Poland Today Business Review+ No. 65

No. 065 / 15th December 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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ENERGY & RESOURCES

Poland renegotiates huge LNG supply deal with Qatargas page 2 Lotos raises PLN 1bn for in-vestments via rights issue page 3

PROPERTY & CONSTRUCTION

HB Reavis breaks ground on Warsaw's West Station project page 5

HOSPITALITY

Hotel group Orbis to add two new hotels to its Kraków port-folio page 5

TRANSPORT & LOGISTICS

PHN teams up with Hillwood and Menard Doswell to devel-op a 95,000 sq.m logistic hub near Warsaw page 6

RETAIL

FMCG giant Eurocash invests in Warsaw area online grocery retailer Frisco.pl page 7 Poland's top clothing retailer LPP sees key executive step down page 8

FOOD

French bakery chain Paul to enter Poland page 9 Lithuanian owners to delist confectioner Mieszko from Warsaw bourse page 9

POLITICS & ECONOMY

US Senate report on CIA se-cret prisons puts Poland in the spotlight page 9 Analysts optimistic about Polish economy in 2015 page 10

POLAND TODAY EVENTS

Primetime Wrocław: Poland’s entrepreneurial capital? page 11

OPINION

In praise of the Polish work ethic page 12

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 13-15

DSV's headcount in Poland will come in excess of 1,000 by the end of 2015. Photo: DSV

Danish DSV to create hundreds of jobsDanish DSV to create hundreds of jobsDanish DSV to create hundreds of jobsDanish DSV to create hundreds of jobs Danish forwarder DSV seeks to create hundreds of new posi-tions at its shared services and contract logistics units in Poland, company executives tell Poland Today. DSV International Shared Services has just launched a second location in Warsaw, while DSV Solutions plans to open two new sites in 2015. page 6

Brand Group Brand Group Brand Group Brand Group picks new sitepicks new sitepicks new sitepicks new site in Polandin Polandin Polandin Poland Germany's Brand Group, a leading supplier of springs to the au-tomotive, home appliance and door industries, will build a new manufacturing plant in the Silesian town of Siemianowice. The project will launch in 2015, creating 150 new jobs. page 2

weekly newsletter # 065 / 15th December 2014 / page 2

MANUFACTURING & PROCESSING

Brand Group to create Brand Group to create Brand Group to create Brand Group to create 150 new jobs with 150 new jobs with 150 new jobs with 150 new jobs with Siemianowice projectSiemianowice projectSiemianowice projectSiemianowice project

German-owned company Brand Springs Poland (BSP) will build a greenfield plant in Siemianowice Śląskie, aiming to launch production at the new site at the beginning of 2016. BSP is part of Brand Group, a family-owned German company that employs more than 800 staff in Europe, China and North America. The company, which has been supplying cold-formed springs and wire parts to customers in the automotive, white goods and door industry across the region, aims to quadruple its Polish workforce over the next year. "BSP was established in 2006 in Ruda Śląska to handle sales, service and logistics for Brand Group's clients in the CEE region. Since 2007 we've been producing small volumes of automotive springs, of which most are being shipping to our parent company's factories in Germany and some - directly to customers in Po-land. Brand is one of merely three companies in the world with this kind of production profile. Our prod-ucts can be found in most European cars. An average vehicle uses some 30 springs of the kind we make," Michał Morcinek, plant director at Brand Springs Polska tells Poland Today. The company has acquired a 2.2ha site in Siemianowice Business Park, where a production fa-cility with a floor area of 8,000 sq.m is to emerge over the coming months. "The site perfectly meets our requirements and it has been fully prepared for a production-oriented invest-ment like ours. Besides its proximity to our existing

plant in Ruda Śląska, it offers excellent access to the A1 and A4 highways, which is crucial because the new location will also serve as Brand's logistics centre for Central and Eastern Europe," says Sven Schroer, Part-ner & CEO at Brand Group. "The investment in Siemianowice is a huge step for-ward for BSP, as the new plant will be responsible for the entire production process, supplying a full range of Brand products to our clients in the region. At this point it is still difficult to determine the final capex on the project, as it will largely depend on what kind of machinery gets put inside the building, but our Polish workforce will grow from 50 to 200 as a result," he adds.

Siemianowice Business Park has won awards as one of Poland's best investment sites. Image: GTB Metropolis

Asked whether recruiting 150 qualified workers in merely a year does not seem like too ambitious a plan, Mr. Morcinek replies: "It will be a challenge, without a doubt. Despite double digit unemployment, skilled workers are hard to find in Poland. BSP seeks both regular line workers as well as more experienced machinists. We are counting on

help from job centers in the neighboring municipali-ties and we have established contacts with the Gliwice school of technology, hoping to employ some of its graduates. Of course BSP will provide training so any technically-minded and hardworking individual stands a chance of getting hired for the job. We believe that a substantial portion of our staff will be women, who usually have a harder time finding employment in the manufacturing sector than men."

ENERGY & RESOURCES

Poland renegotiates Poland renegotiates Poland renegotiates Poland renegotiates huge LNG supply deal huge LNG supply deal huge LNG supply deal huge LNG supply deal with Qatargaswith Qatargaswith Qatargaswith Qatargas

Natural gas group PGNiG has successfully renegotiat-ed its long-term LNG supply agreement with Qatargas, signed in 2009. Poland was initially sup-posed to launch LNG imports from Qatar in January 2015, but the construction of the country's LNG termi-nal has been delayed. Under the terms of the agree-ment, 1.3bn of LNG gas from Qatar were to be supplied annually to 2034 under a 100% take or pay formula. Thanks to the annex, PGNiG's result on has trading may see some improvement next year, vis-à-vis the "original scenario," the company said. According to earlier plans, the LNG terminal in Świnoujście, which is of strategic importance for Po-land's energy security, were to reach completion in mid-2014, but the Saipem-Techint-PBG consortium has been given an additional six months to deliver the facility. Progress in construction works at end-October was described at 94%. The construction of the Świnoujście terminal will cost state-controlled Polskie LNG a total of about PLN 3bn. Another PLN 4.5bn is expected to be spent on all the related infra-


structure. The terminal will have an initial capacity of 5bn cb.m, representing more than a third of Poland's total annual consumption of the fuel, with an option to be further extended to 7.5bn cb.m. Under the updated terms of its contract with the Polish gas giant, Qatargas will sell 2015 gas volumes fixed in the deal (approximately. 1.5bn cb.m) on other markets and PGNiG will "compensate Qatargas for the difference, if any, between the price of LNG specified in the Supplemental Agreement (SPA) and the market price thereof obtained by Qatargas," PGNiG said in the filing and a press statement. Should the price obtained by Qatargas be deemed too low by PGNiG, the delivery of "such unsold LNG" will be postponed to subsequent years, the firm added. The deal also authorizes the sides to set the terms on which to discuss the supplies of LNG in 2015 to the Świnoujście terminal after its full operational functionality is ensured, depending on Poland's energy needs.

According to Polskie LNG and government ministers the Świnoujście terminal will be operational in mid-2015. Photo: Polskie LNG

Poland's large-scale investments in gas transmission infrastructure will enable the country to import signif-

icant amounts of gas from directions other than Rus-sia, which currently supplies close to two thirds of Polish gas. As part of the ongoing efforts aimed at im-proving its energy security, Poland seeks to integrate the domestic transmission system with those of neigh-boring countries. Particular focus has been placed on the north-south pipeline and the integration of con-nections in the Baltic Sea region. These connections, together with the expansion of the LNG terminal and the national transmission network, are to create a common regional gas market. At the same time, PGNiG is investing in exploration and production concessions abroad. The company has recently acquired stakes in Norwegian North Sea con-cessions from France's Total for close to PLN 1bn, boosting its production outside of Poland by approxi-mately 60%. Last year PGNiG's net earnings dropped 14% y/y and came to PLN 1.92bn, while its revenues increased by 12% and came in excess of PLN 32bn. The company owed much of the profit to the launch of oil production from the Skarv field in Norway and Lubiatów field in Poland. Its production and explora-tion revenues rose 45% y/y and topped PLN 6.26bn.

ENERGY & RESOURCES

LotosLotosLotosLotos raises PLN 1bn raises PLN 1bn raises PLN 1bn raises PLN 1bn for investments via for investments via for investments via for investments via rights issuerights issuerights issuerights issue

Poland's second-largest oil refiner Grupa Lotos sold 55m new shares in a rights public offer, raising PLN 995.5m for investments in gas and oil production, the company said in a market filing. The offer was heavily oversubscribed, with analysts and investors viewing the PLN 18.1 price per share as attractive. The main

shareholder in Lotos in the Polish state, which con-trols the company through a 53.2% stake. "The proceeds will be used to finance the Company’s strategy, which envisages further investments to in-crease the Gdańsk refinery's complexity and step up hydrocarbon production," Lotos said. In line with its strategy until 2015, LOTOS intends to increase its pro-duction to 1.2m tons of crude oil per annum. Accord-ing to Lotos, proceeds from the issue will be invested in the development of B4 and B6 fields on the Baltic Sea as well as construction of a delayed coking unit. Lotos is the second largest producer of hydrocarbons in Poland, and the only Polish operator extracting crude oil and natural gas from offshore deposits in the Baltic Sea. It is also the largest crude oil producer in Lithuania. Through its subsidiaries, it also operates in the Baltic Sea, the North Sea and the Norwegian Sea, as well as in Lithuania, where it is involved in explora-tion for and production of natural gas and crude oil from onshore and offshore fields.

Lotos Group's key financials

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Revenues in PLN bn, left axis

Net result in P LNm, right axis

Source: Grupa Lotos

The company produced 146,000 tonnes of oil and 16m cb.m of gas from its Baltic fields last year but now wants to boost output of both over the coming three years. In addition to scaling up production from its ex-


isting facilities, the company plans to launch produc-tion of 250,000 tons of oil a year from the B8 Baltic field by the end of 2015 and begin extracting gas from its B4 and B6 fields by the end of 2017, with produc-tion from both seen at a combined 250m cb.m a year. The B8 field's production potential is estimated at some 3.5m tons of crude oil, while the combined pro-duction potential of the B4 and B6 fields tops approx-imately 4 bn cb.m. The group is also aiming to boost efficiency at its refin-ing business, with a number of new facilities in the pipeline, including a delayed coking unit (DCU) and a hydrocarbon recovery unit (HRU). The DCU would improve the refinery's annual output of motor fuels by 900,000 tons and allow it to increase its refining mar-gin by approximately USD 2/bbl. The unit is scheduled to come on stream in 2017–2018. With the HRU, Lotos would gain an additional 100,000 tons of LPG and 25,000 tons of gasoline annually, which will be placed on the market. The unit is scheduled to be placed in service in autumn 2016. In the first half of 2014 the Lotos posted a net loss of PLN 155m on PLN 14.4bn revenues, up from a PLN 273m loss and PLN 13.3bn turnover in January-June 2013. The 1H loss was due to a PLN 545m full write-down on the Yme field off the Norwegian coast, which knocked PLN 191m off the company's profit for the pe-riod. Lotos, which controls 20% of Yme, said the write down was due to lack of new plans for the oil field, in which Canada's Talisman Energy owns 60%, Germa-ny's Wintershall , a unit of chemical giant BASF, has 10%, as does Norske AEDC, a unit of AOC Arabian Oil Company.

PROPERTY & CONSTRUCTION

HB Reavis breaks HB Reavis breaks HB Reavis breaks HB Reavis breaks ground on Warsaw's ground on Warsaw's ground on Warsaw's ground on Warsaw's West Station project West Station project West Station project West Station project

Slovakian developer HB Reavis has broken ground on the West Station mixed-use complex in Warsaw that will include a new railway station as well as 67,000 sq.m of office space. Located close to the city center, in the rapidly expanding Jerozolimskie Avenue office corridor in the western part of the Polish capital, West Station is being developed in cooperation with the Polish state railways PKP, which contributed the site. PKP Group companies (including PKP, PKP Informatyka, and PKP Intercity) will be among the first tenants in the office part of the complex, taking up approximately a half of its 30,000-sq.m phase one.

The West Station Office complex will include three office towers with a combined GLA of 67,000 sq.m. Image: HB Reavis

With a total area of 1,250 sq.m, the new Warsaw West railway station is to be completed by the end of 2015. Phase one of the adjacent West Station office complex is to be delivered in Q4 2016 and phase two - in 1H 2018. Overall, it will include three 13-storey office towers. HB Reavis is currently working on a 34,000 sq.m office project Postępu 14 in Warsaw Mokotów district, not far from its first Warsaw development, Konstruktorska Business Center (48,000 sq.m). The development is scheduled for completion in Q2 2015. The company has also broken ground on phase two of its Gdański Business Center project at the corner of Andersa and Inflancka streets in Warsaw. With two buildings encompassing more than 50,000 sq.m of class-A office space, the project is to reach completion in Q1 2016, bringing the total leasable area at Gdański Business Park in excess of 98,000 sq.m. The Slovaki-ans are also gearing up to develop some 90,000 sq.m of offices, including a 130-m tall tower, on a 1.7ha vacant lot on Chmielna Street, across from the Warsaw Cen-tral Station, purchased from railway operator PKP.

Warsaw office vacancy rate to go up Office completions, future supply, vacancy rate in Warsaw

Source: JLL, WRF, Q3 2014, F-forecast

Headquartered in Luxembourg, HB Reavis operates in Slovakia, Poland, Hungary, the Czech Republic, Great Britain and Turkey. Since its establishment in 1993, it


has executed projects in the office, commercial and lo-gistics real estate segment with total leasable space ex-ceeding 670,000 sq.m. A further 160,000 sq.m is cur-rently under construction and over 1m sq.m is at a planning or permit stage. With a staff of 400 profes-sionals and more than EUR 860m in equity, HB Reavis is managing and developing assets worth EUR 1.4bn, based on an integrated business model that combines development, construction, property management and investment management. Late last year HB Reavis placed a PLN 111m (EUR 26.5m) bond issue on Warsaw's Bondspot market to finance its development activities in Poland. The bonds, maturing in November 2017, were sold to Polish institutional investors including mutual and pension funds, insurance companies and asset man-agement companies.

CENTRAL BANK WARNS ABOUT OVERSUPPLY IN WARSAW'S OFFICE PROPERTY MARKET Poland's commercial property, particularly office

space, market suffers from increasing imbalances, re-

flected in increased vacancies, NBP said in a report on

the real estate market in Q3.

"On the commercial real estate market, particularly of-

fice space, one could see increasing imbalances be-

tween demand for space and increasing supply tied to

completed investment projects," NBP wrote. "It result-

ed in an increasing number of vacancies."

The Warsaw office space market now records a 14%

vacancy rate, NBP said. Despite the high vacancy rate,

developers are still building new office buildings.

The trend also results in decreasing value of property

prices, the central bank said.

HOSPITALITY

Hotel group Orbis to Hotel group Orbis to Hotel group Orbis to Hotel group Orbis to add two new hotels to add two new hotels to add two new hotels to add two new hotels to its Kraków portfolioits Kraków portfolioits Kraków portfolioits Kraków portfolio

It's been a busy autumn for Poland's top hospitality group Orbis. Merely days after the company agreed to buy 46 hotels in 16 countries across Central Europe and the Balkans from its strategic investor Accor at the cost of EUR 142.3m, the company has secured two new properties in Poland's top tourist destination - the historic city of Kraków.

Orbis plans to open a new Mercure hotel in Kraków by the end of 2016 . Image: Orbis

In early December Orbis bought an investment site on Pawia Street, near its existing hotels ibis and ibis budget Kraków Stare Miasto, which were completed in 2012. Orbis paid PLN 18.8m for the plot, where it will develop a 4-star Mercure hotel with 200 rooms, 300 sq.m conference facilities, restaurant and fitness center. The project, to be completed in late 2016, will be built in line with BREEAM green building require-ments. Orbis expects the total capex on this invest-ment to reach PLN 100m.

Orbis has also signed a franchise agreement for the first ibis Styles hotel in Kraków with a local investor Landeskrone Group, controlled by the heirs of Polish aristocratic families Lubomirski and Lanckroński. The newly built hotel is to open in 2017 with 60 rooms as Grupa Orbis' first franchise-based property in Kraków. The Warsaw-listed Orbis turned over PLN 682.6m in 2013 (down from PLN 707.4mm in 2012), while its net income came to PLN 65m (vs. 68m in 2012). Average revenue per room dropped 4.6% last year, down to PLN 124.1, while room occupancy rose by three per-centage points and topped 58.8%. As of June 2014, the company's total assets were worth PLN 2.1bn.

Orbis Group's key financials

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Revenues in PLNm, left ax is

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Source: Orbis

Currently, the Orbis Group comprises 68 hotels (in-cluding 52 owned, 1 leased, 3 hotels under manage-ment agreements and 12 franchised) operating in 32 cities and resorts in Poland and Baltic countries. How-ever, following the completion of the Accor deal, the total number of hotels in Orbis's portfolio will come in excess of 110, making the company the key hotel oper-ator in Central Europe.



Danish Danish Danish Danish forwarder forwarder forwarder forwarder DSVDSVDSVDSV creates hundreds of creates hundreds of creates hundreds of creates hundreds of new jobs in Polandnew jobs in Polandnew jobs in Polandnew jobs in Poland

Danish logistics operator DSV will create way over a hundred new jobs in Poland next year alone at its con-tract logistics and shared services units, company ex-ecutives tell Poland Today. As of now, DSV's Polish workforce totals approximately 900 employees. "At the moment we have three warehouses in Poland, in Kampinos, Warsaw, and Gdańsk. In early 2015 we are planning to launch two new locations, in Gdańsk and Sosnowiec, which will boost our headcount from the current 160 to some 200 employees," says Maciej Walenda, CEO of DSV Solutions Poland, the Danish forwarder's contract logistics unit. The first location to open will be a 4,500 sq.m ware-house in Prologis Park Gdańsk, which will mostly handle operations for a new customer from the indus-trial sector. In addition to storing goods, DSV will also be responsible for a complex co-manufacturing pro-cess and the warehouse will be equipped with special workbenches, conveyors belts and a specialized shelv-ing system. DSV is hoping to launch the new Gdańsk unit in March next year. The second office will be lo-cated in Panattoni Park Sosnowiec and will include a 6,500 sq.m warehouse, dedicated mostly to handling operations for a new customer from the healthcare sector. The Sosnowiec facility is expected to be fully operational by May 2015. DSV Solutions provides a wide range of tailored logis-tics services for different industries. In addition to regular, large-volume storage and handling of goods,

the company offers direct deliveries to stores, as well as dedicated services for e-commerce clients, such as returns handling, including quality inspection, kitting, labeling, repackaging and the like. "One of our key focus areas, since the beginning of DSV's operations in Poland, has been healthcare sec-tor. In recent years we made additional investments in construction and expansion of our dedicated pharma consignment warehouse. At the beginning of this year DSV Solutions extended the pharmaceutical section of its Kampinos warehouse near Warsaw to 16,000 sq.m and 23,000 pallet places. The facility houses pharma wholesalers and a modern consignment warehouse, capable of storing pharmaceuticals in controlled tem-perature," Maciej Walenda tells Poland Today.

Maciej Walenda, CEO of DSV Solutions (left) and Thomas Jansson, CEO of DSV ISS (right). Image: DSV

The NASDAQ OMX Copenhagen-listed DSV offers road, air, sea and logistical transport services through-out the world. With headquarters in Copenhagen, Denmark, and offices in more than 70 countries, DSV employed 23,000 people as of end of 2013. Last year DSV's turnover totaled EUR 6.1bn

In 2012 DSV set up a shared services center in War-saw, focusing mainly on bookkeeping and IT services, and the project continues to expand at an impressive pace. "Over the past year our team not only grew from 100 to 300 employees but also fulfilled all of the strategic ob-jectives we set for 2014. These included the relocation of a large portion of back office processes from all Western European DSV units to Warsaw," Thomas S. Jansson, CEO of DSV International Shared Services (ISS) tells Poland Today. "In November we launched a new location where in the long run we intend to employ 250 staff. The re-cruitment will be gradual and I assume that by the end of 2014 we will have 400 employees at DSV ISS, han-dling processes for the entire DSV group. In the com-ing year we expect to go beyond the range of tasks we have been focusing on to-date, for instance in shared financial processes and IT. This process is already in motion thanks to the services we have been providing to the Scandinavian division of DSV Air & Sea. Over time, this will become one of the key growth paths for DSV ISS," he adds.


PHN teams up with PHN teams up with PHN teams up with PHN teams up with Hillwood and Menard Hillwood and Menard Hillwood and Menard Hillwood and Menard Doswell to develop Doswell to develop Doswell to develop Doswell to develop a a a a 95,000 sq.m logistic 95,000 sq.m logistic 95,000 sq.m logistic 95,000 sq.m logistic hub near Warsawhub near Warsawhub near Warsawhub near Warsaw

The Warsaw-listed, state-controlled real estate group Polski Holding Nieruchomości (PHN), has teamed up with US property companies Menard Doswell and


Hillwood to develop Parzniew Logistic Hub, a 95,000 sq.m project near Warsaw. The three parties are to ink a joint-venture agreement as soon as all legal condi-tions have been met. Located in Brwinów, close to the Pruszków and Konotopa junctions on the A2 Warsaw-Berlin highway, Parzniew Logistic Hub is to be deliv-ered in four phases, with completion expected in 2021. "Due to the highly attractive location of the project we’ve been looking for international partners for this investment. The scheme has attracted many investors in its initial stage, and we’re confident about the deci-sion we took while selecting our partners," said Artur Lebiedziński, chairman of PHN. "Parzniew Logistic Hub will be one of the first devel-opment projects for us on the Polish market which is in line with our long-term strategy in Europe," said John Thomas, president of Hillwood Europe. 'Our success on the American warehouse market have en-couraged us to expand in Europe, within which Po-land plays an important role." Hillwood, a Dallas-based real estate investment and development company owned by Ross Perot, Jr., is the second largest owner of land for future development of more than 8m sq.m of logistics space in the US. The company entered the European market as recently as October 2014, setting up offices in Germany and Po-land. The latter one is being headed by Hubert Michalak, Senior Vice President, who prior to joining Hillwood was a partner at AIG/Lincoln for 12 years where he was responsible for industrial and logistics projects in Poland. Hillwood is expecting deploy more than EUR 1bn in Europe over the next three to four years, and it has already purchased a number of exist-ing buildings and development sites in Poland. PHN's other partner US partner, Menard Doswell & Co., has been operating in the CEE region, mainly Po-land, since the early 1990s. Their first project was the

36,000 sq.m Warsaw Industrial Center, the first ware-housing project built to international standards in the region, which the company sold in 1997. Their second project is the 320,000 sq.m Alliance Logistic Center, covering an area of 81 hectares in Błonie near Warsaw. PHN was created in 2011 when the Polish government pooled together some 180 different real estate and land holdings, to raise funds to help it reduce borrowing. According to property consultancy CBRE, PHN's port-folio comprising 171 properties, including 123 built-up areas with office, retail, residential, hotel and industri-al buildings and 48 investment sites (over 1,100 ha) throughout the country was worth PLN 2.2bn as of end of 2013. PHN has been listed on the Warsaw Stock Exchange since 13 February 2013. Its net earnings came to PLN 13.4m in 1H 2014, against a PLN 17.6m loss in the corresponding period of last year. Accord-ing to PHN, its non-core asset portfolio, of which the company has gradually disposing, is worth approxi-mately PLN 800m. In 1H 2014 it sold five properties for a combined PLN 26m. Its portfolio currently in-cludes 140 assets and 700 ha of land. Besides the Parzniew project, in the industrial proper-ty sector, PHN is also building a 40,000 sq.m logistic park (SEGRO Industrial Park Wrocław) in coopera-tion with British developer SEGRO. PHN is currently involved in a number of develop-ments in the office and residential sector, including Domaniewska Office Hub with a combined GLA of 27,000 sq.m set for completion in mid-2015 and Port Rybacki, a mixed use waterfront project in Gdynia, of-fering up to 70,000 sq.m of commercial space and 120,000 sq.m of residential space, to be carried out in cooperation with mLocum. In October last year PHN set up a joint venture with Germany's Hochtief Group for the development of an office tower on 36 Świętokrzyska St., vis-à-vis Warsaw's most prestigious office project Rondo 1. According to PHN's prelimi-

nary plans, the building were to reach some 150m in height and 45,000 sq.m in GLA, but all final details, both financial as well as architectural, are yet to be hammered out together by the two companies.

RETAIL

FMCG giant Eurocash FMCG giant Eurocash FMCG giant Eurocash FMCG giant Eurocash invests in Warsaw area invests in Warsaw area invests in Warsaw area invests in Warsaw area online grocery retailer online grocery retailer online grocery retailer online grocery retailer Frisco.plFrisco.plFrisco.plFrisco.pl

Poland's leading FMCG distributor, the Warsaw-listed Eurocash will acquire a 44% stake in Warsaw-area online supermarket Frisco.pl, through a partial buy-out of the company's existing shareholders and recapi-talization. Following the transaction, the value of which remains undisclosed, Polish private equity fund MCI Management will remain Frisco's majority owner. "Bringing in Eurocash as a significant investor is a growth milestone for our store. The funds raised in this financing round will enable us to not only contin-ue executing Frisco’s development strategy as War-saw’s leading online supermarket, but also open up an opportunity for us to scale up the business, including through an effective launch of our full offering in other large cities in Poland within a shorter timeframe than previously expected," says Nicolas Jedraszak, Frisco.pl CEO. Frisco.pl has been reporting double-digit sales growth in recent years and it expects to break even by the end of 2015. The company’s annual revenue exceeds PLN 30m. Unlike most of key competitors, who treat online grocery sales as merely an addition (often a loss-


making one) to their brick & mortar business, Frisco.pl operates an online-only business, relying on a dedicat-ed logistics centre and a unique system that enables the retailer fulfill customer orders in hourly delivery windows. The company has been putting a strong em-phasis on service quality from the start and currently it is being recommended by 98% of its clients. "Frisco.pl is one of the largest players on the Polish online grocery shopping market, with a modern, effec-tive logistics platform. The company sells only through the online channel therefore, unlike the other players on this market, online sales are not subsidized by a brick-and-mortar business. Frisco.pl will be a platform for us to gain experience in the e-commerce segment. This agreement makes it possible for us to become the company’s majority shareholder in the future. We are hoping that the know-how we gain will let us develop solutions aimed at reinforcing the competitive position of our clients – independent grocery stores," said Ped-ro Martinho, member of Eurocash’s management board. "Having a strong partner such as Eurocash join the group of investors in Frisco.pl serves as positive verifi-cation of our investment strategy in the e-commerce area and confirmation of Frisco.pl's massive growth potential. Our mutual objective is to continue building the value of this company. The support of Eurocash will create substantial synergies for Frisco in pro-curement and logistics, but most of all it will speed up implementation of the company's growth strategy, en-abling it to grow its operational scale," said Adam Jarmicki of MCI Management S.A. 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 medium-sized convenience stores "abc", which added some 600

new locations last year alone. A few weeks ago Eurocash subsidiary KDWT merged with another key FMCG player Kolporter. Last week Eurocash ac-quired from HDS Polska 51% of shares in a company that will operate the Inmedio chain, currently com-prising 410 retail locations, mostly in shopping cen-ters. HDS Polska, the Polish unit of France's Lagardère Services and Eurocash have joined forc-es in a move to strengthen their position in the con-venience sector – the fastest growing segment of Po-land's retail market, currently dominated by Żabka Polska.

RETAIL

Poland's top clothing Poland's top clothing Poland's top clothing Poland's top clothing retailer LPP sees key retailer LPP sees key retailer LPP sees key retailer LPP sees key executive step down executive step down executive step down executive step down

Dariusz Pachla, the vice president of Poland’s top clothing retailer LPP has resigned as deputy CEO ef-fective December 31. Pachla said he will continue working for the company and hopes to join LPP’s su-pervisory board next year. Marek Piechocki, the re-tailer’s CEO, has already filed Pachla’s candidacy for the supervisory board. Pachla has been the official face of the Gdańsk-based firm from the very start, as the remaining two key shareholders, Marek Piechocki and Jerzy Lubianiec, have always preferred to keep a low profile. LPP's share price on the Warsaw Stock Ex-change dropped 1.8% on the day Pachla announced his resignation and a further 2.8% the following day. The company’s supervisory board named Przemysław Lutkiewicz as deputy CEO. Lutkiewicz joined LPP in 2008 to create the company’s controlling division, which oversees analysts, auditors and the sales de-partment.

As of end of June 2014 LPP had 1,488 shops with a combined floor space of 674,000 sq.m. With some 18,000 employees, the company designs and sells clothing under five brands: Reserved (410 stores), Cropp (379), House (326), Mohito (243) and Sinsay (104). According to plans, a new upscale brand is to be launched in 2016. Similar to its global competitors, the Polish company orders most of its products from sub-contractors in Asia. Last year the company sold more than 70m items of clothing for a total of PLN 4.1bn, and the 2014 is set to be a yet another record-breaking year for the Warsaw-listed retailer. In the first three quarters of 2013 LPP turned over PLN 3.3bn (+PLN 515m y/y) while its net earnings came to PLN 236m (-PLN 15m).

LPP Group's key financials

0.00.5

1.0

1 .52.0

2 .5

3.03.5

4.04.5

2006 2007 2008 2009 20 10 2011 2012 2013

050

100

150200

250

300350

400450

Revenues in PLNbn, left axis

Net result in PLNm, right ax is

Source: LPP

After conquering Poland and establishing strong pres-ence in a number of CEE markets, LPP has recently set its sights on Germany, where it plans to launch 30 Re-served outlets over the next three years. Reserved's flagship 2,000 sq.m store in Berlin will launch in 2016 on Tauentzienstraße. The company has also secured a location for a 2,400 sq.m outlet in Mannheim, a city of more 300,000 inhabitants. The first Reserved-branded store in Germany opened in September in Reckling-hausen, and the company has since opened outlets in


Stuttgart, Bremen and Hanover. So far no Polish cloth-ing company has managed to win over German con-sumers. Germany marks the beginning of LPP's westward ex-pansion. So far the company has concentrated its op-erations on Poland and a number of Central and East-ern European markets. The Warsaw-listed retailer is currently in the process of introducing all of its five brands to Croatia and early next year it will open the first Reserved store in Qatar. The decision to go west is partly due to the recent events in Russia (where LPP has 254 stores) and Ukraine (64 stores), where the Polish retailer had to scale down its expansion plans. Last year the two mar-kets generated the respective 19% and 4% of LPP's revenues. The events in Ukraine have not directly af-fected LPP's operations in the country, as the company has no stores in conflict-stricken regions. The same goes for Western sanctions against Russia, where LPP has a separate entity that imports garments directly from Asia.

RETAIL

French bakery chain French bakery chain French bakery chain French bakery chain Paul to enter PolandPaul to enter PolandPaul to enter PolandPaul to enter Poland

French bakery & cafe chain Paul will open its first, flagship r in Poland at Warsaw Financial Center in Q2 2015. The company has signed a 10-year lease for 370 sq.m. Paul is a chain of Bakery/Café restaurants established in 1889 in the city of Croix, in Northern France, by Charlemagne Mayot. It specializes in serving French products including breads, crêpes, sandwiches,

macarons, soups, cakes, pastries, coffee, wine, and beer. Boulangeries Paul SAS has its global head office in Marcq-en-Barœul, in Greater Lille, in France, and operates in 29 countries. There are more than 450 Paul restaurants worldwide, most of them in France. Paul belongs to Groupe Holder, which also owns the French luxury bakery Ladurée. With 50,000 sq.m of class A+ office space and a loca-tion near the Rondo ONZ subway station and the Cen-tral Station, Warsaw Financial Center is home to more than 60 Polish and international companies. Since the end of 2012 the building has belonged to a consortium of Allianz Real Estate and Curzon Capital Partners III, an investment fund managed by Tristan Capital Part-ners.

FOOD

Lithuanian owners to Lithuanian owners to Lithuanian owners to Lithuanian owners to delist confectioner delist confectioner delist confectioner delist confectioner Mieszko from WSEMieszko from WSEMieszko from WSEMieszko from WSE

Polish confectionery company ZPC Mieszko will be delisted from the Warsaw Stock Exchange after the company's majority owner, Lithuanian millionaire Vladas Numavičius, had successfully bought out all remaining shareholders. A few months ago, Numavičius, who at the time con-trolled 66% of Mieszko, placed a buyout bid on the outstanding shares via his Cyprus-based venture Bisantio Investment Limited. The initial offer of PLN 3.69 per share, a notch above the average prices from the preceding three months (PLN 3.47), failed to im-press investors and analysts, forcing Bisantio to raise the bid to PLN 3.99. Following a successful buyout, the Lithuanian investor has squeezed out the remaining

minority shareholders and currently owns 100% of Mieszko. The Mieszko group posted PLN 15.2m in net earnings last year (up from PLN 14m in 2012) on PLN 486m turnover (+1% y/y). The company is one of Poland's leading makers of pralines (4.8% share), chocolate gifts (5.4%), hard candy (6%, and crackers (12.4%). It has been listed on the Warsaw bourse since the year 2000 and its current market cap totals some PLN 160m. After the planned delisting of Mieszko, only three confectioner stocks will be traded on the WSE: Colian, Wawel, and Otmuchów. According to consultancy KPMG, Poland's confection-ery market is worth an estimated PLN 12.7bn and over the past half a decade it has seen an average annual growth rate of 2.3%. The sector's performance mirrors consumer sentiment as during economic downturn customers cut down on sweets. With no prospects for fast-paced economic growth in sight, market analysts are not expecting the confectionery segment to pick up speed anytime soon, with gradual recovery being seen as the most probable scenario.

POLITICS & ECONOMY

US Senate report on US Senate report on US Senate report on US Senate report on CIA secret prisons puCIA secret prisons puCIA secret prisons puCIA secret prisons putttts s s s Poland in the spotlightPoland in the spotlightPoland in the spotlightPoland in the spotlight

Poland made headlines in key global media last week in connection with the US Senate report on CIA pris-ons, which provided details about the treatment of ter-rorism suspects following the September 11th attacks. The report was one of the topics brought up by US President Barack Obama during a telephone conversa-tion with Polish PM Ewa Kopacz prior to Tuesday re-


lease of the report's summary, the Polish government press office has said. The American president ex-pressed hope that the publication will have no nega-tive effects on US-Polish relations. The 6,700-page report declassified by the Senate Intel-ligence Committee condemned the CIA for inflicting suffering beyond its limits on detainees in secret pris-ons. Although he report had country names redacted, the place referred to as "Detention Site Blue" corre-lates with a Polish intelligence agency facility in Stare Kiejkuty in the north-east of the country, where five prisoners were held and tortured, including Khalid Sheikh Mohammed, accused of being one of the plan-ners of the September 11th attacks and Abd al-Rahim al-Nashiri, a Saudi suspected of being behind the Oc-tober 2000 bombing of the USS Cole in Yemen. Among the new, alarming details revealed by the re-port is that the US offered Poland payment for its role in the CIA program after the detention site was up and running. According to the report, the CIA offered Po-land an undisclosed sum (according to some sources the figure was USD 15m) and refused to sign an agreement with Poland outlining the CIA’s role and responsibilities at the site. Polish officials said at a press conference that the memorandum included de-mands to guarantee humane treatment of the prison-ers. Former Polish president Aleksander Kwaśniewski confirmed last week that while he was in power, the country hosted one of the CIA’s "black site" detention facilities that tortured detainees. The Stare Kiejkuty facility was closed in late 2003, after Mr. Kwaśniewski told his American counterpart George Bush that he had become "uneasy" about what was going on there. "We had concerns, but they did not include that the Americans would break the law in a knowing and un-controlled way," Mr. Kwaśniewski said in a radio in-

terview last week. Prior to that, Polish officials had never acknowledged the existence of a CIA prison in their country. In July the European Court of Human Rights in Stras-bourg ruled that Poland violated the European human rights convention by allowing the CIA to render two alleged terrorists on its territory. The judges said that Poland failed to stop the "torture and inhuman or de-grading treatment" to which the applicants had been subjected by the CIA during their detention in Poland. The court held that Poland had co-operated with the secret illegal transfers in 2002-2003, allowing two al-leged members of al-Qaeda, to be interrogated at a se-cret "black site" prison on Polish soil. The court also said that Poland had failed to conduct an effective and thorough investigation into the matter and ordered Warsaw to pay two prisoners EUR 230,000 in damag-es. Indeed, an official Polish investigation into the matter has been going on for seven years already, with the former head of Poland's spy agency Zbigniew Siemiątkowski being charged with violating Polish and international law in allowing the CIA to interrogate prisoners at a secret facility in Stare Kiejkuty. By providing additional details of the secret dealings be-tween the CIA and its Polish counterpart, the US Sen-ate report has provided Polish investigators with more evidence. Some commentators last week said Siemiątkowski may be the only person in the world to face legal proceedings over the CIA's torture program, as the Americans who carried out the interrogations are yet to face any charges. Interestingly, despite the country's own bitter memo-ries of torture by the communist secret police and by the Nazis, Poland's complicity in the CIA's program has gained relatively little interest among ordinary Poles, 78% of whom have a positive opinion of the US, higher than the European average. As The Economist

put it in their December 11 article, "Poles may not be happy that the CIA used their country as a torturing ground, but with an expansionist Russia in their neighborhood, they are reluctant to press the issue too hard."

POLITICS & ECONOMY

Analysts optimistic Analysts optimistic Analysts optimistic Analysts optimistic about Polish economy about Polish economy about Polish economy about Polish economy in 2015 in 2015 in 2015 in 2015

The 2015 economic outlook for Poland seems moder-ately optimistic according to this year's last edition of BZ WBK bank's monthly MACROscope report. The bank expects the current slowdown to be only tempo-rary. Amid weak recovery in the Euro zone and linger-ing uncertainty across Poland's eastern border, domes-tic demand will continue to play an important role, but exports are expected to remain robust and increase by an estimated 6-7%. "Growth should be underpinned by the continuing ge-ographical diversification of exports and gains in Po-land’s market share in existing export markets. This should be supported on the demand side by a moder-ate recovery in the Euro zone. We assume the slow-down in the Euro zone economy is temporary and our house forecast for Euro zone GDP is for 1.1% growth for 2015 (and 1.5% in Germany)," the bank said. One the domestic front, the economy will benefit from the ongoing improvement in the labor market, where real wages, and employment keep going up. Accord-ing to the Eurostat-compliant LFS data in October 2014 the number of employed persons increased by 2.7% y/y (the most since 2008), exceeding 16m for the first time on record. BZ WBK expects nominal wage


growth to remain within the 3-4% range next year, but due to inflation hovering above zero, disposable incomes should get a much welcome boost. At the same time, unit labor costs are to increase by no more than 1-2% in 2015.

Registered unemployment in Poland

11%

12%

13%

14%

Ap

r 13

Ju

n 1

3

Au

g 1

3

Oct

13

Dec 1

3

Feb

14

Ap

r 14

Ju

n 1

4

Aug

14

Oct

14

Source: GUS

"Household budgets should also be supported by fa-vorable rules on indexation for pensioners, higher tax allowances for families with children and low interest rates. Private consumption should be an important driver of GDP growth in 2015. The big question mark is over investment, where we expect growth of 8.4%," the report reads. As far as consumer prices are concerned, they are ex-pected remain on the decline for a couple of months, before going back up gradually to reach 1% inflation by the end of 2015. BZ WBK says it's not unlikely for de-flation to hang around for as long as 12 months. Low inflation and recent positive macroeconomic readings may keep the Monetary Policy Council from making interest rates much lower. "The downward trend in money market rates has re-versed recently, as expectations of further interest rate

cuts fade after better-than-expected macro data. The money market is still assuming one more rate cut over the coming three months, in line with our base scenar-io, with a slight chance of more easing in two to three quarters," BZ WBK analysts said. According to their projections, the EUR/PLN will de-crease slightly in 2015. "The złoty tends to be a cyclical currency, gaining dur-ing the periods of economic recovery. The economic slowdown should prove to be relatively short-lived and the Polish economy should continue to outper-form not only the Euro zone, but also its CEE peers. Moreover, real interest rates in Poland are relatively high. This should favor the złoty, especially in an envi-ronment of highly-accommodative monetary policy globally (particularly in the Euro zone). The Ukraine-Russia conflict seems to be the most important risk factor to our market scenario. The złoty has remained resilient to the ruble's recent weakness, but any seri-ous political/military tensions are likely to weigh on the Polish market."

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Upcoming events:Upcoming events:Upcoming events:Upcoming events:

January 14 (NEW DATE!) Sala Sesyjna, Town Hall, ul. Sukiennice 9 Wrocław

PRIMETIME WROCŁAW Poland’s entrepreneurial capital? Wrocław, under open and steady political leadership, has blazed a business trail in Poland. But with others catching up fast, can the city maintain its entrepre-neurial edge? The event will include a special "Fireside Chat" with Wrocław Mayor Rafał Dutkiewicz, in which he will discuss the city's rising expectations and the chal-lenges it faces Ryszard Petru, president of the Asso-ciation of Polish Economists. Panel discussion topics will include innovation, sus-tainability, as well as cooperation between business and education. Speakers include: - Krzysztof Sachs, Partner, Director of Wrocław Re-gion, EY - Tomasz Gondek, Director, EIT+ - Karol Patynowski, Associate Director, Tenant Rep-resentation, JLL - Marcin Kozłowski, Global Manager, AIP Business Link - Jarosław Prawicki, Head of Sales & Marketing, UBM Polska There will also be an "Open Forum" where partici-pants will have the opportunity to discuss other is-sues, as well as a "speed dating" session. Partnership opportunities still available!


OPINION

In praise of the In praise of the In praise of the In praise of the Polish work ethicPolish work ethicPolish work ethicPolish work ethic

by Poland Today Editor Andrew Kureth

Elżbieta Bieńkowska, the EU’s new commissioner for the internal market, has been on the job for just over a month and is already making waves. Formerly Po-land’s minister for infrastructure and regional devel-opment, Bieńkowska has a reputation for being effi-cient and effective, though not necessarily tactful. This no-nonsense style could sometimes raise hackles. When the Polish press took her to task for not resolv-ing train delays in winter, she replied coolly: "That's our climate." The press had a field day, but the dust-up didn’t last long. "I’m not here to build a public-relations image, I’m here to do work," she explained. And work she did, overseeing the most efficient distri-bution of EU funding among new member states. Her focus on the job at hand got her promoted to Brussels this year, where she has found she has to deal with a new set of challenges. In an interview with Pol-ish radio station Radio Zet last week, she compared the bureaucrats in her office in the EU capital to those of Poland in the 1990s. "European Union bureaucrats are substantially slower than Polish ones," she said. "EU administration is reminiscent of ours in the 1990s." While Poland’s bureaucrats today may still

leave something to be desired, anyone who was here in the last decade of the 20th century knows Bi-eńkowska's comparison is quite the insult. The statements got her into a bit of hot water with her own staff, who have written a letter of protest and are demanding an explanation. But many of us here in Po-land find her stance admirable. EU leaders should de-mand efficiency out of their personnel. Perhaps Bi-eńkowska’s method of stirring the pot is a lesson to our British friends, who instead of trying to reform Brussels from the inside, continually threaten to leave. Regardless, the important thing to note is that Polish workers are surpassing their Western European peers in hard work and effectiveness – and the difference is not only in the public sector. The directors of some of Poland's largest business process outsourcing centres have told me in recent conversations that the Polish work ethic, specifically the willingness to take on an additional project, travel abroad or work extra hours in return for recognition and advancement, was a key factor in their firms' decision to move operations here. I heard the same story time and again: whether Swed-ish, French or English, Western European workers, taken on the whole, are happy to remain in their rut as long as it means they don't have to work any harder. In contrast, Poles are willing to do more if they see it benefits both themselves and their company. In the OECD’s latest ranking of annual hours per employee worked, Poland comes in fifth place (Behind Mexico, Greece, Chile and Russia) with 1,918. It's not just companies that are moving to Poland to take advantage. Businesses based in Western Europe continually bring in Poles because of their combina-tion of hard work and quality results. Hence the con-tinual stream of Poles headed there in search of better wages. British concerns over immigration notwith-

standing, anecdotal evidence for Western Europeans’ appreciation of Polish workers abounds. My favourite story is one I heard from a Finnish friend whose brother had hired Poles to remodel his house. "How are those Poles working out?" My friend asked. "Pretty good," his brother answered. "There’s just one problem – they work too hard." It seems that in Finland's summertime period of the midnight sun, the Polish builders continued to work as long as they had daylight. The noise at night got on the neighbours' nerves, but they finished the project ahead of sched-ule. Now, anyone with a business here in Poland knows that employee-employer relations can be far from per-fect. Employers will often hire workers on so-called 'trash contracts' – basically freelancer contracts that guarantee no severance payments nor contributions into (and therefore no benefit from) public health and pension services – which employees often resent. De-spite having signed such contracts of their own free will, Polish workers will sometimes take a combative stance, for example refusing to give their employer reasonable notice that they are taking a holiday be-cause they are not expressly required to do so by law. Which brings us back to Bieńkowska, who now over-sees the entire EU's internal market. She can start to make a change by continuing to bring her Polish work ethic to the office each day and demanding more out of her staffers. Then she can look to find ways to con-tinue to encourage workers across the bloc to be more efficient – keeping the labour market open and resist-ing member states' attempts at protecting their work-ers from intra-EU competition will be key. A competi-tive – and harder working – European Union is sure to work in Poland’s favour.


KEY STATISTICS

Consumer PricesConsumer PricesConsumer PricesConsumer Prices

Data in (%) Jul '14 Aug '14 Sep '14 Oct '14

Sector y/y y/y m/m y/y y/y m/m y/y m/m

Food & bev -1.7 -1.1 -2.1 -1.6 -2,0 +0.1 -2.2 -0.2

Alcohol, tobacco +4.0 0.0 +3.8 0.0 +3.6 0.0 +3.6 0.0

Clothing, shoes -4.9 -2.8 -5.1 -2.7 -4.7 +1.1 -4.6 +3.4

Housing +0.6 0.0 +0.6 +0.1 +0.5 +0.1 +0.5 +0.1

Transport -1.0 +0.8 -1.5 0.0 -3.2 -1.0 -3.0 -0.8

Communications +2.6 +1.2 +3.9 +1.3 +4.0 0.0 -0.4 -0.3

Gross CPI -0.2 -0.2 -0.3 -0.4 -0.3 0.0 -0.6 0.0

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

Oct 12

Dec 12

Feb 13

Apr 13

Jun 13

Aug 13

Oct 13

Dec 13

Feb 14

Apr 14

Jun 14

Aug 14

Oct 14

y/y m/m

Retail TurnoverRetail TurnoverRetail TurnoverRetail Turnover

Month Jun '14 Jul '14 Aug '14 Sep '14 Oct '14

m/m (%) -1.1 +4.7 -1.1 -0.9 +4.2

y/y (%) +1.2 +2.1 +1.7 +1.6 +2.3

Year 2009 2010 2011 2012 2013

Turnover in PLNbn 582.8 593.0 646.1 676.0 685.7

y/y (%) +4.3 +5.5 +11.6 +5.6 +2.3

Residential ConstructionResidential ConstructionResidential ConstructionResidential Construction

Dwellings

(in '000 units)

2009 2010 2011 2012 2013 Jan-Oct

2014

y/y

(%)

Permits 178.8 174.9 184.1 165.1 138.7 133.6 +14.2

Commenced 142.9 158.1 162.2 141.8 127.4 129.0 +15.6

U. construction 670.3 692.7 723.0 713.1 694.0 709.7 +0.3

Completed 160.0 135.7 131.7 152.5 146.1 114.2 -2.0

Source: Central Statistical Office (GUS)

GGGGross Domestic Productross Domestic Productross Domestic Productross Domestic Product (ESA2010)

Period Growth y/y unadjusted

GDP in PLN bn current prices

Current account def. in % of GDP

Q3 2014 +3.3% 426.836 n/a

Q2 2014 +3.5% 418,317 -1.2%

Q1 2014 +3.4% 403,121 -1.2%

Q4 2013 +3.0% 463,855 -1.3%

2013 +1.7% 1,662,052 -1.3%

2012 +1.8% 1,615,894 -3.6%

2011 +4.8% 1,553,582 -5.0%

2010 +3.7% 1,437,357 -5.1%

Key Economic Data & ProjectionsKey Economic Data & ProjectionsKey Economic Data & ProjectionsKey Economic Data & Projections

Indicator 2011 2012 2013 *2014 *2015

GDP change +4.5% +1.8% +1.7% +3.2% +3.2%

Consumer inflation +4.3% +3.7% +0.9% +0.0% +0.0%

Producer inflation +7.6% +3.4% -1.3% -1.2% +0.7%

CA balance, % of GDP -5.0% -3.7% -1.4% -1.8% -2.4%

Nominal gross wage +5.2% +3.7% +3.4% +3.5% +4.0%

Unemployment** 12.5% 13.4% 13.4% 11.5% 10.9%

EUR/PLN 4.12 4.19 4.20 4.18 4.12

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

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

Sector Q4 2013 Q1 2014 Q2 2014 Q3 2014

A B A B A B A B

Coal mining 8,615 196 6,333 144 6,382 145 6,044 137

Manufacturing 3,690 161 3,663 160 3,743 163 3,747 164

Energy 6,736 205 6,358 193 6,020 183 6,392 194

Construction 3,895 166 3,706 158 3,884 166 3,872 165

Retail & repairs 3,456 147 3,544 151 3,577 153 3,532 151

Transportation 3,913 138 3,666 130 3,650 129 3,710 131

IT, telecoms 6,695 174 6,987 181 6,835 177 6,835 177

Financial sector 6,602 148 6,747 152 6,738 151 6,360 143

National average 3,823 152 3,895 155 3,740 149 3,781 154


Construction OutputConstruction OutputConstruction OutputConstruction Output

Month Apr '14 May '14 Jun '14 Jul '14 Aug '14 Sep '14 Oct '14

m/m (%) +3.2 +14.0 +16.9 +0.9 -5.4 +19.8 +7.2

y/y (%) +12.2 +10.0 +8.0 +1.1 -3.6 +5.6 -1.0

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +15.5 +12.1 +5.1 +4.6 +11.8 -0.6 -12.0

Source: The Central Statistical Office of Poland, GUS

Sentiment IndicatorsSentiment IndicatorsSentiment IndicatorsSentiment Indicators

Economic sentiment and consumer confidence indicators

-40

-20

0

20

Feb 12

May 12

Aug 12

Nov 12

Feb 13

May 13

Aug 13

Nov 13

Feb 14

May 14

Aug 14

Nov 14

60

80

100

120 Consumer confidence (le ft axis)

Economic sentiment (right axis)

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

Producer PricesProducer PricesProducer PricesProducer Prices

Month Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14

m/m (%) -0.2 -0.2 -0.1 -0.1 +0.3 0.0 -0.3

y/y (%) -0.7 -1.0 -1.8 -2.1 -1.5 -1.6 -1.2

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +2.0 +2.2 +3.4 +2.1 +7.6 +3.3 -1.3

Construction PricesConstruction PricesConstruction PricesConstruction Prices

Month Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14

m/m (%) -0.1 -0.1 0.0 0.0 0.0 0.0 0.0

y/y (%) -1.5 -1.5 -1.4 -1.2 -0.9 -0.8 -0.7

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +7.4 +4.8 +0.2 -0.1 +1.0 +0.2 -1.8

Industrial OIndustrial OIndustrial OIndustrial Outpututpututpututput

Month Apr '14 May '14 Jun '14 Jul '14 Aug '14 Sep'14 Oct'14

m/m (%) -2.3 -1.7 -0.1 +2.0 -8.5 +16.5 +3.5

y/y (%) +5.4 +4.4 +1.7 +2.3 -1.9 +4.2 +1.6

Year 2007 2008 2009 2010 2011 2012 2013

y/y (%) +10.7 +3.6 -3.5 +9.8 +7.7 +1.0 +2.2


TTTTraderaderaderade

Poland exports and imports according to commodity groups, according to SITC classification

EXPORTS in PLN bn IMPORTS in PLN bn

Jan-Sep

2014 y/y (%)

share (%)

2013 share (%)

Jan-Sep 2014

y/y (%)

share (%)

2013 share (%)

Food and live animals 54,009 +4.3 10.7 69,304 10.9 36,296 +3.9 7.2 47,906 7.4

Beverages and tobacco 7,729 +19.9 1.5 8,624 1.4 3,158 +5.8 0.6 4,150 0.6

Crude materials except fuels 12,459 +2.1 2.5 15,744 2.5 16,368 +07 3.2 21,585 3.3

Fuels etc 21,003 -6.1 4.2 30,013 4.7 55,523 -0.5 11.0 75,539 11.7

Animal and vegetable oils 1,471 +4.7 0.3 1,864 0.2 1,985 -0.6 0.4 2,646 0.4

Chemical products 46,392 +4.3 9.2 59,103 9.3 75,454 +6.7 14.9 92,917 14.3

Manufactured goods by material 101,308 +2.8 20.1 129,915 20.3 90,508 +6.9 17.8 112,392 17.3

Machinery, transport equip. 190,119 +5.1 37.8 239,434 37.5 167,104 +4.0 32.9 216,608 33.4

Other manufactured articles 68,030 +10.3 13.5 82,816 13.0 51,133 +16.6 10.1 58,210 9.0

Not classified 678 n/a 0.2 1,782 0.2 9,714 n/a 1.9 16,242 2.6

TOTAL 503.198 +4.6 100 638,599 100 507,243 +4.8 100 648,195 100

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

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-Oct

2014 share 2013 share No Country

Jan-Oct 2014

share 2013 share

1 Germany 148,094 26.1% 162,548 25.1% 1 Germany 124,792 21.8% 142,161 21.7%

2 UK 335,966 6.3% 42,138 6.5% 2 Russia 62,706 10.9% 79,578 12.1%

3 Czech Rep. 35,430 6.2% 40,110 6.2% 3 China 59,368 10.4% 61,127 9.3%

4 France 32,011 5.6% 36,367 5.6% 4 Italy 31,056 5.4% 34,940 5.3%

5 Russia 25,034 4.4% 34,069 5.3% 5 Netherlands 21,277 3.7% 25,409 3.9%

6 Italy 25,808 4.5% 27,958 4.3% 6 France 21,780 3.8% 25,041 3.8%

7 Netherlands 23,358 4.1% 25,707 4.0% 7 Czech Rep. 20,302 3.5% 24,054 3.7%

8 Ukraine 10,922 1.9% 18,020 2.8% 8 USA 13,693 2.4% 17,431 2.7%

9 Sweden 16,331 2.9% 17,581 2.7% 9 UK 14,687 2.6% 17,184 2.6%

10 Slovakia 14,368 2.5% 17,099 2.6% 10 Belgium 14,125 2.5% 15,137 2.3%


CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 12 December 2014

100 USD 336.39 ↑

100 EUR 418.05 ↑

100 GBP 528.31 ↑

100 CHF 348.07 ↑

100 DKK 56.23 ↑

100 SEK 44.49 ↓

100 NOK 45.65 ↓

10,000 JPY 284.22 ↑

100 CZK 15.15 ↑

10,000 HUF 135.27 ↓

100 USD/EUR against PLN

300

350

400

450

2 Jan 14

12 M

ar 14

21 May 14

29 Jul 14

6 O

ct 14

12 D

ec 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Jul '14 Aug '14 Sep '14 Oct '14

Monetary base 164,008 167,008 166,104 171,649

M1 570,507 574,529 578,485 574,606

- Currency outside banks 122,209 124,986 124,389 125,902

M2 985,769 1,003,128 1,003,354 1,011,930

- Time deposits 415,261 428,597 424,867 437.323

M3 1,002,137 1,020,561 1,021,824 1028,665

- Net foreign assets 301,207 304,359 310,172 311,298 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

CCCCreditreditreditredit

The financial sector's net lending in PLN bn,

loan stock at the end of period

Type of loan Jul' 14 Aug' 14 Sep' 14 Oct' 14

Loans to customers 939,641 950,774 954,978 958,641

- to private companies 274,549 277,482 280,248 279,124

- to households 581,447 587,136 590,208 592,068

Total assets of banks 1,678,129 1,718,251 1,737,728 1,742,288

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency May '14 Jun '14 Jul '14 Aug '14 Sep '14 Oct '14

PLN (up to 1 year) 4.4% 4.5% 4.4% 4.4% 4.4% 4.1%

PLN (up to 5 y ) 4.8% 4.8% 4.7% 4.8% 4.7% 4.5%

PLN (over 5 y) 4.7% 4.7% 4.7% 4.7% 4.7% 4.5%

PLN (total) 4.7% 4.7% 4.7% 4.7% 4.7% 4.4%

EUR (up to 1m EUR) 2.0% 1.9% 1.7% 1.6% 1.6% 1.6%

EUR (over 1m EUR) 2.7% 3.4% 3.1% 2.5% 2.5% 2.5%

Warsaw Inter Bank Offered Rate (WIBOR) as of 12 Dec 2014

Overnight 1 week 1 month 3 months 6 months

2.10% 2.08% 2.08% 2.06% 2.05%

Central Bank (NBP) Base Rates

Reference Lombard NBP deposit Rediscount

2.00% 3.00% 1.00% 2.25%

Stock ExchangeStock ExchangeStock ExchangeStock Exchange

Warsaw Stock Exchange, rates in PLN

WIG-20 stocks in alphabetical

order

Price 12 Dec

'14

Change 5 Dec

'14

Change end of

'13

↓ Alior Bank 77.21 -6% -5%

↓ Asseco Pol. 52.5 -2% +14%

↓ Bogdanka 103.5 -4% -18%

↓ BZ WBK 373.15 -4% -4%

↓ Eurocash 39.01 -5% -18%

↓ Grupa Lotos 25.3 -6% -29%

↓ JSW 19.35 -4% -64%

↓ Kernel 29 -4% -24%

↓ KGHM 112 -5% -5%

↓ LPP 8,120 -8% -10%

↓ mBank 483.6 -4% -3%

↓ Orange Pol. 8.85 -5% -10%

↓ Pekao 184 -3% +3%

↓ PGE 19.8 -1% 22%

↓ PGNiG 4.5 -6% -13%

↑ PKN Orlen 49.49 +1% +21%

↓ PKO BP 36.41 -3% -8%

↓ PZU 476.4 -1% 6%

↓ Synthos 4.04 -4% -26%

↓ Tauron 5.11 -4% 17%

Source: Warsaw Stock Exchange

Key indices

as of 12 December 2014

WIG Total index

55552222,,,,265265265265....24242424 Change 1 week -3% ↓

Change end of '13 +2% ↑

WIG-20 blue chip index

2,2,2,2,360360360360....00000000 Change 1 week -3% ↓

Change end of ' +2% ↑

WIG Total closing index

last three months

52,000

53,000

54,000

55,000

56,000

12 Sep 14

6 O

ct 14

28 O

ct 14

20 N

ov 14

12 D

ec 14


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today.pl

Publisher Richard Stephens

Financial Director Arkadiusz Jamski

Creative Director Bartosz Stefaniak

New Business Consultant

Tomasz Andryszczyk

RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Oct 2014 *

Monthly wages (PLN)

Jan-Oct 2014**

Unemploy-ment

Oct 2014

New dwellings Jan-Oct 2014

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 102.6 109.3 4,367 4,219 121.6 10.6 11,000 81.1

Kujawsko-Pomorskie (Bydgoszcz) 104.4 99.2 3,462 3,343 123.1 15.3 5,046 99.0

Lubelskie (Lublin) 101.7 84.2 3,756 3,135 111.9 12.2 4,534 86.8

Lubuskie (Zielona Góra) 115.9 105.3 3,492 3,099 46.3 12.6 2,432 93.6

Łódzkie (Łódź) 100.9 110.2 3,736 3,336 124.4 11.8 5,226 101.8

Małopolskie (Kraków) 100.4 101.0 3,846 3,415 134.8 9.6 12,466 101.5

Mazowieckie (Warszawa) 100.1 110.3 4,630 5,081 248.6 9.8 25,056 107.6

Opolskie (Opole) 105.7 122.4 3,662 3,597 41.3 11.7 1,636 113.1

Podkarpackie (Rzeszów) 100.9 107.6 3,437 3,131 131.7 14.2 5,163 105.2

Podlaskie (Białystok) 106.8 114.9 3,341 3,937 58.9 12.8 3,454 112.9

Pomorskie (Gdańsk-Gdynia) 109.2 116.4 4,048 3,498 94.3 11.1 7,982 81.2

Śląskie (Katowice) 100.6 105.9 4,580 3,575 174.9 9.6 8,209 93.3

Świętokrzyskie (Kielce) 107.3 101.2 3,453 3,362 73.8 13.9 2,693 123.8

Warmińsko-Mazurskie (Olsztyn) 104.6 109.1 3,307 3,213 93.3 18.1 3,608 108.5

Wielkopolskie (Poznań) 106.2 102.2 3,771 3,829 115.3 7.7 11,136 99.4

Zachodniopomorskie (Szczecin) 103.5 100.0 3,569 3,506 90.6 15.1 4,594 100.0

National average 103.3 106.7 4,021 3,859 1,784.8 11.3 114,235 98.0

*) Index 100 = same period of the previous year. ** without social taxes

Sources: Central Statistical Office GUS, NBP, C&W

Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)Foreign Direct Investment (EUR m)

Quarter Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

in Poland 2,886 175 -3,020 1,885 -2,899 2,771

Polish DI -1,203 957 2,588 -1,449 1,575 562

Year 2008 2009 2010 2011 2012 2013

in Poland 10,128 9,343 10,507 14,896 4,763 -4,574

Polish DI -3,072 -3,335 5,484 -5,935 -607 3,684

Current Account (EUR m)Current Account (EUR m)Current Account (EUR m)Current Account (EUR m)

Period 2011 2012 2013 Q4 '13 Q1 '14 Q2 '14

Trade balance -10,059 -5,175 2,309 138 159 71

Services, net 4,048 4,642 5,249 1,941 1,684 2,013

CA balance -18,519 -14,191 -4,984 -1,324 -1,403 -553

CA balance vs GDP -5.0% -3.5% -1.3% -1.3% -1.1% -1.2%

Source: NBP, BZ WBK, PKO BP

UUUUnemploymentnemploymentnemploymentnemployment

Registered unemployed, in ‘000 and

% of population in working age

1,800

2,000

2,200

2,400

2,600

Q3 1

1

Q1

12

Q3

12

Q1

13

Q3

13

Q1

14

Q3 1

4

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, 1H 2014

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 617,000 8,000 14.7% 1–5.0

Warsaw suburbs 2,137,000 14,000 11.3% 1.9–3.2

Central Poland 1,107,000 59,000 11.7% 1.9-3.1

Poznań 1,100,000 316,000 1.9% 2.3–2.9

Upper Silesia 1,576,000 57,000 7.9% 2.3–3.1

Wrocław 939,000 315,000 6.2% 2.4–3.0

Tri-city 215,000 45,000 4.2% 2.2–3.7

Kraków 159,000 11,000 1.9% 3.5-4.0

Homes & CHomes & CHomes & CHomes & Commercialommercialommercialommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 1H'14 Retail rents**1H'14

Q2 '14

PLN/sq.m

Change

y/y

Headline

rents**

Vacancy

ratio

Retail

centres

High

streets

Warsaw 7,924 -2.0% 11 -25 13.35% 100-120 148

Kraków 6,389 +6.0% 13.5-14.5 3.6% 35-40 78

Katowice 5,602 -3.7% 11.5-13.8 5.4% 35-40 50

Poznań 6,552 +3.3% 14-15 11.5% 35-40 62

Łódź 4,936 +2.6% 11.5-12.5 10.6% 35-40 78

Wrocław 6,092 +2.0% 14.15 10.9% 35-40 45

Tricity 6,092 -4.9% 12.8-13.5 11.5% 35-40 40

*avg, offer-based ** EUR/sq.m/month; Prime units 100-150 sq.m

Country Credit Country Credit Country Credit Country Credit RatingsRatingsRatingsRatings

Agency rating outlook

Fitch Ratings A- stable

Standard & Poor's A- stable

Moody's A2 stable

Source: Rating agencies

Real EarningsReal EarningsReal EarningsReal Earnings

Average gross wage vs inflation.

100

120

140

160

180

Oct10

Jun11

Feb12

Oct12

Jun13

Feb14

Oct14

Wage CPI

Index 100 = Jan 2005. Source: GUS

Poland Today Business Review+ No. 65

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