finland, Baltic States and Poland - the affiliate office of Best Western International responsible for the brand and hotel services in the region. Although until 2012 Finland, with 16 hotels, had been the largest market for BW Hotels Osuuskunta, the balance has since shifted to Poland, which will continue to fuel the chain's growth in the region for years to come. Founded in 1946 Best Western is the world's biggest hotel chain. All of its hotels are independently operated and owned by private investors. All facilities belonging to the chain share the same quality and customer service standards as well as sales and marketing programs.

The new Best Western hotel in Brzeg will open in Image: Best Western April 2015 with 60 rooms.

Best Western currently has 22 hotels with nearly 2,000 rooms in Poland, operating under the Best Western, Best Western Plus and Best Western Prem-

weekly newsletter # 039 / 16th June 2014 / page 8

SERVICES & BPO

Radom emerges as attractive attractive destination for business services Large Polish cities such as Warsaw, Kraków and Wrocław have long been the natural magnets for foreign business services providers, who were attracted by their large talent pools and convenient transport connections. However, as the competition on the local job markets began to heat up, investors started shopping for new destinations, ones that would offer employees who are both skilled and motivated. One such city is Radom, a city of 100,000 inhabitants located just 150km south of Warsaw.

From the left: Wiktor Doktór, Chairman, Pro Progressio; Maciej Nuckowski, GDO Services Director, XEROX Global Document Outsourcing; Kamila Krawczyk-Strawińska, CEO, Multi Interactive Solutions. Image: Poland today

"It's time Radom appeared on investors' radar," said Maciej Piwowarczyk , Senior Director, Head of EMEA

Shared Service Centre, CBRE, listing Radom's convenient location, low operating costs, skilled and loyal employees, and supportive local authorities among the city's key assets. Piwowarczyk was one of several highprofile guests who shared their experiences of investing in Radom at Poland Today's recent "Radom calling" conference. Although Radom is located only an hour's drive from Warsaw's Chopin airport, this second largest city in the Mazowieckie region has recently opened its own passenger airport, merely 5km from the city centre, which hopes to attract up to 3.2m passengers annually in the long-term. As many as 16% of Radom's population are people between 20 and 29 years of age, making it one of Poland's youngest cities. As far as higher education is concerned, some 15,000 students are enrolled at Radom's 14 universities. The big challenge, however, is making potential investors aware of Radom's existence. Iwona ChojnowskaHaponik, Director at Poland's investment promotion agency PAIiIZ, said her institution had been seeking ways to introduce smaller Polish cities to foreign BPO/SSC firms, and admitted that the task had been anything but easy. In her opinion, the natural target for cities such as Radom are companies already operating in Poland, who are "mentally ready" to venture out of the biggest cities in search of motivated and competitively price human resources. "Nobody wants to be the guinea pig," said Adam Jamioł, director at PwC and a huge fan of Radom, who argued that the best way to build the image of Radom and its peers is to rely on successful business cases. Radom has already attracted a number of investors, for instance ASSG, Centrum Energetyczne, Idea Call Center, Telbridge, Iron Mountain, Asseco Poland, Multimedia Interactive and Millward Brown, who can share their success stories far and wide. In a recent survey, five of Radom's estimat-

ed 12 outsourcing centers said they were planning to create 350 new positions by the end of 2014. In the case of Millward Brown, which relocated its call centre from Warsaw to Radom a few years ago, the move had been very beneficial thanks to lower costs, limited staff rotation, and high degree of employee motivation, said Izabella Anuszewska, Research Unit Director at Millward Brown. "Attitude is key and people in Radom are serious about work," added Kamila Krawczyk-Strawińska, CEO of Multi Interactive Solutions. A recent survey by Hays and PwC saw Radom employees stand out on two crucial points: strong motivation and reasonable expectations regarding pay.

Radom Mayor Andrzej Kosztowniak said investors can count on professional assistance from the authorities. Image: Poland Today

Low wages are no more the key issue, argued Maciej Nuckowski, GDO Services Director, XEROX Global Document Outsourcing, who said that these days investors pay more attention to skills and dedication on the part of existing and potential employees. In his opinion, the quality of human resources is becoming particularly important against the backdrop of the ongoing shift in shared services centre management from simple cost optimization to value creation.

weekly newsletter # 039 / 16th June 2014 / page 9

Keeping up with this trend, one of Radom universities has launched Poland's first postgraduate studies in "Modern Business Services," created and ran in cooperation with ASPIRE and PwC. The expectation is that the tailor-made program, which prepares candidates for work in the BPO/SSC sector, will catch the attention of investors. The local authorities have been very supportive of new projects, helping investors on the staff training side (offering dedicated solutions at the high school and university level as well as in job centers) and tax incentives under the Tarnobrzeg special economic zone.

TRANSPORT & LOGISTICS

Panattoni adding 24,000 sq.m to Park Łódź East US-owned industrial space developer Panattoni Europe is extending Park Łódź East with 24,000 sq.m of multi-tenant space now under construction. Following its completion, the modern complex will feature as much as 187,000 sq.m. Including the new Łódź project, Panattoni has close to 290,000 sq.m of industrial and warehouse space under construction in Poland in projects with a combined value of EUR 187m. Following recent completions of major infrastructural projects in the region, Central Poland and the ŁódżStryków area, where the country's two main highways (A1 Gdańsk-Cieszyn and A2 (Warsaw-Berlin) intersect, has been attracting a growing number of logistics and production investments. According to Panattoni, the planned construction of the A1 motorway between Stryków and Tuszyn will further enhance the region's attractiveness, prompting the developer to embark on the Park Łódź East extension.

At present, Panattoni Europe is developing 265,000 sq.m of new warehouse space in Poland, including two facilities for Amazon in Poznań and near Wrocław. Since the beginning of this year, the developer has delivered approx. 100,000 sqm of space in projects dedicated to such companies as Castorama Polska (50,000 sq.m) and Polaris (33,600 sq.m).

TRANSPORT & LOGISTICS Once completed, Panattoni's Park Łódź East will include 187,000 sq.m of warehouse space. Image: Panattoni

Panattoni Park Łódź East is one of the developer’s four parks in Central Poland, the other being: Panattoni Business Center Łódź, Panattoni Park Łódź South and Panattoni Park Stryków. Park Łódź East is a modern distribution complex, offering a wide range of solutions in warehousing, logistics and distribution as well as manufacturing. At present it comprises four buildings totaling 163,000 sq.m, and at full build-out the total space will be 187,000 sqm. The park lies in the direct vicinity of the "Łódź Wschód" interchange on the A1 motorway (Gdańsk-Cieszyn), merely 10 km from the city centre.

Largest new leases in 2013 Region

Park

Sq.m

Tenant

Wrocław Amazon BTS

123,000 Amazon

Poznań

Amazon BTS

101,000 Amazon

Wrocław Amazon BTS

101,000 Amazon

Poznań

Poznań Logistics Centre II

82,000 ITM

Central

BTS Castorama Stryków

50,000 Castorama

Wrocław Prologis Park Wrocław V

35,000 Eko Holding

Opole

BTS Polaris Opole

34,000 Polaris

Poznań

Segro Logistics Park Poznań

32,000 Volkswagen

Source: Jones Lang LaSalle, warehousefinder.pl Q4 2013

MLP signs first tenant for new Lublin park ABM Greiffenberger, the German developer and manufacturer of electric motors and transmissions, which in late 2013 launched production at its first foreign factory in Lublin, Poland, has finally secured the right kind of premises for the project. Initially the investor struck a deal for built-to-suite space at Lublin's Wikana Business Park, bit the latter's developer failed to deliver the project on time. Chased by deadlines, ABM moved into premises belonging to Ball Packaging Europe, which have stood idle for a couple of years after the aluminum can producer curtailed its ambitious investment plans due to crisis. Last week, it was officially announced that ABM will be the first tenant at a new warehouse and industrial site in Lublin to be developed by the Warsaw-listed, Israeli-owned MLP Group. The company will take up 9,800 sq.m at MLP Lublin with its new production and warehouse building to be delivered by the end of the year. The entire MLP Lublin is being envisaged as a large complex of warehouse, industrial and office space with a combined leasable space of 55,000 sq.m.

weekly newsletter # 039 / 16th June 2014 / page 10

"The east of Poland is becoming increasingly attractive to investors seeking modern industrial and warehouse space, with the Lublin region being particularly popular. We have signed our first tenancy and we are in talks with other potential investors who are interested in starting up in that location. We expect further agreements to follow in the coming months," says Dorota Jagodzińska-Sasson, board member at MLP. At the moment, the company runs five logistics centers (Poznań, Tychy, Bieruń and two in Pruszków near Warsaw) and its 169ha land holdings enable the investor to develop up to 774,000 sq.m of industrial and logistic space across the country. As for ABM Greiffenberger, it ranks among the world’s leading suppliers of sophisticated, high-performing solutions in drive technology, producing around 300,000 drive units per year. The company currently operates three production plants and has subsidiaries as well as partners in all important industrial nations. Besides segments such as hoisting technology and forklift trucks in which ABM has been active for several decades al-ready, for the past 15 years special emphasis has been put on areas especially addressing environmental technology and energy efficiency. Examples include e-mobility, warehousing logistics, drive solutions for bio-mass heating systems, and transmissions for wind power plants. In 2013 ABM Greiffenberger turned over EUR 98.6m (+2.1% y/y) with a workforce of 700 employees. According to ABM's Thorsten Braun, the Lublin project, which has created 120 (mostly full-time) positions, has been a major improvement to the company's global supply chain. "The new plant in Lublin integrates services into our own value chain that previously had mainly been bought-in. It will also carry out a small electric motor assembly that so far has been done at our German site in Plauen as well as several selected production steps

such as windings for electric motors to be supplied to our German plants," ABM's Thorsten Braun told Poland Today's Lech Kaczanowski last year. ABM Greiffenberger is part of Greiffenberger AG, a family-led industrial holding company operating successfully worldwide in drive technology, metal band saw blades & precision strip steel, and pipeline renovation technology. Greiffenberger AG has been publicly quoted since 1986 and employed 1,051 staff worldwide (including 88 in Lublin) as of end of 2013. In 2013, the Greiffenberger Group generated revenues of EUR 155.2m (1.7% down on the prior year) and posted EBITDA of EUR 12.6m and net income of EUR 1.3m.

TRANSPORT & LOGISTICS

Polish warehouse developer has 50,000 sq.m in pipeline for Kraków and Silesia Polish warehouse developer Biuro Inwestycji Kapitałowych (BIK) seeks to double the amount of built-up space at its logistics centers in Kraków and Sosnowiec, adding a combined 50,000 sq.m to the two locations.

Centrum Logistyczne Kraków II: one of BIK's two existing warehouses projects in the Kraków area. Photo: BIK

The 20,000 sq.m Kraków project will be BIK's third logistics centre in the area. It will be located near the Szarów junction on the A4 highway, some 30km south-east of the city. As for the 30,000 sq.m Sosnowiec investment, it will constitute another installment of BIK's existing Śląskie Centrum Logistyczne, which after completion is to total 65,000 sq.m.

Warehouse market as of end of 2013 Region

Existing stock

Warsaw Inner City

563,000

Warsaw suburbs Wrocław Kraków

"Both sites are ready for development. We are in talks with a number of potential tenants. Following the signing of pre-lease agreements the buildings can be delivered in approximately 12 months. By using the available; potential we will double the amount of occupied warehouse space, thus strengthening our presence in the Kraków and Silesia regions," said BIK CEO Mirosław Koszany.

Łódź Central Poland (excl. Łódź) Poznań Szczecin Upper Silesia Tri-City

Effective rents 3.6-5.1

2,063,000

2.1-2.8

780,000

3.4-3.9

141,000

3.3-4

300,000

2.75-3.7

721,000

2.1-2.8

1,023,000

2.5-3.15

48,000

2.8-3.4

1,431,000

2.4-3.3

184,000

2.8-3.3

Source: Jones Lang LaSalle, warehousefinder.pl Q4 2013

weekly newsletter # 039 / 16th June 2014 / page 11

"We are observing growing interest in modern warehouse space among investors. The Kraków region suffers from limited supply of warehouses due to shortage of attractive investment sites, which is why we are hoping our Kraków III project will attract a lot of interest. As for the Sosnowiec expansion, we can be very flexible, offering units as small as 800-900 sq.m," says Koszany. At the moment BIK owns and manages three logistics centers (two in Kraków and one in Sosnowiec) with a combined space of 52,000 sq.m. Including its sold projects in Ożarów Mazowiecki near Warsaw and Pruszcz Gdański near Gdańsk, the company has delivered 85,000 sq.m of industrial space to-date. Recently the developer has diversified into retail projects, with small retail parks in Puławy (completed) and BielskoBiała (under construction) and a shopping centre in Dzierżoniów (planned).

chain, currently comprising 410 retail locations, mostly in shopping centers. The Inmedio shops offer a wide FMCG assortment, from cigarettes, press and books to sweets, drinks and impulse products. Selected Inmedio locations also feature bill payment, cash transfer and courier services. At the same time, a newly-formed subsidiary of Eurocash – Eurocash Convenience – is entering into a franchise agreement with HDS, which allows it to use the '1minute' trademark to develop a chain of convenience stores that will combine food and FMCG products in attractive locations.

FMCG giant Eurocash teams up with HDS in convenience retailing

Under a preliminary agreement signed on 10 June 2014, Eurocash is to acquire from HDS Polska 51% of shares in a company that will operate the Inmedio

Lagardère Services entered the Polish market in 1998 with the Inmedio and Relay convenience chains, selling primarily newspapers and books at airports, train stations and in shopping malls. This arm of its business that now includes also Discover bookstores and Virgin multimedia outlets. The company runs also a number of chains in the food and beverages segment (including 1minute as well as a number of quick service restaurants and cafes) and airport duty free shops. In 2012 the group turned over PLN 1.2bn and net-earned PLN 66m in Poland. It currently manages 740 retail locations in Poland. Ranked as Poland's 9th largest company by revenues, with sales of more than PLN 16.5bn in 2013 and more than 12,000 employees, Eurocash operates an FMCG distribution business, cash & carry warehouses, and a franchise chain of more than 6,000 small and mediumsized convenience stores "abc", which added some 600 new locations last year alone.

CONSUMER GOODS & RETAIL

Poland's leading FMCG distributor, the Warsaw-listed Eurocash, has made further strides in its strategic efforts to consolidate Poland's retail sector by teaming up with HDS Polska, the Polish unit of France's Lagardère Services. Together, the two companies seek to strengthen their position in the convenience sector – the fastest growing segment of Poland's retail market, currently dominated by Żabka Polska.

Completion of the transaction between Eurocash, HDS Polska and Lagardère Services is subject to regulatory approvals. According to Jacek Owczarek, Eurocash Group's Finance Director, through the agreement with HDS Polska, Eurocash Group gains a partner that has unique experience in operating convenience chains in Poland.

1 minute will be a new franchise chain in Eurocash's portfolio. It currently includes 70 locations. Photo: HDS Polska

1minute's hallmarks include modern, distinguishable interior, layout and advertising and marketing. The stores offer a wide product assortment, from groceries and beverages, alcohol, bread and every-day products (newspapers, cigarettes, batteries, confectionery and ice cream) to heated fast food and hot coffee and tea. In addition, the 1minute stores offer pre-paid top ups, Lotto and bill payment services.

Last year the company joined forces with another major player in the FMCG sector, Kolporter. Eurocash's subsidiary KDWT, which is Poland's top distributor of tobacco products teamed up with Kolporter to distribute tobacco products, foodstuffs, drinks and other FMCG goods. Under an investment agreement that the two companies signed in early December, Kolporter were to acquire 25% plus one share in KDWT in exchange for 100% of shares in a newly established company, to which Kolporter would transfer an organized part of its business comprising operations in distribution of tobacco products, foodstuffs and other FMCG

weekly newsletter # 039 / 16th June 2014 / page 12

products (Kolporter Departament Dystrybucji FMCG). The merging entities generated PLN 4.6bn in aggregate revenue in 2012.

RETAIL PROPERTIES

Inter IKEA Centre acquires site for new retail project in Zabrze

ject is as well planned to be created a park area for the inhabitants of Zabrze," says Mikael Andersson. Inter IKEA Center Polska was hoping to launch the construction of another project in Lublin, but the project is yet to get underway due to delaying bureaucratic procedures. According to plans, the two-story retail cluster is to total approximately 80,000 sq.m GLA, and will encompass an IKEA store, shoping gallery (49,000 sq.m), hypermarket (11,000 sq.m), food court, and 3,000 parking spaces.

Inter IKEA Centre Polska, the retail property development arm of Sweden's Inter IKEA group, has acquired a 25.7ha site in Zabrze, where the company plans to build its next Polish project. "At the moment we are working on our concept but the plan is to make an enclosed shopping centre with an integrated IKEA store. However, it is too early to talk about its GLA yet. We have to work out our concept first," Mikael Andersson, Managing Director of Inter IKEA Centre Polska tells Poland Today.

Anchored by an IKEA store, the new centre in Lublin were to open in Q4 2014 with a GLA of 80,000 sq.m, but now 2015 seems like a more realistic deadline. Image: Inter IKEA Center Group

The investor agreed to pay PLN 22m for the site that was put up for tender by the local authorities and the state treasury, making it the largest property deal in Zabrze's history. The piece of land in question is situated near the Zabrze-Ruda Śląska border, beside Drogowa Trasa Średnicowa, an arterial route linking key cities of the Silesian conurbation, Poland's largest metropolitan area. "It is too early to determine any date for start of construction and final grand opening. It depends on the concept, building permit process and last but not least the commercialization of the centre and I wouldn’t dare to speculate at this stage. When we open, we intend to do it with a enclosed shopping centre together with the enclosed IKEA Store. Together with the pro-

"In June, as soon as the developer obtains valid permits, we are planning to launch construction of approach roads," says Mikael Andersson. "We have just started construction works of the extension of Bielany Shopping Park in Wroclaw. After completing the project, the building will accommodate around 200 tenants and its GLA will amount to 145,000 sq.m, up from the current 80,000 sq.m. Thanks to cooperation with Helios multiplex operator, the first up-to-date cinema with eight projection rooms will be launched in the southern part of Wroclaw." As part of the IKEA group, IICG Poland is responsible for preparation, implementation and management of commercial property projects. In Poland, the group

owns eight shopping centers, which are situated in Gdańsk, Łódź, Poznań, Wrocław, Katowice and Warsaw (three centers: Janki, Targówek and Wola Park). The latter is IICG first acquisition in Poland and also the only IICG project in the country that is not anchored by an IKEA store. Their biggest investment last year was the expansion of the Franowo retail park in Poznań, which opened in September 2013. The company added 14,000 sq.m of retail space to the park, expanding its total area to 80,000 sq.m. "This year we will also start extending Wola Park by 17,565 sq.m, which after completion will make it the second-largest shopping centre in Warsaw. The main tenant will be Castorama with a 10,000 sq.m lease. existing part of Wola Park will at the same time be refurbished." Last year, tenants at Inter IKEA Centre's eight Polish retail parks reported a 4% y/y increase in sales, while footfall grew by 3%. As for the IKEA Retail unit, which operates eight furniture and home goods stores in Poland, it achieved sales revenues of PLN 2bn in fiscal year 2013 [September 2012 – August 2013; ed.], marking a 9% increase y/y. "Last year and this year, Poland has been within the top three growth countries for IKEA globally," IKEA Poland Retail Manager & Managing Director Evelyn Higler told Poland Today. "Economic conditions were tough in the beginning of 2013 but the upturn was visible for the rest of the year. " A few years ago the company acquired an investment site in Opole and rumors circulated about possible store openings in Szczecin and Rzeszów. IKEA representatives remain tightlipped on any other new projects, admitting, however, that the company is interested in further expanding its retail footprint in the country.

weekly newsletter # 039 / 16th June 2014 / page 13

RETAIL PROPERTIES

CBRE fund acquires Płock's Galeria Mazovia Real estate investment company CBRE Global Investors has acquired the Galeria Mazovia shopping centre in the central Polish city of Płock from a private investor with a gross yield of 7.9%. The centre of Poland's petrochemical and chemical cluster, Płock has a population of 123,000. Delivered in 2010, Galeria Mazovia is the largest retail and leisure center in Płock, offering nearly 28,500 sq.m of leasable space in 120 retail and service units. Anchor tenants include: Media Markt, Piotr i Paweł, Zara, H&M, Reserved and Go Sport. The scheme provides ample free underground parking with 670 parking spaces.

Center in Hannover and StadtCenter in Düren, Germany. "We’re confident that this project will satisfy our investors, as it will be generating solid rental income and high return rate, with the rental growth in sight, thanks to an effective tenant mix," commented Florencio Beccar, the ESCF fund manager at CBRE Global Investors. Beccar added that his company's most recent transaction makes it possible for CBRE to diversify its portfolio and to increase its position on the Polish market. "The acquisition of Galeria Mazovia indicates growing investment activities in the retail sector in medium size cities. The property is a prime product being a well-established and dominant shopping centre in one of the most affluent cities in Poland," Piotr Kaszyński, Partner, Head of Capital Markets at Cushman & Wakefield in Poland, who represented the seller along with Crido Legal law firm. As of March 31, 2014, CBRE Global Investors had USD 90.2bn in assets under management, including USD 35.2bn in the EMEA region. The company's flagship asset in Poland is the Złote Tarasy mixed use retail and office complex in Warsaw.

POLITICS & ECONOMY

Galeria Mazovia was completed in 2010 by a private Image: C&W investor.

Key officials in hot water over leaked recordings

The investment makes Mazovia the sixth project in the CBRE ESCF fund, following Tyresö Centrum in Stockholm, Centre Commercial Boissénart in Paris, Galerie Saint-Lambert, Liége in Belgium and Leine

As this issue of BR+ was going to the press, Poland appeared to be on the verge of a political storm after the country's popular weekly Wprost published recordings and transcripts of alleged political bargaining be-

tween top government and central bank officials. Most importantly, they show people identified as NBP governor Marek Belka and interior minister Bartłomiej Sienkiewicz allegedly discussing potential help from the central bank to bolster the economy and prevent the opposition from winning elections in 2015. According to the magazine, the material, the authenticity of which could not be verified, was recorded in July 2013 at a Warsaw restaurant. In the recording, the interior minister appears to be probing Belka on whether the central bank would support the government in a hypothetical scenario where the economic situation deteriorates and public support for the opposition Law & Justice party (PiS) increases. The Polish constitution forbids the financing of state deficits with debt from the central bank, which enjoys a very high degree of independence.

NBP boss wants different FinMin

The person identified as the central bank chief mentions "non-standard" solutions and ones that involve "a very significant change" in the central bank's status. In the materials published by Wprost, Belka allegedly said he would be ready to help on the condition that then-Finance Minister Jacek Rostowski were replaced by "a technical, apolitical finance minister who would get full support from the central bank." Rostowski quit last November and was replaced by Mateusz Szczurek, the former chief economist for central and eastern Europe at ING Group. Mr. Rostowski's six-year term at the ministry brought an overhaul of the public finance sector, achieved primarily through a cap on expenditure growth and a controversial decision to redeem sovereign bonds held by privately managed pension fund companies. The two gentlemen were caught on tape discussing what the interior minister called "the worst-case scenario"—one of weak economic recovery in late 2013,

weekly newsletter # 039 / 16th June 2014 / page 14

which would lead to insufficient tax revenue, a gaping public deficit and the state's inability to raise money in the financial markets. The scenario has not materialized and the government is expecting a healthy GDP growth of 3.3% in 2014 and 3.8% in 2015. Polish bonds have been very popular with global investors and the public gap is shrinking. Although it is not clear from the transcripts what kind of support Belka has in mind, he seems to be referring to a change in NBP statute that would enable the institution to buy Polish bonds at times of serious financial crises, playing a role similar to the Federal Reserve's quantitative easing. A solution of this kind was indeed included in a draft new legislation on the Central Bank the government has been working on since August last year. On Sunday afternoon NBP published a statement in which it confirmed that such was indeed the context of Belka's conversation with Sienkiewicz and that the recordings revealed by the magazine were incomplete and edited. The other transcript that leaked to the press over the weekend allegedly showed former transport minister Sławomir Nowak discuss a potential tax audit of his wife's company with former deputy finance minister Andrzej Parafianowicz. Wprost said it had information about a whole series of recordings involving other key government officials and businesspeople. Based on what has been published so far, Prime Minister Donald Tusk's Civic Platform (PO) party will have a lot of explaining to do before the 2015 general election, as the opposition will undoubtedly use the recordings to discredit the government. "It’s an unpleasant case and I’m not ignoring it," Tusk said on Twitter yesterday. The prime minister said he will hold a news conference to discuss the matter at 3 p.m. on Monday, June 16, in Warsaw.

The story is a major PR blow to NBP governor Belka, who has been widely respected as an independent non-partisan expert, despite having served as Prime Minister and Finance Minister in leftist governments of the late 1990s and early 2000s. Even if Belka's explanations regarding the context of the conversation prove accurate, his direct involvement in government politics as well as his offensive remarks about other officials, including members of the Monetary Policy Council, cast a shadow over his overall very positive record. Aside from the actual content of the recordings, and what other revelations they might bring in the coming weeks, the big question is who stands behind the whole taping scandal, why were the recordings leaked at this particular moment, and how was such a major breach of security possible in the first place. The whole story looks like one of the worst crises the current centre-right government has seen since it came to power in 2007 and it is likely to dominate public debates for weeks to come.

POLITICS & ECONOMY

Government unveils 2015 state budget assumptions Poland's 2015 budget will be based on 3.8% GDP growth and 2.3% inflation, the government said last week, adding that the VAT rates are to remain at their current, heightened level , and personal income tax thresholds and standard deductions will be kept frozen for at least another year.

ployment (to 9.726m jobs), and year-end unemployment rate at 12.2% as of end of 2015. Private consumption is to grow by 2.2% in 2014 and 3% in 2015, whereas public consumption is to increase by the respective 2.4% and 1.1%. The government is anticipating a significant improvement in investments, as gross fixed capital formation is expected to go up by 4.1% this year and 7.2% in 2015. Investment spending could increase as the election year coincides with a better moment in the EU funding cycle. The government will also seek to raise the minimum wage to PLN 1,750 monthly (from the current PLN 1,680) and start contemplating conditions for an eventual un-freezing of wages in public administration, Prime Minister Donald Tusk told reporters. The Prime Minister called the 4.2% increase of minimum wage "a modest first step, but a good sign for starters," possible now that Poland "has broken the threat of the crisis." A Szczecin-based Centre for Economic Analysis estimates Poland's gains from the PIT freeze at PLN 1.32bn and a further PLN 2.9bn in 2016 if the current rates and thresholds remain in force. According to the government, Poland's 2015 tax receipts should be 4 to 5% higher than in 2014. A planned "tightening" of the system is to generate an additional PLN 2bn.

DATA BOX: MAY INFLATION Poland’s inflation rate dropped to the lowest in 11 months in May, having risen by merely 0.2% y/y, matching the all-time low set in June 2013, after a 0.3% gain in April, the statistics office GUS in Warsaw said on Friday. Since inflation has remained below the Monetary Policy Council's 2.5% target for 18 months now, and price pressure appears non-existent, a growing number of analysts are counting on a rate cut.. Source: GUS

Other key macroeconomic assumptions include a 4.7% nominal increase in gross wages, 0.7% growth in em-

weekly newsletter # 039 / 16th June 2014 / page 15

KEY STATISTICS Consumer Prices Prices

Inflation

+3.7 +0.7 +3.9 +0.3 +3.9 +0.2

-4.7

-1.7

-4.3 +0.8

-4.4 +2.8

-4.6

-0.1

Housing

+1.9

+0.1

+1.8

-0.1

+1.7

0.0

+1.6

0.0

-0.1 -0.4

Transport

-1.1

+0.4

-2.7

+0.1

-2.1

-0.1

Communications -3.2

+0.4

-0.3 +0.6

-1.7

-1.5

Gross CPI

+0.1 +0.7 +0.1 +0.3

0.0

+0.7

-0.8 -0.4

-1.1

Jan '14

+17.3

-21.3

-0.6

+12.5

+2.3

+5.8

+4.8

+7.0

+3.1

+8.4 2013

y/y (%)

-0.1

+0.2 -0.1

Feb '14 Mar '14 Apr '14

Year

2009

2010

2011

2012

Turnover in PLNbn

582.8

593.0

646.1

676.0

n/a

+4.3

+5.5

+11.6

+5.6

+2.3

y/y (%) May 14

+1.4

Clothing, shoes

-0.5

Mar 14

Alcohol, tobacco +2.2

-0.3 +0.3

Jan 14

+1.2

Dec '13

m/m (%)

m/m

Nov 13

-0.2

Sep 13

+1.6

y/y

Jul 13

Food & bev

Month

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

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

Mar 13

Sector

Retail Turnover

Jan 13

May '14

Nov 12

Apr '14

Sep 12

Mar '14

Jul 12

Feb '14

May 12

Data in (%)

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-Apr y/y

178.8

174.9

184.1

165.1

138.7

158.1

162.2

141.8

127.4

(in '000 units)

Producer Prices Prices

Industrial Output

Permits

2014

(%)

48.8

+15.9

Commenced

142.9

45.1

+27.7

m/m (%)

-0.7

-0.3

-0.1

0.0

-0.1

-0.2

-0.1

m/m (%)

+6.0

-6.2

-9.7

+2.9

-1.8

+9.4

-2.3

U. construction

670.3 692.7 723.0

713.1 694.0

693.2

-1.0

y/y (%)

-1.4

-1.5

-1.0

-1.4

-1.3

-0.7

y/y (%)

+4.4

+2.9

+6.6

+4.1

+5.3

+5.4

Completed

160.0 135.7

152.5

46.9

-1.8

Year

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product

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

-0.1

-0.2

-0.1

0.0

-1.8

-1.7

-1.6

-1.5

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

397,429

n/a

455,528

-1.5%

Q3 2013

+2.0%

405,554

-1.9%

Q2 2013

+0.8%

296,314

-2.3%

2013

+1.6%

1,635,746

-1.5%

2012

+1.9%

1,596,379

-3.7%

Sentiment Indicators

2011

+4.5%

1,528,127

-5.0%

Economic sentiment and consumer confidence indicators

2010

+3.9%

1,416,585

-5.1%

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

-64.0

+18.7

+24.2

+3.2

-3.2

-8.9

+5.8

-3.9

+14.4

+17.4

+12.2

2007

2008

2009

2010

2011

2012

2013

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

6,060

138 6,290

143 6,061

B 138

8,615 196

Manufacturing

3,491

152 3,560

155 3,625

158 3,690

161

Energy

6,196

188 5,828

177 6,021

183 6,736 205

-20

3,556

Retail & repairs

3,432 146

157 3,766

160 3,895 166

3,421 146 3,408

145 3,456 147

152 3,693

3,913 138

Transportation

3,439

122 3,547

125 3,589

127

IT, telecoms

6,685

174 6,707

174 6,654

173 6,695 174

Financial sector 6,356

143 6,702

151 6,109

137 6,602 148

3,613 144 3,652

145 3,823 152

National average 3,741 149

Source: Central Statistical Office (GUS)

120

-40

Key Economic Data & Projections

100

Indicator

2010

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+0.5%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.8%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.5%

Unemployment**

12.4%

12.5%

13.4%

12.2%

3.99

4.12

4.19

4.20

4.11

60 Aug 1 1

Construction

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

M ay 1 4

Q4 2013

Feb 14

Q3 2013

No v 1 3

Q2 2013

Aug 1 3

Coal mining

Q1 2013

Current account def. in % of GDP

+2.7%

+21.5

M ay 13

Sector

GDP in PLN bn current prices

+3.4%

-2.9

Feb 13

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

146.1

Q4 2013

+14.3

Source: The Central Statistical Office of Poland, GUS

Gross Gro ss Wages

Growth y/y unadjusted

131.7

Q1 2014

m/m (%)

N ov 12

y/y (%)

-0.1

Period

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

Aug 1 2

Year

-0.1

Month

M ay 12

y/y (%)

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

Feb 1 2

m/m (%)

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

Construction Output

Construction Prices Price s Month

Month

Nov 11

Month

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

EUR/PLN

2011

2012

2013

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

*2014

weekly newsletter # 039 / 16th June 2014 / page 16

55.27 ↑

100 SEK

45.66 ↑

100 NOK

50.70 ↑

10,000 JPY

298.21 ↑

10,000 HUF

400

USD EUR 350

300

15.03 ↑

100 CZK

134.28 ↓

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

as of 13 June 2014

WIG-20 stocks Price Change Change in alphabetical 13 June 6 June end of order '14 '14 '13

WIG Total index

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

PLN (up to 1 year)

4.5%

4.3%

4.2%

4.5%

4.4%

PLN (up to 5 y )

4.9%

4.8%

4.9%

4.8%

PLN (over 5 y)

4.8%

4.7%

4.8%

4.7%

↓ Asseco Pol.

PLN (total)

4.8%

4.7%

4.8%

4.7%

↓ Bogdanka

EUR (up to 1m EUR) 1.9%

1.9%

2.0%

1.9%

2.0%

↓ BZ WBK

EUR (over 1m EUR) 3.0%

2.9%

3.6%

3.4%

3.3%

3.0%

→ Eurocash

Warsaw Inter Bank Offered Rate (WIBOR) as of 13 June 2014 Overnight

1 week

1 month

3 months

6 months

2.58%%

2.59%

2.60%

2.68%

2.70%

Central Bank (NBP) Base Rates Jan '14 161,544 546,487 113,455 947,443

Feb '14

Mar '14

158,330 548,033

173,213 558,954

114,680

116,657

954,284 964,624

969,754

- Time deposits

418,259

423,296

422,990

439,137

962,416

968,442

980,377

986,142

- Net foreign assets 140,617 135,759 132,849 126,943 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

+2%

52,759. 759.01

41.6

-3%

-10%

Change 1 week

120.85

-1%

-4%

374.55

-6%

-3%

42.73

-10%

WIG-20 blue chip index

↓ Grupa Lotos

38.64

-1%

+9%

↓ JSW

46.09

-1%

-13%

2,471 2,471. 471.82

↑ Kernel

33.76

+8%

-11%

Change 1 week

↑ KGHM

119.4

+1%

Change end of '13

-7%

8,326

-3%

501.2

-7%

↓ Orange Pol.

10.4

-2%

+6%

Credit

↑ Pekao

191.7

+1%

+7%

54,000

The financial sector's net lending in PLN bn,

↑ PGE

21.55

+3%

+32%

53,000

loan stock at the end of period

↑ PGNiG

5.14

+1%

52,000

40.83

-5%

51,000

40.1

-2%

+2%

50,000 49,000

Lombard

2.59%

NBP deposit

4.00%

Rediscount

1.00%

2.75%

Type of loan

Jan '14

Feb '14

Mar' 14

Apr' 14

Loans to customers

914,189

914,068

923,709

928,450

↓ PKO BP

↓ PKN Orlen

- to private companies

263,063

263,941

267,553

270,886

↓ PZU

457.85

-1%

+2%

- to households

567,984

567,257

569,334

573,332

→ Synthos

4.54

-17%

Total assets of banks

1,628,197

1,616,891

1,628,519 1,639,359

↓ Tauron

5.37

-1%

+23%

Source: Central Bank NBP

-1% ↓

Change end of '13

↓ mBank

168,511 119,261

-2%

↓ LPP

Reference

Apr '14 548,394

83.06

↓ Alior Bank

+3% ↑

-7% ↓ +3% ↑

WIG Total closing index last three months

13 Jun 14

100 DKK

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

14 Apr 14

338.88 ↑

13 Jun 14

515.97 ↑

100 CHF

4 Apr 14

100 GBP

28 Jan 14

412.31 ↑

15 Nov 13

100 EUR

Key indices

Term / currency

450

6 Sep 13

303.82 ↑

1 Jul 13

100 USD

Stock Exchange

Average weighted annual interest rates

22 May 14

as of 13 June 2014

Interest rates

21 Mar 14

100 USD/EUR against PLN

Central Bank average rates

27 Feb 14

Currency

Source: Warsaw Stock Exchange

T rade Poland's ten largest trading partners, ranked according to 2013

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

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Mar 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Apr share 2014

IMPORTS in PLN bn *2013

share No

Country

Jan-Apr share 2014

*2013

17,740

+8.5

10.8

69,304

10.9

12,271

+3.2

7.5

47,906

7.4

1 Germany

47,765 21.7% 139,334 21.5%

Beverages and tobacco

2,065

+4.8

1.3

8,624

1.4

899

-6.1

0.6

4,150

0.6

2 UK

14,109

6.3%

41,503

6.5%

2 Russia

26,387 12.0%

Crude materials except fuels

4,180

-0.9

2.5

15,744

2.5

5,430

-1.4

3.3

21,585

3.3

3 Czech Rep.

13,475

6.0%

39,421

6.2%

3 China

21,405 9.7% 60,914 9.4%

Fuels etc

7,503

-7.1

4.5

30,013

4.7

19,069

+1.2

11.6

75,539

11.7

4 France

13,093

5.9%

11,303

490

+43.6

0.3

1,864

0.2

628

-0.3

0.4

2,646

0.4

5 Russia

9,809

Food and live animals

Animal and vegetable oils

58,734 26.3% 159,622 25.0%

79,601 12.3%

5.1% 33,703 5.2%

35,745

5.6%

4 Italy

4.4% 34,058

5.3%

5 Netherlands

10,033

4.5%

27,450

4.3%

6 France

9,048

4.1%

25,292 4.0%

7 Czech Rep.

7,648 3.5% 23,778 3.7%

8,172 3.7% 25,005 3.9% 8,705 4.0% 24,533 3.8%

15,190

+7.1

9.2

59,103

9.3

24,737

+6.8

15.1

92,917

14.3

6 Italy

Manufactured goods by material

32,339

+3.1

19.6

129,915

20.3

28,881

+5.9

17.6

112,392

17.3

7 Netherlands

Machinery, transport equip.

62,802

+11.1

38.0

239,434

37.5

52,769

+3.8

32.2

216,608

33.4

8 Ukraine

n/a

18,037

2.8%

8 USA

5,028 2.3%

17,350