poland today business review+ no. 046

No. 046 / 4th August 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

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MANUFACTURING & PROCESSING

Kirchhoff Automotive expands Polish plants page 2

SWM extends Polish produc-tion & logistics unit in Stryków page 2

ENERGY & RESOURCES Kompania Węglowa teams up with Mitsui to revive PLN 6bn power plant project page 4

PROPERTY & CONSTRUCTION

Korean pension fund to spend USD 800m on Polish assets page 4 Hines acquires Warsaw's Ambassador building for new fund page 5 Real estate investment volume to hit EUR 4m this year page 6

HOSPITALITY

Hampton by Hilton to open in Wrocław page 7

RETAIL CHAINS

Polish operator acquires drugstore chain in Luxembourg page 9

RETAIL PROPERTIES

JLL says 0.8m sq.m of retail space is under construction in Poland page 10

FOOD

Poles unite in apple consumption as Russia imposes ban on Polish fruit & vegetables page 11

POLITICS & ECONOMY

Manufacturing PMI moves back into contraction territory page 12

MEDIA PATRONAGE

5th annual Charity Real Estate Beach Volleyball raises record amount for children's home page 12

KEY FIGURES

Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 14-16

The Sierra Gorda mine is located in the Antofagasta region within the Atacama Desert, Chile’s largest copper producing region. Photo: KGHM

KGHM launches production in ChileKGHM launches production in ChileKGHM launches production in ChileKGHM launches production in Chile Europe's largest copper KGHM Polska Miedz SA, has launched production at its Sierra Gorda mine in Chile, which the state-owned giant acquired two years ago as part of the USD 2.9bn takeover of Canada's Quadra FNX Mining. The Polish giant is hoping the Chilean project will enable it to cut costs and boost production volumes. page 3

Brussels approves state aid for LOTBrussels approves state aid for LOTBrussels approves state aid for LOTBrussels approves state aid for LOT In a long-awaited decision, the European Commission has ruled that the PLN 804m rescue package received by Poland's flagship carrier LOT is compliant with EU state aid rules. The Commis-sion has also praised LOT's restructuring efforts. page 8

weekly newsletter # 046 / 4th August 2014 / page 2


Kirchhoff Automotive Kirchhoff Automotive Kirchhoff Automotive Kirchhoff Automotive expands Polish plantsexpands Polish plantsexpands Polish plantsexpands Polish plants

Germany's Kirchhoff Automotive will invest a total of PLN 70m this year in its two Polish factories in Mielec and Gliwice, creating 20-30 new jobs, the com-pany announced during the recent celebrations of its 15th anniversary in Poland. To-date Kirchhoff has in-vested more than EUR 150m in Poland where it em-ploys close to 1,500 staff. "In Mielec we are adding some 1,200 sq.m of produc-tion space to the existing facilities where a brand new, fully-automated 1,000-ton stamping press will be in-stalled," Kirchhoff Polska Managing Director Janusz Soboń tells Poland Today. The Gliwice unit will like-wise be extended and equipped in new assembly sta-tions to take on new orders from Kichhoff's global cus-tomers. Kirchhoff's Mielec plant, which makes body and sus-pension components was established in 1999. Its pro-duction buildings have a total floor area of 26,000 sq.m. With a workforce of 900 people it generates an-nual sales of PLN 500m. The Gliwice plant was opened in 2004 and currently boasts nearly 30,000 sq.m of production space and 500 employees. Its sales total PLN 400m per annum. Kirchhoff's Polish plants supply parts and components to the likes of Volkswagen, General Motors, Ford, Audi, Skoda, Por-sche, BMW, and Daimler, exporting them as far as China and the US. "We are getting ready to start producing components for the next generation of GM's best-selling Opel Astra model, VW Transporter, as well as BMW series 5,6 &

7. As a supplier, we need to upgrade our lines approx-imately two years before a given model goes into pro-duction," Mr. Soboń says. "

Automotive exports to grow 8% in 2014 Automotive exports in EUR bn

14

1 5

16

17

1 8

19

20

2008 2009 2010 201 1 2012 201 3 *2014

Source: AutomotiveSuppliers.pl *) projected

Kirchhoff Automotive GmbH manufactures metal parts for automotive industry. The company offers cross car beams, front ends, and engine cradles for light vehicles as well as chassis components, cab sus-pensions, chassis/axle components, structures for vans, and chassis hang-on parts for commercial vehi-cles. It also offers modules and chassis structures. The company was founded in 1984 and is based in Iserlohn, Germany. In addition to four locations in Germany, it has operations in China, France, Ireland, Poland, Por-tugal, Spain, Romania, Hungary, Canada, Mexico, and the United States. With a global staff of 8,400 people Kirchhoff Automotive turned over EUR 1.2bn last year. The company operates as a subsidiary of Kirch-hoff Gruppe. Poland-based automotive manufacturers saw their ex-ports increase by merely 0.6%y/y in January-April, reaching EUR 6.23bn, according to figures from Au-tomotive-Suppliers.pl. In April alone the figure came to EUR 1.57bn, marking a 10% decline y/y. In the first

four months of the year Poland shipped out EUR 2.63bn worth of parts and components, EUR 1.72bn worth of passenger cars and light commercial vehicles and EUR 758m worth of diesel engines. The main re-cipients were Germany, with a 32% share in the total exports, followed by Italy (9.3%) and the UK (8.8%). "Overall, the situation in Western Europe's automotive market seems encouraging and this shows Kirchhoff's results. While France and Italy continue to underper-form, the UK is booming and Germany is picking up. Our sales increased by approximately 5% in 1H 2014, despite a decline of more than 7% in Russia, which is facing growing economic difficulties," says Janusz Soboń.


SWMSWMSWMSWM extendsextendsextendsextends Polish Polish Polish Polish production & logistics production & logistics production & logistics production & logistics unit in Stryków unit in Stryków unit in Stryków unit in Stryków

SWM Poland, subsidiary of US Schweitzer-Mauduit International, is expanding its production and logistics centre in Stryków near Łódż. The com-pany, which provides engineered solutions for the global tobacco industry, has increased its premises at SEGRO Logistics Park Stryków by 4,200 sq.m, and currently occupies 15,000 sq.m in the complex, located close to the intersection of Poland's key transport cor-ridors: the A1 and A2 motorways. SWM Poland commenced its activity in Poland in 2010 by launching its headquarters at SEGRO Logistics Park Stryków where the company initially leased 6,400 sq.m, used for an innovative production of fine, self-extinguishing papers. As a result of its dynamic devel-opment, SWM Poland has extended its warehouse


space within the complex twice already. The most re-cent extension has to do with SWM's entry into new markets and introduction of new technology. SEGRO Logistics Park Stryków is situated on an 87ha plot and will eventually provide 0.4m sq.m of modern warehouse and light production space. The project is one of several warehouse projects in Poland developed and managed by the British industrial property com-pany SEGRO. Besides Stryków, SEGRO has logistics centers in Gdańsk, Gliwice, Łódź, Poznań, Tychy, Warsaw and Wrocław. SWM is a leading global provider of highly engineered solutions and advanced materials for a variety of in-dustries. Although SWM primarily serves the tobacco industry, it also manufactures specialty papers for oth-er applications and acquired DelStar, Inc. in late 2013 to further expand its product portfolio and the mar-kets it serves. SWM and its subsidiaries conduct busi-ness in over 90 countries and employ approximately 3,000 people worldwide, with operations in the Unit-ed States, France, Brazil, Canada, Poland and China, including two joint ventures. Their consolidated full year 2013 net sales topped USD 772.8m (0.7% y/y), whereas its net income for the period was USD 76.1m, a decrease of USD 3.7m compared to the prior year.

ENERGY & RESOURCES

Polish Polish Polish Polish giant giant giant giant KGHM KGHM KGHM KGHM launches production at launches production at launches production at launches production at Chilean copper mineChilean copper mineChilean copper mineChilean copper mine

Europe's largest copper KGHM Polska Miedz SA, has launched production at its Sierra Gorda mine in Chile, which the state-owned giant acquired two years

ago in what to this day remains the largest investment by a Polish company abroad. The Chilean site will reach full capacity in early 2015 and will produce 120,000 tons of copper, 50m lbs. of molybdenum and 60,000 oz. of gold annually. Once phase II of the project is completed, the annual aver-age production will reach 220,000 tons of copper, 25m lbs. of molybdenum and 64,000 oz. of gold over the mine’s 20 year life, KGHM said. According to the company, the site offers additional production poten-tial in the processing of oxide ore. First copper cath-odes have already been produced after initial tests and first copper concentrate will be shipped from Sierra Gorda in September.

After the mine’s ramp-up, which is scheduled to be completed in early 2015, Sierra Gorda will produce 120,000 tons of copper, 50m lbs. of molybdenum and 60,000 oz. of gold annually. Image: KGHM

"Half of the mine’s copper production will be pro-cessed by Sumitomo Metal Mining, our partner in Sierra Gorda, at its smelters in Japan. The remaining copper production will be sold worldwide," said Maciej Ściążko, General Manager at Sierra Gorda. KGHM acquired the Sierra Gorda project under the USD 2.9bn takeover of Canada's Quadra FNX Min-

ing Ltd. in 2012, as part of its efforts to cut production costs and raise output. The project has been developed at a remarkable speed, with key infrastructure ele-ments, including a mine pit, crushing grinding and flo-tation plants as well as a 143-km pipeline that feeds seawater to the 750,000 cb.m seawater pond, already up and running. "With production from Sierra Gorda, the weighted av-erage cost of copper production in the KGHM Group will decrease, thereby enhancing the Company's oper-ational security," said Jarosław Romanowski, Execu-tive Vice President and CFO of KGHM. "This cost per-formance will be influenced by sales of Sierra Gorda's additional products, including gold and molybdenum, whose prices are at the moment almost one fourth higher than originally planned." Sierra Gorda SCM, operated by KGHM International, is a joint venture between KGHM (55%), Japan's Su-mitomo Metal Mining (31.5%) and the Sumitomo Cor-poration (13.5%). The mine is located in the Antofagas-ta region within the Atacama Desert, which is Chile’s largest copper producing region. Since KGHM is still awaiting environmental permits for the Port of Antofagasta project, which the compa-ny had intended to use for shipping out the final product, an "alternative solution" for transport routes is to be used for the time being. KGHM produced 666,000 tons of copper in its Polish and northern American sites last year at an average cost of USD 1.85 a pound, which includes USD 0.53-a-pound impact of Polish copper taxes imposed in 2012. According to KGHM's presentation, production cost at Sierra Gorda is estimated at USD1.13 a pound. The group posted a net profit of PLN 3bn (EUR 721m) on PLN 24.1bn (EUR 5.7bn) turnover in 2013. The respec-tive 2012 figures stood at PLN 4.3bn (EUR1.1bn) and PLN 267.7bn (EUR 6.4bn).


ENERGY & RESOURCES

Kompania Węglowa Kompania Węglowa Kompania Węglowa Kompania Węglowa teams up with Mitsui teams up with Mitsui teams up with Mitsui teams up with Mitsui to revive PLN 6bn to revive PLN 6bn to revive PLN 6bn to revive PLN 6bn power plant projectpower plant projectpower plant projectpower plant project

Europe's largest coal miner Kompania Weglowa (KW) and Japan's Mitsui have inked an agreement on joint development of the Czeczott power plant project in Wola near Pszczyna, southern Poland, the Polish company said in a press statement. With a PLN 6bn price tag, the 1,000 MW unit, if completed, will burn between 2.5 and 3.5 tons of coal per year and produce 5-7 TWh of electricity annually. The deal with Mitsui splits the project into three phases. In the first phase, the parties will negotiate an agreement on supplies of 3m tons of coal to the power plant and on electricity purchases by KW from the power plant, terms of a contract with general contrac-tor Mitsubishi Hitachi Systems and financing terms. Subsequently, parties will sign agreements and set up an SPV. In the third phase, the partners will make a final decision on launching the project. First construction works should start in 2016, KW said. The proposed power plant is to be located on the site of a hard coal mine, which operated until 2000. Kompania Węglowa first sought to develop a power station there in cooperation with Germany's RWE. The two companies even signed a joint-venture agreement in the presence of government officials, but in 2010 RWE pulled out of the project following a stra-tegic shift away from coal-based electricity generation.

Besides environmental concerns that accompany all coal-fired plants, the main risk factor with regard to the Czeczott project is the miserable financial condi-tion of Kompania Węglowa itself. The company, which employs 54,000 workers, posted a massive PLN 250m net loss in Q1. According to its CEO Mirosław Taras, KW is likely to lose solvency in the coming months should it fail to come to terms with borrowers and successfully place new bonds. KW's main problem are its high production costs, which amid dropping prices of coal on global markets make its product too expensive. KW has amassed more than 5m tons of coal, which it has not been able to sell and its mines are beginning to run out of storage space. Despite surplus stocks of domestic coal, many Poland-based customers choose cheaper, imported coal that originates mainly from Russia. In June, KW's management presented a restructuring plan that envisages gradual shutdown of those mines where production is too expensive, mainly due to dif-ficult geology, and relocation of staff and equipment to the most effective ones. According to Mr. Taras, in the long-term, the company should be able to maintain the same level of production with a workforce of no more than 30,000 employees. Since mass layoffs are out of the question, the company hopes to reduce headcount gradually by refraining from new hires (an estimated 18,000 of its miners are to retire by 2020) and offering voluntary redundancies. Asked by report-ers who would sponsor the latter, Taras replied: "The government thinks it should be us, whereas we believe it's them, who should pick up the tab." The worsening condition of Poland's coalmining in-dustry is likely to be a major topic this autumn and ahead of the 2015 general election. The miner worker unions have a pretty strong track record of effectively jeopardizing any reforms, no matter how necessary.

This time, however, the situation seems particularly desperate with no easy fixes on the horizon.


Korean pension fund to Korean pension fund to Korean pension fund to Korean pension fund to spend USD 800m on spend USD 800m on spend USD 800m on spend USD 800m on Polish assetsPolish assetsPolish assetsPolish assets

The world's fourth-largest pension fund, South Ko-rea's National Pension Service (NPS) plans to in-vest about USD 800m (PLN 2.5bn) in real estate assets in Poland, a fund spokeswoman told the Reuters agen-cy last week. According to reports, the fund would in-vest the money in two shopping malls and a power transmission business. Established in 1988, NPS had invested USD 20.8bn, or 4.9% of its assets under management in overseas al-ternative assets such as real estate as of Q1 2014. The fund plans to increase investment in alternative assets to more than 10% of its total holdings by end-2019, NPS has previously said. With its total assets being es-timated at USD 400bn, NPS holds stakes in the likes of Chevron, Colonial Pipeline, and Gatwick Airport. Its real estate investments include the HSBC Hold-ings HQ in London. South Korean companies have invested in excess of PLN 4bn in Poland to-date. Key investors include ap-pliance maker LG and automotive supplier Mando. Since no final contracts have been signed as of yet, NPS representatives refuse to provide any details of their plans, but Polish media said that the two retail properties in question will be Pasaż Grunwaldzki in Wrocław and CH Galaxy in Szczecin, developed by


Poland's Echo Investment. Sources said the two cen-ters are to be sold for approximately PLN 1.6bn. Launched in 2007, Pasaż Grunwaldzki offers a total GLA of 52,000 sq.m which is to be extended by a fur-ther 10,000 sq.m. CH Galaxy was opened a decade ago and it is likewise facing an extension, by 17,000 sq.m to reach a total leasable area of 60,000 sq.m.

Pasaż Grunwaldzki is one of Wrocław's most popular shopping destinations. Image: Echo Investment

Echo Investment, which to-date has delivered more than 430,000 sq.m GLA in retail centers, 250,000sq.m in office buildings, 245,000 sq.m of usable housing space, and 89,000 sq.m in hotels, has a pretty ambi-tious development pipeline. Echo's flagship office pro-ject at the moment is the 155-metre Q22 office tower in Warsaw the company is building at the intersection of Jana Pawła II Avenue and Grzybowska Street. Es-timated at PLN 500m, Echo's new Q22 building is to reach completion in Q1 2016, delivering nearly 50,000 sq.m of class-A office space to Warsaw's central busi-ness district. Another major office project in Warsaw, the 34,000 sq.m Park Rozwoju in the Mokotów dis-

trict is currently under construction. Outside of War-saw, Echo is building offices in Kraków, Katowice, and Wrocław. In recent weeks Echo has acquired a 4.5ha former site of Browary Warszawskie brewery (an entire block en-closed by the Grzybowska, Krochmalna and Wronia streets, across the street from Warsaw's Hilton Hotel and the Platinum Towers complex) for EUR 42m. The Polish developer intends to build mainly offices in this location, with some residential buildings – overall ap-proximately 100,000 sq.m of floor space. According to the company, the capital expenditures will come in excess of PLN 1bn and the project will take some 5-7 years to complete. The recently approved zoning per-mit allows for the construction of three 120-140m tall towers at the site and obligates investors to preserve the historic brewery cellars located there. The NPS money could come very handy in helping the Kielce-based developer put that project in motion. The developer saw its consolidated net income come to PLN 331m last year, down from PLN 373m in 2012, whereas the respective revenue totals came to PLN 528m and PLN 584m. Rumors have it that Echo's founder, billionaire Michał Sołowow is seeking buyers for his 45% stake in the company, which may be worth between PLN 1.2bn and PLN 1.5bn.


Hines acquires Hines acquires Hines acquires Hines acquires Warsaw's Ambassador Warsaw's Ambassador Warsaw's Ambassador Warsaw's Ambassador building for new fundbuilding for new fundbuilding for new fundbuilding for new fund

Hines Poland Sustainable Income Fund (HPSIF), a comingled fund sponsored by US property giant Hines, targeting office and logistics acquisitions in Po-

land, has made its first acquisition with the purchase of Warsaw's Ambassador office building from Spain's Kronos Real Estate. Hines Poland will represent HISF as asset and property manager in this and fur-ther investments in Poland, the company said. Located at the junction of Domaniewska and Pecherska Streets, in Warsaw's highly popular Mokotów district, close to the Galeria Mokotów shop-ping center and the Chopin airport, Ambassador was completed in March 2013 and it is currently undergo-ing the BREEAM certification process. The building offers 14,900 sq.m of modern office space and 1,000 sq.m of retail space on the ground floor as well as 298 parking spaces. Its tenants include Coty Poland, Gras Savoye (Pol-Assistance), DSV, Ipsos and CBRE Corporate Outsourcing.

Hines will seek to obtain a BREEAM sustainable building permit for Ambassador. Image: Hines

"The purchase of Ambassador is the first transaction completed by the HPSIF fund. The strength of the tenants and the quality of the asset make the Ambas-sador an attractive acquisition for the portfolio," said Leo Chen, Senior Managing Director and Fund Man-


ager of HPSIF. “"We intend to continue our expansion on this attractive investment market," Chen added. Asked about the term "sustainable" in the new fund's name, Agnieszka Sabaj, Marketing Manager at Hines Polska, replies: "HPSIF requires its portfolio properties to obtain sus-tainable building certificates, which means that they don’t need to hold them prior to acquisition. "Sustain-able" refers to environmental improvements that will be implemented at its assets." Hines is a privately owned real estate firm involved in real estate investment, development and property management worldwide. Currently, Hines manages 391 properties totaling 15m sq.m. With offices in 115 cities in 18 countries, and controlled assets valued at approximately USD 28.2bn, Hines is one of the largest real estate organizations in the world. The Hines re-gional office in Poland was founded in 1997 in Warsaw and is 100%-owned by the Houston-based Hines In-ternational Real Estate Holdings, which belongs to the Hines family. To-date, the company has built and ac-quired a total of 16 assets in Poland with a combined space of 0.5m sq.m. Last year alone Hines acquired the New City office complex in Warsaw's Mokotów dis-trict (42,000 sq.m) as well as two logistics assets (in Gądki near Poznań and Grodzisk Mazowiecki near Warsaw). On the development front, Hines has just recently broken ground on its latest development in Poland, the class-A Proximo office building, the first phase of which is to reach completion in May 2016 offering 28,385 sq.m of GLA, including 2,000 sq.m of retail space. Located directly by the new subway station Rondo Daszyńskiego in Warsaw's booming Wola dis-trict, the entire project, will be developed in two stages to reach a total 48,000 sq.m of GLA.

Hines is probably best known in Poland for its 34,000 sq.m Metropolitan project near the Warsaw Old Town, which remains among the city's most prestig-ious office locations. The company's latest office de-velopment is Centrum Biurowe Neptun, the first high rise office building in Gdańsk, which was completed in Q1 2014 offering close to 16,000 sq.m of GLA. Their development portfolio includes three completed office projects and one under construction (Proximo) with a combined GLA of approximately 150,000 sq.m, as well as three residential projects (including one under con-struction in Kraków) with a total usable floor space of 100,000 sq.m. "In July we are purchasing an investment site for an-other office project in Warsaw's Mokotów district," Ewa Borkowska, Marketing Manager at Hines told Po-land Today a few weeks ago. "Following the recent completion of Centrum Biurowe Neptun in Gdańsk and the launch of our Proximo project in Warsaw we are actively seeking opportunities to develop further office investments in Warsaw as well as one of Po-land's regional cities. As far as our logistics properties are concerned, we are finishing up a new warehouse in Warsaw Annopol and continue to modernize our re-maining assets." As for the Spanish-owned dev eloper Kronos Real Es-tate, it is currently developing a new project Pacific Office Building in the same area as Ambassador, on Domaniewska street, with its completion being ex-pected in 1Q of 2015. Both buildings represent the ini-tial stage of Kronos' "Ocean Business & Residential Park" which includes a number of office and residen-tial buildings at different stages of development.


Real estate investment Real estate investment Real estate investment Real estate investment volume to hit EUR 4m volume to hit EUR 4m volume to hit EUR 4m volume to hit EUR 4m this yearthis yearthis yearthis year

Poland remains the top destination in Central and Eastern Europe for property investors, with 1H trans-action volume hitting EUR 1.43bn, which represented 50% of total investment in the region, reports real es-tate consultancy JLL. The full year figure for Poland is expected to hit EUR 4bn. According to JLL, the H1 volume recorded in Poland was the best since 2007 and marked a 40% increase on January-June 2013. The twenty-eight transactions concluded in Poland in H1 2014 consisted of EUR 752m in office deals, EUR 368m in retail and EUR 313m in industrial transactions. In Q2 alone, the vol-ume of investment transactions in Poland amounted to EUR 491m(30% increase y/y), with the industrial sec-tor leading the way with EUR 222m, followed by the office segment (EUR 197m) and retail (EUR 73m). So far no mixed use or hotel properties have changed hands this year. The largest office transactions closed in the first six months of 2014 in Poland included the Rondo1 acqui-sition by Deutsche Asset & Wealth Management (for ca. EUR 300m) from BlackRock, Lipowy Office Park sale by CA Immo to WP Carey (EUR 108m), Atrium 1 sale by Skanska to Deka (for ca. EUR 94m) and the Arka BZ WBK Property Market Fund portfolio deal, which saw six office buildings being transferred to Octava FIZAN. In the retail segment, the largest deals saw Resolution and ECE Fund purchase Poznań City Center bought


from TriGranit, Europa Capital and PKP and CBRE Global Investors buy Galeria Mazovia from Lewandpol (both for undisclosed price). Major trans-actions in the industrial sector included: Tristan/AEW selling industrial properties situated on the outskirts of Warsaw, Łódź and Poznań to SEGRO (ca. EUR 100m), and the sale of logistics assets in Mysłowice, Stryków and Robakowo by Standard Life Investments to Blackstone (EUR 118.2m). "We have observed an increased appetite for regional offices amongst investors, already proven with H1 transactions concluded in Kraków, Wrocław, Poznań, Gdynia and Łódź. At the same time, we witnessed new entrants to the office investment scene such as WP Carey and Octava S.A., who successfully concluded large and complex transactions of national reach," commented Tomasz Puch, Head of Office and Indus-trial Investment, JLL Poland.

CEE property investment volume In EUR million, 1H 2014

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6

Slovakia

Hungary

Romania

Czech Republic

Poland

Source: JLL

According to JLL, the first half of 2014 also brought a number of opportunistic and value-added transactions of a scale greater than in the corresponding periods of previous years. Such types of transactions amounted to over EUR 200m, doubling the H1 2013 result in this respect. With deals in the pipeline, JLL expects this trend to continue throughout 2014. JLL estimates prime office yields to remain stable at around 6.25%, with possible compression for unique assets. Retail yields for best in class products are at 5.50% and truly prime warehouse asset yields are ex-pected at or below 7.25%. "Going forward, we expect 2014 to be another very prosperous year with volumes already exceeding the strong figures seen in 2013. In our opinion, 2014 will be the strongest year since 2006 with transaction vol-umes forecast to reach over EUR 4bn. We expect the highest-ever volumes of industrial investment to come in at over EUR 700m, office investment to hit close to EUR 1.9bn and retail investment to continue its strong performance with approximately EUR 1.5bn worth of deals," Tomasz Puch added.

HOSPITALITY

Hampton by Hilton Hampton by Hilton Hampton by Hilton Hampton by Hilton to to to to open in Wrocław open in Wrocław open in Wrocław open in Wrocław

Only weeks after Hampton by Hilton opened its largest property outside the US in downtown Warsaw, the US hospitality chain is gearing up to launch anoth-er investment in Poland, this time in Wrocław. Polish property company West Real Estate has just con-firmed it had obtained financing for the project that will bear the Hampton by Hilton logo under a fran-chise agreement with Hilton Worldwide. The gen-

eral contractor is to enter the site in the coming weeks to complete the project by the end of 2015. "Hampton by Hilton Wrocław City Center West will be a three-star property located on Sikorskiego St.. At this stage the investor is not disclosing how many rooms will be available at the property," says Hanna Gut, a PR representative for the project.

Hampton by Hilton Wrocłąw City Centre West will open next year on Sikorskiego Street. Image: Gut PR

West Real Estate is a property and waste management company listed on Warsaw Stock Exchange's alterna-tive platform NewConnect. According to the investor, Hilton Wrocław City Center West will be Hilton's 18th property in Poland, taking into consideration all exist-ing and pipeline projects. The latest addition to the Polish Hilton chain was the 300-room Hampton by Hilton Warsaw City Centre, developed by Austria's S+B Gruppe. The new hotel is the second Hampton by Hilton in Warsaw following the recently completed property near the Chopin air-port, and number four in Poland, alongside hotels in


Gdańsk and Świnoujście. A Hampton by Hilton prop-erty is also under construction in Bydgoszcz. Other Hilton brands available in Poland are Hilton Garden Inn (Kraków, Rzeszów), DoubleTree by Hilton (War-saw, Łódź) and Hilton (Warsaw, Gdańsk). The latest opening, prior to Hampton by Hilton Warsaw City Centre, was the 360-room DoubleTree by Hilton Hotel & Conference Center in Warsaw, developed by Polaris Hospitality Enterprises, which welcomed first guests in May.

Hilton Worldwide Hilton Worldwide Hilton Worldwide Hilton Worldwide –––– PPPPolish hotelsolish hotelsolish hotelsolish hotels Property No of rooms Opening

Hilton Warsaw 314 2007

Hilton Gdansk 152 2010

Hilton Wroclaw 255 TBA

Hampton by Hilton Swinoujscie 104 2012

Hampton by Hilton Warsaw Airport 116 2013

Hampton by Hilton Gdansk Airport 116 2013

Hampton by Hilton Bydgoszcz 130 2014

Hampton by Hilton Wrocław TBA 2015

DoubleTree by Hilton Lodz 200 2013

Doubletree by Hilton Warsaw 365 2013

Hilton Garden Inn Krakow 155 2010

Hilton Garden Inn Rzeszow 102 2012

Hilton Garden Inn Krakow Airport 150 2013

Hilton Garden Inn Wroclaw 150 TBA

Source: Hilton Worldwide / archives

Wrocław has been on Hilton's radar for a number of years now, but the chain's two initial projects in the city (Hilton and Hilton Graden Inn) experienced seri-ous delays due to financing problems on the part of their investors. According to recent reports they are about to take off, however. "Poland continues to be a strategic development mar-ket for Hilton Worldwide. In 2013, over 23 million tourists chose to visit Poland. The number of guests booking hotels increased by nearly one million versus

the previous year," said Simon Vincent, president, Eu-rope, Middle East & Africa, Hilton Worldwide. Hilton Worldwide is the leading global hospitality company, spanning the lodging sector from luxurious full-service hotels and resorts to extended-stay suites and mid-priced hotels. Its brands are comprised of more than 4,100 hotels and timeshare properties, with 685,000 rooms in 92 countries and include Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Em-bassy Suites Hotels, Hilton Garden Inn, Hampton Ho-tels, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton Grand Vacations.

TRANSPORT & LOGISTICS

European Commission European Commission European Commission European Commission approves state aid for approves state aid for approves state aid for approves state aid for flagship carrier LOTflagship carrier LOTflagship carrier LOTflagship carrier LOT

In a much awaited decision the European Commission has concluded that the Polish government's decision to award PLN 804m (EUR 194m) worth of public aid to the country's flagship carrier LOT Polish Airlines in a move to keep the company from going under had been in line with EU state aid rules. The official deci-sion thereby puts an end to the formal proceedings in Brussels related to the Polish national carrier, giving LOT some breathing space to complete its ongoing re-structuring. As for the latter, the Commission found the carrier's restructuring plan, due for completion in October 2015, to be "based on realistic assumptions and should enable the company to return to long-term viability within a reasonable timeframe."

"This is a very important day for LOT. The Commis-sion’s investigations of our Restructuring Plan con-firmed that we are adhering to the provisions of EU law. The measures foreseen in the Plan avoid distor-tions to the market, and ensure our long-term compet-itiveness. We have indeed cut our costs dramatically, and have improved our revenues so that, after many years of losses, LOT can finally return to sustainable profitability," commented LOT's CEO Sebastian Mikosz.

According to LOT, its new B787 Dreamliner fleet has been instrumental in helping the company get back on its feet. Image: LOT

The Commission also reviewed claims LOT received state aid in the form of deferred airport charges at Polish state-owned airports, as well as the sale of real estate, subsidiaries, and the provision of loans from public and private companies, finding "none of these measures involved state aid within the meaning of EU rules, as they either involved no state resources or were carried out on market terms and thus did not confer any undue economic advantage to LOT."


European Commission VP responsible for competition policy Joaquín Almunia said: "LOT has prepared a credible restructuring plan that should make it a viable company in the near future. At the same time, it gives up some profitable routes and slots at several congest-ed airports, which creates opportunities for its com-petitors and reduces the competition distortions brought about by the aid." LOT applied for state aid in 2012, but in order to get the Commission's green light for the rescue package, it had to implement a far-reaching restructuring plan which involved closure of several profitable routes, capacity reductions and job cuts . The company re-gained its footing much faster than expected. LOT posted its first net profit in half a decade, which topped PLN 26m, instead of a PLN 200m loss the company had been expecting according to the restruc-turing plan presented to the European Commission. Crucially, the company posted a small, PLN 4m loss on core operations, against a PLn 142m loss assumed in the plan. The airline successfully transitioned from the old Boeing 767 and 737 fleet to the new fuel-efficient 787 Dreamliner jets. Despite some initial technical problems, the Dreamliners have given LOT a competi-tive edge over other airlines, as the Polish company had been the first carrier in Europe to receive Boeing's new creation, attracting business travelers on flights to the US and Beijing. LOT planes fly to nearly 60 destinations in Europe, the Middle East, North America and Asia. However, despite the significant progress made it made last year the company is not out of the woods yet. LOT has used up all of the most obvious ways to improve its performance, whereas the restrictions the European Commission had imposed on its business remain in force. LOT received the first tranche of state aid in the amount of PLN 400m in December 2012 and initially expected to get the second tranche (up to PLN

381m) in August 2013, but LOT's management has been doing its best to postpone the acceptance of the latter installment or reduce its scale in order to avoid additional pressure from the EU. The government's long-term objective is to sell the airline to a strategic investor.

RETAIL CHAINS

Polish operator Polish operator Polish operator Polish operator acquires acquires acquires acquires drugstore drugstore drugstore drugstore chain in Luxembourgchain in Luxembourgchain in Luxembourgchain in Luxembourg

In the last issue of BR+ we spoke to Kamil Kliniewski, CEO of the listed Polish personal care products maker Hygienika, about his company's plans for the drug-store chain Dayli. Mr. Kliniewski mentioned that due to shortage of suitable candidates on the Polish mar-ket, he would seek acquisition opportunities in West-ern Europe. Little did we know, that the first deal was about to be sealed only days later. Last week Dayli acquired a chain of 24 drugstores in Luxembourg for an estimated EUR 20m with the in-tention of doubling their number over the coming 2-3 years. The acquired stores are located in the capital of the Duchy (6 locations) and other cities such as Grevenmacher, Mersch i Bettembourg. Hygienika em-phasizes that with the average monthly wage at EUR 4,900, Luxembourg boasts the highest consumption and lowest unemployment in Europe, making it a safe destination in uncertain times. "It's worth pointing out that our drugstores are the on-ly ones that exist in Luxembourg," says Kliniewski. "The chain should reach a EUR 15m turnover next year with an EBITDA margin of 6%. The planned ex-

pansion is to boost its results to EUR 40-50m and 10% respectively in two to three years." Hygienika entered the retail business via the acquisi-tion of some 170 drugstores in Poland that used to be-long to the now bankrupt German operator Schlecker. The company is expanding the chain un-der a new formula and brand Dayli, which is a cross between a drugstore and a convenience store. Under Hygienika, the chain is to open some 25 new Dayli stores in 2014, reaching 200 locations, before its ex-pansion truly picks up pace next year.

Polish drugstore operator Dayli seeks to establish presence in Western Europe. Image: Dayli

In November last year Hygienika struck a deal with the private equity fund Innova Capital, regarding joint investments in the drugstore segment. Their joint venture agreement were to be sealed later this year, with Hygienika bringing the Dayli business to the ta-ble and Innova contributing another, unnamed Polish drugstore operator. The two partners said their goal is to create a retail business with a PLN 1bn turnover in a few years.


"The idea behind that project was for Innova Capital to find and subsequently acquire a retail chain in Po-land that it would later contribute to Dayli as a new as-set via an equity boost. This, in effect, were to boost Dayli's sales revenues and store numbers and support long-term growth of the entire business, which would operate under the Dayli brand, as stipulated in the Let-ter of Intent. However, so far we have not been able to find a suitable candidate in Poland and that's why we are looking at Western European markets where we see better prospects for growth," Mr. Kliniewski told Poland Today, hinting that the Luxembourg purchase may not be his last Last year the Hygienika group saw its turnover reach PLN 177m, up from PLN 49.4m in 2012, while its net earnings from continued operations rose from PLN 1.2m in 2012 to PLN 6m in 2013. The surge in turnover was mainly due to the acquisition of the Dayli chain, whose results have been part of Hygienika's consoli-dated financials since March 2012. Hygienika is seek-ing buyers for its personal care products factory neat Warsaw, hoping to funnel the proceeds into expansion of its retail business.

RETAIL PROPERTIES

JLL says 0.8m sq.m of JLL says 0.8m sq.m of JLL says 0.8m sq.m of JLL says 0.8m sq.m of retail space is under retail space is under retail space is under retail space is under construction in Polandconstruction in Polandconstruction in Polandconstruction in Poland

Close to 800,000 sq.m of retail centre space is current-ly under construction across the country, mainly in shopping centers, reports property consultancy JLL in its recent report on the Polish market. The first six months of the year saw 252,000 sq.m of new retail space enter the market, of which 205,000 sq.m in shopping centers. The biggest completion of the first half of 2014 was Atrium Felicity in Lublin (73,000 sq m of GLA). In Q2 alone ca 88,000 sq.m of new retail space was delivered to the market, including at Galeria Bursztynowa in Ostrołęka (27,000 sq.m GLA), marcredo Center in Kutno (16,000 sq.m) and Pogodne Centrum in Oleśnica (7,700 sq.m) and Gemini Park in Bielsko-Biała (extended by 13,000 sq.m). In the retail ware-housing sector two Karuzela Parks were launched in Lubliniec and Turek, one stand-alone Bricoman DIY unit (8,100 sq.m) in Jaworzno and a E.Leclerc hyper-market (5,000 sq.m) in Szczecin. With the exception of the latter, all new retail assets opened in Q2 were located in cities of less than 100,000 inhabitants. "We observe that smaller markets are attractive loca-tions for developers and retailers. This will become even more pronounced with the arrival of the shop-ping centers projects currently under construction: 37% of developing pipeline will contribute to the growth of stock in cities of less than 200,000 citizens. Nevertheless major agglomerations remain very active – 44% of future shopping centre floor space will open in these cities, with the remainder in cities of between

200,000 and 400,000 residents," said Anna Wysocka, Head of Retail Agency, JLL. There are 31 shopping centers currently under con-struction throughout Poland with a combined lettable space of 720,000 sq.m. The largest new projects under construction include Centrum Posnania in Poznań (100,000 sq.m, formerly known as Łacina), Zielone Arkady in Bydgoszcz (50,000 sq.m), Sukcesja in Łódź (45,000 sq.m), Galeria Warmińska in Olsztyn (41,500 sq.m), Tarasy Zamkowe in Lublin (38,000 sq.m), Galeria Metropolia in Gdańsk (34,000 sq.m) and Galeria Galena in Jaworzno (31,000 sq.m). Seven cen-ters are undergoing extensions, including Magnolia Park in Wrocław. The retail supply looks set to grow by 564,000 sq m in 2014, with 455,000 sq m in shop-ping centers, roughly matching the 2013 completion of 466,000 sq.m in the sector.

POLAND RETAIL MARKET AT A GLANCE The total retail supply as of mid-2014 stands at 12.1m

sq.m of GLA, including: shopping centers (8.7m sq.m),

retail parks (1.3m sq.m), retail warehouses (1.9m sq.m)

and outlet centers (163,000 sq.m). The shopping cen-

tre density in Poland currently stands at 226 sq.m per

1,000 inhabitants i.e. above the European average of

191 sq m, but below the Western-European average of

255 sq.m. Source: JLL

"Poland is an attractive market for international retail-ers. Fashion retailers make up the majority of those who have recently entered the market, including Spanish brand Inside, Olimp Live & Fight from USA and Italian outlet store Gattinoni Roma. Additionally, two fitness clubs, British CityFit and Fitness24Seven from Sweden, have decided to make their mark in Po-land. Also, brands already present on the market are searching for expansion opportunities. Some chains


like Carry, Zara, Reserved, CCC or Rossmann are en-larging their stores, others are expanding their portfo-lios by introducing new brands. For example, after Sinsay's successful launch, LPP Group is about to in-troduce two new concepts, selling fashion and house-hold goods, to the market. Fashion chain Kiabi from the Auchan Group is set to open their first stores in Warsaw shortly. It is worth noting, however, that ten-ants present a selective approach and focus mostly on existing prime assets and projects under extension with short to mid-term delivery," Anna Wysocka add-ed. According to JLL, following the recent tenant mix re-shuffle at a number of the city's prime retail assets, prime rents have gone up by 5% and now stand at EUR 105/sq.m/month. The estimate concerns the top prime rents for a prominently located 100 sq.m fashion store in leading shopping centers. JLL expects prime rents in the remaining markets to remain stable in the short to mid-tem. As far as the investment market is concerned, major transactions in H1 included the takeover of Poznań City Center by a consortium of Resolution and ECE Fund from TriGranit, Europa Capital and PKP and the sale of Galeria Mazovia by Lewandpol to CBRE Global Investors. "The total volume of retail transactions concluded in Poland in H1 is estimated at EUR 368m. In Q2 alone, transactions in the retail segment amounted to EUR 73m. Taking into account investor activity and ongoing negotiations, the transaction volume in retail invest-ment market can reach approximately EUR 1.5bn of by the end of 2014," said Agnieszka Kołat, National Direc-tor, Retail Investment CEE, JLL.

FOOD

PolesPolesPolesPoles uniteuniteuniteunite in apple in apple in apple in apple consumption asconsumption asconsumption asconsumption as Russia Russia Russia Russia imposes ban on Polish imposes ban on Polish imposes ban on Polish imposes ban on Polish fruit & vegfruit & vegfruit & vegfruit & vegetablesetablesetablesetables

Poland will seek compensation from the European Un-ion after Russia imposed a ban on Polish fruit and veg-etable exports, which according to the Polish agricul-ture ministry may cost the country as much as EUR 0.5bn. Although the ban was officially due to sanitary reasons, it came a day after the EU and United States imposed a range of economic sanctions against Mos-cow over its role in the Ukraine conflict. Agriculture Minister Marek Sawicki called the Rus-sian embargo and act of "political repression in re-sponse to the restrictions imposed by the European Union against Russia." The issue of compensation for Poland was raised during talks Friday with European Commission and European Parliament officials. Sawicki "wants to prevent a situation in which Polish vegetable and fruit growers are the main victims of EU and US economic restrictions against Russia,” the Polish agriculture ministry said in a statement. According to the ministry, Poland exported over 804,000 tons of fruit and vegetables worth almost EUR 336m to Russia last year. The Russian market ac-counts for some 7% of Poland's food exports. Apples account for almost three-quarters of the total volume of fruit produced in Poland. Poland is the world’s larg-est exporter of apples, with EUR 438m worth of ex-ports a year.

The Russian ban provoked a nationwide campaign to eat Polish apples in support of Polish fruit growers. It began with the business newspaper Puls Biznesu run-ning an editorial entitled “Stand against Putin: eat ap-ples, drink cider." The idea was quickly picked by the social media, with ordinary people and celebrities posting photos of themselves or others eating apples on Twitter and Facebook.

Posing with apples was the hottest trend in Polish social media last week. Pictured above is the editorial team of the Polityka magazine "eating apples to an-noy Putin." Source: pic.twitter.com/fmBXKlwDR6

According to reports in the Polish media, Moscow is said to be preparing to ban beef and poultry imports from Poland, after Russian officials claimed they had found dangerous bacteria in such meat. This could de-liver another heavy blow to the country's meat indus-try, after the latter seen its exports decline by 20% or by EUR 80m due to the African swine flu cases among wild boars in eastern Poland. Since the disease has been discovered in recent weeks in farm pigs in the same region, the declines might become even deeper in the coming months.


POLITICS & ECONOMY

Manufacturing PMI Manufacturing PMI Manufacturing PMI Manufacturing PMI moves back into moves back into moves back into moves back into contraction territorycontraction territorycontraction territorycontraction territory

The Poles might be eating apples and drinking cider to annoy Putin, but the prolonging crisis across Poland's eastern border seems to be catching up with the coun-try's fragile economic recovery. According to the monthly survey by Markit and HSBC, the Poland Manufacturing PMI in July showed business condi-tions deteriorate for the first time in 13 months. The index, declined to 49.4 points compared to 50.3 points in June, with 50 points being the threshold that sepa-rates growth from contraction. Crucially, July new orders declined at fastest pace since April 2013. New export orders fell at the highest pace since October 2012. Manufacturing production growth slowed down last month, coming close to stag-nation, while stocks of inputs and backlogs declined sharply. "An increase in employment index is the only positive note in the July survey but should the activity weak-ness continue it will of course drag employment down later on. Input prices rose for the first time in six months, but at only a marginal pace while output pric-es declined for the twentieth consecutive month, albe-it at a slower rate than in June," said Agata Urbańska-Giner, Economist, Central & Eastern Europe at HSBC. "On balance this is a very negative result pointing to further weakness in manufacturing. Industrial produc-tion growth surprised to the downside in June slowing to just 1.7% y-o-y from 4.9% average in H1 2014 and the PMI survey points to more weakness ahead. This,

combined with looming deflation in the summer months, supports market pricing of interest rate cuts in Poland. "

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

45

50

55

60

May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14

Source: Markit & HSBC

The July PMI reading was much weaker than average projections, as economists had been counting on the figure to reach 50.5 points. "What is particularly worrying is the trend of this indi-cator. The PMI has dropped below 50 points after a period of recovery that lasted merely a year, signaling a likely slowdown in the near future. While the eco-nomic growth may continue to take advantage of a momentum for the remainder of the year, I find the optimistic projections for 2015 increasingly unrealis-tic," commented Krzysztof Kolany, chief analyst at Bankier.pl.

MEDIA PATRONAGE

5th5th5th5th annual annual annual annual Charity Charity Charity Charity Real Estate Beach Real Estate Beach Real Estate Beach Real Estate Beach Volleyball Volleyball Volleyball Volleyball raises raises raises raises record amountrecord amountrecord amountrecord amount for for for for children's homechildren's homechildren's homechildren's home

The east bank of the Vistula river resembled a scene from a Californian beach movie on Thursday after-noon as 224 players representing 33 companies took part in the 5th annual Charity Real Estate Beach Vol-leyball Tournament organized by JLL - and were then joined by about 1,000 colleagues and friends to party the night away. The event raised almost PLN 187,000 for the Happy Kids Foundation to help finance the construction of a new family-type children’s home in Dąbrówka near Zgierz. A joint TriGranit Development /TPA Horwath team beat warehouse developer ProLogis in a closely-contested final, with MLP – an-other warehouse developer – claiming third place. "It was pretty hot – some moments we were struggling because of the sun, but we made it," said Agnieszka Turowska, finance director from TriGranit Develop-ment, a real estate development company. "We came with high hopes but still we were pretty surprised that we won. The team had only met together once, one month before, and we hadn’t trained. The atmosphere was very friendly, both during the competition and at the party afterwards, but the greatest part of the whole thing was that we raised a lot of money for the or-phanage," she said. Tomasz Trzósło, Managing Director of JLL in Poland, said he was very happy with the event.


"It was a great atmosphere, and we raised the highest amount of money to date. Last year the money went to a clinic in Międzylesie for kids who have cancer and I went there with some of our team to see for ourselves, so we know the good the money can do." Each year a different charity is chosen, but it is always a children’s cause which is supported, he added. "It was also great to see people in the market get together over a few drinks – even at 3am there were still about 300-400 people there. I don’t think that the real estate sector will be very productive today," he joked.

The winning team, made up of players from TriGranit and TPA Horwath, hold their trophy aloft. Photo: JLL

The players represented both international and Polish companies from the real estate sector, including Adgar Poland, Balmain Asset Management, BlackRock, BNP Paribas Real Estate, Capital Park, CBRE, Colliers, Cushman & Wakefield, Dentons, DTZ, Echo Invest-ment, ECI, Evigo, Ghelamco, HB Reavis, Heitman, JLL, Knight Frank, Kulczyk Silverstein Properties, MLP Group, Multi Development Poland, NAI Estate Fellows, Neinver, Panattoni Europe, Prologis, PZU Inwestycje, Savills, SEGRO, Skanska, TriGranit to-gether with TPA Horwath, Unibail-Rodamco and Warbud.

Aleksander Katarasiński, President of the Happy Kids foundation, holds up the cheque for PLN 186,847, which was presented by Tomasz Trzósło, Managing Director of JLL in Poland. Photo: JLL

The winning team celebrates in traditional style. Photo: JLL

The sponsors of this year’s event were: AB FOTO, Batida, Cinnabon, Copy General, Europilot, F1Karting, Flyspot, Fundacja Tesco Dzieciom, Grycan, Helios, House of Tudor, La Playa Music Bar, Medicover, Mielżyński Wine Spirits Specialities, Och-Teatr, Porti-co Investments, Prime Property Marketing, Prologis,

Radisson Blu, Salad Story, Sign System, Stewart Title Limited, Stamm Sport Promotion, Tara HR Consult-ing, Teatr Guliwer, Teatr Kamienica, Top Secret, VALAD, Warszawskie Centrum Atletyki, The Westin Warsaw. Poland Today was a media patron.

224 players representing 33 companies took part in the 5th annual Charity Real Estate Beach Volleyball Tournament. Photo: JLL

Around 1,000 real estate professionals joined the af-ter-party. Photo: JLL


KEY STATISTICS

Consumer PriceConsumer PriceConsumer PriceConsumer Pricessss

Data in (%) Mar '14 Apr '14 May '14 Jun '14

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

Food & bev +1.2 -0.3 +0.3 -0.5 -0.8 -0.4 -0.9 -0.3

Alcohol, tobacco +3.7 +0.7 +3.9 +0.3 +3.9 +0.2 +4.0 +0.1

Clothing, shoes -4.3 +0.8 -4.4 +2.8 -4.6 -0.1 -4.7 -0.8

Housing +1.8 -0.1 +1.7 0.0 +1.6 0.0 +1.6 -0.1

Transport -2.7 +0.1 -2.1 -0.1 -0.1 -0.4 -0.6 -0.2

Communications -0.3 +0.6 -1.7 -1.5 -1.1 -0.1 +1.3 +2.4

Gross CPI +0.7 +0.1 +0.3 0.0 +0.2 -0.1 +0.3 0.0

IIIInflationnflationnflationnflation

-1%

0%

1%

2%

3%

4%

5%

Jun 12

Aug 12

Oct 12

Dec 12

Feb 13

Apr 13

Jun 13

Aug 13

Oct 13

Dec 13

Feb 14

Apr 14

Jun 14

y/y m/m

Retail Retail Retail Retail TurnoverTurnoverTurnoverTurnover

Month Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) -0.6 +12.5 +2.3 -2.7 -1.1

y/y (%) +7.0 +3.1 +8.4 +3.8 +1.2

Year 2009 2010 2011 2012 2013

Turnover in PLNbn 582.8 593.0 646.1 676.0 n/a

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-Jun

2014

y/y

(%)

Permits 178.8 174.9 184.1 165.1 138.7 76.5 +12.8

Commenced 142.9 158.1 162.2 141.8 127.4 72.3 +22.5

U. construction 670.3 692.7 723.0 713.1 694.0 700.9 -0.4

Completed 160.0 135.7 131.7 152.5 146.1 66.3 -2.4

Source: Central Statistical Office (GUS)

GGGGross Domestic Productross Domestic Productross Domestic Productross Domestic Product

Period Growth y/y unadjusted

GDP in PLN bn current prices

Current account def. in % of GDP

Q1 2014 +3.4% 397,429 -1.1%

Q4 2013 +2.7% 455,528 -1.3%

Q3 2013 +2.0% 405,554 -1.9%

Q2 2013 +0.8% 296,314 -2.3%

2013 +1.6% 1,635,746 -1.3%

2012 +1.9% 1,596,379 -3.7%

2011 +4.5% 1,528,127 -5.0%

2010 +3.9% 1,416,585 -5.1%

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

Indicator 2010 2011 2012 2013 *2014

GDP change +3.9% +4.5% +1.9% +1.6% +3.5%

Consumer inflation +2.6% +4.3% +3.7% +0.9% +0.3%

Producer inflation +2.1% +7.6% +3.4% -1.3% -1.4%

CA balance, % of GDP -5.1% -5.0% -3.7% -1.3% -0.6%

Nominal gross wage +3.9% +5.2% +3.7% +3.4% +4.3%

Unemployment** 12.4% 12.5% 13.4% 13.4% 12.2%

EUR/PLN 3.99 4.12 4.19 4.20 4.12

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

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

Sector Q2 2013 Q3 2013 Q4 2013 Q1 2014

A B A B A B A B

Coal mining 6,290 143 6,061 138 8,615 196 6,333 144

Manufacturing 3,560 155 3,625 158 3,690 161 3,663 160

Energy 5,828 177 6,021 183 6,736 205 6,358 193

Construction 3,693 157 3,766 160 3,895 166 3,706 158

Retail & repairs 3,421 146 3,408 145 3,456 147 3,544 151

Transportation 3,547 125 3,589 127 3,913 138 3,666 130

IT, telecoms 6,707 174 6,654 173 6,695 174 6,986 181

Financial sector 6,702 151 6,109 137 6,602 148 6,749 152

National average 3,613 144 3,652 145 3,823 152 3,895 155


Construction OutputConstruction OutputConstruction OutputConstruction Output

Month Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) +21.5 -64.0 +18.7 +24.2 +3.2 +14.0 +16.9

y/y (%) +5.8 -3.9 +14.4 +17.4 +12.2 +10.0 +8.0

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

Sep 1

1

Dec 11

Mar 12

Jun 12

Sep 1

2

Dec 12

Mar

13

Jun 13

Sep 13

Dec 13

Mar

14

Jun 14

60

80

100

120 Co nsumer confidence (left 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 PriceProducer PriceProducer PriceProducer Pricessss

Month Dec'13 Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14

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

y/y (%) -1.0 -1.0 -1.4 -1.3 -0.7 -1.0 -1.7

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 PriceConstruction PriceConstruction PriceConstruction Pricessss

Month Dec'13 Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14

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

y/y (%) -1.7 -1.7 -1.6 -1.5 -1.5 -1.4 -1.3

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 OutpuIndustrial OutpuIndustrial OutpuIndustrial Outputttt

Month Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

m/m (%) -9.7 +2.9 -1.8 +9.4 -2.3 -1.7 -0.1

y/y (%) +6.6 +4.1 +5.3 +5.4 +5.4 +4.4 +1.7

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-May 2014

y/y (%)

share (%)

2013 share (%)

Jan-May 2014

y/y (%)

share (%)

2013 share (%)

Food and live animals 30,403 +10.6 10.9 69,304 10.9 20,794 +5.7 7.5 47,906 7.4

Beverages and tobacco 3,667 +10.9 1.3 8,624 1.4 1,612 +1.0 0.6 4,150 0.6

Crude materials except fuels 7,057 +3.4 2.5 15,744 2.5 9,065 -1.0 3.3 21,585 3.3

Fuels etc 11,896 -2.0 4.3 30,013 4.7 31,333 +6.0 11.2 75,539 11.7

Animal and vegetable oils 811 +33.7 0.3 1,864 0.2 1,071 +1.0 0.4 2,646 0.4

Chemical products 25,517 +5.5 9.1 59,103 9.3 41,641 +8.2 15.1 92,917 14.3

Manufactured goods by material 55,193 +3.5 19.8 129,915 20.3 49,473 +8.4 17.7 112,392 17.3

Machinery, transport equip. 107,483 +10.9 38.5 239,434 37.5 91,562 +5.1 32.8 216,608 33.4

Other manufactured articles 36,803 +13.3 13.2 82,816 13.0 26,343 +15.3 9.5 58,210 9.0

Not classified 320 n/a 0.1 1,782 0.2 5,977 n/a 1.9 16,242 2.6

TOTAL 279,150 +8.3 100 638,599 100 278,871 +6.1 100 648,195 100

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

EXPORTS in PLNbn IMPORTS in PLN bn

No Country Jan-May 2014

share 2013 share No Country Jan-May 2014

share 2013 share

1 Germany 72,954 26.1% 162,548 25.1% 1 Germany 60,238 21.6% 142,161 21.7%

2 UK 17,615 6.3% 42,138 6.5% 2 Russia 32,634 11.7% 79,578 12.1%

3 Czech Rep. 16,771 6.0% 40,110 6.2% 3 China 27,284 9.8% 61,127 9.3%

4 France 16,100 5.8% 36,367 5.6% 4 Italy 14,420 5.2% 34,940 5.3%

5 Russia 12,068 4.3% 34,069 5.3% 5 Netherlands 10,418 3.7% 25,409 3.9%

6 Italy 12,888 4.6% 27,958 4.3% 6 France 11,021 4.0% 25,041 3.8%

7 Netherlands 11,123 4.0% 25,707 4.0% 7 Czech Rep. 9,420 3.4% 24,054 3.7%

8 Ukraine n/a n/a 18,020 2.8% 8 USA 6,645 2.4% 17,431 2.7%

9 Sweden 7,950 2.8% 17,581 2.7% 9 UK 7,243 2.6% 17,184 2.6%

10 Slovakia n/a n/a 17,099 2.6% 10 Belgium 6,915 2.5% 15,137 2.3%


CurrencyCurrencyCurrencyCurrency

Central Bank average rates

as of 1 August 2014

100 USD 312.80 ↑

100 EUR 418.87 ↑

100 GBP 526.65 ↑

100 CHF 344.38 ↑

100 DKK 56.18 ↑

100 SEK 45.50 ↑

100 NOK 49.74 ↑

10,000 JPY 303.96 ↑

100 CZK 15.14 ↑

10,000 HUF 133.35 ↓

100 USD/EUR against PLN

300

350

400

450

19 A

ug 13

24 O

ct 13

8 Jan 14

17 M

ar 14

26 M

ay 14

1 Aug 14

USD EUR

MMMMoney Supplyoney Supplyoney Supplyoney Supply

in PLN m Mar '14 Apr '14 May '14 Jun '14

Monetary base 173,213 168,511 162,246 173,096

M1 558,954 548,394 557,651 572,376

- Currency outside banks 116,657 119,261 119,649 120,828

M2 964,624 969,754 975,001 980,090

- Time deposits 422,990 439,137 435,386 426,351

M3 980,377 986,142 991,120 996,171

- Net foreign assets 132,849 126,943 142,260 144,033 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 Mar' 14 Apr' 14 May' 14 Jun' 14

Loans to customers 923,709 928,450 930,652 940,703

- to private companies 267,553 270,886 273,360 276,709

- to households 569,334 573,332 574,800 578,639

Total assets of banks 1,628,519 1,639,359 1,660,583 1,667,783

Source: Central Bank NBP

IIIInterest ratesnterest ratesnterest ratesnterest rates

Average weighted annual interest rates

on loans to non-financial corporations

Term / currency Jan '14 Feb '14 Mar '14 Apr '14 May '14 Jun '14

PLN (up to 1 year) 4.2% 4.5% 4.5% 4.4% 4.4% 4.5%

PLN (up to 5 y ) 4.9% 4.8% 4.9% 4.8% 4.8% 4.8%

PLN (over 5 y) 4.8% 4.7% 4.7% 4.7% 4.7% 4.7%

PLN (total) 4.8% 4.7% 4.7% 4.7% 4.7% 4.7%

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

EUR (over 1m EUR) 3.6% 3.4% 3.3% 3.0% 2.7% 3.4%

Warsaw Inter Bank Offered Rate (WIBOR) as of 1 August 2014

Overnight 1 week 1 month 3 months 6 months

2.63% 2.60% 2.60% 2.67% 2.69%

Central Bank (NBP) Base Rates

Reference Lombard NBP deposit Rediscount

2.59% 4.00% 1.00% 2.75%

Stock ExchangeStock ExchangeStock ExchangeStock Exchange

Warsaw Stock Exchange, rates in PLN

WIG-20 stocks in alphabetical

order

Price 1 Aug '14

Change 25 July

'14

Change end of '13

↓ Alior Bank 79.45 -2% -2%

↑ Asseco Pol. 41.58 +3% -10%

→ Bogdanka 113.6 0% -10%

↑ BZ WBK 360.8 +1% -7%

↓ Eurocash 37.1 -12% -22%

↓ Grupa Lotos 36.23 -2% 2%

↓ JSW 41.25 -5% -22%

↓ Kernel 28.75 -4% -24%

↓ KGHM 129.7 -1% +10%

↓ LPP 7,650 -5% -15%

↓ mBank 463 -5% -7%

↑ Orange Pol. 10.37 +5% +6%

↓ Pekao 171.5 -3% -4%

↓ PGE 20.95 -1% +29%

↓ PGNiG 4.89 -7% -5%

↓ PKN Orlen 36.88 -5% -10%

↓ PKO BP 36.3 -5% -8%

↓ PZU 442 -2% -2%

↓ Synthos 4.5 -2% -18%

↑ Tauron 5.11 +1% +17%

Source: Warsaw Stock Exchange

Key indices

as of 1 August 2014

WIG Total index

55550000,,,,390390390390....94949494 Change 1 week -2% ↑

Change end of '13 -2% ↑

WIG-20 blue chip index

2,2,2,2,341341341341....91919191 Change 1 week -3% ↑

Change end of '13 -2% ↓

WIG Total closing index

last three months

50,000

51,000

52,000

53,000

54,000

16 A

pr 14

26 M

ay 14

17 Jun 14

10 Jul 14

1 Aug 14


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New Business Consultant

Tomasz Andryszczyk

RRRRegional Dataegional Dataegional Dataegional Data

Poland's regions

(main cities indicated

in brackets)

Industrial output

Jan-Jun 2014 *

Monthly wages (PLN)

Jan-Jun 2014**

Unemploy-ment

Jun 2014

New dwellings Jan-Jun 2014

Indus-

try

Constru-

ction

Indus-

try

Constru-

ction

in '000 % Num-

ber

Index *

Dolnośląskie (Wrocław) 101.5 117.2 4,379 4,173 134.5 11.7 6,561 81.1

Kujawsko-Pomorskie (Bydgoszcz) 106.6 120.7 3,432 3,239 132.1 16.2 2,956 91.3

Lubelskie (Lublin) 105.0 83.8 3,734 3,035 118.8 13.0 2,350 81.1

Lubuskie (Zielona Góra) 115.8 110.0 3,454 3,055 50.5 13.5 1,415 90.9

Łódzkie (Łódź) 100.3 119.1 3,702 3,267 137.3 12.8 3,054 102.6

Małopolskie (Kraków) 99.4 107.8 3,822 3,345 145.4 10.4 7,591 94.6

Mazowieckie (Warszawa) 103.5 112.0 4,628 5,084 261.7 10.2 14,266 109.3

Opolskie (Opole) 106.7 127.4 3,635 3,496 45.3 12.7 896 120.8

Podkarpackie (Rzeszów) 105.5 116.6 3,421 3,086 136.6 14.7 2,943 99.8

Podlaskie (Białystok) 106.6 120.0 3,310 3,768 62.9 13.6 1,950 133.5

Pomorskie (Gdańsk-Gdynia) 110.5 123.6 4,021 3,427 100.3 11.8 4,592 86.4

Śląskie (Katowice) 101.1 110.8 4,588 3,533 189.0 10.2 5,199 100.0

Świętokrzyskie (Kielce) 112.0 104.1 3,414 3,264 79.5 14.8 1,355 119.3

Warmińsko-Mazurskie (Olsztyn) 105.3 104.2 3,292 3,101 98.7 19.0 1,976 92.9

Wielkopolskie (Poznań) 106.9 111.9 3,765 3,662 124.5 8.3 6,709 102.7

Zachodniopomorskie (Szczecin) 102.2 100.5 3,533 3,423 95.2 15.7 2,514 93.9

National average 104.3 112.1 4,009 3,795 1,912.6 12.0 66,327 97.6

*) 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 Q3 '13 Q4 '13 Q1 '14

Trade balance -10,059 -5,175 2,309 1,094 151 1,159

Services, net 4,048 4,642 5,249 1,032 1,257 1,245

CA balance -18,519 -14,191 -4,984 -2,086 -1,415 -766

CA balance vs GDP -5.0% -3.7% -1.3% -1.9% -1.3% -1.1%

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

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

Q4 13

Q2 14

6

9

12

15 number (left axis) % (right axis)

Source: Central Statistical Office GUS

IndustrIndustrIndustrIndustrial ial ial ial PropertiesPropertiesPropertiesProperties

by region, Q4 2013

Existing stock, sq.m

Under const ruction, sq.m

Va-cancy ratio

Effective rents EUR/ sq.m/mth

Warsaw central 563,000 17,000

22.3% 3.6–5.1

Warsaw suburbs 2,063,000 12.5% 2.1–2.8

Central Poland 1,021,000 80,000 15.2% 2.1–3.3

Poznań 1,023,000 215,000 4.4% 2.5–3.15

Upper Silesia 1,431,000 37,000 9.3% 2.4–3.3

Wrocław 780,000 259,000 11.7% 2.6–3.1

Tri-city 184,000 46,000 9.2% 2.8–3.3

Kraków 141,000 0 4.0% 3.3-4.0

CommercialCommercialCommercialCommercial PropertiesPropertiesPropertiesProperties

City

New apartments* Offices 2H'13 Retail rents**2H'13

Q1 '14

PLN/sq.m

Change

y/y

Headline

rents**

Vacancy

ratio

Retail

centres

High

streets

Warsaw 8,005 -0.1% 11.5-25.5 11.75% 80-90 85

Kraków 6,419 +1.8% 13-15 4.90% 35-45 78

Katowice 5,531 0.0% 13-14 7.30% 35-45 56

Poznań 6,666 +4.0% 14-16 14.20% 35-45 55

Łódź 4,808 -1.8% 12-14 14.40% 35-45 25

Wrocław 5,928 -0.2% 13-15.5 11.75% 35-45 40

Gdańsk 6,031 -5.7% 13-15 11.20% 35-45 31

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

Country Credit RatingsCountry Credit RatingsCountry Credit RatingsCountry Credit Ratings

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

Jun10

Feb11

Oct11

Jun12

Feb13

Oct13

Jun14

Wage CPI

Index 100 = Jan 2005. Source: GUS

poland today business review+ no. 046

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