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Key Sector Update


2001-05-01

FINANCIAL

In 2000, Pekao S.A., one of the largest retail banks in Poland, was granted a license to establish a mortgage bank. However, it does not intend to take advantage of this until it has completed the process of updating its new information system, which means not for the next six months. Despite postponing the project, Pekao S.A. intends to be active on the mortgage credit market and, by the year 2003, assume the position of market leader in terms of granting such credits to individual clients.

In the fourth quarter of 2001, Bud-Bank is looking to attract two investors that will supplement the bank's capital by PLN 80-120 million. One of these investors will be the European Bank for Reconstruction and Development, the second, an investment fund. The funds procured in this way are to be spent, among other things, on a centralized information system, and on the establishment of new branch offices.

Pension funds recorded less than satisfactory results in the first quarter of 2000. Apart from Pioneer and Rodzina, all of the OFEs (open pension funds) recorded a fall in their accounting unit value, which was a consequence, among other things, of the unfavorable situation on the Warsaw Stock Exchange. February 2001 was the worst period ever in terms of investments, with average unit devaluation amounting to 3.3% (the corresponding figure in March was 1.2%).

A ranking of Central Europe's 100 largest banks compiled by Deloitte & Touche in 1999, places PKO BP and Pekao S.A. among the front-runners. Twenty six Polish banks were included on the list. The assets of Polish banks made up 36% of the total assets of all the region's banks in 1999.

PKO BP purchased from Bank ÂlĹĄski (BSK) a 50% stake in eService, a company involved in the set-up of terminals and card transaction clearing, , thereby becoming its owner outright. The two banks started eService in the summer of 1999, and it became fully operational in the fall of 2000.

Minor investors are putting less money into the Warsaw Stock Exchange than before. In the course of the last year, less than 3% of the public were engaged in any activity on the Stock Exchange, a figure which is as much as two times lower than in recent years. Barely 1/4 of investment accounts in Poland have operations of any type being conducted through them.

Over 10.5 million payment cards are being used by the clients of Poland's 11 largest retail banks, of which 8.8 million are Visa Electron and Maestro cards. Pekao S.A., which had more than 3.3 million cards in circulation at the end of March 2001, cards which are used by individual clients, remains the undisputed leader among credit card-issuing banks

Invest-Bank has begun the reorganization of its branch office network. The bank intends to cut the number of regional branches, which will lower operational costs. Around 100 employees will lose their jobs. The reorganization should be completed in the first half of this year.

IT

Polska Telefonia Cyfrowa, the largest Polish mobile operator, noted revenues of PLN 3.6 billion, and net profits of 97.7 million in 2000. Its market share amounted to 41.5% towards the end of last year, when the company claimed 2.8 million clients. At that time, Polkomtel and Polska Telefonia Cyfrowa, the remaining mobile operators in Poland, had 2.5 million and 1.5 million clients, respectively.

TeleDanmark Internet (TDC), the internet branch of the Danish telecom operator TeleDanmark, and Szeptel, a telecommunications company, have signed a strategic partnership contract. The contract foresees cooperation in the construction and subsequent exploitation of an optic fiber network which will cover the whole of Poland. Szeptel began work on the project last year. The investment is to be completed in 2002, with the network covering 5,000 km.

The Scandinavian internet and telecommunications service provider Tele2 plans to corner 30% of the telephone calls market in Poland within the next 10 years. The investments planned in Poland for the nearest three years by Tele2 will take up approximately USD 50 million. Tele2 provides Voice-over IP services within the area codes of Warsaw, GdaĹsk, and PoznaĹ. In May, 2001 this service is to become available in the area codes of Katowice and Krakow, and in the future in all of Poland's major cities. Tele2's development program also encompass plans to expand their internet services.

The value of the Polish IT market reached USD 3.1 million in 2000, which signifies a 12.3% increase compared to 1999. The highest growth rate was noted in the services sector. In 2001, the IT market in Poland should reach a value of USD 3.5 billion.

FOOD AND BEVERAGES

Ten months after submitting an application to the Polish Ministry for Internal Affairs and Administration, the Austrian beer concern Brau Union was granted permission to become a branch investor in Warsaw Breweries (Browary Warszawskie, BW). The concern has committed itself to investing around PLN 200 million in the company over three years.

In the first two months of 2001 a 20% drop in sales was reported in the meat sector, and 70% in the case of beef. The condition of companies involved in meat processing is becoming increasingly varied. A fall in sales and a decline in financial results are primarily being reported by larger firms which have not been fully restructured, while medium-sized companies that have introduced EU standards are seeing an increase in efficiency and profits.

The American concern Smithfield Foods has formed Smithfield Europe, with its headquarters in Paris. The company is comprised of Smithfield America's European subsidiaries: Animex in Poland, and SBS in France. Animex's new program calls for a reduction in employment levels and the relocation of its Board of Directors' offices from the downtown area in Warsaw to the outskirts of the city. In the year 2000, the company reported losses of PLN 31 million.

Yoplait Polska (YP), a division of the French concern specializing in dairy products, decided to discontinue operations in its only Polish plant, in Osowa SieĹ, as it failed to achieve its expected sales figures during its three year presence on the Polish market.

Wholesale businesses: Factor in Gliwice and Gloria in Lublin have merged, forming a company called Alkohole First Group (AFG), one of the largest alcoholic beverage wholesalers in Poland. The consolidated sales figures of the group reach PLN 220 million annually, which translates into a 3% share of the market, and third place in the alcohol wholesaler rankings. But the group will still merge with at least one other distributor this year. In the future, the firms want to control 10% of the market.

Animex decided to cut staff levels by nearly 75%. The holding company will move its headquarters out of Warsaw's downtown in the near future. This will save the company about USD 400,000 annually. Plans for the restructuring of Animex entail, e.g. concentrating on the manufacture of a narrow range of products, and an increase in exports to EU countries and the Russian Federation.

AUTOMOTIVE

In March, 2001, in the Daewoo plant in Nysa, the assembly of CitroĂŤn Berlingo automobiles was discontinued. In addition to other factors this was precipitated by a fall in customs duties, and hence the greater feasibility of importing the Berlingo from Spain. Daewoo-FSO of Nysa began to cooperate with CitroĂŤn in 1994, though collaboration in the future is not certain.

As of April 2nd, 2001, Volkswagen Bank Polska (VBP) is offering direct banking services, i.e., account services exclusively via telephone and the Internet. This is the second such institution in Poland, after mBank. Over the next 5 years VBP should gain 50-70,000 clients.

The Ministry of Economy imposed a ban on the import of wrecked cars to Poland. In the Ministry's assessment, this law will result in an increase in new car sales of 13-14,000 units a year.

Volvo Poland decided to lay off 141 people from WrocĹaw's Volvo Industrial Center, the reasons being the difficult situation on the bus market and the need to bring employment levels in line with production. Neoplan Polska has won the tender to deliver 148 buses to the public transport department of the city of Ryga, a contract valued at PLN 160 million (USD 39 million). In February, Neoplan Polska received an order for 165 buses from the city of Warsaw.

Autosan, a bus manufacturer in Sanok, intends to produce 750 vehicles this year, which is a similar number to that which they produced in 2000. Although bus production will remain the company's primary activity, Autosan will also return this year to manufacturing trailers and pull-carts for military uses (approx. 200 units), and intends to produce around 100 roof lockers for larger automobiles. 10% of Autosan's 1600 employees will be laid off by the end of this year.

According to Samar, a company that monitors the automotive market, 629 luxury-class cars were sold in Poland in 2000, or 18 (2.8%) less than in 1999. Sales of automobiles in the upper-class segment also fell, by 11.25%. However, the majority of the most prestigious firms ( Mercedes, Volvo, BMW, and Saab) noted an increase in sales during the year 2000, while the drop in sales of vehicles like the Daewoo Leganza (1360 cars sold in 1999, 553 in 2000) dragged statistics down. Opinion among the majority of analysts holds that sales of high-end automobiles should very shortly begin to grow.

This year the Scania-Kapena company plans to increase significantly its production of city buses at its plant in SĹupsk. While throughout the whole of last year not even 10 such vehicles left the facility, this year the company does not rule out the possibility of exploiting its full production potential and turning out 120 buses, most of which will be sold on foreign markets. At the same time, with regard to trucks Scania-Kapena wants to maintain at least last year's production levels , i.e. around 1900 such vehicles.

By the end of the first quarter of 2001, 93,000 passenger cars had been purchased in Poland. This is 33% fewer than in the same period of a year ago. Sales in March, which totaled 31,600 automobiles, are nearly 45% lower than in March 2000. Preliminary data indicates that, of the ten best-selling makes, the only automobile manufacturer to record increased sales over those of March, 2000 is Âkoda.

Sales of delivery vehicles in the first quarter of this year were down by more than 32% compared to the analogous period in 2000. In the 3.5 ton-and-under category of delivery vehicles, Daewoo Motor Polska is in the leading position, as it has been for years. Volkswagen and Mercedes occupy the second and third positions, respectively.

CONSTRUCTION

By the year 2015, about 15,000 kilometers of roads in Poland will have been brought into compliance with EU standards. Moreover, roughly 1,570 kilometers of highways, and around 1,500 kilometers of expressways will be built. These investments are expected to cost approx. PLN 150 billion (USD 37 billion), of which PLN 70 billion (USD 17 billion) will be EU funding. The greater part of the road and highway investments should be completed by 2008.

The companies Mitex, PoĹudniowy Koncern Energetyczny, and EnergomontaĹź PoĹudnie have created a consortium that signed a contract with the ElektrociepĹownia Ĺod group worth PLN 56 million. Its subject is the comprehensive modernization of two OP-130 type boilers, along with the fitting of a new burner installation.

E-BUSINESS

Optimus S.A., a company active in the IT sector, signed a letter of intent with Compaq concerning co-operation between the two firms, e.g. distribution of the concern's products via Optimus in Poland. Capital investment in Xtrade, based on the acquisition of 15% of that company by Compaq is another area of cooperation. Both firms are preparing a joint offer for small and mid-sized businesses.

Portal Interia.pl signed a cooperation agreement with InterNet Service, a company involved in the sale of cars via the Internet. Both companies intend to join together to create a service which will enable users of the portal to purchase new and used cars through the Internet.

In operation since the latter part of 2000, mBank, the first virtual bank in Poland and the retail branch of BRE Bank, had more than 22,000 clients and 50,000 open accounts in April 2001. mBank's leading competitor, and Poland's second virtual bank, is Volkswagen Bank Polska, which offers two high-interest accounts, PlusKonto and Lokata Plus, but does not issue cards for them. Inteligo also intends to enter the world of virtual banking. Nearly 120,000 customers in Poland take advantage of the possibility of keeping and managing their accounts through the Internet. Wielkopolski Bank Kredytowy has garnered most of these (55,000). mBank lies in second place in this respect.



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