CIECH SPÓŁKA AKCYJNA WARSAW, UL. POWĄZKOWSKA 46/50

Transcription

1 CIECH SPÓŁKA AKCYJNA WARSAW, UL. POWĄZKOWSKA 46/50 FINANCIAL STATEMENT FOR THE FINANCIAL YEAR 2006 WITH THE STATUTORY AUDITOR'S OPINION AND AUDIT REPORT

2 CIECH Spółka Akcyjna CONTENTS INDEPENDENT STATUTORY AUDITOR'S OPINION... 3 SUPPLEMENTARY REPORT TO THE AUDITOR'S OPINION ON THE FINANCIAL STATEMENT OF CIECH SPÓŁKA AKCYJNA FOR THE FINANCIAL YEAR I. GENERAL INFORMATION Basic information about the audited company Information on the financial statement for the previous financial year Basic information about the authorised entity and the statutory auditor conducting the audit on behalf of the authorised entity Access to information and statements by the entity's management Property and financial standing of the Company...10 II. DETAILED INFORMATION Assessment of the accounting system Information on the audited financial statement Information on selected material items of the financial statement Completeness and correctness of the introduction to the financial statement, additional information and explanations and the entity's management report Final information and conclusions...16 FINANCIAL STATEMENT OF CIECH SPÓŁKA AKCYJNA FOR THE FINANCIAL YEAR Introduction 2. Balance sheet 3. Profit and loss account 4. Statement of changes in equity 5. Cash flow statement 6. Additional information and explanatory notes COMPANY MANAGEMENT REPORT Deloitte Audyt Sp. z o.o. 2

3 INDEPENDENT STATUTORY AUDITOR'S OPINION To the Shareholders and Supervisory Board of CIECH Spółka Akcyjna We have audited the appended financial statement of CIECH S.A. with its registered office in Warsaw, at ul. Powązkowska 46/50, including: introduction to the financial statement balance sheet prepared as of December 31st, 2006, showing the total assets and liabilities of PLN 1,384,787,000 profit and loss account for the period from January 1st, 2006 to December 31st, 2006, showing a net profit of PLN 166,739,000 statement of changes in equity for the period from January 1st, 2006 to December 31st, 2006, showing an increase in equity by PLN 144,339,000 cash flow statement for the period from January 1st, 2006 to December 31st, 2006, showing an increase in cash by PLN 13,341,000 additional information and explanatory notes The Company's Management Board is responsible for the preparation of the above-mentioned financial statement. Our task was to audit this statement and express our opinion concerning its reliability, accuracy and clarity and the correctness of the accounting books on which the statement is based. We planned and conducted our audit of the financial statement in accordance with the provisions of: chapter 7 of the Accounting Act of September 29th, 1994 (Journal of Laws of 2002 No. 76, item 694, as amended) professional standards for statutory auditors issued by the Polish National Council of Statutory Auditors in order to obtain reasonable assurance whether the financial statement is free from material misstatements. The audit covered in particular the check largely at random of accounting documents and entries that constitute the source of amounts and information included in the financial statement, as well as the assessment of the accounting (policy) principles employed, essential estimates by the Company's Management Board and a general evaluation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. 3

4 In our opinion, the audited financial statement of CIECH S.A. for the financial year 2006 was prepared in every material aspect: as regards the form and content in accordance with the requirements of the Accounting Act of September 29th, 1994, and the Company's Articles of Association in accordance with the accounting standards defined in this act and the accounting policy adopted by the Company on the basis of correct accounting books in accordance with the requirements defined in the Regulation of the Minister of Finance of October 18th, 2005, concerning the scope of information conveyed in financial statements and consolidated financial statements, required in prospectuses for issuers with their registered offices in the territory of the Republic of Poland, to whom Polish accounting standards apply (Journal of Laws No. 209, item 1743) and in the Regulation of the Minister of Finance of October 19th, 2005 concerning Current and Periodic Information to be Published by Issuers of Securities (Journal of Laws No. 209, item 1744) and reflects fairly and clearly all information important for the assessment of the property and financial standing of the audited Company as of December 31st, 2006, and its financial result for the period from January 1st to December 31st, Without qualifying our opinion on correctness and reliability of the audited financial statement, we would like to point out: the fact that the presented financial statement is an individual statement prepared in accordance with the Polish accounting standards. It cannot be considered as the sole basis for assessing the financial standing and property of the Parent Company of the Capital Group. Besides the financial statement, the Company also prepares a consolidated financial statement in accordance with the International Financial Reporting Standards. By the date of the auditor's opinion on the individual statement, the consolidated statement had not been prepared yet Section No. 2.4 of the additional information and explanatory notes to the financial statement in which the Management Board describes court cases pending against the Company. Certain proceedings are still pending and their outcomes and consequences cannot be adequately assessed now. The Management Board has estimated a provision against the potential claims at the total amount of PLN 17,500,000 and recognised this provision in the financial statement. No provisions have been established for any other potential claims, as described by the Management Board in the aforementioned note, which could arise in the event of rulings awarded against the Company 4

5 The Company Management Report for the financial year 2006 is complete within the meaning of Art. 49 sections 2 and 3 of the Accounting Act and the Regulation of the Minister of Finance of October 19th, 2005, concerning Current and Periodic Information to be Published by Issuers of Securities, and the information included therein that have been taken directly from the audited financial statement is compliant with it Maria Rzepnikowska entity's representatives Statutory auditor Registration No. 3499/1028 Auditors (KRBR)... entity authorised to audit financial statements, entered into the list of authorised entities under Reg. No. 73 kept by the Polish National Council of Statutory Warsaw, March 19th,

6 CIECH Spółka Akcyjna SUPPLEMENTARY REPORT TO THE AUDITOR'S OPINION ON THE FINANCIAL STATEMENT OF CIECH SPÓŁKA AKCYJNA FOR THE FINANCIAL YEAR 2006 I. GENERAL INFORMATION 1. Basic information about the audited company The Company operates under the name of CIECH Spółka Akcyjna. According to the provisions of the Company's Articles of Association, it is acceptable to use the abbreviation CIECH S.A. The Company's registered office is in Warsaw, at ul. Powązkowska 46/50. The Company operates as a joint-stock company established with a notarial deed on May 30th, 1995 before a Notary Public, Paweł Błaszczak, in Warsaw (Repertory A No. 7513/95). Under a decision of the District Court for the capital city of Warsaw, 19th Economic and Register Division in Warsaw of May 24th, 2001, the Company is registered in the Register of Entrepreneurs under KRS number The Company's Taxpayer Identification Number (NIP) is: , as assigned by the Warszawa Żoliborz Tax Office on June 15th, The Company's statistical number (REGON) as assigned by the Statistical Office on December 19th, 2001, is: The Company operates on the basis of provisions of the Code of Commercial Companies. According to the Company's Articles of Association, the Company's business activity is as follows: agents involved in the sale of fuels, metal ores and industrial chemicals other non-specialised wholesale agents specialising in the sale of particular products or ranges of products, not classified elsewhere agents specialising in the sale of a variety of goods wholesale of pharmaceutical products wholesale of solid, liquid and gaseous fuels and related products and chemical products wholesale of other intermediate products transhipment of goods at seaports, inland ports and other transhipment points warehousing and storage of goods at seaports, inland ports and other storage areas business and management consultancy activities holding management-related activities market research and public opinion polling buying, selling and development of immovable property on own account letting of immovable property on own account other credit granting other financial intermediation not classified elsewhere other business activities not classified elsewhere In the audited period, the Company performed business activity in the area of the sale of chemicals on the domestic market plus export and import of chemical industry products. Deloitte Audyt Sp. z o.o. 6

7 CIECH Spółka Akcyjna The share capital of the Company as of December 31st, 2006, amounted to PLN 140,001,000 and divided into 28,000,000 ordinary shares of a par value of PLN 5 each. Pursuant to a resolution of the GSM of May 21st, 1996, 284 A-series shares were redeemed with the net profit for As of December 31st, 2006, the Company's shareholders included: Kompania Węglowa S.A % of shares Franklin Templeton Investments % of shares Otwarty Fundusz Emerytalny PZU Złota Jesień % of shares Commercial Union Investment Management (CUIM) Poland % of shares Pionieer Pekao Investment Management S.A. (PPIM) % of shares including Pioneer investment funds managed by PPIM % of shares minor shareholders, individuals % of shares After the balance-sheet date, there were the following changes to the ownership structure of the Company's share capital: on February 5th, 2007, the Management Board of S.A. received a notification that Franklin Resources, Inc. and its associates did no longer hold ordinary shares in Ciech S.A. and that the number of shares held by the above Companies was reduced to 0% as a result of two transactions carried out on the Warsaw Stock Exchange on February 2nd, 2007 There were no changes to the Company's share capital either in the financial year or after the balance-sheet date. The share capital of the Company as of December 31st, 2006 amounts to PLN 728,418,000. The financial year of the Company is the same as the calendar year. The Company treats its subsidiaries, co-subsidiaries, and associates as affiliates. As of the date of this opinion, the Company's Management Board was composed of: Mirosław Kochalski - President of the Management Board Wojciech Wardacki - Member of the Management Board Rafał Pasieka - Member of the Management Board Marek Trosiński - Member of the Management Board The Company's Proxy is Mr Kazimierz Przełomski. There were the following changes to the composition of the Company's Management Board in the audited period: as of January 1st, 2006, the composition of the Company's Management Board was as follows: Ludwik Klinkosz - President of the Management Board Jerzy Golis - Member of the Management Board Stefan Rojewski - Member of the Management Board On July 24th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed Mr Ludwik Klinkosz President of the Management Board - and Mr Jerzy Golis Member of the Management Board - from the Management Board of CIECH S.A. On the same day, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed Mr Mirosław Kochalski as the President of the Management Board of CIECH S.A. and Mr Wojciech Wardacki as a Member of the Management Board. On August 2nd, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed Mr Stefan Rojewski from the Company's Management Board. Deloitte Audyt Sp. z o.o. 7

8 CIECH Spółka Akcyjna On August 8th, 2006, the Supervisory Board of CIECH S.A. delegated Mr Wiktor Cwynar to replace the dismissed Member of the Management Board of CIECH S.A. and to perform temporarily the duties of a member of the Management Board of Ciech S.A. until the General Shareholders' Meeting supplemented the Company's Management Board so that it would have the minimum number of members as determined in the Articles of Association of CIECH S.A. The Extraordinary General Shareholder's Meeting of CIECH S.A. on September 15th, 2006, supplemented the Management Board of CIECH S.A., appointing Mr Rafał Pasieka to the Management Board. As of December 31st, 2006, the composition of the Management Board of CIECH S.A. was as follows: Mirosław Kochalski - President of the Management Board Wojciech Wardacki - Member of the Management Board Rafał Pasieka - Member of the Management Board On January 31st, 2007, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed Mr Marek Trosiński to the Company's Management Board. 2. Information on the financial statement for the previous financial year The Company's operations in 2005, lead to a net profit of PLN 41,900,000. The Company's financial statement for the financial year 2005, was audited by the statutory auditor. The audit was carried out by an authorised entity, Deloitte Audyt Sp. z o.o. The statutory auditor issued their opinion on this statement on April 12th, 2006, drawing the attention to: "- the fact that it is an individual statement, so it should primarily serve the purposes defined in the Articles of Association. The audited financial statement cannot be considered as the sole basis for assessing the financial standing and property of the Parent Company of the Capital Group. Besides the individual statement, the Company will also prepare a consolidated financial statement of the Capital Group whose parent company it is in accordance with the International Financial Reporting Standards. - court cases pending against the Company as described by the Management Board in Section 2 of the additional explanatory notes to the financial statement. Certain proceedings are still pending and their outcomes and consequences cannot be adequately assessed now. The Management Board has estimated a provision against the potential claims at the total amount of PLN 17,500,000 and recognised this provision in the financial statement. No provisions have been established for any other potential claims, as described by the Management Board in the aforementioned note, which could arise in the event of rulings awarded against the Company." The General Shareholders' Meeting that approved the financial statement for the financial year 2005 was held on June 14th, The General Shareholders' Meeting decided to have the following distribution of the net profit for 2005: dividends for shareholders - PLN 22,400,000 provision for capital reserve - PLN 19,500,000 In conformity with applicable laws the financial statement was filed with the National Court Register on June 29th, 2006, and filed with Monitor Polski B (Official Gazette of the Republic of Poland) to be published on the same day. This statement was published in Monitor Polski B No. 231 on February 8th, Deloitte Audyt Sp. z o.o. 8

9 CIECH Spółka Akcyjna 3. Basic information about the authorised entity and the statutory auditor conducting the audit on behalf of the authorised entity The audit of the financial statement was conducted under the agreement of June 21st, 2006, concluded between CIECH S.A. and Deloitte Audyt Sp. z o.o. with its registered office in Warsaw, at ul. Piękna 18, entered in the list of entities authorised to audit financial statements kept by the National Council of Statutory Auditors, under No. 73. On behalf of the authorised entity, the audit of the financial statement was conducted under the supervision of the statutory auditor Maria Rzepnikowska (Registration No. 3499/1028) at the Company's registered office from November 20th to December 1st, 2006 and from February 5th to February 16th, 2007, and outside the Company's premises from February 19th to March 19th, The authorised entity was appointed by the Supervisory Board by virtue of a resolution of May 11th, 2006, based on the authorisation provided for in para. 21 of the Company's Articles of Association. Deloitte Audyt Sp. z o.o. and the statutory auditor Maria Rzepnikowska confirm that they are authorised to audit financial statements and that they meet the requirements set forth in Art. 66 sections 2 and 3 of the Accounting Act and can therefore express their objective and independent opinion on the financial statement of CIECH S.A. 4. Access to information and statements by the entity's management We met no obstructions in conducting our audit. The authorised entity and the statutory auditor had unlimited access to all the documents and data requested, and were provided with sufficient information and explanations, which has been confirmed by a written statement of the Company's Management Board issued on March 19th, Deloitte Audyt Sp. z o.o. 9

10 CIECH Spółka Akcyjna 5. Property and financial standing of the Company Below you can find basic figures derived from the profit and loss account and the financial ratios reflecting the financial result, property, and financial standing of the Company, compared to the corresponding values in the previous years. Basic figures from the profit and loss account (in thousand PLN) Sales income 1,640,918 1,588,892 1,470,007 Operating expenses 1,525,891 1,527,644 1,441,988 Other operating revenue 7,292 20,506 30,501 Other operating costs 15,280 23,359 24,600 Financial revenue 109,917 23,453 23,945 Financial costs 12,191 38,369 36,482 Income tax 38,026 1,579 1,938 Net profit (loss) 166,739 41,900 19,445 Profitability ratios return on sales profit on sales x 100% sales income net return on sales net profit x 100% sales income net return on equity net profit x 100% equity 7.0% 3.9% 1.9% 10.2% 2.6% 1.3% 22.9% 7.2% 5.5% Efficiency ratios asset turnover ratio sales income total assets receivables turnover ratio in days trade receivables x 365 sales income liabilities turnover ratio in days trade liabilities x 365 operating expenses inventory turnover ratio in days inventories x 365 operating expenses Liquidity/Net working capital Deloitte Audyt Sp. z o.o. 10

11 CIECH Spółka Akcyjna debt ratio total creditors total liabilities equity to assets ratio equity total assets net working capital (in thousand PLN) current assets short-term liabilities liquidity ratio current assets short-term liabilities quick ratio current assets - inventories short-term liabilities 44.9% 32.1% 54.1% 52.6% 64.7% 42.9% (69) 138,997 (80,167) The analysis of the figures and ratios presented above shows the following phenomena of 2006: an increase in profitability ratios shortening of the liabilities turnover cycle receivables turnover remaining on the same level as in 2005 an increase in the debt ratio a decrease in liquidity ratios a significant decrease in the net working capital Deloitte Audyt Sp. z o.o. 11

12 CIECH Spółka Akcyjna II. DETAILED INFORMATION 1. Assessment of the accounting system Accounting system The Company has valid documentation describing its accounting (policy) principles, in particular concerning: the definition of the financial year and the reporting periods it comprises, methods of measurement of assets and liabilities and of determination of the financial result, accounting book keeping method plus data and data base protection system. The documentation of the accounting policy was developed in accordance with the Accounting Act and approved for use from January 1st, 2003, by way of a Resolution of the Management Board No. 1/ of February 25th, Changes in the accounting policy that resulted from changes in accounting and tax laws were made by way of separate resolutions of the Company's Management Board. The accounting principles adopted by the Company are in line with the Accounting Act. Basic principles of valuation of assets and liabilities and measurement of the financial result are set forth in the introduction to the financial statement. The Company uses a computer system for accounting records Oracle Financials in which it enters all business events, except for the calculation of remunerations and related charges that are handled through the HR and remuneration system TETA. The Oracle Financials system is secured with passwords against the access of unauthorised parties and with functional access restrictions. The definition of the IT system meets the requirements of Art. 10 section 1 item 3 letter c) of the Act. The opening balance is taken from the approved financial statement for the previous financial year, and was entered correctly in the accounting books for the audited period. In the part that we audited, the documentation of business operations, accounting books and the connections between accounting entries and documents and the financial statement meet the requirement of chapter 2 of the Act. Accounting books, accounting documents, the documentation of the bookkeeping method and the approved financial statements of the Company are prepared in line with chapter 8 of the Accounting Act. The Company made an inventory of assets and liabilities to such an extent, within such deadlines and with such a frequency as required in the Accounting Act. Stocktaking differences were recognised and settled in the books of the audited period. 2. Information on the audited financial statement The audited financial statement was prepared as of December 31st, 2006, and includes: introduction to the financial statement balance sheet prepared as of December 31st, 2006, showing the total assets and liabilities of PLN 1,384,787,000 profit and loss account for the period from January 1st, 2006 to December 31st, 2006, showing a net profit of PLN 166,739,000 Deloitte Audyt Sp. z o.o. 12

13 CIECH Spółka Akcyjna statement of changes in equity for the period from January 1st, 2006 to December 31st, 2006, showing an increase in equity by PLN 144,339,000 cash flow statement for the period from January 1st, 2006 to December 31st, 2006, showing an increase in cash by PLN 13,341,000 additional information and explanatory notes The structure of assets and liabilities and the items determining the financial result is presented in the financial statement. 3. Information on selected material items of the financial statement Property, plant, and equipment The item of property, plant, and equipment at the Company covers fixed assets and fixed assets under construction to the amount of PLN 21,875,000. Additional information and explanatory notes to the financial statement correctly present changes in fixed assets and fixed assets under construction, including disclosure of possible revaluation write-downs on the above assets. Long-term investments Long-term investments at the Company include: shares and stocks in affiliates to the amount of PLN 921,000,000 shares and stocks in other entities to the amount of PLN 988,000 investments in immovable property to the amount of PLN 11,100,000 Additional information and explanatory notes 4a and 4k to the financial statement correctly present changes in investments during the financial year. Structure of inventories The age structure of gross values of inventories is as follows: Inventory lingering period Name of inventory over 0-30 days days days days 1 year Goods 10, ,685 Structure of receivables The age structure of trade receivables is correctly presented in the explanatory note on this balancesheet item. Liabilities The Company's short-term liabilities both towards affiliates and towards other entities fall within contractual payment deadlines. The highest amounts in the Company's liabilities are as follows: long-term loans and borrowings to the amount of PLN 205,963,000 short-term loans and borrowings to the amount of PLN 148,472,000 trade liabilities to the amount of PLN 231,254,000 Deloitte Audyt Sp. z o.o. 13

14 CIECH Spółka Akcyjna A list of loans taken plus a description of their collaterals is disclosed in additional information and explanatory notes 19d and 20c to the financial statement. The long-term loans to be repaid in 2007 are disclosed in the financial statement as short-term liabilities. There were no barred or remitted liabilities in the sample that we audited. Prepayments, accruals, and provisions for liabilities Explanatory notes on prepayments and accruals and provisions for liabilities describe their structure correctly. Costs and income that are settled over time are correctly categorised for the audited financial period. Provisions for liabilities were established in reliably estimated amounts. Items are recognised fully and correctly as regards material aspects for the whole financial statement. Justification of the opinion In our opinion, we pointed out the fact that the audited financial statement was an individual statement prepared in accordance with the Polish accounting standards, and that it could not be considered as the sole basis for assessing the financial standing and property of the Parent Company of the Capital Group. Besides the individual statement, the Company will also prepare a consolidated financial statement of the Capital Group whose dominant company it is in accordance with the International Financial Reporting Standards, By the date of the auditor's opinion on the individual statement, the consolidated statement had not been prepared yet. In addition, we drew attention to court cases pending against the Company as described by the Management Board in Section 2 of the additional explanatory notes to the financial statement. Certain proceedings are still pending and their outcomes and consequences cannot be adequately assessed now. The Management Board estimated a provision against the potential claims at the total amount of PLN 17,500,000 and recognised this provision in the financial statement. No provisions were established for any other potential claims, as described by the Management Board in the aforementioned note, which could arise in the event of rulings awarded against the Company. 4. Completeness and correctness of the introduction to the financial statement, additional information and explanations and the entity's management report The introduction to the financial statement contains all information required in Annex No. 1 to the Accounting Act, the Regulation of the Minister of Finance of October 18th, 2005, concerning the scope of information conveyed in financial statements and consolidated financial statements, required in prospectuses for issuers with their registered offices in the territory of the Republic of Poland, to whom Polish accounting standards apply and the Regulation of the Minister of Finance of October 19th, 2005, concerning Current and Periodic Information to be Published by Issuers of Securities. The Company has confirmed the legitimacy of the application of the going concern principle while preparing the financial statement. This introduction correctly and fully describes the principles of valuation of assets and liabilities and of measurement of the financial result and method of preparing the financial statement. The Company prepared additional information and explanations in the form of tabular notes to the individual items of the balance sheet and the profit and loss accounts as well as descriptions. Explanatory notes to the items: property, plant and equipment, intangible assets, investment, liabilities and provisions correctly present increases and decreases plus the titles of these changes during the financial year. The Company provided information with respect to individual assets Deloitte Audyt Sp. z o.o. 14

15 CIECH Spółka Akcyjna disclosed in the balance sheet, stating whether or not, the assets could be disposed of freely, taking into account the collateral established for creditors. Additional information and explanatory notes to the financial statement correctly and fully describe reporting items and clearly present other information in accordance with the requirements defined in the Regulation of the Minister of Finance of October 18th, 2005, concerning the scope of information conveyed in financial statements and consolidated financial statements, required in prospectuses for issuers with their registered offices in the territory of the Republic of Poland, to whom Polish accounting standards apply (Journal of Laws No. 209, item 1743) and in the Regulation of the Minister of Finance of October 19th, 2005, concerning Current and Periodic Information to be Published by Issuers of Securities (Journal of Laws No. 209, item 1744). The Management Board prepared and appended to the financial statement the Company Management Report for the financial year The Management Report contains information required in Art. 49 sections 2 and 3 of the Accounting Act and in the Regulation of the Minister of Finance of October 19th, 2005, concerning Current and Periodic Information to be published by Issuers of Securities. We have audited the information disclosed in the report as originating directly from the audited financial statement. Deloitte Audyt Sp. z o.o. 15

16 CIECH Spółka Akcyjna 5. Final information and conclusions Statements of the Management Board Deloitte Audyt Sp. z o.o. and the statutory auditor received a written statement from the Management Board of the Company, asserting that the Company complied with law Maria Rzepnikowska entity's representatives Statutory auditor Registration No. 3499/1028 Statutory Auditors (KRBR)... entity authorised to audit financial statements, entered into the list of authorised entities under Reg. No. 73 kept by the Polish National Council of Warsaw, March 19th, 2007 Deloitte Audyt Sp. z o.o. 16

17 Letter of the President of the Management Board of Ciech S.A. Dear Sir/Madam! The events of the last year have confirmed that Ciech S.A. and the Ciech Chemical Group are a chemical market leader in our region of Europe. The positive signs are the very good recommendations from the brokerage houses for shares in Ciech S.A. listed on the Warsaw Stock Exchange, which are due to a growing turnover, and new markets that we gain. We conduct trade deals in over 90 countries all over the world. The acquisitions completed in 2006, strengthened significantly the Soda and Organika Divisions ensuring our Group income of PLN 3.5 billion a year. The Soda Division of Ciech SA extended in December 2006, to include a Romanian company - Uzinele Sodice Govora. This transaction means a qualitatively new competitive position on the European soda market and ensures us a distinct leadership in Central Europe. Besides the plant, Ciech S.A. also bought a market and additional manufacturing capacity. The acquisition of USG is the first time we have ever invested in a foreign manufacturing plant. On November 30th, 2006 in Bucharest, Ciech S.A. and the Romanian government agency - AVAS - signed an annex to the privatization agreement concluding the purchase of the majority interest in the soda manufacturing plant Uzinele Sodice Govora S.A. that gave the right of property for 93.14% of shares in US Govora. The project value shall amount to approximately EUR 60 million. As a result, the Ciech Chemical Group has become the second largest soda ash manufacturer in Europe. It achieved a stronger competitive position in the Czech Republic, Slovakia, Hungary, Austria, and Balkan countries. The competitiveness of Romanian soda in Western Europe (Great Britain and Germany) decreased, which enables us to shape the pricing policy in a more advantageous manner. In line with the signed agreement, Ciech will implement an investment scheme amounting to approximately EUR 26 million in USG. Investments mean a transfer of expertise, doubling the sales income and doubling the manufacturing capacity to 530,000 tons of soda a year. According to forecasts, the demand for soda ash will remain stable not only in 2007, but also in subsequent years. On December 20th, 2006, Ciech S.A. finalised two very important transactions with Nafta Polska. We purchased 80% of shares in Z.Ch. Zachem S.A. in Bydgoszcz for PLN 80 million, guaranteeing that we would invest PLN million in this company within 5 years. The other transaction is the purchase of 80% of shares in Z.Ch. Organika-Sarzyna S.A. in Nowa Sarzyna for PLN million. Guaranteed investments shall amount to PLN 130 million within 5 years. Due to these acquisitions, the Organika Division was promoted to Division One of European players as regards the manufacture of epoxy and polyester resins, TDI, EPI, and plant protection chemicals. The implementation of the above investments will enable us to have a significant growth in income and increase in margins. In 2007, the share of the Organika Division in the Group's sales will increase from 20.6% to 41.7%. The Management Board of Ciech plans to work out a new development concept for the Foschem Division that would provide for the strengthening of the Group's position in the market of products for agriculture plus silicates and glass. Last year's forecasts were exceeded considerably. I am certain that the next management report of Ciech S.A. will be equally optimistic. President of the Management Board of CIECH S.A. Mirosław Kochalski

18 Statement of the Management Board of CIECH Spółka Akcyjna in Warsaw, ul. Powązkowska 46/50 We state that the entity is authorised to audit financial statements and that they have audited the financial statement for the period from January 1st, 2006 to December 31st, 2006, and was appointed in agreement with applicable laws and it is: Deloitte Audyt Sp. z o.o. with its registered office in Warsaw, entered in the list of entities authorised to audit financial statements kept by the National Council of Statutory Auditors, under Registry No. 73. This entity and statutory auditors that conducted the audit meet the requirements that enable them to issue an objective and independent review report, in agreement with applicable domestic laws. Warsaw, March 19th, President of the Management Board Member of the Management Board. Member of the Management Board.. Member of the Management Board

19 Statement of the Management Board of CIECH Spółka Akcyjna in Warsaw, ul. Powązkowska 46/50 We state that to the best of our knowledge the financial statement as of December 31st, 2006, and comparable data have been prepared in line with the appropriate accounting standards and they reflect the property, financial standing, and financial result of the company in a true, accurate, and clear manner. We further state that the annual statement provides a true picture of the company's development, achievements, and position, including basic risks and threats. Warsaw, March 19th, 2007 President of the Management Board. Member of the Management Board Member of the Management Board... Member of the Management Board

20 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION INTRODUCTION TO THE FINANCIAL STATEMENT a) CIECH S.A. was established on September 1st, 1995, by means of a transformation of Centrala Importowo-Eksportowa Sp. z o.o. The Company has its registered office in Warsaw, at ul. Powązkowska 46/50 and is registered under the number with the District Court for the Capital City of Warsaw in Warsaw, 12th Economic Division of the National Court Register. The core business of the Company as defined in the Articles of Association includes: conducting business activities comprising trade activities, investments, manufacturing, services, and financial operations, including in particular foreign and domestic trade in chemicals and related operations (PKD 5190 Z). The Company may also act as an agent for Polish and foreign companies. b) The life of the Company CIECH S.A. is unlimited. c) The presented financial statement covers figures for the period from January 1st, 2006 to December 31st, Comparable financial data cover the financial year ending on December 31st, All financial data are given in thousand PLN, unless provided otherwise. The Company keeps its accounting books according to the Accounting Act of September 29th, 1994 (consolidated text: Journal of Laws of 2002 No. 76, item 694 with later amendments). d) Information concerning the Members of the Management Board and the Supervisory Board is provided in Section 9 in the additional explanatory notes. e) The presented financial statement does not include combined data because the Company does not have any internal organisational units that would prepare their own financial statements. f) CIECH S.A. is a parent company and significant investor and it prepares a consolidated financial statement. g) There were no mergers of companies in the periods covered by the presented financial statement of CIECH S.A. h) The presented financial statement has been prepared under the assumption of the Company as a going concern in the foreseeable future. The Management Board is not aware of any circumstances that could indicate any significant threat to the business continuity as a going concern for the Company. i) The financial statement and comparable data were prepared in line with uniform accounting principles, to ensure their comparability. No changes were made to the accounting principles (policy) in the period covered by the presented financial statement. j) In the opinions of statutory auditors included in their audit of the Company's financial statements there are no reservations that would make it necessary to adjust the presented data in the financial statement or comparable financial data. k) PRINCIPLES AND METHODS OF VALUATION OF ASSETS AND LIABILITIES AS OF THE BALANCE SHEET DATE AND OF MEASUREMENT OF THE FINANCIAL RESULT AS WELL AS THE METHOD OF PREPARING THE FINANCIAL STATEMENT AND COMPARABLE DATA. 1

21 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION UFIXED ASSETS AND INTANGIBLE ASSETS Fixed assets and intangible assets accepted to be used for the first time are measured at: - purchase price or manufacturing cost purchased, acquired from fixed assets under construction - market prices received free of charge, contributed in kind Fixed assets may increase their initial value as a result of improvements and updates. Expenditure on renovation, which does not lead to improvement or extension of the useful life of fixed assets, is recognised as costs at the moment when they are incurred. Principles of depreciation of fixed assets and intangible assets - for fixed assets and intangible assets whose value exceeds PLN 3,500, depreciation charges are made with the straight-line method, using the depreciation rates which reflect the expected economic useful life, from the next month after the month in which they are put in use - for fixed assets and intangible assets whose value is equal or less than PLN 3,500, depreciation charges are made on a one-off basis in the month following the month in which they are put in use As of January 1st, 1995, fixed assets were revalued in accordance with the applicable laws. The Company periodically verifies the use period of fixed assets. UFIXED ASSETS UNDER CONSTRUCTION The value of started investments is measured at the incurred costs of the acquisition of fixed assets and intangible assets, which will be constructed due to the completion of the investment. ULONG-TERM INVESTMENTS Shares and stocks are measured at the purchase price less impairment write-downs. The amount of the revaluation write-down on shares and stocks is determined for each company on an individual basis, taking into account the amount of equity and financial result for the last 3 financial years. To confirm the above method the Company measures shares and stocks for which there is evidence of impairment through additional verification with the DCF method. Effects of a decrease in the value of long-term investments are recognised as financial costs. Investments in immovable property are measured at the purchase price less impairment write-downs. Immovable property and intangible assets recognised as investments are depreciated according to the principles applied to fixed assets and intangible assets. UFINANCIAL INSTRUMENTS Financial instruments are recognised and measured in accordance with the Regulation of the Council of Ministers of December 12th, 2001, concerning detailed principles of the recognition, methods of measurement, area of disclosure and method of presentation of financial instruments (Journal of Laws of 2001 no. 149, item 1674). IAS No. 32 and IAS No. 39 are a source of additional explanations and interpretations. For derivative instruments, such as options, swaps, or forwards, principles of hedge accounting are used only when all the conditions mentioned in the Regulation of the Ministry of Finance of December 12th, 2001, concerning detailed principles of the recognition, methods of measurement, area of disclosure and method of presentation of financial instruments are met. If such conditions are not met, the derivative instrument is measured according to the measurement principles applicable to assets and liabilities held for trading. UCURRENT PROPERTY, PLANT AND EQUIPMENT 2

22 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION The analytical register of the current property, plant, and equipment is the quantity and value register, which includes the turnover and amounts for every item in natural and financial units. The revenues of current property, plant, and equipment are recognised in the accounting books at purchase prices covering: - the price due to the seller without the deductible input VAT tax, and in the case of import, increased by public and legal charges in the form of customs duties and excise - in the case of domestic transactions, the purchase price also covers costs directly related to the purchase and adaptation of the goods for sale Expenditures are measured with the FIFO method. As of the balance sheet date, the impairment of inventories is measured according to the general principle: - 30% of the write-down in the case of inventories lingering for 1-2 years - 50% of the write-down in the case of inventories lingering for 2-3 years - 100% of the write-down in the case of inventories lingering for over 3 years One may depart from the adopted principle in the case of justified likelihood that the given group of goods will be sold in the next reporting period. Revaluation write-downs decrease the value of inventories in the balance sheet. UTRADE RECEIVABLES Receivables are measured at the outstanding amount, following the precautionary principle that is after taking into account the revaluation write-downs on them. Revaluation write-downs on receivables are established at the following levels: - 100% write-down made on an individual basis for the balance of a recorded transaction for disputable claims, for receivables due from contractors that declared bankruptcy or that conduct composition proceedings - 100% write-down less liabilities, guarantees, discounts and insurance made on a monthly basis on receivables overdue for over 6 months - 100% write-down made at the end of every month on interest receivables for paid invoices, - 100% write-down made at the end of a year on interest receivables calculated as of the end of the year (i.e. balance sheet interest) for unpaid invoices UASSETS AND LIABILITIES EXPRESSED IN FOREIGN CURRENCIES MEASUREMENT, PRINCIPLES OF RECOGNITION OF REVALUATION WRITE-DOWNS, REGISTER Open items of receivables and liabilities expressed in foreign currencies are measured as of the end of the reporting period at the average exchange rate as determined by the President of the National Bank of Poland for the given currency. Exchange differences resulting from the conversion at the average NBP exchange rates are presented as total under financial revenue or costs of the reporting period. Revaluation write-downs concerning the above receivables are measured according to the same principles as receivables. As of the balance sheet date, currencies accumulated in bank accounts, foreign currency funds and accounts of foreign agencies are measured at the average exchange rate as determined by the President of the National Bank of Poland for the given currency. USHORT-TERM INVESTMENTS Short-term investments are measured at their market value, while investments with no active market - at the purchase price adjusted for the revaluation write-down determined on the basis of the financial standing of the Company in the given financial year. 3

23 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION UCASH IN HAND AND AT BANK Cash in hand and at bank expressed in the domestic currency is measured at par values. Bank deposits are measured at fair value that is their par value increased by interest due. UPREPAYMENTS AND DEFERRED EXPENSES (INCOME AND COSTS) MEASUREMENT AND METHOD OF PRESENTATION i. Prepayments (costs) CIECH S.A. makes prepayments, if the costs are related to the periods following the one in which they were incurred. Prepayments include: - prepayments (costs) incurred expenses that will be recognised as operating or financial costs in future periods - other prepayments deferred income tax assets Prepayments when entered in the books are recognised in the accounts of costs by types. Amounts of expenses incurred on a one-off basis for a particular title, concerning the given financial year are not accounted for over a period of time, if they do not exceed PLN 2, a month. When incurred, they are charged against the result of the given period. ii. Deferred expenses (costs) Deferred expenses for operating and financial costs include costs incurred in the given period commensurate with the revenues of the given period. They are short-term deferred expenses and are presented as Other accruals and deferred income. Deferred expenses relating to operating costs when they are recognised are charged against relevant accounts of costs according to the place where they are recorded and accounts of costs by type when they are realised. Possible differences between the value of the deferred expense and the liability due to this are adjusted by means of costs in the settlement period. iii. Accruals and deferred income Accruals and deferred income, according to the definition of liabilities and income, are divided into: - accruals and deferred income as liabilities long- and short-term income at its par value that will be realised in future periods - accruals and deferred income as capital equivalent of fixed assets under construction, fixed assets and intangible assets acquired free of charge (also by means of donation) as well as cash received for financing the purchase or manufacture of fixed assets, including also fixed assets under construction and development work Items of accruals and deferred income as capital increase other operating revenue parallel to depreciation charges or amortisation fixed assets, fixed assets under construction, intangible assets or development costs received free of charge or financed from external resources. UEQUITY AND EARMARKED FUNDS The principles of recognition and earmarking of the share capital, capital reserve and reserve capital are set forth in the Commercial Companies' Code (Journal of Laws of 2000 no. 94, item 1037) and Resolutions adopted by the General Shareholders' Meeting on this basis. The share capital is shown as the par value of registered shares as arises from the Company's Articles of Association and entry into the National Court Register. 4

24 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION The revaluation reserve capital is recognised as of the fixed asset revaluation date, the revaluation carried out under separate provisions of law; the capital may not be held for distribution. UPRINCIPLES OF RECOGNITION OF PROVISIONS Provisions are recognised for: - certain or very probable future liabilities whose amount may be estimated reliably - future liabilities due to restructuring if under separate provisions an entity is obliged to carry it out or binding agreements have been concluded in this respects, the restructuring plans were announced and they allow one to estimate the value of these future liabilities reliably - deferred income tax - future liabilities in respect of service anniversary awards and retirement gratuities Provisions for service anniversary awards and retirement gratuities are measured as of the end of the financial year with the actuarial method. The provision is charged against other operating costs. It is recognised in the accounts of team 6 and presented in the item of liabilities and provisions for liabilities. UDEFERRED INCOME TAX The Company establishes deferred income tax assets and the income tax provision. The deferred income tax assets are established at the amount anticipated to be deducted from the income tax in the future due to negative temporary differences. Applying the prudent assessment principle, the Company does not recognise assets for deferred tax in respect of the recognised revaluation writedowns on receivables. The income tax provision is recognised at the amount of the income tax that shall be outstanding in the future due to positive temporary differences. The amount of the provision and deferred income tax assets are established taking into account the income tax rates applicable in the year in which the tax obligation arises. At the end of the year, the income tax is adjusted due to a change of the tax rate. UNET INCOME FROM SALES OF GOODS AND SERVICES PLUS COSTS OF OBTAINING INCOME Income from sales covers amounts from the sales of products, goods, and services that are due or have been obtained, adjusted for rebates, discounts, and reductions granted. Income from sales is shown as net value that is less the tax on goods and services (VAT) due. Both the income and the related costs are recognised in relevant reporting periods to which they are related regardless of the date on which payments were made or received. UOTHER OPERATING REVENUE AND COSTS Other operating revenue and costs are related to the Company's activity and influence the establishment of the result on operating activities. Other operating revenue includes inter alia: profits on the sales of fixed assets, an equivalent of released write-downs on disputable receivables and the economic risk, except for provisions related to the financial risk, plus penalties and compensations received. Other operating costs include inter alia: losses on the sales of fixed assets, recognised write-downs on disputable receivables and the economic risk (except for provisions related to the financial risk), penalties and compensations paid plus donations granted and adjustments of the value of inventories. 5

25 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION UFINANCIAL REVENUE AND COSTS Financial revenue and costs include interest related to granted and disbursed loans or borrowings, exchange differences, fees as well as revenue and costs related to the adjustments of the value of shares and other short-term investments, adjustments of the value of investments plus interest on bank deposits, interest on late payments, profits, and losses on short-term securities. UEXCHANGE DIFFERENCES Exchange differences that are due to the valuation of assets and liabilities expressed in foreign currencies as of the balance sheet date arising on account of the payment of receivables and liabilities in foreign currencies as well as the sale of currencies are recognised as financial revenue or costs respectively. Such differences are presented as total in the profit and loss account under financial revenue or costs respectively; they increase the purchase price or manufacturing cost of fixed assets, fixed assets under construction, or intangible assets. UEXTRAORDINARY GAINS AND LOSSES Extraordinary gains and losses result from unique events, outside the ordinary business of the Company. l) Average PLN/EUR exchange rates in the periods covered by the financial statement and comparable financial data. - average EUR exchange rate as of average EUR exchange rate as of average EUR exchange rate in the period average EUR exchange rate in the period lowest EUR exchange rate in the period (on ) - highest EUR exchange rate in the period (on ) - lowest EUR exchange rate in (on ) - highest EUR exchange rate in (on ) The average rate for a period was calculated as the arithmetical mean of average rates applicable on the last day of each month in the given period. m) Selected data concerning basic items of the balance sheet, profit and loss account and cash flow statement in the financial statement and comparable financial data, translated into EUR, with principles adopted for this translation, are presented in the Selected financial data spreadsheet. n) In accordance with para. 7 section 1 of the Regulation of the Ministry of Finance of October 18th, 2005 (Journal of Laws 209, item 1743), concerning the area of information conveyed in financial statements and consolidated financial statements, required in prospectuses for issuers with their registered offices in the territory of the Republic of Poland, to whom Polish accounting standards apply, the issuer is obliged to indicate and explain differences in the values of disclosed data relating at least to the equity and net financial result and material differences relating to the adopted accounting principles (policy), between the financial statements prepared in accordance with PAS and 6

26 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION financial statements that would be prepared in accordance with IFRS. The requirement will be fulfilled in the consolidated financial statement of the CIECH S.A. Capital Group. Only descriptive adjustments are presented below. As of the balance sheet date, CIECH S.A. identified all the areas of differences between the accounting principles applied by the Company and IFRS: - revaluation of fixed assets as of January 1st, 2004, the Company revalued fixed assets at fair value, in accordance with requirements of IFRS. All fixed assets whose initial value was equal or greater than PLN 10,000 were revalued. Under this condition, 380 facilities were subject to revaluation, which means 90% of the initial value of all facilities and 98% of the net value as of January 1st, As a result of this operation, the value of the assets disclosed in the balance sheet increased by PLN 2,973,000, while the equity of the Company also increased. - investment property the Company has investment property, which comprises: office complex at ul. Jasna 12 in Warsaw parcel of land at ul. Powązkowska 46/50 in Warsaw 2 fuel stations warehouse complex in Dąbrowa Górnicza On account of the choice of the cost method for investment property, the Company calculated the depreciation amount for these facilities for the years as of January 1st, During those years, according to the PAS provisions, investment property was not subject to depreciation. The difference value amounted to PLN 846,000. Considering the fact that the whole building and the 2 fuel stations are put up for rental, these facilities were categorised in the item of Investment property. These facilities are subject to depreciation, the current depreciation rates maintained. - input deferred tax on property, plant and equipment the Company calculated the deferred tax provision for temporary differences due to the revaluation of fixed assets as of January 1st, The amount of the adjustment of the deferred tax provision is PLN 402,000, as a result of which the financial result for 2006 was credited with PLN 119, depreciation the Company recalculated depreciation for 2006, due to the revaluation of fixed assets at fair value as of January 1st, 2004 for the purposes of the statement in accordance with IAS. The amount of the difference between the depreciation calculated on the fair value according to IAS and depreciation calculated on the purchase price according to PAS to the amount of PLN 655,000 contributes to an increase in costs (decrease in the financial result). In addition, an adjustment by PLN 76,000 was made to the net value of fixed assets sold or retired as a result of the revaluation of fixed assets at fair value as of January 1st, 2004 for the purposes of the statement in accordance with IAS. As of December 31st, 2006 in thousand PLN Equity in line with PAS 728,418 - adjustment of costs due to revaluation of fixed assets 2,937 - deferred tax on revalued fixed assets (402) - adjustment of depreciation of investment property for the years (846) - other - Equity in line with IFRS 730,107 As of December 31st, 2006 in thousand PLN Net financial result in line with PAS 166,739 7

27 FINANCIAL STATEMENT FOR 2006 CIECH S.A. INTRODUCTION - adjustment of depreciation of fixed assets due to revaluation (655) - deferred tax on revalued fixed assets other 76 Net financial result in line with IFRS 166,279 8

28 SELECTED FINANCIAL DATA in thousand PLN in thousand EUR I. Net income from sales of products, goods and materials II. Operating profit (loss) III. Gross profit (loss) IV. Net profit (loss) V. Net cash from operating activities VI. Net cash flows from investing activities VII. Net cash flows from financing activities VIII. Total net cash flows IX. Total assets X. Liabilities and provisions for liabilities XI. Long-term liabilities XII. Short-term liabilities XIII. Equity XIV. Share capital XV. Number of shares XVI. Earnings per ordinary share (in PLN/EUR) 5,95 1,55 1,53 0,39 XVII. Diluted earnings per ordinary share (in PLN/EUR) 5,95 1,50 1,53 0,37 XVIII. Book value per share (in PLN/EUR) 26,01 20,86 6,78 5,40 XIX. Diluted book value per share (in PLN/EUR) 26,01 20,86 6,78 5,40 XX. Declared or paid dividend per share (in PLN/EUR) 1,60 0,80 0,41 0,20 11

29 BALANCE SHEET Note A s s e t s I. Fixed assets Intangible assets, including: goodwill Property, plant and equipment Long-term receivables Due from affiliates Due from other entities Long-term investments Immovable property Intangible assets Long-term financial assets a) in affiliates, including: shares or stocks in subordinates valued using the equity method 0 0 b) in other entities Other long-term investments Long-term prepayments and accrued income Deferred income tax assets Other prepayments and accrued income II. Current assets Inventories Short-term receivables 7, Due from affiliates Due from other entities Short-term investments Short-term financial assets a) in affiliates 2 39 b) in other entities c) cash and other money assets Other short-term investments Short-term prepayments and accrued income T o t a l A s s e t s

30 BALANCE SHEET Note L i a b i l i t i e s I. Equity Share capital Called up share capital (negative figure) Treasury stocks (shares) (negative figure) Capital reserve Revaluation reserve Other reserve capital Profit (loss) brought forward Net profit (loss) Write-downs from net profit during the financial year (negative figure) 17 0 II. Liabilities and provisions for liabilities Provisions for liabilities Provision for deferred income tax Provision for retirement benefits and similar benefits a) long-term b) short-term Other provisions a) long-term 0 0 b) short-term Long-term liabilities Towards affiliates Towards other entities Short-term liabilities Towards affiliates Towards other entities Earmarked funds Accruals and deferred income Negative goodwill 4.2. Other accruals and deferred income a) long-term 236 b) short-term T o t a l l i a b i l i t i e s Book value Number of shares Book value per share (in PLN) 22 0,01 1,49 Diluted number of shares Diluted book value per share (in PLN) 0,01 1,49 13

31 OFF-BALANCE SHEET ITEMS * Note Contingent receivables Due from affiliates (in respect of) Due from other entities (in respect of) guarantees and sureties received Contingent liabilities Towards affiliates (in respect of) guarantees and sureties granted Towards other entities (in respect of) guarantees and sureties granted Other (in respect of) other contingent liabilities investment liabilities 10 0 Total off-balance sheet items * the above items do not include the value of cases filed by third parties described in the additional explanatory notes to the financial statement in the item of "data on off-balance sheet items" 14

32 PROFIT AND LOSS ACCOUNT Note I. Net income from sales of products, goods and materials, including: from affiliates Net income from sales of products Net income from sales of goods and materials II. Costs of products, goods and materials sold, including: from affiliates Cost of manufacture of the products sold Value of goods and materials sold III. Gross profit (loss) on sales (I-II) IV. Costs of sales V. General management costs VI. Profit (loss) on sales (III-IV-V) VII. Other operating revenue Profit on sales of non-financial fixed assets Subsidies Other operating revenue VIII. Other operating costs Loss on sales of non-financial fixed assets Revaluation of non-financial assets Other operating costs IX. Operating profit (loss) (VI+VII-VIII) X. Financial revenue Dividends and share in profit, including: from affiliates Interest, including: from affiliates Profit on sale of investments Revaluation of investments Other XI. Financial costs Interest, including: from affiliates Loss on sale of investments Revaluation of investments Other 2 11 XII. Profit (loss) on business activity (IX+X-XI) XIII. Result of extraordinary events (XIII.1. - XIII.2.) Extraordinary gains Extraordinary losses XIV. Gross profit (loss) (XII+/-XIII) XV. Income tax a) current part b) deferred part XVI. Other obligatory profit decreases (loss increases) XVII. Share in the net profit (loss) of subordinates valued using the equity method 0 0 XVIII. Net profit (loss) (XIV-XV-XVI+/-XVII) Net profit (loss) (annualised) Weighted average number of ordinary shares Earnings (loss) per ordinary share (in PLN) 38 8,55 6,46 Weighted average diluted number of ordinary shares Diluted earnings (loss) per ordinary share (in PLN) 8,55 6,25 15

33 STATEMENT OF CHANGES IN EQUITY I. Equity as at beginning of period (OB) a) changes of the adopted accounting principles (policy) b) corrections of fundamental errors I.a. Equity as at beginning of period (OB), after reconciliation with comparable data 1. Share capital as at beginning of period 1.1. Changes in share capital a) increases (in respect of) - issue of stocks (shares) b) decreases (in respect of) 1.2. Share capital as at end of period 2. Called up share capital as at beginning of period 2.1. Changes in called up share capital a) increases (in respect of) b) decreases (in respect of) 2.2. Called up share capital as at end of period 3. Treasury stocks (shares) as at beginning of period 3.1. Changes in treasury stocks (shares) a) increases (in respect of) - purchase b) decreases (in respect of) - sales 3.2. Treasury stocks (shares) as at end of period 4. Capital reserve as at beginning of period 4.1. Changes in capital reserve a) increases (in respect of) - issue of shares at a premium - positive difference from revaluation of fixed assets - distribution of profit (over the legally required minimum amount) other increases 0 2 b) decrease (in respect of) negative difference from revaluation of fixed assets Capital reserve as at end of period Revaluation reserve as at beginning of period a) changes of the adopted accounting principles (policy) (conversion balance) a Revaluation reserve after reconciliation with comparable data Changes in revaluation reserve a) increases (in respect of) - transfer of revalued FA to capital reserve with regard to their liquidation or sale b) decreases (in respect of) - transfer of revalued FA to capital reserve with regard to their liquidation or sale 5.2. Revaluation reserve as at end of period

34 STATEMENT OF CHANGES IN EQUITY 6. Other reserve capital as at beginning of period 6.1. Changes in other reserve capital a) increases (in respect of) - other increases b) decreases (in respect of) - sales of treasury shares 6.2. Other reserve capital as at end of period 7. Profit (loss) brought forward as at beginning of period 7.1. Profit brought forward as at beginning of period a) changes of the adopted accounting principles (policy) b) corrections of fundamental errors 7.2. Profit brought forward as at beginning of period, after reconciliation with comparable data a) increases (in respect of) b) decreases (in respect of) - distribution of profit brought forward - dividend 7.3. Profit brought forward as at end of period 7.4. Loss brought forward as at beginning of period a) changes of the adopted accounting principles (policy) b) corrections of fundamental errors 7.5. Loss brought forward as at beginning of period, after reconciliation with comparable data a) increases (in respect of) b) decreases (in respect of) 7.6 Loss brought forward as at end of period 7.7 Profit (loss) brought forward as at end of period 8. Net result a) net profit b) net loss c) write-downs from profit II. Equity as at end of period (CB) III. Equity capital, after providing for the proposed distribution of profit (coverage of loss)

35 A. Cash flows from operating activities I. Net profit (loss) II. Total adjustments Depreciation Gains (losses) in respect of exchange differences Interest and share in profit (dividends) Gains (losses) on investing activities Change in provisions Change in inventories Change in receivables Change in short-term liabilities, with the exception of borrowings and loans Change in prepayments and accruals Other adjustments III. Net operating cash flows (I+/-II) B. Cash flows from investing activities I. Inflows Disposal of intangible assets and property, plant and equipment Sale of investments in immovable property and intangible assets From financial assets, including: a) in affiliates sale of financial assets dividends and share in profit interest b) in other entities sale of financial assets Other investment inflows 14 9 II. Outflows Acquisition of intangible assets and property, plant and equipment Investments in immovable property and intangible assets For financial assets, including: a) in affiliates purchase of financial assets long-term borrowings granted b) in other entities purchase of financial assets Other investment outflows 2 22 III. Net cash flows from investing activities (I-II) C. Cash flows from financing activities I. Inflows Net proceeds from issue of shares (stocks) and other equity instruments and additional contributions to equity

36 II. Total adjustments Loans and borrowings Issue of debt securities Other financial inflows 0 2 II. Outflows Purchase of treasury stocks (shares) Dividends and other payments towards owners Other outflows under distribution of profit than payments to owners Repayment of loans and borrowings Redemption of debt securities Due to other financial liabilities Payment of finance lease liabilities Interest Other financial expenditure 0 0 III. Net cash flows from financing activities (I-II) D. Total net cash flows (A.III +/- B.III +/- C.III) E. Balance-sheet change in cash, including: change in cash due to exchange differences F. Cash as at beginning of period 49 4 G. Cash as at end of period (F +/- D), including: not fully disposable

37 Note 1a INTANGIBLE ASSETS a) Intangible assets, including: goodwill concessions, patents, licences and similar values purchased, including: computer software other intangible assets b) intangible assets in progress c) advances for intangible assets 0 0 Total intangible assets

38 Note 1b CHANGES IN INTANGIBLE ASSETS Total concessions, patents, licences and other advances for (BY ASSET GROUP) intangible similar values purchased, including: intangible intangible assets assets assets computer software a) gross intangible assets as at beginning of period b) increases (in respect of) purchase acquired from investments c) decreases (in respect of) sales retirement d) gross intangible assets as at end of period e) accumulated depreciation as at beginning of period f) depreciation for the period (in respect of) depreciation retirement sales g) accumulated depreciation (amortisation) as at end of period h) impairment write-downs as at beginning of period increase 0 - decrease i) impairment write-downs as at end of period j) net intangible assets as at beginning of period k) net intangible assets as at end of period

39 Note 1c INTANGIBLE ASSETS (BY OWNERS) a) own 7 7 Total intangible assets 7 7 Note 2a PROPERTY, PLANT AND EQUIPMENT a) fixed assets, including: land (including the right of perpetual usufruct of land) buildings, premises and civil engineering facilities technical equipment and machinery means of transport other fixed assets b) fixed assets under construction 90 0 c) advances for fixed assets under construction 0 0 Total property, plant and equipment

40 Note 2b CHANGES IN FIXED ASSETS (BY ASSET GROUP) - land (including the right of perpetual usufruct of land) - buildings, premises and civil engineering facilities - technical equipment and machinery - means of transport - other fixed assets Total fixed assets a) gross fixed assets as at beginning of period b) increases (in respect of) purchase acquired from assets under construction c) decreases (in respect of) sales retirement other d) gross fixed assets as at end of period e) accumulated depreciation (amortisation) as at beginning of period f) depreciation for the period (in respect of) increase (in respect of) annual depreciation charge decrease (in respect of) sales retirement other g) accumulated depreciation (amortisation) as at end of period h) impairment write-downs as at beginning of period increase (in respect of) decrease (in respect of) i) impairment write-downs as at end of period j) net fixed assets as at beginning of period k) net fixed assets as at end of period

41 Note 2c FIXED ASSETS AS DISCLOSED IN THE BALANCE SHEET (BY OWNERS) a) own b) used under a hire, lease or other contract, including a leasing contract, including: leasing contract 0 0 Total fixed assets as disclosed in the balance sheet Note 2d OFF-BALANCE FIXED ASSETS a) used under a hire, lease or other contract, including a leasing contract, including: value of land in perpetual usufruct 3 3 Total off-balance fixed assets 3 3 Note 3a LONG-TERM RECEIVABLES Gross long-term receivables 0 0 Note 3 b CHANGE IN LONG-TERM RECEIVABLES (BY TITLE) a) as at end of period 0 0 Note 3c CHANGE IN REVALUATION WRITE-DOWNS ON LONG-TERM RECEIVABLES Revaluation write-downs on long-term receivables as at end of period

42 Note 4a CHANGE IN IMMOVABLE PROPERTY (BY TYPE) a) as at beginning of period land buildings structures machines and equipment b) increases land buildings structures machines and equipment 3 0 c) decreases amortisation buildings structures machines and equipment retirement machines and equipment 29 0 d) as at end of period land buildings ,637 - structures 47 3,00 - machines and equipment The Company has the right of perpetual usufruct of land granted with an administrative decision to the amount of PLN 24,131,000. The above right is recognised in the off-balance sheet records and is treated by the Company as investment property. Note 4b CHANGE IN INTANGIBLE ASSETS (BY ASSET GROUP) a) as at beginning of period 0 0 b) as at end of period

43 Note 4c LONG-TERM FINANCIAL ASSETS a. in subsidiaries shares or stocks advances granted borrowings granted other securities (by type) 0 0 b. in co-subsidiaries shares or stocks 2 debt securities other securities (by type) c. in associates shares or stocks borrowings granted other long-term financial assets (by type) d. in other entities shares or stocks borrowings granted other long-term financial assets (by type) Total long-term financial assets Information on collateral established for shares and stocks is provided in notes 19d and 20c Further for shares held in the company: - Organika-Sarzyna S.A. a registered pledge has been established to secure the payment of contractual penalties to Nafta Polska S.A. that could arise due to the failure to perform or improper performance of obligations described in Section 2.4. of the additional explanatory notes. The value of receivables was not determined; the highest amount of collateral is PLN 300,000, ZACHEM S.A. a registered pledge has been established to secure the payment of contractual penalties to Nafta Polska S.A. that could arise due to the failure to perform or improper performance of obligations described in Section 2.4. of the additional explanatory notes. The value of receivables was not established; the highest amount of collateral is PLN ,

44 Note 4d SHARES AND STOCKS IN SUBORDINATES VALUED USING THE EQUITY METHOD, INCLUDING: a) goodwill of subordinates 0 0 b) negative goodwill of subordinates 0 0 Note 4e CHANGE IN GOODWILL - SUBSIDIARIES a) gross goodwill as at beginning of period 0 0 b) write-down on goodwill as at end of period 0 0 c) net goodwill as at end of period 0 0 Note 4f CHANGE IN GOODWILL - CO-SUBSIDIARIES a) gross goodwill as at beginning of period 0 0 b) write-down on goodwill as at end of period 0 0 c) net goodwill as at end of period 0 0 Note 4g CHANGE IN GOODWILL - ASSOCIATES a) gross goodwill as at beginning of period 0 0 b) write-down on goodwill as at end of period 0 0 c) net goodwill as at end of period 0 0 Note 4h CHANGE IN NEGATIVE GOODWILL - SUBSIDIARIES a) gross goodwill as at beginning of period 0 0 b) write-down on goodwill as at end of period 0 0 c) net goodwill as at end of period

45 Note 4i CHANGE IN NEGATIVE GOODWILL - CO-SUBSIDIARIES a) gross goodwill as at beginning of period 0 0 b) write-down on goodwill as at end of period 0 0 c) net goodwill as at end of period 0 0 Note 4j CHANGE IN NEGATIVE GOODWILL - ASSOCIATES a) gross goodwill as at beginning of period 0 0 b) write-down on goodwill as at end of period 0 0 c) net goodwill as at end of period 0 0 Note 4k CHANGE IN LONG-TERM FINANCIAL ASSETS (BY ASSET GROUP) a) as at beginning of period shares and stocks b) increases (in respect of) shares and stocks purchase of shares capital increase borrowings granted c) decreases (in respect of) shares and stocks sale of shares transfer to short-term financial assets 0 25 other d) as at end of period shares and stocks borrowings granted 144 revaluation write-downs net as at end of period

46 No. a b c d e f g h i j k l No. p r s t indication date of of grounds liabilities and provisions for liabilities, entity's equity, including: entity's receivables, including: dividends value of affiliation (subsidiary, consolidation method used / taking over value of for control / including: received or (total) carrying share in the total shares / co-subsidiary, valuation with the equity control / shares / joint control total due from revaluation value of % of share number of votes stocks in entity name and legal form registered office scope of business operations associate and specified method or indication that the joint control stocks at / significant called up Income entity's adjustment shares / capital held at the general remaining equity, including: the entity the entity whether the affiliation is entity is not consolidated / / obtaining purchase influence share from sales s stocks meeting share capital long-term short-term long-term short-term assets for the last unpaid by direct or indirect) valued with the equity method significant price other than capital capital reserve profit net profit liabilities liabilities receivables receivables financial the issuer influence specified in (negative (loss) year (loss) letter j) or figure) brought ul. Mickiewicza 5 wholesale of chemical products, sale of grain, seeds and animal feeds, handling 1 "AGROCHEM" Sp. z o.o. Człuchów indirect subsidiary Fosfory Sp. z o.o. full method % 89.03% none Człuchów warehousing and storage ul. Spichrzowa 13 manufacture of fertilisers and nitrogen compounds, manufacture of other inorganic and 2 Agrochem Sp. z o.o. Dobre Miasto indirect subsidiary Fosfory Sp. z o.o. full method % none ul K.Olszewskiego Dobre Miasto 25 organic basic chemicals warehousing and storage of goods 3 Alwernia Fosforany Sp. z o.o. the company has not started operations indirect subsidiary not consolidated % none Alwernia ul. A.Struga 10 manufacture of dyes and pigments, trade in raw materials and industrial goods (auxiliar 4 Boruta-Kolor Sp. z o.o. subsidiary not consolidated % 100% none Zgierz agents for the textile industry ul. Wojska Polskiego 65 5 Budpur Sp. z o.o. construction and installation services, indirect associate not consolidated % 22.18% none Bydgoszcz ul. Wojska Polskiego 65 6 Bydgoski Park Przemysłowy real estate management indirect associate not consolidated % 18.69% none Bydgoszcz ul. Powązkowska 46/50 7 Chemia.com S.A. computer related activities subsidiary not consolidated % 100% none Warszawa Kattrepelsbrucke 1 agency (provision of agency services) for the export of chemical products to the German 8 Chemiepetrol GmbH subsidiary not consolidated % 60.00% none D Hamburg Germany market; purchase of electrochemicals and plastics on own accoun 9 Ciech Finance Sp. z o.o. Warszawa ul. Powązkowska 46/50 other financial intermediation subsidiary full method % 100% none ul. Powązkowska 46/50 10 CIECH -Polfa Sp. z o.o. sale of pharmaceutical products, custom packing services subsidiary full method % 100% none Warszawa ul. Powązkowska 46/50 11 CIECH-SERVICE Sp. z o.o. transport and brokerage services subsidiary not consolidated % 100% none Warszawa 16, Devonshire Street import of chemical products and petroleum products obtained mainly in Poland and the 12 Daltrade Plc subsidiary full method % 61.20% none London W1G 7AF Great Britain distribution on the British market and also on European markets (petroleum products; th Rentemestervej 80 trading activities on a commission basis and on own account for the purchase and sale o 13 Danske Unipol A/S subsidiary not consolidated % 55.00% none DK/2400 Copenhagen NV industrial chemicals ul. Fabryczna 4 14 Elektrociepłownie Kujawskie Sp. z o.o. production and distribution of electricity indirect subsidiary Soda Mątwy S.A. - full method % 99.52% none Inowrocław m n o Gdańskie Zakłady Nawozów 15 Fosforowych FOSFORY Sp. z o.o. 16 Govcrest International SRL 17 InChem Sp. z o.o. Inowrocławskie Zakłady Chemiczne 18 SODA MĄTWY S.A. ul. Kujawska 2 manufacture of fertilisers and nitrogen compounds, other organic and inorganic basic subsidiary full method % 89.03% none Gdańsk chemicals, provision of handling services, provisions of warehousing services Bucuresti, sector 2.B-dul Pache import and export of chemical raw materials and products indirect associate not consolidated RON RON % 38.78% none Protopopescu no 32. Romania ul. Powązkowska 46/50 provision of broadly understood financial services for CIECH S.A. - facilitating the subsidiary not consolidated % 100% none Warszawa restructuring of the investment portfolio by minimising the share of overdue and hard-to ul. Fabryczna 4 manufacture and sale of chemical products and compounds, metal products and constructio subsidiary full method % 99.77% none Inowrocław materials, sale of heat energy, electricity and drinking and process water Janikowskie Zakłady Sodowe 19 Janikosoda S.A. ul. Przemysłowa Janikowo manufacture and sale of chemical products and compounds, construction and installation, fitting and electrical services, sale of heat energy and electricity, letting and renting of premises, buildings and land subsidiary full method % 99.26% none Komunalna Biologiczna Oczyszczalnia 20 Ścieków Sp. z o.o. Sarzyna 768 B Nowa Sarzyna waste water management and waste disposal and treatment indirect associate not consolidated % 45.29% none Natural Chemical Products Sp. z o.o. ul. Wojska Polskiego Bydgoszcz manufacture of plastic products. indirect associate not consolidated % 35.23% none Nordiska Unipol AB Arstaangsvagen 1 A S Stockholm Sweden performing trading activities for the import and export of different types of products, mainly chemicals and other industrial supplies; acting as agent and performing other related activities subsidiary not consolidated % 97.78% none Polcommerce GmbH Josefstadterstrasse 78/3/7 A-1080 Vienna Austria agency (provision of agency services) for the export of chemical products to the Austrian market; purchase of chemicals on own account subsidiary not consolidated % 100% none Polcommerce Ltd. Otvos J.u.1-3.II Budapest Hungary agency (provision of agency services) for the export of pharmaceutical and chemical products to the Hungarian market; the company provides marketing, registration and advertising services for pharmaceutical products indirect subsidiary not consolidated % 100% none Polsin Pte. Ltd. 76 Shenton Way #06-01 Singapore trade in a variety of goods (chemicals prevailing - over 80%) between Southern and Eastern Asia and Central and Eastern Europe the company may hold and trade in securities and also hold shares in other entities subsidiary full method % 65.00% none Polskie Towarzystwo Ubezpieczeniowe ul. Jagiellońska S.A Warszawa Przedsiębiorstwo Chemiczne Cheman ul. Powązkowska 46/50 27 S.A.** Warszawa Przedsiębiorstwo Transportowo- ul. Wojska Polskiego Usługowe TRANSCLEAN Sp. z o.o Bydgoszcz Przedsiębiorstwo Transportowo- ul. Wojska Polskiego Spedycyjne TRANSCHEM Sp. z o.o Bydgoszcz RAMNICU VALCEA, Str. Uzinei 30 S.C. US Govora S.A. nr. 2, Judetul Valcea, Romania Soda Mątwy S.A. equity insurance company indirect associate % 45.89% none method trade in chemical goods, custom packing of chemical products indirect subsidiary full method % 100% none international transportation of liquid chemicals, tank truck and tank car wash associate equity method: % 90.00% none transport services indirect associate not consolidated % 22.25% none manufacture of inorganic chemicals subsidiary full method % 93.14% none Soc-Al. Sp. z o.o. 32 Soda-Med. Sp. z o.o. ul. Kulawki Alwernia ul. Przemysłowa Janikowo provision of cleaning, laundry services, administration of dwellings, supervision, hotel, renovation and specialist, publishing services, letting of premises, generation, transmission indirect subsidiary not consolidated % 69.88% none and distribution of heat organisation of medical services indirect subsidiary not consolidated % 99.57% none export, import and wholesale of industrial chemicals, plastics and other industrial raw Nahkahousuntie 3 33 Suomen Unipol Oy materials; associate not consolidated Helsinki Finland the company may hold and trade in securities and also hold shares in other entities SEK SEK % 24.78% none Transoda Sp. z o.o. ul. Fabryczna Inowrocław railway and road transport, renting of trucks, letting of real estate, maintenance and repair of motor vehicles, wholesale of solid, liquid and gaseous fuels and related products indirect subsidiary Soda Mątwy S.A. - full method % 99.59% none VITROSILICON S.A.* ul. Żagańska Iłowa manufacture of other inorganic basic chemicals, manufacture of household and technical glassware, manufacture of plastic packing, manufacture of other plastic products subsidiary full method % 99.81% none ul. Wojska Polskiego Zakłady Chemiczne ZACHEM S.A Bydgoszcz ul. Wojska Polskiego Zachem Barwniki Sp. z o.o Bydgoszcz ul. Wojska Polskiego Zachem UCR Sp. z o.o Bydgoszcz Zakład Chemiczny "Silikony Polskie" ul. Chemików Nowa 39 Sp. z o.o. Sarzyna Zakład Doświadczalny "Organika" Sp. z ul. Chemików 1, Nowa 40 o.o. Sarzyna Zakłady Chemiczne Organika - ul. Chemików 1, Nowa 41 Sarzyna S.A. Sarzyna manufacture of: organic and inorganic chemicals, dyes and pigments, paints and varnishes subsidiary full method % 80% none and plastics manufacture of dyes and pigments, indirect subsidiary ZACHEM S.A. full method % 91.67% none renovation services indirect subsidiary ZACHEM S.A. full method % 100% none manufacture of plastics indirect associate not consolidated % 24% none manufacture of chemical products indirect subsidiary not consolidated % 40.80% none manufacture of organic and inorganic chemicals, industrial gases, fertilisers, pesticides and subsidiary full method % 80% none other agrochemical products 42 Zakłady Chemiczne "Alwernia" S.A. ul. K.Olszewskiego Alwernia manufacture of inorganic chemicals subsidiary full method % 73.75% none * the value of direct shares at the purchase price amounts to PLN 7,502,000 ** the purchase price and carrying value is given on the basis of the value disclosed in the balance sheet of the entity that directly holds shares/stocks in the entity. In the case of Cheman S.A. the entity that directly holds stocks is Ciech Finance, for which the purchase price and carrying value amount to PLN 1. 29

47 Note 4n SHARES OR STOCKS IN OTHER ENTITIES entity name and No. registered office scope of business operations legal form carrying value of shares / stocks entity's equity, including: - share capital % of share capital held share in the total number of votes at the general meeting value of shares / stocks unpaid by the issuer dividends received or due for the last financial year 1 Comapol Morocco agency for the export of chemical products and industrial goods of Polish companies to the Moroccan market and to some extent to the market of Saudi Arabia 0 no data no data 7,53 7, Other 988 Total 988 no figures means that data are missing 30

48 Note 4o SECURITIES, SHARES AND OTHER LONG-TERM FINANCIAL ASSETS (BY CURRENCY) a) in the Polish currency b) in foreign currencies (by currency and upon translation to PLN) b1. currency EUR PLN b2. GBP PLN 3 3 b3. SGD PLN 3 3 b4. SEK 2 2 PLN b5. DKK PLN b6. USD 3,776 0 PLN 11,128 0 Total securities, shares and other long-term financial assets Note 4p SECURITIES, SHARES AND OTHER LONG-TERM FINANCIAL ASSETS (BY TRANSFERABILITY) A. With unlimited transferability, quoted on stock exchanges (carrying value) 867 1,062 a) stocks (carrying value): 867 1,062 - revaluation adjustments (for the period) value as at beginning of period 1, value at purchase prices 1,318 1,318 C. With unlimited transferability, unquoted on the regulated market (carrying value) a) stocks (carrying value): revaluation adjustments (for the period) value as at beginning of period value at purchase prices b) bonds (carrying value): 0 0 c) other - shares (carrying value): revaluation adjustments (for the period) value as at beginning of period value at purchase prices D. With limited transferability (carrying value) a) stocks and shares (carrying value): revaluation adjustments (for the period) value as at beginning of period value at purchase prices b) bonds (carrying value): 0 0 c) other - by type (carrying value): 0 0 Total value at purchase prices Total value as at beginning of period Total revaluation adjustments (for the period) Total carrying value

49 Note 4q LONG-TERM BORROWINGS GRANTED (BY CURRENCY) a) in the Polish currency b) in foreign currencies (by currency and upon translation to PLN) 77 0 b1. EUR 20 0 PLN 77 0 Total short-term borrowings granted Note 4r OTHER LONG-TERM INVESTMENTS (BY TYPE) Total other long-term investments 0 0 Note 4s CHANGE IN OTHER LONG-TERM INVESTMENTS (BY TYPE) a) as at beginning of period 0 0 b) as at end of period 0 0 Note 4t OTHER LONG-TERM INVESTMENTS (BY CURRENCY) Total other long-term investments

50 Note 5a CHANGE IN DEFERRED INCOME TAX ASSETS Deferred income tax assets as at beginning of period, including: a) charged against the financial result receivables inventories short-term liabilities long-term investments provisions long-term liabilities prepayments (costs) b) charged against equity long-term liabilities c) charged against goodwill or negative goodwill Increases a) charged against the financial result of the period due to negative temporary differences (in respect of) receivables inventories short-term liabilities long-term investments fixed assets prepayments (costs) b) charged against the financial result of the period due to tax loss (in respect of) 0 0 c) charged against equity due to negative temporary differences (in respect of) 0 0 d) charged against equity due to tax loss (in respect of) 0 0 e) charged against goodwill or negative goodwill due to negative temporary differences Decreases a) charged against the financial result of the period due to negative temporary differences (in respect of) receivables inventories short-term liabilities 30 - long-term investments fixed assets - provisions long-term liabilities 74 9 b) charged against the financial result of the period due to tax loss (in respect of) use of tax loss 0 0 c) charged against equity due to negative temporary differences (in respect of) 0 0 d) charged against equity due to tax loss (in respect of) 0 0 e) charged against goodwill or negative goodwill due to negative temporary differences (in respect of)

51 4. Total deferred income tax assets as at end of period, including: a) charged against the financial result receivables inventories short-term liabilities long-term investments fixed assets provisions long-term liabilities prepayments (costs) b) charged against equity long-term liabilities c) charged against goodwill or negative goodwill

52 Załącznik nr 1 Negative temporary differences - annex to note 5a List of basic groups of liabilities and assets related to temporary differences, title for an increase/decrease in a temporary difference expiry date as at Decrease (-) Increase (+) as at ASSETS Inventories, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Receivables temporary differences recorded/reversed previous period temporary differences unrecognised other Fixed assets, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Long-term investments, including: date of liquidation or sale temporary differences recorded/reversed previous period temporary differences unrecognised other LIABILITIES Provisions, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Long-term liabilities, including: successively until temporary differences recorded/reversed previous period temporary differences unrecognised other Short-term liabilities, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Accruals and deferred income, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Total of negative temporary differences

53 Note 5b OTHER PREPAYMENTS AND ACCRUED INCOME a) prepayments and deferred expenses, including: outsourced services b) other prepayments and accrued income, including: 0 0 Total other prepayments and accrued income Note 6 a INVENTORIES a) materials 0 0 b) semi-finished products and products in progress 0 0 c) end products 0 0 d) goods e) prepayments for deliveries 4 68 Total net inventories revaluation write-downs on inventories Total gross inventories

54 Note 7 a SHORT-TERM RECEIVABLES a) due from affiliates trade receivables, with maturity date: up to 12 months over 12 months other b) receivables due from other entities trade receivables, with maturity date: up to 12 months over 12 months in respect of taxes, subsidies, customs duties, social and health insurance plus other benefits other claimed in court Total net short-term receivables c) revaluation write-downs on receivables Total gross short-term receivables Information on collateral established for receivables is provided in notes 19d and 20c Note 7 b SHORT-TERM RECEIVABLES DUE FROM AFFILIATES a) trade receivables, including: due from subsidiaries due from co-subsidiaries due from associates due from the significant investor due from the parent company 0 0 b) other, including: due from subsidiaries due from co-subsidiaries due from associates due from the significant investor due from the parent company 0 0 c) claimed in court, including 0 0 Total net short-term receivables due from affiliates d) revaluation write-downs on receivables from affiliates Total gross short-term receivables due from affiliates

55 Note 7 c CHANGE IN REVALUATION WRITE-DOWNS ON SHORT-TERM RECEIVABLES As at beginning of period a) increases (in respect of) doubtful and disputable receivables interest currency conversion b) disbursement doubtful and disputable receivables interest currency conversion c) released doubtful and disputable receivables interest costs and interest awarded currency conversion 0 0 Revaluation write-downs on short-term receivables as at end of period Note 7 d GROSS SHORT-TERM RECEIVABLES (BY CURRENCY) a) in the Polish currency b) in foreign currencies upon translation to PLN b1. EUR PLN b2. USD PLN b3. GBP PLN b4. SEK PLN b5. DKK 814 PLN 421 PLN Total short-term receivables

56 Note 7 e (GROSS) TRADE RECEIVABLES - WITH THE MATURITY DATE AS OF THE BALANCE-SHEET DATE: a) up to 1 month b) over 1 month to 3 months c) over 3 months to 6 months 2 6 d) over 6 months to 1 year e) over 1 year f) overdue receivables Total (gross) trade receivables g) revaluation write-downs on trade receivables Total (net) trade receivables As regards trade receivables time limits related to the ordinary course of sale are up to 30 days and from 31 to 90 days Note 7 f (GROSS) OVERDUE TRADE RECEIVABLES - OUTSTANDING: a) up to 1 month b) over 1 month to 3 months c) over 3 months to 6 months 1 3 d) over 6 months to 1 year e) over 1 year Total (gross) overdue trade receivables g) overdue revaluation write-downs on trade receivables Total (net) overdue trade receivables Note 8 a December 31st, 2006 As compared to the total amount of (long and short-term) receivables, gross disputable receivables amount to PLN 1,164,000, including those without a write-down - PLN 85,000. For receivables not revaluated with write-downs the Company has collateral that guarantees their repayment. Gross overdue long and short-term receivables amount to PLN 46,263,000, including PLN 27,290,000 not covered by a revaluation write-down. For receivables not revaluated with write-downs there are no grounds for the recognition of write-downs. December 31st, 2005 As compared to the total amount of (long and short-term) receivables, gross disputable receivables amount to PLN 1,325,000, including those without a write-down - PLN 95,000. For receivables not revaluated with write-downs the Company has collateral that guarantees their repayment. Gross overdue long and short-term receivables amount to PLN 57,877,000, including PLN 41,947,000 not covered by a revaluation write-down. For receivables not revaluated with write-downs there are no grounds for the recognition of write-downs. 39

57 Note 9 a SHORT-TERM FINANCIAL ASSETS a) in subsidiaries shares or stocks borrowings granted 2 14 b) in co-subsidiaries 0 0 c) in associates 0 0 d) in the significant investor 0 0 e) in the parent company 0 0 f) in other entities other securities (by type) stocks 0 0 other short-term financial assets (by type) forward g) cash and other money assets cash in hand and at bank other cash other money assets 0 0 Total short-term financial assets Note 9 b SECURITIES, SHARES AND OTHER SHORT-TERM FINANCIAL ASSETS (BY CURRENCY) a) in the Polish currency b) in foreign currencies (by currency and upon translation to PLN) 0 0 Total securities, shares and other short-term financial assets Note 9 c SECURITIES, SHARES AND OTHER SHORT-TERM FINANCIAL ASSETS (BY TRANSFERABILITY) A. With unlimited transferability, quoted on stock exchanges (carrying value) 0 0 a) stocks (carrying value): value at purchase prices 0 0 b) bonds (carrying value): 0 0 c) other - by type (carrying value): value at purchase prices 0 0 B. With unlimited transferability, quoted on over-the-counter markets (carrying value) 0 0 a) stocks (carrying value): 0 0 b) bonds (carrying value): 0 0 c) other - by type (carrying value): 0 0 C. With unlimited transferability, unquoted on the regulated market (carrying value) a) stocks (carrying value): value at purchase prices b) bonds (carrying value): 0 0 c) other - by type (carrying value): 0 0 c1) shares (carrying value) value at purchase prices 2 2 c2) forward (carrying value) goodwill c3) participation units in a fund (carrying value) value at purchase prices market value 0 0 D. With limited transferability (carrying value) 0 0 a) stocks and shares (carrying value): 0 0 b) bonds (carrying value): 0 0 c) other - by type (carrying value): 0 0 Total value at purchase prices Total value as at beginning of period 16 Total revaluation adjustments (for the period) (increase with a "-" sign) 0 0 Total carrying value

58 Note 9 d SHORT-TERM BORROWINGS GRANTED (BY CURRENCY) a) in the Polish currency 2 14 b) in foreign currencies (by currency and upon translation to PLN) 0 0 Total short-term borrowings granted 2 14 Note 9 e CASH AND OTHER MONEY ASSETS (BY CURRENCY) a) in the Polish currency b) in foreign currencies (by currency and upon translation to PLN) b1. EUR 11 7 PLN b2. USD PLN 4 2 b3. DKK 0 1 PLN other currencies 8 46 Total cash and other money assets Note 9 f OTHER SHORT-TERM INVESTMENTS (BY TYPE) Total other short-term investments 0 0 Note 9 g OTHER SHORT-TERM INVESTMENTS (BY CURRENCY) Total other short-term investments 0 0 Note 10 a SHORT-TERM PREPAYMENTS AND ACCRUED INCOME a) prepayments and deferred expenses, including: transaction costs 7 - subscription insurance taxes and charges outsourced services foreign currency costs - rent etc promotion and representation loan fees other 3 11 b) other prepayments and accrued income, 0 0 Total other short-term prepayments and accrued income

59 Załącznik nr 2 Revaluation write-downs - annex to note 11a Impairment revaluation write-downs Intangible assets a) as at beginning of period b) recognition, including: charged directly against equity 0 0 c) reversed, including: charged directly against equity 0 0 d) as at end of period Property, plant and equipment a) as at beginning of period b) recognition, including: charged directly against equity 0 0 c) reversed and disbursed, including: charged directly against equity 0 0 d) as at end of period The opening balance of revaluation write-downs includes the value of investment expenditure related to the risk of discontinuation of the investment related to the modernisation of the company's registered office. The write-down was recognised as a result of measurement of fixed assets located in Szczytniki and Mniszków at fair value. 2. Long-term investments a) as at beginning of period b) recognition, including: charged directly against equity 0 0 c) reversed and disbursed, including: d) as at end of period Write-downs were recognised mainly due to the weak financial standing of the Companies and low equities. The main causes for the release of revaluation write-downs on shares and stocks are: the sale of stocks and shares covered by the write-down and retirement. 4. Inventories a) as at beginning of period b) recognition, including: charged directly against equity 0 0 c) reversed and disbursed, including: charged directly against equity 0 0 d) as at end of period Impairment write-downs were recognised for lingering and hard-to-sell inventories. Write-downs were reversed as a result of the sale of inventories. 5. Short-term receivables a) as at beginning of period b) recognition, including: charged directly against equity c) reversed and disbursed, including: charged directly against equity 0 0 d) as at end of period Impairment write-downs were recognised for composition, disputable, interest and overdue receivables outstanding for over 180 days. The main causes for the release of write-downs are: payment by a debtor, completion of bankruptcy/liquidation proceedings, composition settlement and the write-off of receivables. The total value of recognised write-downs includes the write-down on receivables from the Sur5Net Brokerage House in respect of deposited cash of PLN 16,536,000 (principal amount due) and on interest and court costs to the amount of PLN 2,227,000. As at the date of the financial statement Ciech SA has a judgement of the District Court in Warsaw awarding the reimbursement of the amount and interest due. On August 6th, 2004 a petition for instituting debt enforcement proceedings was filed. The enforcement proceedings had been ineffective until the date of the financial statement. 6. Short-term investments a) as at beginning of period 3 3 b) recognition, including: charged directly against equity 0 0 c) reversed and disbursed, including: charged directly against equity 0 0 d) as at end of period 3 3 Write-downs cover a borrowing granted and a write-down on the value of shares. TOTAL as at beginning of period TOTAL recognised write-downs, including: charged directly against equity 0 0 TOTAL reversed write-downs, including: charged directly against equity 0 0 TOTAL as at end of period

60 Note 12 a SHARE CAPITAL (STRUCTURE) Series / issue Type of shares Type of preference of shares series A bearer ordinary series B bearer ordinary Type of restrictions of rights to shares Number of shares Value of the series / issue at par value the sale or establishment of a pledge on shares required the consent of the Company in the form of a resolution from to the sale or establishment of a pledge on shares required the consent of the Company in the form of a resolution Form of capital coverage as a result of the transformation of the Company from a ltd. company to a jointstock company as a result of transfer of some capital reserve to share capital Registration date Rights to dividend (from) from the financial year ending on from the financial year ending on series C bearer ordinary no restrictions cash Total number of shares Total share capital 246 Par value of one share = PLN 5.00 from the financial year ending on changes due to redemption of 284 shares (resolution by OGSM of CIECH S.A. of May 21st, 1996) series A registered ordinary conversion of registered to bearer shares series A bearer ordinary series B bearer ordinary changes due to issue of shares (resolution by EGSM of CIECH S.A. of May 19th, 2004) series C bearer ordinary Total number of shares Total share capital 140 Par value of one share = PLN 5.00 Under resolution of the General Shareholders' Meeting of May 21st, 1996 the Company redeemed 284 A-series shares without reduction in the share capital. The redemption was settled with profit made in The Company's share capital amounts to 140,001 and is not equal to the product of the number of shares and nominal price but differs by PLN 1,420 resulting from the settlement of redemption in EXPECTED CHANGES IN SHARE CAPITAL No changes in the share capital of Ciech S.A. are expected. LIST OF SHAREHOLDERS HOLDING DIRECTLY OR INDIRECTLY THROUGH SUBSIDIARIES AT LEAST 5 % OF THE TOTAL NUMBER OF VOTES AT THE GENERAL SHAREHOLDERS' MEETING as at Kompania Węglowa SA 10,270,800 shares constituting 36.68% of the share capital of CIECH S.A. Franklin Templeton Investments, UK 2,000,000 shares constituting 7.14% of the share capital of CIECH S.A. Otwarty Fundusz Emerytalny PZU "Złota Jesień" 1,712,732 shares constituting 6.12% of the share capital of CIECH S.A. Commercial Union Investment Management (CUIM) Poland 1,504,961 shares constituting 5.37% of the share capital of CIECH S.A. Pioneer Pekao Investment Management SA (PPIM). 1,410,325 shares constituting 5.04% of the share capital of CIECH S.A. including Pioneer investment funds managed by PPIM 1,443,379 shares constituting 5.15% of the share capital of CIECH S.A. as at Kompania Węglowa SA 10,270,800 shares constituting 36.68% of the share capital of CIECH S.A. Franklin Templeton Investments, UK 2,000,000 shares constituting 7.14% of the share capital of CIECH S.A. Otwarty Fundusz Emerytalny PZU "Złota Jesień" 1,712,732 shares constituting 6.12% of the share capital of CIECH S.A. Commercial Union Investment Management (CUIM) Poland 1,504,961 shares constituting 5.37% of the share capital of CIECH S.A. LIST OF AFFILIATED COMPANIES HOLDING SHARES IN CIECH S.A. as at Zch Organika Sarzyna S.A. 95,100 shares constituting 0.34% of the share capital of CIECH S.A. as at As far as the Management Board of Ciech SA entities affiliated with it do not hold shares that would constitute over 5% of the total number of votes at GSM. 43

61 Note 13 a TREASURY SHARES Number Value at purchase price Carrying value Purpose of purchase Allocation Note 13b STOCKS (SHARES) IN THE ISSUER HELD BY SUBORDINATES Entity name, registered office Number Value at purchase price Carrying value Entity's registered office

62 Note 14 a CAPITAL RESERVE a) share premium reserve b) established by law c) established under the Articles of Association / agreement over the legally required (minimum) amount Total capital reserve Note 15 a REVALUATION RESERVE a) due to revaluation of fixed assets b) due to profits / losses from valuation of financial instruments, including: 0 0 c) due to deferred tax 0 0 d) exchange differences on translation of foreign branches 0 0 e) other (by type) 0 0 Total revaluation reserve Note 16 a OTHER RESERVE CAPITAL (BY ALLOCATION) purchase of shares in soda companies development compliant with the restructuring plan trade risk fund purchase of treasury shares 0 0 Total other reserve capital Note 17 a WRITE-DOWNS FROM NET PROFIT DURING THE FINANCIAL YEAR (IN RESPECT OF) Total write-downs from net profit during the financial year

63 Note 18 a CHANGE IN THE PROVISION FOR DEFERRED INCOME TAX Provision for deferred income tax as at beginning of period, including: a) charged against the financial result exchange differences on valuation of settlements interest on borrowings granted exchange differences on valuation of cash other 2 c) charged against goodwill or negative goodwill Increases a) charged against the financial result of the period due to positive temporary differences (in respect of) exchange differences on valuation of settlements interest on borrowings granted exchange differences on valuation of cash purchase price of shares other 2 2 b) charged against equity due to positive temporary differences (in respect of) 0 0 c) charged against goodwill or negative goodwill due to positive temporary differences (in respect of) Decreases a) charged against the financial result of the period due to positive temporary differences (in respect of) exchange differences on valuation of settlements exchange differences on valuation of cash 13 b) charged against equity due to positive temporary differences (in respect of) 0 0 c) charged against goodwill or negative goodwill due to positive temporary differences Total provision for deferred income tax as at end of period a) charged against the financial result exchange differences on valuation of settlements interest on borrowings granted exchange differences on valuation of cash purchase price of shares other 4 2 b) charged against equity 0 0 c) charged against goodwill or negative goodwill 0 0 Note 18 b CHANGE IN THE LONG-TERM PROVISION FOR RETIREMENT AND SIMILAR BENEFITS (BY TITLE) a) as at beginning of period service anniversary awards and retirement gratuities 2 2 b) increases (in respect of) service anniversary awards and retirement gratuities 0 0 c) disbursement (in respect of) service anniversary awards and retirement gratuities 0 0 d) release (in respect of) conversion of service anniversary awards and retirement gratuities to shortterm provisions other decreases in service anniversary awards and retirement gratuities e) as at end of period service anniversary awards and retirement gratuities

64 Note 18 c CHANGE IN THE SHORT-TERM PROVISION FOR RETIREMENT AND SIMILAR BENEFITS (BY TITLE) a) as at beginning of period service anniversary awards and retirement gratuities b) increases (in respect of) conversion of service anniversary awards and retirement gratuities from long-term provisions other increases in service anniversary awards and retirement gratuities 368 c) disbursement (in respect of) service anniversary awards and retirement gratuities d) release (in respect of) service anniversary awards and retirement gratuities 0 e) as at end of period service anniversary awards and retirement gratuities Note 18 d CHANGE IN OTHER LONG-TERM PROVISIONS (BY TITLE) a) as at beginning of period 0 0 b) as at end of period 0 0 Note 18 e CHANGE IN OTHER SHORT-TERM PROVISIONS (BY TITLE) a) as at beginning of period for expected losses for liabilities towards Chimie-Produit for restructuring b) increases (in respect of) for expected losses c) disbursement (in respect of) for restructuring for expected losses for liabilities towards Chimie-Produit d) release (in respect of) for liabilities towards Chimie-Produit for restructuring for expected losses 0 5 e) as at end of period for expected losses for restructuring The amount of PLN 17,724,000 includes a provision for cases pending against the Company described in Section 2 of the additional explanatory notes PLN 17,500,

65 Załącznik nr 3 Positive temporary differences - annex to note 18a List of basic groups of liabilities and assets related to temporary differences, title for an increase/decrease in a temporary difference expiry date as at Decrease (-) Increase (+) as at ASSETS Short-term receivables, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Long-term investments, including: date of liquidation or sale temporary differences recorded/reversed previous period temporary differences unrecognised other Short-term investments, including: temporary differences recorded/reversed previous period temporary differences unrecognised other LIABILITIES Short-term liabilities, including: temporary differences recorded/reversed previous period temporary differences unrecognised other Total of positive temporary differences

66 Note 19 a LONG-TERM LIABILITIES a) towards subsidiaries 0 0 b) towards co-subsidiaries 0 0 c) towards associates 0 0 d) towards the significant investor 0 0 e) towards the parent company 0 0 f) towards other entities loans and borrowings Total long-term liabilities Note 19 b LONG-TERM LIABILITIES WITH THE MATURITY DATE AS OF THE BALANCE-SHEET DATE a) over 1 year to 3 years b) over 3 years to 5 years 45 0 c) over 5 years 82 0 Total long-term liabilities Note 19 c LONG-TERM LIABILITIES (BY CURRENCY) a) in the Polish currency b) in foreign currencies (by currency and upon translation to PLN) b1. EUR 3 5 PLN other currencies in thousand PLN 0 0 Total long-term liabilities

67 Note 19 d LONG-TERM LIABILITIES IN RESPECT OF LOANS AND BORROWINGS Entity name Registered office Contractual loan / borrowing amount Loan / borrowing amount outstanding Interest rate Repayment Collateral PLN in currency currency PLN in currency currency terms date Other Bank Pekao S.A. ul. Grzybowska 80/ EUR 12 3 EUR 3M EURIBOR + bank margin regularly at the end of each quarter assignment of receivables from trade contracts worth PLN 123,238,000, declaration on submission to enforcement, authorisation for the bank to access bank accounts Bank Pekao S.A. ul. Grzybowska 80/ PLN 194 PLN 3M WIBOR + bank margin registered pledge on the shares in Janikowskie Zakłady Sodowe Janikosoda SA with a par value of PLN 40,349,000 Note 19 e SHORT-TERM LIABILITIES IN RESPECT OF ISSUED DEBT FINANCIAL INSTRUMENTS Debt securities by Guarantees / Par value Interest rate terms Maturity date type collateral Additional rights Other 50

68 Note 20 a SHORT-TERM LIABILITIES a) towards subsidiaries trade receivables, with maturity date up to 12 months received prepayments for deliveries other b) towards co-subsidiaries trade receivables, with maturity date up to 12 months c) towards associates trade receivables, with maturity date up to 12 months d) towards the significant investor 0 0 e) towards the parent company 0 0 f) towards other entities loans and borrowings, including: long-term, not yet overdue due to issue of debt securities due to dividends trade receivables, with maturity date up to 12 months received prepayments for deliveries in respect of taxes, customs duties, insurance and other benefits due to remunerations other due to leasing due to valuation of financial instruments due to factoring other g) earmarked funds (by title) ZFSS (Company Social Benefits Fund) earmarked funds 0 0 Total short-term liabilities Note 20 b SHORT-TERM LIABILITIES (BY CURRENCY) a) in the Polish currency b) in foreign currencies upon translation to PLN b1. EUR PLN b2. USD PLN b3. GBP 4 0 PLN 20 0 b4. SEK 9 9 PLN 4 4 other currencies in thousand PLN Total short-term liabilities

69 Note 20 c SHORT-TERM LIABILITIES IN RESPECT OF LOANS AND BORROWINGS Entity Registered office Contractual loan / borrowing amount Loan / borrowing amount outstanding Interest rate Repayment Collateral Other name PLN in currency currency PLN in currency currency terms date Bank Pekao S.A. ul. Grzybowska 80/ EUR 6 2 EUR 3M EURIBOR + bank margin regularly at the end of each quarter assignment of receivables from trade contracts worth PLN 123,238,000, declaration on submission to enforcement, authorisation for the bank to access bank accounts Bank Pekao S.A. ul. Grzybowska 80/ PLN PLN 3M WIBOR + bank margin regularly at the end of each quarter registered pledge on the shares in Janikowskie Zakłady Sodowe Janikosoda SA with a par value of PLN 40,349,000 Bank Handlowy w Warszawie S.A. ul. Senatorska PLN 26 PLN 1M WIBOR + bank margin declaration on submission to enforcement up to PLN 42,000,000 BRE Bank S.A. ul. Królewska PLN 11 PLN 1M WIBOR + bank margin blank promissory note, unconfirmed absolute assignment of receivables Fortis Bank Polska S.A. ul. Postępu PLN 28 PLN 1M WIBOR + bank margin blank promissory note, declaration on submission to enforcement ING Bank Śląski S.A. Plac Trzech Krzyży 10/14 30 PLN 30 PLN 1M WIBOR + bank margin prolonged automatically every month blank promissory note, declaration on submission to enforcement Bank Millennium S.A. Al. Jerozolimskie 123 a 30 PLN 24 PLN 1M WIBOR + bank margin declaration on submission to enforcement, authorisation to access the account Note 20 d SHORT-TERM LIABILITIES IN RESPECT OF ISSUEDDEBT FINANCIAL INSTRUMENTS Debt securities by type Par value Interest rate terms Maturity date Guarantees / collateral Additional rights Other 0 52

70 Note 21 a CHANGE IN NEGATIVE GOODWILL As at beginning of period 0 0 Negative goodwill as at end of period 0 0 Note 21 b OTHER PREPAYMENTS AND ACCRUED INCOME a) deferred expenses (costs) long-term (by title) remunerations short-term (by title) leaves remunerations balance-sheet audit costs transaction costs other b) accruals and deferred income long-term (by title) short-term (by title) advance payments received interest on borrowings fixed assets received free of charge other Total other prepayments and accrued income Note 22 a METHOD OF CALCULATION OF THE BOOK VALUE PER SHARE AND DILUTED BOOK VALUE PER SHARE Book value equal to equities Number of shares Book value per share 0,01 0,02 Diluted number of shares Diluted book value per share 0,01 0,02 53

71 Note 23 a CONTINGENT RECEIVABLES DUE FROM AFFILIATES (IN RESPECT OF) Total contingent receivables due from affiliates 0 0 CONTINGENT LIABILITIES TOWARDS AFFILIATES (IN RESPECT OF) a) guarantees and sureties granted, including: towards subsidiaries b) other (in respect of) other commercial sureties including: towards subsidiaries 9 9 and investment liabilities 10 0 Total contingent liabilities towards affiliates

72 Note 24 a NET INCOME FROM SALES OF PRODUCTS (BY TYPE - TYPES OF BUSINESS OPERATIONS) from sales of services including: from affiliates commission including: from affiliates commission flat rate including: from affiliates 0 0 Total net income from sales of products including: from affiliates Note 24 b NET INCOME FROM SALES OF PRODUCTS (BY GEOGRAPHY) a) country including: from affiliates 9 11 b) export including: from affiliates 8 22 Total net income from sales of products including: from affiliates Since 2003 the company has obtained income from letting the Capital Group Companies use the "CIECH" trademark for an indefinite period Income obtained on this in 2006 amounted to PLN 3,535,000 and in the previous year PLN 5,257,000 and is included in the total sum of income from the sale of services. Note 25 a NET INCOME FROM SALES OF GOODS AND MATERIALS (BY TYPE - TYPES OF BUSINESS OPERATIONS) sales of goods including: from affiliates Total net income from sales of goods and materials including: from affiliates Note 25 b NET INCOME FROM SALES OF GOODS AND MATERIALS (BY GEOGRAPHY) a) country including: from affiliates b) export including: from affiliates Total net income from sales of goods and materials including: from affiliates

73 Note 26 a COSTS BY TYPE a) depreciation b) use of materials and power 2 2 c) outsourced services d) taxes and charges 2 1 e) remunerations f) social insurance and other benefits 5 5 g) other prime costs (in respect of) business trips representation and promotion limit other promotion other costs Total costs by type Change in inventories, products and prepayments and accruals Cost of manufacture of products for the entity's own purposes (negative figure) 0 0 Costs of sales (negative figure) General management costs (negative figure) Cost of manufacture of sold products

74 Note 27 a OTHER OPERATING REVENUE a) released provisions (in respect of) for service anniversary awards for expected losses for restructuring for retirement gratuities b) other, including: released write-downs on receivables released write-downs on inventories released write-downs on interest released write-downs on IA surpluses of current assets barred liabilities written off income from rent inflows from receivables previously written off calculations of court costs reimbursement of court costs compensations received refund of excise tax other Total other operating revenue Note 28 a OTHER OPERATING COSTS a) recognised provisions (in respect of) for expected losses for restructuring for gratuities provision for service anniversary awards provision for retirement gratuities b) other, including: ineffective investments costs of enforcement proceedings compensations and remunerations paid depreciation of investment property - compensations paid donations granted remitted receivables written off membership fees depreciation of leased space other maintenance costs of leased space other Total other operating costs

75 Note 29 a FINANCIAL REVENUE FROM DIVIDENDS AND SHARE IN PROFITS a) from affiliates, including: from subsidiaries from co-subsidiaries from associates b) from other entities 43 0 Total financial revenue from dividends and share in profits Note 29 b FINANCIAL REVENUE FROM INTEREST a) in respect of borrowings granted from affiliates, including: from subsidiaries b) other interest from affiliates, including: from subsidiaries from associates from other entities Total financial revenue from interest Note 29 c OTHER FINANCIAL REVENUE a) positive exchange differences utilised unutilised -2 0 b) released provisions (in respect of) 0 0 c) other, including: from sales of receivables release of write-downs on interest valuation of financial instruments other Total other financial revenue

76 Note 30 a FINANCIAL COSTS DUE TO INTEREST a) on loans and borrowings for affiliates, including: for other entities b) other interest for affiliates, including: for other entities Total financial costs due to interest Note 30 b OTHER FINANCIAL COSTS a) negative exchange differences utilised unutilised 0-1 b) recognised provisions (in respect of) 0 0 c) other, including: remitted interest on receivables write-down on interest receivables costs of sales of receivables discount of promissory notes valuation of financial instruments other Total other financial costs Note 31 a The issuer prepares a consolidated financial statement. Note 32 a EXTRAORDINARY GAINS Total extraordinary gains 0 0 Note 33 a EXTRAORDINARY LOSSES Total extraordinary losses

77 Note 34 a CURRENT INCOME TAX Gross profit (loss) Differences between gross profit (loss) and basis for taxation with income tax (by title) increases in basis for taxation decrease in basis for taxation Basis for taxation with income tax Income tax at 19% rate Increases, waivers, exemptions, deductions and reductions in tax Current income tax recognised (disclosed) in the tax return for the period, including: as disclosed in the profit and loss account including: current for previous years -3 2 Tax on received dividends as disclosed in the profit and loss account 4 4 DEFERRED INCOME TAX AS DISCLOSED IN THE PROFIT AND LOSS ACCOUNT decrease (increase) due to recordal and reversal of temporary differences decrease (increase) due to change in tax rates 0 0 Total deferred income tax 9-10 Note 34 c TOTAL AMOUNT OF DEFERRED TAX recognised in equity recognised in goodwill or negative goodwill 0 0 Note 34 d DEFERRED INCOME TAX AS DISCLOSED IN THE PROFIT AND LOSS ACCOUNT RELATED TO discontinued operations result on extraordinary operations

78 Note 35 a OTHER OBLIGATORY PROFIT DECREASES (LOSS INCREASES) IN RESPECT OF: Total other obligatory profit decreases (loss increases) 0 0 Note 36 a SHARE IN THE NET PROFIT (LOSS) OF SUBORDINATES VALUED USING THE EQUITY METHOD, INCLUDING: Total share in the net profit (loss) of subordinates valued using the equity method Note 37 a METHOD OF DISTRIBUTION OF PROFIT FOR THE PRESENTED PERIOD The Management Board's suggestion concerning the distribution of net profit for financial year payment of dividend to shareholders to the amount of PLN 44,800,000 - capital reserve to the amount of PLN 121,939,000 The profit made in 2005 was allocated for: - payment of dividend to shareholders to the amount of PLN 22,400,000 - capital reserve to the amount of PLN 19,500,000 Note 38 a METHOD OF CALCULATION OF EARNINGS PER SHARE AND DILUTED EARNINGS PER SHARE net earnings weighted average number of ordinary shares earnings per ordinary share 0,01 1,55 weighted average diluted number of ordinary shares diluted earnings per ordinary share 0,01 1,50 61

79 Explanatory notes to the cash flow statement for the period I. STRUCTURE OF CASH ADOPTED FOR THE CASH FLOW STATEMENT Structure of cash as disclosed in the balance-sheet as at cash in hand and at bank 40 other cash 21 total 61 Cash adopted for the cash flow statement amounts to 62,411 The difference of -1,185 results from a change in cash due to exchange differences II. CHANGE IN RECEIVABLES change in receivables acc. to the balance sheet (CB-OB) change in receivables as disclosed in the cash flow statement The cash flow statement discloses a change in receivables acc. to the balance sheet adjusted for the following items: 1. conversion of receivables to a long-term borrowing 9 2. receivables from the sale of shares 300 III. CHANGE IN SHORT-TERM LIABILITIES, WITH THE EXCEPTION OF BORROWINGS AND LOANS change in short-term liabilities acc. to the balance sheet (CB-OB) change in short-term liabilities as disclosed in the cash flow statement 11 9 The cash flow statement discloses a change in short-term liabilities acc. to the balance sheet adjusted for the following items: 1. change in liabilities in respect of investment liabilities elimination of the change in liabilities in respect of valuation of financial instruments elimination of the change in liabilities in respect of purchase of shares 2 4. elimination of the change in liabilities in respect of loan fees 972 IV. CHANGE IN PREPAYMENTS AND ACCRUALS change in prepayments and deferred expenses acc. to the balance sheet (CB-OB) 7 change in liabilities and accrued expenses acc. to the balance sheet (CB-OB) 7 change in prepayments and accruals acc. to the balance sheet (CB-OB) 14 change in prepayments and accruals as disclosed in the cash flow statement 15 The cash flow statement discloses a change in prepayments and accruals acc. to the balance sheet adjusted for the amount of 972 relating to loan fees V. EXPENDITURE ON THE ACQUISITION OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT 1. fixed assets 3 2. acquisition of intangible assets 1 3. decrease in investment liabilities 93 TOTAL 4 VI. TOTAL NET CASH FLOWS 13 BALANCE-SHEET CHANGE IN CASH 12 The difference between the change in cash as disclosed in the balance-sheet and adopted for the cash flow statement and the value of net flows results from a change in exchange differences on valuation of cash for OB - 70 and CB -1,

80 Explanatory notes to the cash flow statement for the period I. STRUCTURE OF CASH ADOPTED FOR THE CASH FLOW STATEMENT Structure of cash as disclosed in the balance-sheet as at cash in hand and at bank 20 other cash 29 total 49 Cash adopted for the cash flow statement amounts to 49,070 The difference of -70 results from a change in cash due to exchange differences II. CHANGE IN RECEIVABLES change in receivables acc. to the balance sheet (CB-OB) change in receivables as disclosed in the cash flow statement The cash flow statement discloses a change in receivables acc. to the balance sheet adjusted for the following items: 1. interest receivables (unpaid) receivables in respect of investment expenditure for Oracle 1 3. receivables from the sale of shares receivables in respect of PCC BORUTA KOLOR 134 III. CHANGE IN SHORT-TERM LIABILITIES, WITH THE EXCEPTION OF BORROWINGS AND LOANS change in short-term liabilities acc. to the balance sheet (CB-OB) change in short-term liabilities as disclosed in the cash flow statement The cash flow statement discloses a change in short-term liabilities acc. to the balance sheet adjusted for the following items: IV. V. 1. change in liabilities in respect of investment liabilities elimination of the change in liabilities due to issue of debt securities elimination of the change in liabilities in respect of discount of bills of exchange elimination of the change in liabilities in respect of finance lease 148 CHANGE IN PREPAYMENTS AND ACCRUALS change in prepayments and deferred expenses acc. to the balance sheet (CB-OB) 9 change in liabilities and accrued expenses acc. to the balance sheet (CB-OB) 3 change in prepayments and accruals acc. to the balance sheet (CB-OB) -6 change in prepayments and accruals as disclosed in the cash flow statement -6 EXPENDITURE ON THE ACQUISITION OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT 1. fixed assets 7 2. acquisition of intangible assets decrease in investment liabilities 306 TOTAL 7 VI. TOTAL NET CASH FLOWS 45 BALANCE-SHEET CHANGE IN CASH 46 The difference between the change in cash as disclosed in the balance-sheet and adopted for the cash flow statement and the value of net flows results from a change in exchange differences on valuation of cash for OB 194 and CB

81 I. Information on financial instruments 1.1 Division of financial instruments FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES B. ADDITIONAL EXPLANATORY NOTES Change in financial assets as of Portfolio Financial assets held for trading Opening balance Increases in respect of: Decreases in respect of: Closing balance 49,140 change in cash 12, , valuation Financial assets available for sale Borrowings granted and own receivables Financial assets held to maturity 1, valuation ,572 granting a borrowing 141,700 repayments received 13, , Change in financial assets as of Portfolio Financial assets held for trading Opening balance Increases in respect of: Decreases in respect of: Closing balance 3,628 change in cash 45, , valuation Financial assets available for sale Borrowings granted and own receivables Financial assets held to maturity 123 purchase 1, ,185 - borrowing 13, , Financial assets according to the division adopted in the balance sheet as of Item Long-term financial assets in affiliates: shares or stocks*) other securities borrowings granted other long-term financial assets Long-term financial assets in other entities: shares or stocks other securities borrowings granted other long-term financial assets Short-term financial assets in affiliates: shares or stocks*) other securities borrowings granted other short-term financial assets Short-term financial assets in other entities: shares or stocks other securities borrowings granted other short-term financial assets Financial assets held for trading Financial assets available for sale Borrowings granted and own receivables Financial assets held to maturity ,700-54

82 Item Financial assets held for trading Financial assets available for sale FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Borrowings granted and own receivables Financial assets held to maturity Cash 61, Financial assets according to the division adopted in the balance sheet as of Item Long-term financial assets in affiliates: shares or stocks*) other securities borrowings granted other long-term financial assets Long-term financial assets in other entities: shares or stocks other securities borrowings granted other long-term financial assets Short-term financial assets in affiliates: shares or stocks*) other securities borrowings granted other short-term financial assets Short-term financial assets in other entities: shares or stocks other securities borrowings granted other short-term financial assets Financial assets held for trading 257 Cash 49,140 *) this item does not disclose shares and stocks in subordinates Financial assets available for sale Borrowings granted and own receivables Financial assets held to maturity - 1, ,572 - Change in financial liabilities as of Portfolio Financial liabilities held for trading Opening balance Increases in respect of: Decreases in respect of: Closing balance 1,794 valuation 589 1,205 Other financial liabilities - loans 33,573 taking out 398,179 repayment 77, ,435 Change in financial liabilities as of Portfolio Financial liabilities held for trading Other financial liabilities - loans - bills of exchange Opening balance 173,235 14,744 Increases in respect of: Decreases in respect of: Closing balance 124 valuation 1, ,794 taking out 38,918 - repayment repayment 164,981 14,744 33,573-55

83 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Financial liabilities according to the division adopted in the balance sheet as of Item Financial liabilities held for trading Other financial liabilities Long-term liabilities towards affiliates - - Long-term liabilities towards other entities: loans and borrowings due to issue of debt securities other financial liabilities Short-term liabilities towards affiliates Short-term liabilities towards other entities: loans and borrowings due to issue of debt securities other financial liabilities 1, , ,472 Financial liabilities according to the division adopted in the balance sheet as of Item Financial liabilities held for trading Other financial liabilities Long-term liabilities towards affiliates - - Long-term liabilities towards other entities: loans and borrowings - 18,527 due to issue of debt securities other financial liabilities Short-term liabilities towards affiliates - - Short-term liabilities towards other entities: loans and borrowings - 15,046 due to issue of debt securities other financial liabilities 1, a) Overview of financial instruments Overview of financial instruments held as of Portfolio Overview Value Number Terms and conditions Financial assets held for trading Financial assets available for sale Cash 61, Other short-term financial assets Shares and stocks in other entities % 0.17% 0.04% Andropol Police Intertext Borrowings granted and own receivables Financial assets held to maturity Financial liabilities held for trading Other financial liabilities Borrowings granted 141, Valuation of financial instruments Long and short-term loans and borrowings 1, ,435 - See note 19d, 20c Overview of financial instruments held as of Portfolio Overview Value Number Terms and conditions Financial assets held for trading Cash 49, Other short-term financial assets

84 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Financial assets available for sale Borrowings granted and own receivables Financial assets held to maturity Financial liabilities held for trading Other financial liabilities Shares and stocks in other entities 1, % 0.17% 0.04% Andropol Police Intertext Borrowings granted 13, Valuation of financial instruments Long and short-term loans and borrowings 1, ,573 - See note 19d, 20c Overview of derivative instruments as of Foreign exchange transactions No. Scope and nature of instrument Purpose of purchased instrument Currency Amount as basis for calculation of future payments Instrument exercise price or price range Total deferred income or cash payments Instrument price determination, maturity, expiry or exercise date 1 Forward Collateral EUR -1, , Forward Collateral EUR -3, , Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR , Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral USD Forward Collateral USD Forward Collateral USD Forward Collateral USD , Forward Collateral EUR Forward Collateral EUR 1, , Option Strategy Collateral EUR -1, , Barrier Option Strategy Collateral EUR -1, ,

85 No. Scope and nature of instrument 38 Barrier Option Strategy 39 Barrier Option Strategy 40 Barrier Option Strategy 41 Barrier Option Strategy Purpose of purchased instrument Collateral Collateral Collateral Collateral Currency Amount as basis for calculation of future payments Instrument exercise price or price range FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Total deferred income or cash payments Instrument price determination, maturity, expiry or exercise date EUR -1, , EUR -1, , EUR -1, , EUR -1, , No. Earlier settlement possibility (period or day) if any Possibility of a swap or exchange for another asset or liability Determined rate or amount of interest, dividend or other income and their payment date Additional collateral related to this instrument, acquired or established (the above information also for the instrument that the given instrument may be exchanged for) Other conditions for the instrument Instrumentrelated risk type 1 Conclusion of a reverse FX transaction 2 Conclusion of a reverse FX transaction 3 Conclusion of a reverse FX transaction 4 Conclusion of a reverse FX transaction 5 Conclusion of a reverse FX transaction 6 Conclusion of a reverse FX transaction 7 Conclusion of a reverse FX transaction 8 Conclusion of a reverse FX transaction 9 Conclusion of a reverse FX transaction 10 Conclusion of a reverse FX transaction 11 Conclusion of a reverse FX transaction 12 Conclusion of a reverse FX transaction 13 Conclusion of a reverse FX transaction 14 Conclusion of a reverse FX transaction 15 Conclusion of a reverse FX transaction 16 Conclusion of a reverse FX transaction 17 Conclusion of a reverse FX transaction 18 Conclusion of a reverse FX transaction 19 Conclusion of a reverse FX transaction 20 Conclusion of a reverse FX transaction 21 Conclusion of a reverse FX transaction 22 Conclusion of a reverse FX transaction 23 Conclusion of a reverse FX transaction 24 Conclusion of a reverse FX transaction 25 Conclusion of a reverse FX transaction 26 Conclusion of a reverse FX Total existing liabilities in respect of positions taken in instruments 58

86 No. Earlier settlement possibility (period or day) if any transaction 27 Conclusion of a reverse transaction 28 Conclusion of a reverse transaction 29 Conclusion of a reverse transaction 30 Conclusion of a reverse transaction 31 Conclusion of a reverse transaction 32 Conclusion of a reverse transaction 33 Conclusion of a reverse transaction 34 Conclusion of a reverse transaction 35 Conclusion of a reverse transaction Possibility of a swap or exchange for another asset or liability Determined rate or amount of interest, dividend or other income and their payment date Additional collateral related to this instrument, acquired or established (the above information also for the instrument that the given instrument may be exchanged for) FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Other conditions for the instrument Instrumentrelated risk type FX FX FX FX FX FX FX FX FX Total existing liabilities in respect of positions taken in instruments Currency and interest rate swaps Transaction Interest overview rate paid CCIRS EUR/PLN Exchange of the principal and interest on every last business day of a quarter in the cycle of March, June, September and December 3M WIBOR % Overview of derivative instruments as of Interest rate received 3M EURIBOR Settlement date December 31st, 2009 Nominal value in PLN Nominal value in EUR Depreciation of principal that interest is calculated on Payment exchange rate -19,582 4,800 Straight-line Foreign exchange transactions No. Scope and nature of instrument Purpose of purchased instrument Currency Amount as basis for calculation of future payments Instrument exercise price or price range Total deferred income or cash payments Instrument price determination, maturity, expiry or exercise date 1 Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR Forward Collateral EUR , Forward Collateral EUR , Forward Collateral EUR Forward Collateral EUR , Forward Collateral EUR Forward Collateral EUR , Forward Collateral EUR Forward Collateral EUR 1, , Forward Collateral EUR 1, , Forward Collateral EUR , Forward Collateral EUR 1, , Forward Collateral USD 2, ,

87 No. Scope and nature of instrument Purpose of purchased instrument Currency Amount as basis for calculation of future payments Instrument exercise price or price range FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Total deferred income or cash payments Instrument price determination, maturity, expiry or exercise date 18 Forward Collateral USD , Par forward Collateral EUR from to Par forward Collateral EUR 1, ,860 from to Par forward Collateral EUR 1, ,175 from to Par forward Collateral EUR ,351 from to Par forward Collateral EUR from to Par forward Collateral EUR 1, ,409 from to Par forward Collateral EUR from to No. Earlier settlement possibility (period or day) if any Possibility of a swap or exchange for another asset or liability Determined rate or amount of interest, dividend or other income and their payment date Additional collateral related to this instrument, acquired or established (the above information also for the instrument that the given instrument may be exchanged for) Other conditions for the instrument Instrumentrelated risk type 1 Conclusion of a reverse FX transaction 2 Conclusion of a reverse FX transaction 3 Conclusion of a reverse FX transaction 4 Conclusion of a reverse FX transaction 5 Conclusion of a reverse FX transaction 6 Conclusion of a reverse FX transaction 7 Conclusion of a reverse FX transaction 8 Conclusion of a reverse FX transaction 9 Conclusion of a reverse FX transaction 10 Conclusion of a reverse FX transaction 11 Conclusion of a reverse FX transaction 12 Conclusion of a reverse FX transaction 13 Conclusion of a reverse FX transaction 14 Conclusion of a reverse FX transaction 15 Conclusion of a reverse FX transaction 16 Conclusion of a reverse FX transaction 17 Conclusion of a reverse FX transaction 18 Conclusion of a reverse FX transaction 19 Conclusion of a reverse FX transaction 20 Conclusion of a reverse FX transaction 21 Conclusion of a reverse FX transaction 22 Conclusion of a reverse FX transaction 23 Conclusion of a reverse FX transaction 24 Conclusion of a reverse FX transaction 25 Conclusion of a reverse FX Total existing liabilities in respect of positions taken in instruments 60

88 No. Earlier settlement possibility (period or day) if any transaction Possibility of a swap or exchange for another asset or liability Determined rate or amount of interest, dividend or other income and their payment date Additional collateral related to this instrument, acquired or established (the above information also for the instrument that the given instrument may be exchanged for) FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Other conditions for the instrument Instrumentrelated risk type Total existing liabilities in respect of positions taken in instruments Currency and interest rate swaps Transaction Interest overview rate paid CCIRS EUR/PLN CCIRS EUR/PLN Exchange of the principal and interest on every last business day of a quarter in the cycle of March, June, September and December Exchange of the principal and interest on every last business day of a quarter in the cycle of March, June, September and December 3M WIBOR % 3M WIBOR % Interest rate received 3M EURIBOR 3M EURIBOR Settlement date June 30th, 2006 December 31st, 2009 Nominal value in PLN Nominal value in EUR Depreciation of principal that interest is calculated on Payment exchange rate -6,119 1,500 Straight-line ,741 6,800 Straight-line b) Overview of methods and material assumptions adopted to determine the fair value of financial assets and liabilities measured at this value The fair value is assumed to be the amount for which a given asset could be exchanged or liability settled under the terms and conditions of a market transaction between concerned well-informed parties. The fair value is used to measure: Derivative instruments Other financial assets and liabilities held for trading Financial assets available for sale, except where the fair value is impossible to be determined because the shares are unquoted on an active market The fair value is determined through: measurement of a financial instrument at a price determined on an active regulated market where financial instruments are traded publicly and the information on this price is readily available (assets held for trading and sale) valuation of the price of the financial instrument with estimation methods that are generally accepted as correct According to the signed agreement for the purchase of 80% of shares in Zachem S.A., on December 20th, 2006 CIECH S.A. made an irrevocable bid to the State Treasury for the purchase of all shares (put option) held by the State Treasury from the bid date to the bid expiry date. As of December 31st, 2006 the State Treasury holds 740,000 shares in Zachem S.A. constituting 5% of the capital and this number may be increased to include shares that will be held by the State Treasury after entitled employees are given shares according to art. 36 of the Act on Commercialisation and Privatisation of State Owned Enterprises of August 30th, The option is valid for 10 years and the purchase bid may be accepted no earlier than 180 days after the date of the agreement for the purchase of 80% of shares in Zachem S.A. that is on June 20th, The exercise price is revalued for the period of the first 36 months from the bid date. The revaluation is based on the share price determined in the agreement for the purchase of 80% of shares in Zachem S.A., while the revaluation rate is the arithmetical mean of interest rates over the year for 12-month loans in PLN on the Warsaw interbank market (12M WIBOR). 61

89 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES In addition, under 13 Annex No. 14 to the agreement for the purchase of 80% of shares in Zachem S.A, CIECH S.A. made an obligation to repurchase shares given to those entitled free of charge according to art. 36 of the Act on Commercialisation and Privatisation of State Owned Enterprises of August 30th, An application for share repurchase may be filed within 60 days from the second, third and fourth anniversary of the date on which CIECH S.A. purchased shares in Zachem S.A. Those entitled will hold up to 2,220,000 shares in Zachem S.A. The guaranteed share repurchase price is 75% of the price determined in the agreement for the purchase of 80% of shares in Zachem S.A. and is revalued. According to the signed agreement for the purchase of 80% of shares in Organika-Sarzyna S.A., on December 20th, 2006 CIECH S.A. made an irrevocable bid to the State Treasury for the purchase of all shares (put option) held by the State Treasury from the bid date to the bid expiry date. As of December 31st, 2006 the State Treasury holds, 424,500 shares in Organika-Sarzyna S.A. constituting 5% of the capital and this number may be increased to include shares that will be held by the State Treasury after entitled employees are given shares according to z art. 36 of the Act on Commercialisation and Privatisation of State Owned Enterprises of August 30th, The option is valid for 10 years and the purchase bid may be accepted no earlier than 180 days after the date of the agreement for the purchase of 80% of shares in Organika-Sarzyna S.A. that is on June 20th, The exercise price is revalued for the period of the first 36 months from the bid date. The revaluation is based on the share price determined in the agreement for the purchase of 80% of shares in Organika-Sarzyna S.A., while the revaluation rate is the arithmetical mean of interest rates over the year for 12-month loans in PLN on the Warsaw interbank market (12M WIBOR). In addition, under provisions of Chapter X of Annex No. 13 to the agreement for the purchase of 80% of shares in Sarzyna S.A, CIECH S.A. made an obligation to repurchase shares given to those entitled free of charge according to art. 36 of the Act on Commercialisation and Privatisation of State Owned Enterprises of August 30th, An application for share repurchase may be filed upon termination of statutory restrictions from the 1st to the 30th April each year. Those entitled will hold up to 1,273,000 shares in Sarzyna S.A. The guaranteed share repurchase price is: - after April 30th, per share, - after April 30th, per share, - after April 30th, per share, - after April 30th, per share, - after April 30th, per share, - after April 30th, per share, Due to the lack of detailed regulations in the Accounting Act and considering its art. 10 item 3 IAS 39 - Financial Instruments: Recognition and Measurement, that defines such items as derivative instruments, was applied to describe the above bids and obligations to purchase shares (put options written). IAS 39 requires that derivative instruments be measured and recognised at fair value, except for investments in capital instruments unquoted on an active market. Shares in Zachem S.A. and Sarzyna S.A. are not traded on any active market. Thus, the fair value of put options written may not be estimated reliably. On this account, they are not included in the presented balance sheet but just disclosed with a description of detailed conditions of their exercise. The Company will verify periodically the possibility to make such a measurement and if and when possible, such a measurement will be included in a financial statement c) Overview of the method of recognition of results of the revaluation of financial assets categorised as available for sale The results of the revaluation of financial assets categorised as available for sale are recognised under income and financial costs of the current period d) Adopted principles of entering financial assets purchased on a regulated market in accounting books Financial assets purchased on a regulated market are entered in accounting books as of the transaction settlement date. This method is also applied to the sale of financial assets on the regulated market e) Information on the interest rate risk 62

90 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Exposure to the interest rate risk for particular types of financial instruments Types of financial instruments Carrying value Redemption or revaluation date Effective interest rate Type of risk Working capital loan 120, Cash flow risk Investment loan 234, Cash flow risk A sensitivity analysis showed that a shift in the market interest rates by one percentage point would change the result for 2007 by 3,544,000 and future cash flows in 2007 by the same amount f) Information on credit risk due to financial instruments CIECH S.A. is not exposed to any material credit risk related to financial instruments Information concerning financial assets categorised as held for trading or available for sale whose fair value may not be measured reliably As of December 31st, 2005, the Company had the following financial assets categorised as held for trading or available for sale that are measured at the purchase price or adjusted purchase price because it is impossible to measure their fair value reliably: As of Financial instrument Carrying value Shares in the company Andropol 120 Grounds for which the fair value may not be measured reliably Instrument unquoted on an active market Estimated range in which the fair value may fall No data As of Financial instrument Carrying value Shares in the company Andropol 121 Shares in the company Intertext 2 Grounds for which the fair value may not be measured reliably Instrument unquoted on an active market Instrument unquoted on an active market Estimated range in which the fair value may fall No data No data Financial assets and liabilities not measured at fair value Fair value of financial instruments measured at (adjusted) purchase cost As of Type of financial instruments Carrying value Fair value Loans and borrowings 354, ,435 As of Type of financial instruments Carrying value Fair value Loans and borrowings 33,573 33, Transactions as a result of which financial assets were converted into securities or repurchase agreements 63

91 None. FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Information on the reclassification of financial assets measured at fair price to financial assets measured at adjusted purchase price None List of impairment revaluation write-downs for financial assets In 2006, the Company recognised a purchase cost revaluation write-down for the shares in the company Police SA to the amount of PLN 194, Interest income due to debt financial instruments and borrowings granted plus its own receivables In the period from to , the Company obtained interest income on borrowings granted to the amount of PLN 1,387, Interest calculated on financial assets revalued with write-downs None Interest costs due to incurred financial liabilities Interest costs due to incurred financial liabilities, calculated with interest rates under concluded contracts, for the period from to , amounted to: Financial instruments Fulfilled interest Up to 3 months Unfulfilled interest 3 to 12 months Over 12 months Total Financial liabilities held for trading Other short-term financial liabilities 3, ,106 Long-term financial liabilities Interest costs due to incurred financial liabilities, calculated with interest rates under concluded contracts, for the period from to , amounted to: Financial instruments Fulfilled interest Up to 3 months Unfulfilled interest 3 to 12 months Over 12 months Total Financial liabilities held for trading Other short-term financial liabilities 3, ,648 Long-term financial liabilities Adopted objectives and principles of risk management (if the company applies principles of hedge accounting) 64

92 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES There was no hedging in the meaning of hedge accounting according to the Regulation of the Minister of Finance of December 12th, 2001, concerning detailed principles of the recognition, methods of measurement, scope of disclosure and method of presentation of financial instruments Hedging planned transactions and probable future liabilities There was no hedging in the meaning of hedge accounting according to the Regulation of the Minister of Finance of December 12th, 2001, concerning detailed principles of the recognition, methods of measurement, scope of disclosure and method of presentation of financial instruments Profits and losses on hedging instruments charged against capital (revaluation fund) There were no changes in the revaluation reserve due to the valuation of hedging instruments when hedging cash flows. 2. Data on off-balance sheet items 2.1. Sureties and guarantees granted Data on sureties and guarantees granted by CIECH S.A. to affiliates are included in Note no. 23. Total sureties and guarantees granted as of amount to: sureties PLN 13,950,000 guarantees PLN 514,000 Sureties comprise sureties granted as collateral for loans taken: CHEMAN S.A. PLN 13,950, Economic and financial position of the indirect subsidiary Cheman S.A. Cheman S.A. is an indirect subsidiary in which CIECH S.A. holds indirectly 100% of shares. In 2005, the Company recorded poor financial results and had problems with financial liquidity. With fulfilled income from sales to the amount of PLN 157,293,000, net loss was PLN 10,858,000. Many factors contributed to the level of the loss. Key factors include a take-over in the middle of 2004 of Ciech Petrol that recorded losses, while its operations were characterised by high capital intensity with low profitability. After the merger, the return on sales decreased due to a worse sales structure (take-over of unprofitable goods). Ciech Petrol dealt with the distribution and retail sales of fuels, unprofitable in the last years of the company's operation, which resulted in the deterioration of the company's position. Within the project of withdrawal from the petrochemical industry by the Ciech Group, during the take-over of Ciech Petrol, Cheman was obliged to restructure and close the fuel-related activity. By the end of 2004, Cheman was engaged in the take-over of Ciech Petrol profile of activity into its trading structures and selection of the field of activity to be terminated. The process was completed in 2005, when estimates concerning the cost of final termination of the fuel-related activity were developed. Restructuring costs were included in the 2005 result. 65

93 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Moreover, Cheman SA recorded a loss in income of high profitability in respect of operating problems (loss of products, high personnel turnover, mismanagement of the sales and delivery chain, situation on the FX market and sudden change in the economic situation of imported goods). A jump in sales in 2005, brought about by the merger with Ciech Petrol plus the take-over from CIECH S.A. of the distribution of plastics and reagents with extended payment periods resulted in increased demand for working capital. There was also a problem related to delayed payments by consumers and ineffective debt recovery. These factors immediately affected the Company's financial liquidity. In the 4th quarter of 2005, the Management Board of Cheman S.A. developed a Recovery Programme for The recovery scheme of Cheman S.A. is based on the following assumptions: conversion of overdue liabilities towards CIECH S.A. to a long-term borrowing amounting to PLN 9,000,000 for the period of 5 years, with a 2-year grace period for principal repayment and the interest rate based on market conditions change in the profile of the company's operations and adaptation of a new organisational structure focused on sales intensification change in the sales structure by way of termination of the distribution of unprofitable goods for the benefit of profitable ones increased sales of soda products termination in 2006 of unprofitable fuel-related activity, including sales and liquidation of property used for fuel-related activity development of a trade network in selected domestic regions more effective debt recovery optimised allocation of goods in warehouses and optimised warehousing locations reduced transportation costs by a limited number of links in the chain of delivery to the end-customer In the first half of 2006, Cheman SA recorded a net loss of PLN 5,970,000. Unsatisfying results of the adopted restructuring scheme induced the Management Board of CIECH S.A. to analyse again the objectives of activities undertaken as part of the restructuring process. The results of the analysis showed that there were grounds for carrying out an extensive recovery programme for Cheman S.A. there with particular focus on the restructuring of: o the product portfolio, that would lead to entire elimination of unprofitable product ranges that cause the depreciation of the Company's value o property, plant and equipment, that would lead to obtaining income from the sale of assets related to the eliminated operations and to reducing their maintenance costs o employment, that would lead to increased efficiency of organisation and savings in labour costs; o methods of financing, that would lead to ensuring financial liquidity Carrying out the above programme in the 4th quarter of 2006, Cheman S.A. sold the fuel station in Jarocin to a third-party investor and signed a preliminary agreement concerning the sale of property in Błaszki, which is to be finalised by the end of the 1st half of Supporting the restructuring programme in December 2006 CIECH S.A. purchased from Cheman S.A. the property in Dąbrowa Górnicza. The completion of the above activities made it possible to implement the next stage of the strategy of CIECH S.A. that is to sell shares in Cheman S.A. to Ciech Finance Spółka z ograniczoną odpowiedzialnością (an entity that deals with restructuring and divestment processes in the CIECH Group). In 2007, analyses shall be performed that will decide on the further objectives of activities concerning Cheman S.A. CIECH S.A. supported the financial restructuring process of Cheman S.A. granting it two long-term borrowings totalling PLN 9,450,000 in the 1st half of The borrowings were granted by means of conversion of trade receivables of CIECH S.A. This resulted in an improvement in the structure of the balance of Cheman S.A. and supplementation of the funds for current trading activity. Over the whole of 2006, Cheman S.A. recorded poor financial results: the loss on sales amounted to PLN 5,890,000, with fulfilled income to the amount of PLN 138,891,000, while the net loss reached PLN 9, 617,000. The negative financial results of the last years lead to the fact that at the end of 2006 Cheman S.A. disclosed negative equity to the amount of PLN 791,000. As of December 31st, 2006, the trade receivables due from Cheman S.A. to Ciech S.A. amounted to PLN 8,044,000 and were entirely related to current settlements. By the date of the financial statement, PLN 7,706,000 had been repaid (March 19th, 2007). In addition, CIECH S.A. had long-term receivables in respect of granted borrowings to the amount of PLN 9,450,000. CIECH S.A. also extended a surety for loans taken 66

94 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES by Cheman S.A to finance current operations, up to the amount of PLN 13,950,000. As of the balance sheet date, the amount of the loan surety used was lower than the maximum granted surety. Considering the negative equity of Cheman S.A. and the amount of its own financial exposure, CIECH S.A. decided to recognise a revaluation write-down on one of the granted long-term borrowings of PLN 4,650,000. Moreover, the Management Board of CIECH S.A. pledged itself to provide financial support for the next 12 months to enable Cheman S.A. to continue its operations whose range would not undergo any significant change Business case of the purchase of shares in the Company Uzinele Sodice Govora in Romania UStrategic issues Following the strategy of growth and orientation on selected product markets, CIECH S.A. in the 4th quarter of 2006 took over the control of a soda manufacturing plant - the Company Uzinele Sodice Govora in Romania. The successful acquisition resulted in the CIECH Group, with production capacity of 1.44 million tons/year, reaching the 2nd position as regards the manufacture of soda ash in Europe. With such manufacturing potential at its disposal, the CIECH Group became a market leader in the region of Central Europe, obtained a stronger position in relation to its current and new customers, and in the future will obtain growth in sales and profits from the soda segment. When deciding on the investment in the company Uzinele Sodice Govora SA consideration was given to complementarily of the markets of the CIECH Group and the Company whose offer excellently supplements the deliveries for the CIECH Group's current customers that have plants in countries south of Poland. CIECH exports dense soda mainly to Scandinavian countries, the Czech Republic, Germany, Great Britain, and Denmark. Most dense soda manufactured by Uzinele Sodice Govora SA is used on the Romanian and Italian, Hungarian and Czech markets. Uzinele Sodice Govora SA naturally supplements the CIECH Group's possibilities of delivery to its current customers with plants in this European region. Considering the acquisition of Uzinele Sodice Govora S.A., CIECH S.A. took into account development forecasts and the current market situation of the soda segment in Europe. The growth in the soda ash consumption on the markets of Central Europe is to be 4.0% - 4.5% a year over the next years. Significant investments that are planned or being carried out now in the glass-making industry in the countries of the Central and Eastern Europe region mean that glass output will increase, which will ensure a stable growth in the demand for soda in the next years. CIECH S.A. purchased 93.2% of shares in Uzinele Sodice Govora S.A. for the total of PLN 39.7 million and is now carrying out a financial reform programme for the company that comprises the following activities: Making a deposit related to the repayment of purchased receivables (EUR 9.8 million) Granting three borrowings to USG totalling EUR 24 million (in 2006 EUR 20 million, in 2007 EUR 4 million), including one as an advance payment for future steam deliveries from CET Govora (EUR 16 million) Conversion of interest on overdue liabilities of US Govora towards CET Govora to an increase in capital (EUR 5.6 million) Issue of new shares (EUR 8 million) Assignment of receivables due to CET Govora (EUR 18 million) from US Govora covered with an additional guarantee debt restructuring To ensure the growth of the company Uzinele Sodice Govora SA, the CIECH Group will undertake a number of activities; in particular, it will: Implement an investment programme to the amount of approximately EUR 24.8 million, which would enable USG to manufacture over 500,000 tons of soda a year starting from 2009 Implement at Uzinele Sodice Govora SA the best practice as regards manufacture organisation, quality, the course of the manufacturing process, operation maintenance and modern IT tools Make the sales structures of the Soda Division available to the products of the company Uzinele Sodice Govora 67

95 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Incorporate US Govora into the structures of the Soda Division which will provide necessary support for the strategy advancement USteady profitability programme At the end of 2006, the Company had the net loss at EUR 18,061,000 and disclosed negative capital of EUR 39,194,000. The above strategic conditions of the transaction and the completion of the investment programme that would make it possible to increase the production capacity to over 500,000 tons of soda a year ensure that Uzinele Sodice Govora S.A. will obtain positive results in 2009 and later on. A medium-term financial projection shows that as soon as 2009 the Company will obtain a positive net result, EBIT at 2% and EBITDA at 9.4%. At the moment, the fair value of the purchased assets and liabilities of the Company is being measured. When the task is completed, according to the accounting principles applied at CIECH S.A., there will be analyses and tests concerning to the possible impairment of assets recognised in the balance sheet of CIECH S.A. that are related to the investment in Uzinele Sodice Govora S.A CIECH S.A.'s (domestic and international) liabilities claimed in court or arbitration proceedings as of December 31st, 2006 UAction by Petro Carbo Chem Aktiengesellschaft (PCC) PCC AG filed an action in 2000 claiming damages to the amount of PLN 21,364,000 and EUR 13, (equivalent to PLN 53,000) for failing to fulfil the agreement for transfer of the shares of Petrochemia Blachownia Sp. z o.o. as stipulated in the preliminary agreement of July 9th, On May 27th, 2003 the District Court in Warsaw issued a preliminary judgment in favour of PCC AG (stating that PCC AG s claim was well founded), without specifically determining the amount of the damages. Ciech S.A. appealed against the above preliminary judgment on September 19th, 2003, on the grounds that the preliminary judgment was issued on the basis of erroneous legal findings of fact and infringement of the substantive law by assuming that it was the intention of the parties to enter into an agreement. During a hearing held on August 12th, 2004, the Court of Appeal upheld the preliminary judgment of the District Court, which had been appealed against, confirming that PCC's claims were justified, without stating the amount of damages that will be subject to further proceedings. In November 2004, CIECH S.A. filed another appeal, on the grounds of infringement of the substantive law due to its incorrect interpretation and application, and violation by the Court of Appeal of the principle of free assessment of evidence as defined in the EU directives. On April 19th, 2005, CIECH S.A. received a final decision of the Supreme Court dismissing its appeal. Because the appeal was dismissed, the case returned before the District Court that continued the proceedings determining the amount of damages for PCC AG. The claimant extended its claim to include statutory interest in respect of lost dividend for 1999 and On November 10th, 2005, the District Court judged against PCC fully dismissing its claim. On March 1st, 2006 PCC AG appealed at the Court of Appeal in Warsaw against the judgement of the District Court, filing to change the questioned judgement and considering the case filed in full. PCC AG demands an amount of PLN 30,591, and EUR 13, (equivalent to PLN 53,000) in respect of damages for lost dividends for 1999 and lost benefits in respect of increased value of Petrochemia Blachownia. The demand for the payment of default interest was not included in the appeal. On April 18th, 2006, CIECH S.A. replied to the appeal filing for dismissal of the whole appeal and keeping the same defence strategy. On February 8th, 2007, a hearing was held before the Court of Appeal. Attorneys of the parties sustained their positions; after hearing the parties, the Court closed the hearing. On February 22nd, 2007, the Court of Appeal in Warsaw revoked the judgement of the District Court and remanded the case, leaving it to the District Court to decide on the costs of appeal proceedings. In its oral justification, the Court of Appeal indicated that a court of first instance should investigate the intention of the parties to the preliminary agreement when including in this agreement a provision providing for the fact that if the parties did not agree on all material conditions of the agreement, CIECH S.A. would only be obliged to return the advance of PLN 500,000 (with no interest) paid by PCC AG within 30 days after CIECH S.A. took shares in Petrochemia Blachownia sp. z o.o. Moreover, the court of first instance should determine whether the amounts demanded by the claimant to remedy the damage are in a regular causal connection with the failure to fulfil the agreement. CIECH S.A. filed a petition for the service of the judgement and justification in writing. The case is pending. UAction by Comexport 68

96 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES In September 2003, Comexport (Brazil) filed an action with the Court of Arbitration at the International Chamber of Commerce in Paris, claiming damages for failure to complete deliveries of Polish sulphur to Brazil in the period from 1996 to The sued parties were CIECH S.A. and the sulphur mines in Tarnobrzeg and Grzybów. The amount of the claim was USD 3,872,943 (equivalent of PLN 11,272,000) and statutory interest according to the Polish law, calculated from September 16th, 2003, which as of December 31st, 2006 constituted the amount of PLN 4,558,000. In addition, Comexport demanded the reimbursement of the cost of court proceedings and the cost of legal service to the amount of EUR 204, (equivalent to PLN 783,000). The principal claim amount comprised Comexport's lost profits on contractual quantities not delivered to Brazilian customers and which were provided for in the agreement, losses from overstated freight costs, etc. In November 2003, CIECH S.A. replied to the claim by filing for dismissal of Comexport s action, on the grounds of the force majeure certificates evidencing that the mines were closed down and that the sulphur industry was restructured, that the action has lapsed and that the claim for damages is not supported by sufficient evidence among other things. The Court of Arbitration appointed one arbitrator to investigate the dispute. Having examined the case, the arbitrator determined the schedule for further proceedings. Each party filed two detailed pleas supported by evidence. On April 22nd, 2005, a hearing was held before the Court of Arbitration at the International Chamber of Commerce in Paris, attended by the representatives and attorneys of Comexport and CIECH S.A. The sued sulphur mines in Tarnobrzeg and Grzybów did not participate in the arbitration procedure, nor did they appoint any attorneys. CIECH S.A. filed for Comexport's claim to be dismissed and for reimbursement of the court fees, sustaining its allegations as described in the pleas and the accompanying documentation. Comexport sustained its pleas as filed in the claim. After closing the hearing, the arbitration proceedings ended. On October 27th, 2005, CIECH S.A. received a judgement, according to which all three defendants: Ciech and the sulphur mines in Grzybów and Tarnobrzeg were jointly and severally to pay the amount of USD 2,474, (equivalent to PLN 7,210,000) plus interest of 5%, from September 17th, 2003, amounting as of December 31st, 2006 to USD 407,000 (equivalent of PLN 1,185,000) and USD 123,000 (equivalent of 358,000) in respect of the cost of proceedings. The awarded amount constitutes the lost profit claimed by Comexport. On November 18th, 2005, CIECH S.A. submitted an announcement of a complaint at the Court of Appeal in Paris, to revoke the judgement of the Court of Arbitration. The complaint with the justification was lodged by CIECH S.A. on March 22nd, The basis for lodging the complaint is the violation of the principle of the proper course of arbitration proceedings by the arbitrator (contradictory procedure), by referring to the judgement of the Polish Supreme Court of 1973 concerning a vital issue of termination of the lapse course, without enabling the parties to express their opinion on that. According to the opinion of the law office representing Ciech, the judgement from 1973 referred to by the arbitrator is not applicable in the case of arbitration proceedings. On July 21st, 2006, Comexport filed a reply to the complaint of CIECH S.A. At present, the parties in dispute are exchanging subsequent pleas. The hearing before the Court of Appeal is expected to take place in May Action by Enapharm In June 2004, the Liquidator for Enapharm in Algeria filed a claim for USD 172, (equivalent to PLN 503,000) in damages for deliveries of medications by CIECH S.A. between 1985 and According to the claimant, CIECH S.A. did not replace expired medications that the claimant had not sold with medications fit for use, in violation of the contract between the parties. CIECH S.A., however, claims that it was exempt from this provision, in light of the claimant failing to make the payments due from its sales of the medications in the Algerian market. The case is pending before an Algerian court. CIECH S.A. is represented by a local attorney, supervised by a renowned Paris law office. At a hearing held in March 2005, the court agreed with the claimant and appointed an expert to assess whether the amount of the claimed damages is well founded. The expert gave their opinion but until the Court approves or rejects it, it is not binding especially that it was not formally delivered to attorneys of CIECH S.A. Another hearing date was not appointed. CIECH S.A. established a provision amounting to PLN 17,500,000 for the aforementioned liabilities. Employee claims 69

97 P to P CIECH FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES One case is currently pending against CIECH S.A., filed by its former employee dismissed for reasons attributable to the company. The employee is demanding to be restored to work. The projections as to the result of the above suit are favourable Other liabilities and obligations The Company CIECH S.A. has also the following tasks and obligations under the agreements for the purchase of shares in ZCh ORGANIKA SARZYNA S.A., ZCh ZACHEM S.A. and US Govora No. Title ZCh ORGANIKA SARZYNA ZCH Zachem 1 Investment obligations Carrying out of Guaranteed Investments in the Company with a total value of PLN 130,000,000 within 5 years from the purchase date Carrying out of Guaranteed Investments in the Company with a total value of PLN 176,120,000 within 5 years from the purchase date. 2 Contractual penalties due to failure to carry out Guaranteed Investments Payment to the Seller of a penalty of 50% of the difference between the required and the fulfilled amount of increases made in the Company during the period of 5 years from the purchase date. In the case of failure to meet the (1 Restrictive ConditionP the amount of: At least 107% of fixed assets - CIECH S.A. will be obliged to pay a penalty of PLN 150,000 At least 100%, but no more than 107% - CIECH S.A. will be obliged to pay a penalty of 20% of the difference between the value corresponding to 110% of the Company's fixed assets and the value of the Company's constant capital as of the end of a given reporting period If the value of the Company's constant capital is less than 100% of fixed assets, CIECH S.A. will be obliged to pay a penalty that would be a sum of the following values: 100% of the difference between the value of constant capital and the value corresponding to 100% of the value of fixed assets as of the end of a given reporting period and 20% of the difference between the value corresponding to 110% of the Company's fixed assets as of the end of a given reporting period and the value of constant capital as of the end of a financial year Payment to the Seller of a penalty of 50% of the difference between the required and the fulfilled amount of increases made in the Company during the period of 5 years from the purchase date. In the case of failure to meet the (1 Restrictive ConditionP S.A. will be obliged to pay a penalty of PLN 150,000 for each whole percentage point of the difference between the amount of the ratio of constant capital and fixed assets determined for the given reporting period and the actual amount of this ratio. If the difference exceeds 10 percentage points, the penalty is PLN 500,000 for each whole percentage point above 10%. 70

98 P P Restrictive FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Contractual penalties due to failure to perform the obligations to maintain the Core Activities of the Company Contractual penalties due to a breach of the prohibition to decrease the Company's share capital and to redeem shares Contractual penalties due to a breach of the restriction on the sale or encumbering of shares Payment to the Seller of a penalty of 50% of income from the sale of the Company's products and services for 2005, no more, however, than 50% of the purchase price. Payment to the Seller of a penalty of 100% of the amount by which the share capital was decreased or in the case of redemption of shares amount of the remuneration paid to shareholders due to the redemption. Payment to the Seller of a penalty of 100% of the product of the number of sold or encumbered shares and the share price. Payment to the Seller of a penalty of 50% of income from the sale of the Company's products and services for 2005, no more, however, than 100% of the purchase price. Payment to the Seller of a penalty of 100% of the amount by which the share capital was decreased or in the case of redemption of shares amount of the remuneration paid to shareholders due to the redemption. Payment to the Seller of a penalty of 100% of the product of the number of sold or encumbered shares and the share price. 6 Contractual penalties due to a breach of the prohibition to split or merge the Company Payment to the Seller of a penalty to the amount of the purchase price. Payment to the Seller of a penalty to the amount of the purchase price. 7 8 Contractual penalties due to a breach of the obligation to leave the profit with the Company Responsibility for breaching the right of the State Treasury to appoint one person as a member of the Company's Supervisory Board Payment to the Seller of a penalty of 80% of the amount of the dividend paid by the Company. Payment to the Seller of a penalty whose amount would be the product of PLN 30,000 and the number of days during which the Company's Articles of Association do not include the appropriate right of the State Treasury. Payment to the Seller of a penalty to the amount of the dividend paid by the Company to shareholders of the Company other than the Seller. Payment to the Seller of a penalty whose amount would be the product of PLN 30,000 and the number of days during which the Company's Articles of Association do not include the appropriate right of the State Treasury. Payment of a penalty of: 9 Responsibility for failure to meet the obligation to provide the Seller's statement PLN 1,000 for each day of delay up to 14 days PLN 50,000 for each day of delay over 14 days Payment of a penalty of PLN 30,000 for each day of delay. 1) Condition: a. in the case of ZCh Zachem - means an obligation to maintain for the whole duration of the completion of Guaranteed Investments, that is from the purchase date to the date on which CIECH SA submits the Seller's Final Statement, such a structure of liabilities that on the appropriate dates as determined in the Agreement the ratio of the Company's constant capital and fixed assets will reach the amount determined in the Agreement; b. in the case of ZCh ORGANIKA SARZYNA - means an obligation to maintain for the whole duration of the completion of Guaranteed Investments that is from the purchase date to the submission date of the Seller's Final Statement such a structure of liabilities that the value of the company's constant capital would be at least 110% of fixed assets. No. 1 Purport of the obligation under the agreement for the purchase of shares in US Govora Obligation not to suggest, not to support and not to decide to change the business activity described in the Articles of Association. However, it is possible to supplement the business activity. Amount of the penalty if the obligation is not met 10% of the price paid for shares 71

99 2 To obtain a minimum of 70% the yearly turnover from the company's operations being its business activity on the agreement signature date 3 To maintain work places with the employed staff for 5 years from the transfer of the ownership of shares 4 Not to decide to have a merger, split, liquidation, dissolution, voluntary liquidation, legal reorganisation and/or declaration of bankruptcy 5 To persuade USG not to sell assets in annex no without the written consent of AVAS 6 To protect, promote and prohibit to sell the trademarks, trade names, service marks, patents and licences of USG 7 To notify AVAS of changes of the registered office, name, split or merger of Ciech S.A. 8 Prohibition to sell all or some purchased shares until all the contractual obligations are fulfilled without the Seller's written consent 9 Need to obtain the written consent of AVAS for the assignment of the privatisation agreement 10 Prohibition to use the purchased shares in USG to guarantee other own liabilities until all the contractual obligations are fulfilled FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES 5% of the unfulfilled difference in the turnover to the percentage limit of 70% 5% of the price paid for shares 10% of the price paid for shares market value of the asset sold 10% of the price paid for shares 10% of the price paid for shares cancellation of the agreement cancellation of the agreement cancellation of the agreement Moreover, CIECH S.A undertook to perform the investment obligations with own funds to the amount of USD 2.5 million and to provide free of charge manufacturing know-how, technological methods (except for licences), marketing data, access to markets, qualification and design technologies (except for licences), HR methodology, information systems, economic and financial methodology, etc., as long as they are not forbidden by applicable Romanian law 3. Data concerning liabilities towards the budget of the state or local government units due to obtaining the ownership of building and structures There were no liabilities due to the ownership of buildings and structures towards the budget of the state or local government units in 2006 and in the presented comparable period. 4. Information on income, costs, and results of discontinued operations in the given period or operations to be discontinued in the next period In 2006, CIECH SA did not cease to run its business activity; neither does it plan to narrow the Company's business in any way. In April 2005, the Company started to transfer the trade in plastics and auxiliary agents to the subsidiary Cheman SA. The process had been completed by the end of the reporting year. The total income from the sale of these products in the 1st quarter of 2005 amounted to PLN 9,111,000, while the trade margin amounted to PLN 546, Manufacturing cost of fixed assets under construction, fixed assets for own purposes CIECH S.A. has no such costs on account of the nature of its operations. 6. Incurred investment expenditure and investment expenditure planned for the next 12 months starting from the balance-sheet date, including on non-financial fixed assets Investment expenditure incurred in

100 FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Total incurred investment expenditure 359,812 including on non-financial fixed assets 4,401 Incurred expenditure on environmental protection - Additional detailed list of total incurred investment expenditure: Intangible assets 1,071 Property, plant and equipment 2,715 Investment property 615 Equity investments 355,411 Total incurred investment expenditure 359,812 Investment expenditure planned for the 12 months from Total planned investment expenditure 43,324 including on non-financial fixed assets 9,639 Planned expenditure on environmental protection - Additional detailed list of total planned investment expenditure: Intangible assets 5,852 Property, plant and equipment 3,787 Equity investments 33,685 Other investments - Total planned investment expenditure 43,124 73

101 7. Figures concerning affiliates (in thousand PLN) FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES A. SUBSIDIARIES Name of company Sale of goods and services List of transactions with affiliates in 2006 Purchase of goods and services Other operating revenue Financial revenue (interest) Financial revenue (dividends) Receivables Liabilities Agrochem Sp. z o.o. Dobre Miasto Boruta-Kolor Sp. z o.o Chemia.com S.A. 27 2, ,622 Chemiepetrol GmbH InChem Sp. z o.o. 2 2 Ciech-Polfa Sp. z o.o Ciech-SERVICE Sp. z o.o. 21 3, Daltrade Plc. 19, Danske Unipol A/S 12, ,756 5 Elektrociepłownie Kujawskie Sp. z o.o. 1, Gdańskie Zakłady Nawozów Fosforowych FOSFORY Sp. z o.o. Inowrocławskie Zakłady Chemiczne SODA MĄTWY S.A. 61,493 8, , ,200 8, ,609 Janikowskie Zakłady Sodowe JANIKOSODA S.A. 1, ,678 11,219 1,095 69,937 Nordiska Unipol AB 29, , Polcommerce GmbH Vienna 12, , Polcommerce Ltd. Budapest Polsin Pte. Ltd. 16, Przedsiębiorstwo Transportowo-Usługowe TRANSCLEAN SP. z o.o. 1, Przedsiębiorstwo Chemiczne Cheman S.A. 27, ,044 SODA MED. Sp. z o.o Transoda Sp. z o.o. 15, US Govora 72 VITROSILICON S.A. 19,090 39, ,194 5,212 Zachem S.A. 1,021 13, ,751 17,436 Zachem Barwniki Sp. z o.o. 2 Zakłady Chemiczne Organika-Sarzyna S.A. 1,652 3,197 8,243 Zakłady Chemiczne Alwernia S.A. 58,645 33, ,766 5,213 74

102 Name of company B. CO-SUBSIDIARIES AND ASSOCIATES Sale of goods and services List of transactions with affiliates in 2006 Purchase of goods and services Other operating revenue Financial revenue (interest) FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Financial revenue (dividends) Receivables Natural Chemical Products Sp. z o.o. 987 Liabilities Suomen Unipol Oy 22,764 2, , Przedsiębiorstwo Transportowo-Spedycyjne Transchem Sp. z o.o. 79 A. SUBSIDIARIES Name of company Sale of goods and services List of transactions with affiliates in 2005 Purchase of goods and services Other operating revenue Financial revenue (interest) Financial revenue (dividends) Receivables Liabilities Agrochem Sp. z o.o. Dobre Miasto Boruta-Kolor Sp. z o.o. 2, Chemia.com S.A. 20 2, Chemiepetrol GmbH InChem Sp. z o.o , Ciech-Polfa Sp. z o.o Ciech-SERVICE Sp. z o.o. 16 3, Ciech Finance Sp. z o.o Daltrade Plc. 21, Danske Unipol A/S 7, ,36 20 Elektrociepłownie Kujawskie Sp. z o.o. 1, Gdańskie Zakłady Nawozów Fosforowych FOSFORY Sp. z o.o. Inowrocławskie Zakłady Chemiczne SODA MĄTWY S.A. 64,155 10, , ,157 1, , , ,549 Janikowskie Zakłady Sodowe JANIKOSODA S.A. 1, , , ,815 Jantrans Janikowo Nordiska Unipol AB 225 1, Petrochemia-Blachownia S.A. 54, ,884 3,735-2,150 13,113 13,268 Polcommerce GmbH Vienna 7, , Polcommerce Ltd. Budapest

103 Name of company Sale of goods and services List of transactions with affiliates in 2005 Purchase of goods and services Other operating revenue Financial revenue (interest) FINANCIAL STATEMENT FOR 2006 CIECH S.A. ADDITIONAL EXPLANATORY NOTES Financial revenue (dividends) Receivables Liabilities Polsin Pte. Ltd. 1,060 2, Przedsiębiorstwo Chemiczne Cheman S.A. 36, , , SODA MED. Sp. z o.o Transoda Sp. z o.o. - 8, VITROSILICON S.A. 17,644 36, ,659 3,792 Zakłady Chemiczne Alwernia S.A. 101,763 17, ,038 2,424 B. CO-SUBSIDIARIES AND ASSOCIATES Przedsiębiorstwo Transportowo-Usługowe TRANSCLEAN Sp. z o.o. 3, Suomen Unipol Oy 25,736 1, , Zach-Ciech Sp. z o.o

104 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES Information on the issuer's transactions with affiliates, concerning the transfer of rights and liabilities 2006 (in thousand PLN) major transactions No. Transaction party subject of the transaction value in thousand information PLN 1. Soda Mątwy Purchase of goods, materials and products 300,711 Purchase of soda, calcium chloride and others Purchase of services 489 Lease of premises, telephones, use of company cars Sale of goods 192 Sale of table salt Sale of services 1,606 Including 18 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale (reinvoices) 2,844 * 2. Ciech Service Sale of services 21 Including 14 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Purchase of services 3,171 Transport services 3. Janikosoda Sale of services 1,448 Including 8 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of January 2nd, 2003 Sale (reinvoices) 23,088 * Purchase of services 179 Rent, other 4. Alwernia 5. Vitrosilicon Purchase of goods, 325,499 Purchase of soda ash, evaporated salt materials and products and others Purchase of goods, 33,391 Purchase of phosphoric acid, sodium materials and products tripolyphosphate, ammonium sulphate, sodium phosphate, sodium pyrophosphates and megapyr. Purchases under the collaboration agreement of 2005 Sale of goods, materials 57,626 Sale of salt, coal, phosphoric acid and and products yellow phosphorus. Sale under the collaboration agreement of 2005 Sale of services 1,019 For using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale of services (reinvoices) 94 * Sale of services 748 Including 738 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of February 2nd, 2003 Sale of services (reinvoices) 587 * Sale of goods 18,342 Sale of light and dense salt 6. GZNF Fosfory Purchase of goods, 39,421 Purchase of sodium and potassium materials and products silicates in lumps and sodium water glass. Purchases under the collaboration agreement of 2000 Granting a borrowing 4,500 Repayment date March 31st, 2011; interest rate WIBOR + 1% Granting a borrowing 3,500 Repayment date March 31st, 2011; interest rate 3M WIBOR + 1% Purchase of goods and materials 3,184 Purchase of sulphuric acid and phosphate fertilisers. Purchases under the collaboration agreement of 2002 plus annexes 77

105 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES 7. Chemiepetrol GmbH 8. Boruta-Kolor 9. Cheman S.A. Purchase of services 5,621 Using the transhipment base of GZNF Sale of goods and materials 60,384 Sale of ammonium sulphate, potassium salts and phosphorites collaboration agreement of 2002 plus annexes Sale of services 1,109 For using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale - reinvoices 60 * Purchase of services Purchase of services Sale of goods, materials and products Sale of services Sale of services 618 Agency commission 28 Rental of warehouse space 114 Sale of salt and auxiliary agents 132 For using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, other Sale of services (reinvoices) 117 * Sale of goods and materials 27,862 Sale of goods offered by the Soda Division Other income 268 Space rental agreement Purchase of services 22 Other Granting a borrowing 2,000 Repayment date April 30th, 2007, interest rate 5.5% per annum Granting a borrowing 4,800 Repayment date March 31st, 2011; interest rate 3M WIBOR + 1% Granting a borrowing 4,650 Repayment date June 30th, 2011; interest rate 3M WIBOR + 1% 10. Elektrociepłownie Kujawskie Sale of services 1,766 Organisation of purchases and their transport Sale of goods, materials 16,390 Sale of soda, deliveries of TDI (agreement 11. Polsin Pte. Ltd. and products of 200 renewable each year) Purchase of services 118 Agent's commission 12. Daltrade Plc. 13. Danske Unipol Sale of goods, materials and products Sale of goods, materials and products Purchase of services 19,825 Sale of soda and calcium chloride. Sale of sulphur current contracts 12,984 Sale of soda, calcium chloride and salt tablets. Sale of sulphur and sodium tripolyphosphate current contracts 24 Agent's commission 14. Agrochem Dobre Miasto Purchase of goods, 492 Casual orders materials and products 15. Transclean Purchase of services 1,306 Transport services 16. Ciech Polfa 17. Polcommerce GmbH 18. Suomen Unipol Oy Sale of services 768 Including 496 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group - agreement of December 5th, 2002 Sale of services (reinvoices) 233 * Other income 293 Space rental agreement Purchase of services 280 Sale of goods, materials and products Sale of services Purchase of services Sale of goods, materials and products Purchase of services Sale of services 12,410 Sale of soda and calcium chloride. Sale of sulphur current contracts 14 other 140 Agent's commission 22,764 Sale of soda Sale of sulphur and sodium nitrate current contracts 2,130 Agent's commission, other 27 other 78

106 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES 19. Chemia.com 20. Nordiska Unipol 21. Zachem S.A. 22. Organika-Sarzyna S.A. 23. US Govora S.A. 24. Transoda Other income 196 Space rental agreement Purchase of products and 2,164 IT service agreement services Sales of goods and 29,044 Sale of soda materials Purchase of services 676 Agency commission Sale of services 459 Commission fee Sale of goods 562 Current contracts Auxiliary agents, toluene under spot contracts Purchase of services 59 Purchase of goods 12,982 Purchase of hydrochloric acid and sale of TDI (agreement of 2006) Granting a borrowing 50,000 Repayment date December 31st, 2013; interest rate 1M WIBOR + 1% Sale of goods 1,644 Sale of EPI (current contracts) Sale of services Granting a borrowing Granting a borrowing Purchase of services Sale (reinvoices) 107 * 8 other 15,325 Value of the borrowing granted in currency: EUR 4 million, repayment date December 1st, 2010, interest rate 1M EURIBOR = 1.5% 61,299 Value of the borrowing granted in currency: EUR 16 million, repayment date December 1st, 2010, interest rate 1M EURIBOR = 1.5% 15,587 Transport services * costs incurred and reinvoiced to Companies, no impact on the income and costs of CIECH SA 2005 (in thousand PLN) major transactions No. Transaction party subject of the transaction value in thousand information PLN 1. Soda Mątwy Purchase of goods, materials and products 312,477 Framework agreement concerning purchasing on own account of January 2nd, 1997 Purchase of services 762 Rental of space, courier services 2. Ciech Service 3. Janikosoda Sale of goods 189 Framework agreement Sale of services 1,410 Including 12 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Implementation of the ERP 4,777 CIECH S.A. as investor, implementation IT system, deadline - May 31st, 2006 Granting a borrowing 4,500 Borrowing granted on May 4th, 2005, repaid on June 28th, 2005, with interest rate 6.6% per annum Sale of services 13 For using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale of services 1,153 Including 9 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of January 2nd, 2003 Sale (reinvoices) 18,976 * Purchase of services 518 Rent, other Purchase of goods, materials and products 334,163 Framework agreement concerning purchasing on own account of January 2nd, 1997 Granting a borrowing 4,000 Borrowing granted on May 9th, 2005, repaid on June 28th, 2005, with interest rate 6.6% per annum 79

107 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES 4. Alwernia 5. Vitrosilicon 6. GZNF Fosfory 7. Petrochemia Blachownia 8. Boruta-Kolor 9. Cheman S.A. Purchase of goods, 17,411 Contracts; materials and products Collaboration agreement of December 1st, 2003 Granting a borrowing 4,500 Repayment date - by March 31st, 2006, with interest rate 6.0% per annum Sale of goods, materials and products 101,084 Sale and purchase agreement of December 18th, 2003 Sale of services 679 For using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale of services (reinvoices) 841 * Sale of services 995 For using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of February 2nd, 2003 Sale of services (reinvoices) 692 * Sale of goods 16,649 Contracts Purchase of goods, 36,219 Agreement concerning purchasing on own materials and products account of July 4th, 2000 Purchase of goods, 4,921 Agreement concerning purchase and sale materials and products of fertilisers and sulphuric acid of August 1st, 2002 Purchase of services 6,008 Framework agreement for transhipment services Purchase of a reinvoice 41 ** Sale of goods, materials 62,482 For manufacture of fertilisers and products Sale of services 1,673 Including 1,673 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale - reinvoices 109 * Granting a borrowing 4,500 Repayment date - by November 30th, 2005, with interest rate 6.54% per annum Granting a borrowing 4,500 Repayment date - by December 31st, 2005, with interest rate 6.54% per annum Purchase of goods, 144,883 Trade collaboration agreement of March materials and products 26th, 2002 Sale of goods, materials 52,908 Trade collaboration agreement of March and products 26th, 2002 Sale of fixed assets 3,500 Sale of services 1,590 Including 766 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Purchase of services 73 Rental of warehouse space Sale of goods, materials and products 2,036 Collaboration agreement for import, export and domestic trade of June 28th, 2002 Sale of services 555 Including 268 for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group, in line with the agreement of December 5th, 2002 Sale of services 983 Rental of office space; using the trademark of the Ciech Capital Group, in line with the agreement of April 10th, 2003 Sale of services (reinvoices) 1,162 * Sale of goods, materials 36,294 Agreement of December 21st, for and products an indefinite period Sale of investments 817 IT implementation work 80

108 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES Purchase of services 169 Other 10. Elektrociepłownie Kujawskie Sale of services 1,715 Transport services 11. Polsin Pte. Ltd. 12. Daltrade Plc. 13. Danske Unipol Sale of goods, materials and products Purchase of services Sale of goods, materials and products Purchase of services Sale of goods, materials and products Purchase of services 2,299 Annual agreement for TDI deliveries 57 Agent's commission 29,746 Contracts 13 Agent's commission 7,059 Contracts 826 Agent's commission 14. Agrochem Dobre Miasto Purchase of goods, 341 Casual orders materials and products 15. Transclean Purchase of services 3,992 Transport services 16. Ciech Polfa 17. Polcommerce GmbH 18. Suomen Unipol Oy 19. Chemia.com 20. Transoda Sale of services 882 Office space rental agreement; for using the trademark 1% of the value of income on the sale to entities other than entities in the Ciech Capital Group - agreement of December 5th, 2002 Sale of goods 38 Casual orders Sale of services (reinvoices) 265 * Sale of property, plant and 328 Sale of fixed assets equipment Sale of shares in the 203 company Polcommerce Kft. Budapest Purchase of services 341 Contract handling Sale of goods, materials and products Purchase of services Sale of goods, materials and products Purchase of services Organisation and participation in the ERP system implementation at IZCH Soda Mątwy Purchase of products and services Purchase of services 7,660 Contracts 317 Agent's commission 25,735 Contracts 1,909 Agent's commission, other 900 Duration of the agreement: June 1st, 2005 to March 31st, ,277 IT service agreement 8,215 Transport services Sale (reinvoices) 70 * * costs incurred and reinvoiced to Companies, no impact on the income and costs of CIECH SA ** purchases reinvoiced to other entities, no impact on the income and costs of CIECH SA 8. Information on joint ventures that are not consolidated As of December 31st, 2006 and in the presented comparable period CIECH S.A. was not a party to any joint ventures. 9. Information on average employment by professional groups Average employment in 2005 Total Women Men 1. Total employees, including: white-collar workers blue-collar workers Employees of foreign branches People on leave, including: parental unpaid

109 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES Management Board of CIECH S.A. As of January 1st, 2006, the composition of the Company's Management Board was as follows: Ludwik Klinkosz President of the Management Board Jerzy Golis Member of the Management Board Stefan Rojewski Member of the Management Board. On July 24th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed Mr Ludwik Klinkosz President of the Management Board - and Mr Jerzy Golis Member of the Management Board - from the Management Board of CIECH S.A. On the same day, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed Mr Mirosław Kochalski as the President of the Management Board of CIECH S.A. and Mr Wojciech Wardacki as a Member of the Management Board. On August 2nd, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed Mr Stefan Rojewski from the Management Board. On August 8th, 2006, the Supervisory Board of CIECH S.A. delegated Mr Wiktor Cwynar to replace the dismissed Member of the Management Board of CIECH S.A. and to perform temporarily the duties of a member of the Management Board of Ciech S.A. until the General Shareholders' Meeting supplemented the Company's Management Board so that it would have the minimum number of members as determined in the Articles of Association of CIECH S.A. The Extraordinary General Shareholders' Meeting of CIECH S.A. on September 15th, 2006 supplemented the Management Board of CIECH S.A., appointing Mr Rafał Pasieka to the Management Board. As of December 31st, 2006, the composition of the Management Board of CIECH S.A. was as follows: Mirosław Kochalski - President of the Management Board Wojciech Wardacki Member of the Management Board Rafał Pasieka - Member of the Management Board. On January 31st, 2007, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed Mr Marek Trosiński to the Company's Management Board. Supervisory Board of CIECH S.A. On January 1st, 2006, the composition of the Supervisory Board of CIECH S.A. was as follows: Edmund Pietrzak - Chairman of the Supervisory Board Elżbieta Boniuszko - Deputy Chairman of the Supervisory Board Magdalena Bąkowska Member of the Supervisory Board Zygmunt Bosiakowski Member of the Supervisory Board Andrzej Buczak Member of the Supervisory Board Dariusz Krajowski-Kukiel Member of the Supervisory Board Edmund Kozak Secretary to the Supervisory Board Ireneusz Król Member of the Supervisory Board. On February 17th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. changed the composition of the Supervisory Board by: 82

110 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES - dismissing the following members of the Supervisory Board: Elżbieta Boniuszko Zygmunt Bosiakowski Andrzej Buczak Edmund Kozak Ireneusz Król - appointing the following members of the Supervisory Board of CIECH S.A.: Krystyna Dziworska Maksymilian Klank Marek Konopczyński Zbigniew Markowski Wiesław Piosik Maciej Rudnicki. On July 24th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed the following members of the Company's Supervisory Board: Edmund Pietrzak Maksymilian Klank Magdalena Bąkowska Krystyna Dziworska Marek Konopczyński Wiesław Piosik Maciej Rudnicki. On the same day, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed the following members of the Supervisory Board of CIECH S.A.: Andrzej Cwynar Grzegorz Miś Wojciech Fedko On August 2nd, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. also changed the composition of the Supervisory Board by: - dismissing from the Board: Andrzej Cwynar Zbigniew Markowski - appointing for the Board: Wiktor Cwynar Alicja Pimpicka. On December 31st, 2006, the composition of the Supervisory Board of CIECH S.A. was as follows: Grzegorz Miś - Chairman of the Supervisory Board Alicja Pimpicka - Deputy Chairman of the Supervisory Board Wiktor Cwynar Member of the Supervisory Board Wojciech Fedko Member of the Supervisory Board Dariusz Krajowski-Kukiel Member of the Supervisory Board 83

111 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES INFORMATION ON THE TOTAL VALUE OF REMUNERATIONS, AWARDS, OR BENEFITS (IN MONEY, IN KIND R IN ANY OTHER FORM), PAID OR DUE, SEPARATELY TO EACH MEMBER OF THE ISSUER'S MANAGING OR SUPERVISORY BODIES AT THE ISSUER'S COMPANY MANAGEMENT BOARD OF CIECH SA in the period No. First name and surname Basic salary Sickleave remuner ation Annual award Special award Quarterly bonus Gratuities Payment in lieu of leave 1 JERZY GOLIS ,135 2 LUDWIK KLINKOSZ ,630 3 STEFAN ROJEWSKI ,808 4 MIROSŁAW KOCHALSKI RAFAŁ PASIEKA WOJCIECH WARDACKI T o t a l 2, , ,539 Total in the period No. First name and surname Basic salary Sick-leave remuneration Annual award Award Total 1 JERZY GOLIS LUDWIK KLINKOSZ STEFAN ROJEWSKI T o t a l ,415 Member of the Management Board are employed under employment contracts. According to a Resolution of the Supervisory Board of CIECH S.A., the monthly remuneration of the Members of the Management Board is paid as follows: President of the Management Board eight times the average remuneration at CIECH S.A., without the annual award, in the previous calendar quarter Members of the Management Board six times the average remuneration at CIECH S.A., without the annual award, in the previous calendar quarter SUPERVISORY BOARD OF CIECH SA in the period No. First name and surname Remuneration 1 MAGDALENA BĄKOWSKA 40 2 ELŻBIETA BONIUSZKO 17 3 ZYGMUNT BOSIAKOWSKI 14 4 ANDRZEJ BUCZAK 14 5 ANDRZEJ CWYNAR 2 6 WIKTOR CWYNAR 78 84

112 7 KRYSTYNA DZIWORSKA 27 8 WOJCIECH FEDKO 22 9 MAKSYMILIAN KLANK MAREK KONOPCZYŃSKI EDMUND KOZAK DARIUSZ KRAJOWSKI-KUKIEL IRENEUSZ KRÓL ZBIGNIEW MARKOWSKI GRZEGORZ MIŚ EDMUND PIETRZAK ALICJA PIMPICKA WIESŁAW PIOSIK MACIEJ RUDNICKI 27 T o t a l 568 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES According to a Resolution of the Extraordinary General Shareholders' Meeting, the remuneration of the Members of the Supervisory Board is paid as follows: Chairman of the Supervisory Board - 300% Deputy Chairman of the Supervisory Board - 250% other Members of the Supervisory Board - 200% of the average monthly remuneration in the sector of enterprises with profit payments for the month preceding the calculation. We further state that the Members of the Management Board in the period when they performed their functions in 2006 at the Company CIECH SA received the following remuneration due to their functions at the Supervisory Boards of companies in the CIECH Chemical Group: Jerzy Golis PLN 27,000 Ludwik Klinkosz PLN 35,000 Stefan Rojewski PLN 39,000 Mirosław Kochalski PLN 49,000 Rafał Pasieka PLN 18,000 Wojciech Wardacki PLN 89,000 Members of the supervisory body of CIECH S.A. did not have any functions at the governing bodies of subordinates in INFORMATION ON THE VALUE OF ADVANCE PAYMENTS, LOANS, BORROWINGS, GUARANTEES, SURETIES OR OTHER AGREEMENTS THAT IMPOSE AN OBLIGATION TO PAY BENEFITS TO CIECH S.A., ITS SUBSIDIARIES, CO-SUBSIDIARIES AND ASSOCIATES NOT REPAID TO MEMBERS OF THE MANAGING AND SUPERVISORY BODIES AND THEIR SPOUSES AND RELATIVES UP TO THE SECOND DEGREE OF AFFINITY OR CONSANGUINITY In the period from January 1st to December 31st, 2006, and in the presented comparable period the Company did not carry out any major transactions with the Members of the Management Board and supervisory bodies or their spouses or relatives up to the second degree of affinity or consanguinity or people related, due to custody, adoption or tutelage, to a member of the managing or supervisory body of entities or companies where they are significant shareholders (stockholders or partners) Neither did the Company grant any borrowings to the above people. 12. INFORMATION ON SIGNIFICANT EVENTS CONCERNING PREVIOUS YEARS DISCLOSED IN THE FINANCIAL STATEMENT FOR THE CURRENT PERIOD. There were no such events there. 85

113 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES 13. INFORMATION ON POST-BALANCE SHEET DATE SIGNIFICANT EVENTS NOT INCLUDED IN THE FINANCIAL STATEMENT There were no such events there. 14. INFORMATION ON RELATIONS BETWEEN THE LEGAL PREDECESSOR AND THE ISSUER, AND HOW AND TO WHAT EXTENT THE ASSETS AND LIABILITIES WERE TAKEN OVER CIECH S.A. does not have any legal predecessors. 15. ADJUSTMENTS DUE TO INFLATION The financial statement for 2006 and the presented comparable financial data have not been adjusted for the inflation rate. 16. LIST OF DIFFERENCES BETWEEN DATA AS DISCLOSED IN THE FINANCIAL STATEMENT AND COMPARABLE FINANCIAL DATA AND THE PREVIOUSLY PREPARED AND PUBLISHED FINANCIAL STATEMENTS PLUS EXPLANATIONS The tables below present changes to data as compared to the data published in the report for the 4th quarter of Changes in presentation A change of PLN 12,000,000 is a transfer of the value of planned groundwater treatment expenses related to the purchase of shares in the company ZACHEM S.A. from Long-term investments to the item of other cash and disclosure of this amount as not fully disposable cash. A change of PLN 378,000 is a transfer of the amount of a liability in respect of interest on a taken bank loan for the period from 19 to (payable on ) from other accruals and deferred income to short-term liabilities in respect of loans and borrowings. A change of PLN 236,000 is related to the presentation of a part of the recognised provision for costs due to compensations paid to the managing staff that resigned from their work as long-term. Release of write-downs An adjustment of PLN 355,000 was made through a release of the revaluation write-down on shares in the Company Nordiska Unipol due to the general improvement in the financial standing and the fact that the Company achieved positive results owing to the implementation of a recovery programme. The revaluation write-down on the fixed assets located in Szczytniki and Mniszków and valued at fair value was adjusted by PLN 79,000. Adjustment of provisions for costs An adjustment was made to provisions for costs, which lead to the net result of PLN 455,000. Major items of adjustments are related to the following areas: release of provisions for transaction costs due to the receipt of invoices for provided services amount of PLN 26,000 adjustment to the provision (increase) for the annual award for the Management Board and employees amount of PLN 418,000 adjustment to provisions (increase) for general management costs (legal, actuarial and auditing services) amount of PLN 63,000 Change in the calculation of deferred tax 86

114 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES As a result of the adjustments, the amount of deferred tax was recalculated, which lead to an increase by PLN 85,000. The amount of deferred tax assets was decreased by PLN 205,000, while the provision was decreased by PLN 120,000. For the quarterly statement, the Company recognised a deferred tax asset and provision separately for negative and positive exchange differences; in the annual statement, these titles are presented as total. Release/recognition of provisions The provision for gratuities was decreased upon the termination of employment of the former Management Board to the amount of payments PLN 472,000. An additional provision of PLN 41,000 was recognised for expected losses due to the fact that Consolidated Oil Services Sp. z o.o. filed an action against CIECH S.A. Other adjustments Invoices concerning 2006, received after the publication of statements for the 4th quarter were entered in the books. The value of entered documents is reflected in a decrease in the gross result by PLN 150,000 and an increase in the income tax payable by PLN 7,000. Consequently, the net result decreased by PLN 143,

115 ASSETS as of published changes in presentation release of write-downs adjustment of provisions for costs change in the calculation of deferred tax FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES release/recognitio n of provisions other as of I. Fixed assets 981,290 (12,000) , Intangible assets, including: 7,608 7, Property, plant and equipment 21, , Long-term investments 944,733 (12,000) , Immovable property 11,100 11, Long-term financial assets 933,633 (12,000) , a) in affiliates, including: 932,645 (12,000) ,000 b) in other entities Long-term prepayments and accrued income 7,153 (205) 6, Deferred income tax assets 6, , Other prepayments and accrued income II. Current assets 403,241 12, , Inventories 16,690 16, Short-term receivables 333, , due from affiliates 60,434 60, due from other entities 273, , Short-term investments 52,044 12,000 64, Short-term prepayments and accrued income 554 (3) 551 T o t a l A s s e t s 1,384, (205) ,384,787 88

116 LIABILITIES as of published changes in presentation release of write-downs adjustment of provisions for costs change in the calculation of deferred tax FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES release/reco gnition of provisions other as of I. Equity 728, (455) (85) , Net profit (loss) 166, (455) (85) ,739 II. Liabilities and provisions for liabilities 656, (120) (431) , Provisions for liabilities 19,738 (120) 41 19,659 provision for deferred income tax 1,153 (120) 1,033 other provisions 17, , Long-term liabilities 205, , Short-term liabilities 414, , towards affiliates 177, , towards other entities 236, , Accruals and deferred income 15,805 (378) 455 (472) 15, Other accruals and deferred income 15,805 (378) 455 (472) 15, b) short-term 15,805 (614) 455 (472) 15,174 c) long-term T o t a l l i a b i l i t i e s 1,384, (205) ,384,787 Profit and loss account Net income from sales of products, goods and period from to published changes in presentation release of write-downs adjustment of provisions for costs change in the calculation of deferred tax release/reco gnition of provisions other period from to materials, including: 1,640, ,640,918 from affiliates Costs of products, goods and 1,356,598 (26) 1,356,572 materials sold, including: Gross profit (loss) on sales 284, ,346 Costs of sales 102,756 (26) ,780 General management costs 65, ,539 Profit (loss) on sales 115, ,027 Other operating revenue 7,292 7,292 Other operating costs 15,790 (79) (431) 15,280 Revaluation of non-financial assets 8,303 (79) 8,224 89

117 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES Other operating costs 7,487 (431) 7,056 Operating profit (loss) 107, ,039 Financial revenue 109, ,917 Revaluation of investments Financial costs 12,191 12,191 Profit (loss) on business activity 204, ,765 Gross profit (loss) 204, ,765 Income tax 37, (7) 38,026 a) current part 29,187 (7) 29,180 b) deferred part 8, ,846 Net profit (loss) 166, (455) (85) 431 (143) 166,739 The cash flow statement provided for the appropriate adjustments. 90

118 FINANCIAL STATEMENT FOR 2006 CIECH SA ADDITIONAL EXPLANATORY NOTES 17. INFORMATION ON CHANGES IN ACCOUNTING (POLICY) PRINCIPLES AND THE METHOD OF PREPARING THE FINANCIAL STATEMENT The principles of the accounting policy were not changed in CORRECTIONS OF FUNDAMENTAL ERRORS, THEIR CAUSES, TITLES, AND IMPACT OF THEIR FINANCIAL IMPLICATIONS ON THE PROPERTY, FINANCIAL STANDING, LIQUIDITY, FINANCIAL RESULT AND PROFITABILITY No corrections of fundamental errors were made in the period from to or in the presented comparable period. 19. UNCERTAINTY ABOUT CIECH S.A. AS A GOING CONCERN There are no threats to CIECH S.A. as a going concern in the meaning of the Accounting Act of September 29th, 1994 (Journal of Laws ) with later amendments. 20. FINANCIAL STATEMENT AFTER COMPANY MERGER There were no company mergers in the reporting period or in the period presented as comparable data. 21. VALUATION OF HELD SHARES AND STOCKS IN SUBORDINATES USING THE EQUITY METHOD AND IMPACT ON THE FINANCIAL RESULT Carrying value of shares and stocks at purchase price 777, ,709 Equity of entities 902, ,278 Difference between valuation using the equity method and the carrying value 13, ,502 Shares in the Companies' financial result 24,770 67,176 Write-down on goodwill 0 4,576 Impact on the financial result of CIECH S.A. 24,770 62, THE ISSUER PREPARES A CONSOLIDATED FINANCIAL STATEMENT. 23. OTHER ADDITIONAL INFORMATION On January 31st, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. decided that the Company would prepare, starting from January 1st, 2007, individual financial statements in line with the International Financial Reporting Standards (IFRS). 91

119 CIECH S.A. MANAGEMENT REPORT FOR 2006

120 CIECH S.A. Management Report for GENERAL PART 1.1 Overview of the Company CIECH S.A. The Company CIECH S.A. has existed for over 60 years. As a joint - stock company, it has operated since September 1st, At first, the operational profile of CIECH S.A. was focused on trading activity-comprising trade in chemical goods on the internal market and in export and import. In the 1990 s, the Company purchased controlling interests in chemical industry companies with a typically manufacturing profile and created a CIECH Group that became one of the largest domestic manufacturers of chemical products in Poland. The core business of the Company as defined in the Articles of Association covers trading activity, investments, manufacturing, services and financial operations, including in particular trade in chemicals and related operations. The Company may also act as an agent for domestic and foreign companies. CIECH S.A. sells chemicals on the domestic market and is a major contributor to Poland's foreign trade by handling exports and imports of chemical industry products. Key products sold through the agency of CIECH S.A.: dense and light soda ash, fertilisers, EPI, plastics, phosphorites, salt and TDI. Approximately half the value of sales by CIECH S.A. is located in the country. The largest foreign markets for the goods of CIECH S.A. are the EU countries (approximately ¾ of the sales abroad). As of the date of publication of the statement, the composition of the Management Board of CIECH S.A. was as follows: 1. Mr Mirosław Kochalski - President of the Management Board 2. Mr Wojciech Wardacki - Member of the Management Board 3. Mr Rafał Pasieka - Member of the Management Board 4. Mr Marek Trosiński - Member of the Management Board The Company's Proxy is its CFO, Kazimierz Przełomski. As of the date of publication of the statement, the composition of the Supervisory Board of CIECH S.A. was as follows: 1. Mr Grzegorz Miś - Chairman of the Supervisory Board 2. Ms Alicja Pimpicka - Deputy Chairman of the Supervisory Board 3. Mr Wiktor Cwynar Member of the Supervisory Board 4. Mr Wojciech Fedko Member of the Supervisory Board 5. Mr Dariusz Krajowski-Kukiel Member of the Supervisory Board 1.2 Detailed information concerning the financial results of CIECH S.A. The table below presents selected items of the balance sheet and the profit and loss account of CIECH S.A. plus basic financial ratios for 2006 as compared to Table 3.1. Selected financial information (thousand PLN) I-XII 2006 I-XII /2005 dynamics Net sales income 1,640,918 1,588, % Costs of products, goods and materials sold 1,356,572 1,346, % Gross profit on sales 284, , % Net profit on sales 115,027 61, % Operating profit (EBIT) 107,039 58, % Gross profit (loss) 204,765 43, % Net profit (loss) 166,739 41, % EBITDA (operating profit+ depreciation) 113,025 65, % 2

121 CIECH S.A. Management Report for /2005 dynamics Fixed assets 969, , % including long-term investments 933, , % Current assets 415, , % including inventories 16,690 10, % receivables 333, , % short-term investments 64,044 88, % Value of assets 1,384, , % Equity 728, , % Provisions 19,659 20, % Long-term liabilities 205,963 18,527 - including loans 205,963 18,527 - Short-term liabilities 415, , % including loans 148,472 15,046 - I-XII 2006 I-XII /2005 dynamics Return on sales profit on sales / income from sales Net return on sales (ROS) net profit /income from sales Net return on equity (ROE) net profit / equity Current ratio current assets / short-term liabilities Quick ratio (current assets - inventories) / short-term liabilities Equity to assets ratio equity / assets Debt ratio (long-term liabilities + short-term liabilities) / assets Source: CIECH S.A. 7.01% 3.85% 82.1% 10.16% 2.64% 284.8% 22.89% 7.17% 219.2% % % 52.6% 64.7% -18.7% 44.9% 32.1% 39.9% Sales income In 2006, CIECH S.A.'s income from sales amounted to PLN 1,640,918,000 and was higher by 3% than recorded in The increase in income was mainly due to the growth of the organic segment. The development of the Organic Division comprised the following activities that had a positive impact on the sales volumes of CIECH S.A.: (a) a change in the type of the trade agency services of CIECH S.A. for the sale of selected goods of the segment (mainly TDI) consisting of the switch from commission settlements to settlements on own account, (b) initiation of the EPI processing transaction in the 2nd quarter of 2006 and (c) taking over by CIECH S.A. of the whole sales of the TDI output from ZACHEM S.A. (agreement signed in the 4th quarter of 2006). At the same time, in 2006 CIECH S.A. obtained an increase in income from sales of soda products. The Company got selling prices of soda products higher than in 2005, taking advantage of the market situation. The above factors made it possible to reduce the drop in income from the sale of petrochemical products (as a result of a significant cut in trades with Petrochemia Blachownia after CIECH S.A. sold its shares in the company). Geographical structure of income from sales CIECH S.A.'s portfolio of goods is characterised by a high level of maturity and the sales are based on lasting relations with customers. The domestic market is the largest one, while Europe is the main foreign market. The 3

122 CIECH S.A. Management Report for 2006 geographical proximity and the lack of trade barriers make EU countries the natural markets for the CIECH S.A. This means that the level of return on sales depends on the economic situation in this area and on fluctuations in the EUR exchange rate. In 2006 in the income structure, the domestic sales were approximately 48% of total sales and amounted to PLN 789,088,000. The sales abroad amounted to PLN 851,830,000. Goods structure of income from sales The income structure of CIECH S.A. largely reflects the sales structure of the CIECH Group. The largest share of products manufactured at the Group's companies is sold through the agency of CIECH S.A. As a result, the income structure of CIECH S.A. is dominated by the sales of the key products of the CIECH Group (mainly soda ash). Due to the operational connections between CIECH S.A. and its subsidiaries, which include the coordination of the procurement policy, an essential position in the sales structure of CIECH S.A. is taken by the procurement of raw materials (e.g. raw materials for the manufacture of fertilisers) for the subsidiaries. CIECH S.A. renders commission agency services mainly for goods that are not manufactured at the Group. In 2006, similarly to previous years, the income was dominated by soda products (they accounted for 50% of total sales). Due to the development of the Organic Division, organic products (mainly including EPI and TDI) started to have a significant role in income. The agro-chemical segment, mainly fertilisers and raw materials for the manufacture of fertilisers, is still an essential source of income. On account of the implementation of strategic objectives, after the sale of shares in Petrochemia Blachownia, the petrochemical segment was insignificant for the sales structure of CIECH S.A. in Figure 3.1. Sales income structure by leading goods Szkło w odne sodow e 2% Soda oczyszczona 3% Pozostałe 16% Soda kalcynow ana ciężka 28% Tw orzyw a sztuczne 5% Sól 6% EPI 7% Surow ce do produkcji naw ozów 7% Naw ozy 7% TDI 9% Soda kalcynow ana lekka 10% Source: CIECH S.A. Soda kalcynowana ciężka 28% Dense soda ash 28% Soda kalcynowana lekka 10% Light soda ash 10% TDI 9% TDI 9% Nawozy 7% Fertilisers 7% Surowce do produkcji nawozów 7% Raw materials for the manufacture of fertilisers 7% EPI 7% EPI 7% Sól 6% Salt 6% Tworzywa sztuczne 5% Plastics 5% Soda oczyszczona 3% Baking soda 3% Szkło wodne sodowe 2% Sodium water glass 2% Pozostałe 16% Other 16% 4

123 CIECH S.A. Management Report for 2006 Income in 2006 by business segments was as follows: Table 3.2. CIECH S.A.'s income by business segments (thousand PLN) Sales income Structure (%) Soda Segment 825, Organic Chemical Segment 394, Agro-Chemical Segment 240, Inorganic Chemical Segment 95,872 6 Silicates and Glass Products Segment 46,807 3 Petrochemical Segment 28,781 2 Pharmaceutical Segment 44 0 Power Generation Segment 0 0 Other 8,980 1 TOTAL 1,640, Source: CIECH S.A. Net profit on sales The Company made a net profit on sales to the amount of PLN 115,027,000. In 2005, this result was much lower (by 88% that is by PLN 53,779,000). The level of profit on sales in 2006 increased mainly due to higher prices of soda products. An essential contributor to the growth of profit was the development of collaboration with ZACHEM S.A. as part of the establishment of the Organic Division (growth of profit due to the trade in TDI and EPI). The sales margin rate in 2006 amounted to 7.0% as compared to 3.9% for This growth was mainly due to: (a) an increase in 2006 in the prices of soda products and (b) the withdrawal of CIECH S.A. from the trade in low-yield goods (including from the petrochemical segment). Operating profit (EBIT) In 2006, the operating profit amounted to PLN 107,039,000 and was higher than in 2005 by 48,644. As in the previous year, the core activity was the source of operating profit (profit on sales equal to PLN 115,027,000). The negative balance of other operating activities affected EBIT; CIECH S.A. recognised a revaluation write-down to the amount of PLN 8,224,000 (including mainly a revaluation write-down on trade receivables). The EBIT margin rate increased in 2006, as compared to 2005, from 3.7% to 6.5%. This shows that the operating activities of CIECH S.A. are developing dynamically. Gross profit In 2006, the Company had a gross profit of PLN 204,765,000, which means an increase by PLN 161,286,000 as compared to The main sources of gross profit were: (a) the core activity (profit on sales equal to PLN 115,027,000), (b) profit on the sale of shares in Petrochemia Blachownia (PLN 78,659,000), and (c) dividends received (PLN 23,204,000).At the same time due to the intense policy of hedging foreign exchange transactions positive results were achieved as regards exchange differences. The balance of realised exchange differences in 2006 was positive and amounted to PLN 4,609, while in 2005 a loss of PLN 9,027,000 was recorded due to realised exchange differences. In 2006, the Company did not have any extraordinary gains or losses. Net result In 2006, CIECH S.A. recorded a net profit to the amount of PLN 166,739,000, which means an increase by PLN 124,839,000 as compared to The table below shows the key business operations shaping the net result plus comparable data concerning Table 3.3. Financial performance by type of business operations (in thousand PLN) I-XII 2006 I-XII /2004 dynamics 1. result from sales 115,027 61, % 2. result from other operating activities -7,988-2, % 3. result from financing activities 97,726-14, gross result (1+2+3) 204,765 43, % 5. income tax 38,026 1, net result (4-5) 166,739 41, % Source: CIECH S.A. 5

124 CIECH S.A. Management Report for 2006 Balance sheet Capital structure The equity as of December 31st, 2006 was equal to PLN 728,418,000, which means an increase by PLN 144,339,000, which is by approximately 25%, as compared to the end of The source of the increase in CIECH S.A.'s equity was the net profit made in At the same time, the Company paid dividends of PLN 22,400,000. The value of assets of CIECH S.A. as of December 31st, 2006 amounted to PLN 1,384,787,000. Over the 12 months the value of assets increased by PLN 481,611,000, that is by over 50%. The increase in assets was mainly a result of acquisitions conducted in the 4th quarter of The asset structure, similarly to previous years, was dominated by fixed assets and their share in total assets increased from 55% at the end of 2005 to 70% as of December 31st, The main item of fixed assets was long-term financial assets equal to PLN 921,988,000, whose value increased over the year by PLN 488,159,000 (result of acquisitions). The overall value of current assets reached PLN 415,268,000 and was similar to the amount as of the end of Due to the trading operations of the Company, current assets are dominated by receivables As of December 31st, 2006 they were equal to PLN 333,983,000. As compared to the end of 2005, they increased by 7% that is by PLN 23,295,000, with the high sales income dynamics (including new trade agreements with ZACHEM S.A.) in the last quarter of 2006 as the main contributor to the growth. Company's liabilities and debt The (total long and short-term) liabilities of CIECH S.A. as of December 31st, 2006 amounted to PLN 621,300,000, which means that liabilities increased more than twofold as compared to the year before. This increase was mainly due to loans taken in the last months of the year for financing expenses related to the purchase of new companies. As of the end of 2006 bank loans were equal to PLN 354,435,000 (including PLN 205,963,000 as long-term), which means an increase in comparison with December 31st, 2005 by PLN 320,862,000. The net debt (financial liabilities less cash) at the end of 2006 was equal to PLN 293,209,000. The year before the cash exceeded financial liabilities by the amount of PLN 15,567,000. The financial leverage ratio (defined as net debt to the sum of net debt and equity) was equal to 28.7% as of December 31st, The debt ratio (calculated as the ratio of long and short-term liabilities to total assets) increased over the 12 months of 2006 from 32.1% to 44.9%. In 2006, CIECH S.A. started to use external financing, whose cost is lower than the cost of equity, to a greater extent. Ratios The return on sales calculated as the ratio of the profit on net sales to income from sales amounted at the end of December 2006 to 7.01% and was higher than the one recorded the year before by over 82%. The increase in the ratio was mainly due to a growth in the profitability of soda products (higher selling prices) and a significant cut in the trade in low-yield goods. The net return on sales (ROS) calculated as the quotient of the net profit and income from sales amounted to 10.16% and was higher several times than the amount at December 31st, 2005 (it amounted to 2.64% then). The return on equity (ROE) calculated as the quotient of the net result and equity amounted to 22.89% (equal to 7.17% the year before). The current ratio calculated as the quotient of current assets and short-term liabilities amounted to 1.0 as of December 31st, The ratio decreased mainly due to an increase in short-term loans (including the short-term portion of investment loans). Despite the current ratio being lower than the year before, CIECH S.A. settles its liabilities on time and there are no threats to the Company's liquidity. The quick ratio, which is a ratio of current assets less inventories to short-term liabilities, was equal to This ratio was close to the recommended safety standard (1.0). This confirms the assertion of the lack of threats to CIECH S.A. settling its liabilities on time. Cash flow statement Operating flows in 2006 amounted to PLN +67,427,000. In 2005, operating flows were lower and amounted to PLN 49,226,000. The main source of cash in this area in 2006 was the profit made from sales to the amount of PLN 115,027,000. An essential factor was a change in receivables (an increase by PLN 33,045,000), which was largely due to the high dynamics of sales in the last months of In 2006, CIECH S.A. incurred significant investment expenditure due to the acquisitions of companies: ZACHEM S.A., Z.Ch. Organika-Sarzyna S.A. and S.C. Uzinele Sodice Govora S.A. completed in the 4th quarter. The total 6

125 CIECH S.A. Management Report for 2006 amount spent on the financial assets in affiliates was PLN 489,597,000. The main source of inflows was the funds from the sale of shares in Petrochemia Blachownia (PLN 104,000,000) and the deposit and investment activity (PLN 77,077,000). The surplus of investment expenses over investment inflows amounted in 2006 to PLN 350,391,000. Flows from financing activities amounted to PLN 296,305,000. In order to finance the acquisitions CIECH S.A. increased its bank debt; the balance of loans taken and repaid amounted to PLN 319,850,000. The Company paid dividends of PLN 22,400,000 to its shareholders. The paid interest on loans was equal to PLN 1,145,000, and their relatively low level was due to the fact that the acquisition transactions were carried out in the last months of the year. 1.3 Seasonality and cyclicality of the operations of the Company The trading activity of the CIECH Group largely involves chemicals that are raw materials whose markets are characterised by high cyclicality, prompted by trade fluctuations in the world economy. With regard to the soda and agro-chemical segment (soda ash, soda-derived products, multiple-compound and phosphate fertilisers), which are dominating items in the turnover of the CIECH Group, the fluctuations in market prices are low or even slight (from several to ten percent a year). Changes in prices of soda ash are mainly connected with annual contracts, whose terms and conditions are usually determined at the end of the calendar year and are binding from the start of the following year. In 2006, the prices of soda ash were unusually high as compared to the previous year (an increase in European prices by a dozen or so per cent). This should be associated with the prosperity of the glass-making industry (main consumer of soda) related to the construction and packaging industries. Calcium chloride, on the other hand, (despite the seasonal nature of its use - used mainly in winter) was sold on a steady level - customers bought the goods to keep in stock). The sales volumes reflect the concentration in some quarters, which is typical for fertiliser products and plant protection chemicals. The 1st and 2nd quarters were dominated by purchases of raw materials for the manufacture of fertilisers (phosphorites, yellow phosphorus, and potassium salts). In 2006, there was a drop in the sales of fertilisers or raw materials for fertilisers due to a lower demand. The recession also affected the market for plant protection chemicals. The delayed vegetation season also affected the manufacture of fertilisers at GZNF Fosfory. Thus, the disturbance of the seasonality (a delay in this case) of the demand for fertilisers and plant protection chemicals had a negative impact on the sales results of the agro-chemical season in The greatest fluctuations of market prices related to the cycles of the situation of the world economy affect the organic segment, in particular oil-derivative products. In the sales of the CIECH Group, this applies mainly to: TDI, epichlorohydrin, epoxy resins, and PVC. In the case of these products, the differences in the prices may range from 50% to over 100% over several years (3-5-year periods). As a result of a good general economic situation in Europe in 2006, there was an increase in prices as regards these products (from a dozen or so per cent for PVC to 20-30% for other goods above). In turn, the fluctuations over the year affect the volume of sales on the market for mineral fertilisers, with the sales usually reaching their peak at the end of the 1st quarter and during the 3rd quarter every year. 1.4 Commentary on the differences between the actual financial results and previously published result forecasts The CIECH Company did not publish any forecasts for individual results. 1.5 Financial performance drivers of CIECH S.A. Positive factors The prosperity of the European glass-making industry (main consumer of soda ash) and of the industries of baking soda consumers A significant growth of production and sales in the national chemical industry as a whole (by a dozen or so per cent in comparison with the previous year) A significant growth of European and world prices of TDI, one of the major export goods of CIECH S.A. in 2006 Negative factors 7

126 CIECH S.A. Management Report for 2006 A continuing high exchange rate of the Polish currency (to EUR and USD) that does not favour an improvement in the profitability of exports by CIECH S.A. 1.6 The use of funds coming from the issue of shares by the Issuer The prospectus of CIECH S.A. was made public on January 6th, 2005, and on February 10th, 2005, the shares of CIECH S.A. made their debut on the Warsaw Stock Exchange (GPW). In the prospectus, the Issuer set forth the investment programme including a number of projects with the total outlays of PLN million to be implemented in 2005 and In order to finance the investment plan CIECH S.A. uses funds coming from the issue of shares, which amounted to PLN 192 million, own funds and external financing with long-term investment loans. Organic Segment On March 29th, 2006 a purchase agreement was signed with Nafta Polska S.A. concerning shares in ZCh ZACHEM S.A. and ZCh Organika-Sarzyna S.A. and it was finalised on December 20th, The purchase price of 80% of shares in ZCh ZACHEM S.A. amounted to PLN 80,038, (including PLN 12 million of a so-called withheld amount detailed information see point 2.8.1), while the amount of guaranteed investments was PLN 176,120,000. Then the purchase price of 80% of shares in ZCh Organika-Sarzyna S.A. was PLN 244,512,000, while the amount of guaranteed investments PLN 130,000,000. Soda Segment On November 30th, 2006 in Bucharest CIECH S.A. and the Romanian government agency - AVAS - signed an annex to the privatisation agreement concluding the purchase transaction for the majority interest in the soda manufacturing plant Uzinele Sodice Govora S.A. On December 4th, 2006, upon the registration with the Romanian court registration, RIAVEST, with its registered office in Timisoara, CIECH S.A. became the owner of a % block of shares in the soda manufacturing plant S.C. Uzinele Sodice Govora S.A. (31,875,516 shares). The Romanian government privatisation agency owns 2.888% of shares (988,338 shares). The other shareholders have 3.976% (1,360,862 shares). The purchase price of shares in the company amounted to PLN 39,785,000. CIECH S.A. began the implementation of the modernisation and investment plan providing for an increase in soda output within three years to 530,000 tons/year. The project value shall amount approximately to EUR 60 million, including EUR 25 million for debt clearing and debt restructuring, EUR 26 million for development investments and EUR 9.2 million for the purchase of the block of shares. 2 DETAILED PART 2.1 Information on main products, goods or services Table in annex Information on changes in markets Information on changes in markets in annex 4.2 The Company does not have any customers who would receive sales volumes exceeding 10% of the overall sales 2.3 Information on changes in suppliers of manufacturing materials, goods and services Table in annex 4.1 8

127 CIECH S.A. Management Report for Agreements material to the operations of the Company Table Material agreements concluded by CIECH S.A. Agreement date Party to the agreement S.C. Uzinele Sodice Govora S.A. S.C. Uzinele Sodice Govora S.A ZACHEM S.A. Subject of the agreement Granting a borrowing Granting a long-term borrowing Granting a long-term borrowing Material terms and conditions of the agreement Borrowing for financing advance payments for energy deliveries to S.C. Uzinele Sodice Govora S.A. until 2016 Borrowing with a 2-year grace period for debt restructuring Long-term borrowing was granted for 7 years with a 1-year grace period Criterion to consider the agreement as material Total value EUR 16 million EUR 4 million Value PLN 50 million Nafta Polska S.A Pekao S.A Petrochemia Blachownia S.A. Romanian government agency - AVAS Completion of the purchase of shares conditioned by the implementation of investments to the Purchase of blocks of amount of PLN 176,120,000 in ZACHEM S.A. and Value of agreement shares in ZACHEM S.A. PLN 130,000,000 in Z.Ch. Organika-Sarzyna PLN 80,038,400 and Z.Ch. Organika- S.A. during the period of 5 years after the Sarzyna S.A. agreement enters into force. Purchase under the + PLN 244,512,000 share purchase agreement signed on March 29th, 2006 Loan for the purchase of shares in Organika- Value: Loan secured on shares in JANIKOSODA S.A. Sarzyna S.A. from PLN 216 million Nafta Polska Value of the contract Trade contract Annex to the purchase contract ZACHEM S.A. Processing agreement Polski Holding Farmaceutyczny S.A. Zakłady Chemiczne ZACHEM S.A. OCP Casablanca Maroko Letter of intent Sales handling agreement Acceptance of framework conditions of a contract that have been agreed on previously Z.Ch. Police S.A. Trade agreement BorsodChem Rt. Sale of shares Cheman S.A. Annex to the contract Vitrosilicon S.A. annex 1/2006 to the Co-operation agreement with regard to the purchase of products for Ciech SA's Sales and deliveries of the benzene fraction for processing at Petrochemia Blachownia in 2007 Purchase of a majority interest in S.C. Uzinele Sodice Govora S.A. The signed annex made additional agreements effective, the agreements ensuring the right of property for 93.14% of shares in S.C. Uzinele Sodice Govora S.A. worth EUR 9.2 million, including the block of shares of S.C. Begacom. Value of the whole project - EUR 60 million - including modernisation and debt clearing Annual agreement for processing epichlorohydrin and allyl chloride and sale by CIECH S.A. of the whole output produced at ZACHEM S.A. Agreement concerning the sale of shares in CIECH POLFA Sp. z o.o. by CIECH S.A., valid until December 31st, 2007 The agreement determines the terms and conditions of sales of all the manufactured TDI, the main product of ZACHEM S.A. Agreement for the import of phosphorites for the manufacture of fertilisers within the CIECH Group Agreement for the purchase of 3,000 tons of fertilisers. It is another agreement for deliveries of fertilisers. Completion of a sales transaction for shares in Petrochemia Blachownia S.A. Signing an annex to a long-term agreement for sales and distribution of soda products in 2006 This annex regulates the terms and conditions of co-operation between Ciech SA and its subsidiary - Vitrosilicon S.A. as regards deliveries of silicates PLN 28 million (plus an option for further PLN 9 million) Value of purchased shares EUR 9.2 million Current announcement Estimated value PLN 160 million Current announcement Estimated value PLN 450 million Value of the contract PLN 26.7 million Total value of all agreements PLN 97.8 million Value PLN 104 million Value of the contract PLN 24.7 million The value of purchases is estimated at PLN 37 million 9

128 CIECH S.A. Management Report for 2006 Agreement date Source: CIECH S.A. Party to the agreement Subject of the agreement own account Material terms and conditions of the agreement Criterion to consider the agreement as material 2.5 Major research and development achievements of CIECH Development of a general IT security concept and electronic signature Development of a concept for the construction of a joint system platform to support business processes Implementation of a new quality assurance system, compliant with the GMP B2 standard, for trading in feed materials (baking soda and soda ash) Obtaining the GMP B2 certificate adds to the competitiveness of the CIECH Group as a manufacturer in the certified range the CIECH Chemical Group is the sole manufacturer of baking soda and ash soda in Europe holding such a certificate. 2.6 Information on natural environment protection issues Fulfilment of the statutory duty to recycle packaging introduced to the environment Under: Packaging and Packaging Waste Act of May 11th, 2001 Act on Obligations of Entrepreneurs regarding Management of some Sorts of Waste and on Product and Deposit Charges of May 11th, 2001 (Journal of Laws No. 63, item 638 and 639 with later amendments and relevant regulations) Importers and exporters of products in packaging have the duty to ensure the recovery of a certain number of used pieces of packaging from the market and then to recycle them. This duty, in accordance with the above legal regulations, may be carried out individually or through a recovery organisation and entrepreneurs that do not conform to the legal requirements are obliged to pay the product charge. The nature of operations of CIECH S.A. does not favour individual fulfilment of the duty to recover and recycle waste packaging, on which account it undertook collaboration with a specialised firm, which fulfils this duty on behalf of CIECH S.A. The asset of this action is the possibility for CIECH S.A. to focus on its core activity while fulfilling solidly the duties under the acts. In 2006, a team of Chemia.Com S.A. completed a process automation project related to a register of packaging or packaged products traded by the Company. REACH Registration, Evaluation and Authorisation of Chemicals On December 18th, 2006, the European Parliament and Council adopted the draft REACH Regulation. According to the current calendar, the Regulation will come into force in June 2007, which means that the initial registration of substances in the system will probably begin in the autumn of Investing activities Investment made in 2006 Total capital expenditure incurred by CIECH S.A. in 2006 amounted to PLN 4,401,000. The following projects were carried out: construction of a system for IT security management completion of the implementation project for a joint platform providing support for business processes as regards purchasing, sale and finance processes Investment plans for the next 12 months Over the next 12 months, the Company will invest mainly in IT services provided for the Company. The following projects will be carried out: 1. Streamlining of IT solutions 2. Optimisation of a support solution for budgeting and financial consolidation processes 3. Development of tools to support the management of the CIECH Group 4. Optimisation of an IT security monitoring system PLN 9.6 million was allocated for fixed-asset investments in

129 CIECH S.A. Management Report for Major equity investments and their funding methods Equity investment and divestment made in 2006 Investing and divesting activities undertaken in 2006 were aimed at CIECH S.A. concentrating equity in companies that manufactured and traded products in the core portfolio defined in the strategy of CIECH S.A. that intend to form a strong Chemical Group capable of competing effectively with major players in chemical product market. Activities undertaken in the current reporting period comprised not only the taking over of significant blocks of shares in interesting companies but also the follow-up of actions taken in the previous years to organise the Group's structure. On January 10th, 2006 the transaction of sales of 100% of shares in CIECH S.A.'s subsidiary - Petrochemia- Blachownia S.A. in Kędzierzyn Koźle - to BorsodChem Rt. was closed due to a payment of PLN 104 million for shares to CIECH S.A. On March 29th, 2006, a purchase agreement was signed with Nafta Polska S.A. concerning shares in ZCh ZACHEM S.A. and ZCh Organika-Sarzyna S.A. and it was finalised on December 20th, The purchase price of 80% of shares in ZCh ZACHEM S.A. amounted to PLN 80,038,400.00, while the amount of guaranteed investments - PLN 176,120,000. Then the purchase price of 80% of shares in ZCh Organika- Sarzyna S.A. was PLN 244,512,000, while the amount of guaranteed investments PLN 130,000,000. In the case of the purchase of shares in ZCh ZACHEM S.A., the amount of PLN 80,038, includes a so-called withheld amount equal to PLN 12 million. Under the share, purchase agreement on December 20th, 2006 this amount was transferred to an escrow account. The amount shall be settled finally by January 19th, These funds, up to the value of the withheld amount, are earmarked for purposes directly related to the reclamation of land or groundwater that belong to ZCh ZACHEM S.A. or of land for which the Company has the right of perpetual usufruct. According to the provisions of the agreement if specified conditions are met, that is appropriate administrative decisions are received by December 19th, 2007 and the expenditure of a total of PLN 15 million on the implementation of these decisions is documented with invoices, CIECH S.A. will get back the whole amount of PLN 12 million deposited in the escrow account. The purchase price of shares in the companies (comprising costs incurred in connection with the purchase and included in the purchase price) amounted to: ZCh Organika-Sarzyna S.A. PLN 246,243,000, ZCh ZACHEM S.A. PLN 69,382,000 On November 30th, 2006 in Bucharest CIECH S.A. and the Romanian government agency - AVAS - signed an annex to the privatisation agreement concluding the purchase transaction for the majority interest in the soda manufacturing plant Uzinele Sodice Govora S.A. On December 4th, 2006, upon the registration with the Romanian court registration, RIAVEST, with its registered office in Timisoara, CIECH S.A. became the owner of a % block of shares in the soda manufacturing plant S.C. Uzinele Sodice Govora S.A. (31,875,516 shares). The purchase price of shares in the company (comprising costs incurred in connection with the purchase and included in the purchase price) amounted to PLN 39,785,000. On December 28th, 2006 CIECH S.A. sold 1,880,864 shares in the company Cheman S.A., with a par value of PLN 9, that constitute 100% of the share capital to its subsidiary - CIECH FINANCE Spółka z o.o. - in which CIECH S.A. holds 100% of the share capital, for PLN 1. The transaction results from a restructuring strategy adopted for Cheman S.A. All investments will be financed with own funds of the Companies, funds from CIECH S.A.'s divestment transactions and from bank loans Equity investment and divestment plans for the next 12 months Investments and divestments planned for the next 12 months will be implemented according to the existing development strategy, which aims at increasing the Company's goodwill. Efforts are underway to conclude current equity investments and acquire new investment projects, both in Poland and abroad. For 2007, CIECH S.A. has planned capital expenditure of PLN 33,685,000. They are related to investments planned in the company S.C. Uzinele Sodice Govora S.A. At the same time, CIECH S.A. will undertake other investment activities related to taking over manufacturers, which will reinforce the CIECH Group's standing in its current areas of operations and provide opportunities for development of operations in other segments. By implementing the projects for the next 12 months, CIECH S.A. intends: To finalise the consolidation of the soda segment by establishing one company based on Soda Mątwy S.A., Janikosoda S.A. and Elektrociepłownie Kujawskie Sp. z o.o. To continue the process of investment in inorganic product manufacturing companies in CEE countries in order to reinforce the existing Divisions 11

130 CIECH S.A. Management Report for 2006 To continue the process of investment analyses of silicate manufacturing companies in Europe in order to develop the Inorganic Division 2.9 Changes in organisation relationships within the CIECH Group As for changes in organisation relationships within the CIECH Group in 2006, they involved the following Companies: Company Cheman S.A. - as a result of the signature on December 28th, 2006 of the agreement for the sale by CIECH S.A. of 100% of shares in Cheman S.A. to CIECH FINANCE Sp. z o.o., it became an Indirect Subsidiary. Przedsiębiorstwo Transportowo-Usługowe TRANSCLEAN Sp. z o.o. turned from CIECH S.A.'s Co-Subsidiary (50% share in the share capital) to a Subsidiary on December 20th, 2006, as a result of the purchase by CIECH S.A. of 80% of shares in Zakłady Chemiczne ZACHEM S.A., the second Partner of Przedsiębiorstwo Transportowo-Usługowe TRANSCLEAN Sp. z o.o. On December 15th, 2006 the EGSM of the subsidiary InChem Sp. z o.o., in which CIECH S.A. holds 100% of the share capital (PLN 2.7 million), adopted a resolution concerning the dissolution and opening of the liquidation of the company. The resolution ensued from the strategy of capital withdrawal from InChem Sp. z o.o. According to the decision of the District Court in Bydgoszcz, 13th Economic Division of the National Court Register, of March 10th, 2006, received on March 14th, 2006, two indirect subsidiaries of CIECH S.A. - Transoda Sp. z o.o. and Jantrans-Janikowo Sp. z o.o. - were merged, as a company taking over and a company taken over respectively, according to the procedure specified in art point 1 of the Commercial Companies Code. The share capital of Transoda Sp. z o.o. upon merger is PLN 27,653, Transactions with CIECH's affiliates Information on transactions with affiliates is provided in Section 7 of additional explanatory notes to the Financial Statement of CIECH SA Information on loans, borrowing agreements and on sureties and guarantees granted In 2006, CIECH S.A. took out a long-term loan to the amount of PLN 216,000,000 earmarked for the purchase of shares in ZCh Organika-Sarzyna S.A. The Company also used working capital loans. Detailed information on loans taken out is provided in notes 19d and 20c of the Financial Statement. Information on sureties and guarantees granted is provided in Annex Information on borrowings granted Table Borrowings granted Borrower Repayment date Amount of borrowing in PLN plus capitalised interest Cheman S.A ,000, Cheman S.A ,800, Cheman S.A ,650, Vitrosilicon S.A ,500, Vitrosilicon S.A ,500, Zachem S.A ,000, Govora S.A.-Romania borrowing of EUR 4 million interest of EUR 9, ,361, Terms and conditions Interest rate 5.5% per annum Interest rate: 3M WIBOR + 1% Interest rate: 3M WIBOR + 1% Interest rate: 3M WIBOR + 1% Interest rate: 3M WIBOR + 1% Interest rate: 1M WIBOR + 1% Interest rate: 1M EURIBOR + 1.5% Borrower's affiliation with Ciech S.A. Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary 12

131 CIECH S.A. Management Report for 2006 Govora S.A.-Romania borrowing of EUR 16 million interest of EUR ,333, , TOTAL 146,145, Figures at the average NBP exchange rate of Interest rate: 1M EURIBOR + 1.5% Subsidiary 2.13 Information on security issues in CIECH No issue or redemption of shares or issue of debt securities occurred in Information on purchase of treasury shares by the parent company In the financial year 2006, the Company did not purchase any treasury shares CIECH's financial resource management The CIECH Group restructures its area of operations focusing on products segments considered to be strategic. In 2006, it started to develop the Organic Division, which resulted in a clear growth of income particularly noticeable in the 4th quarter of the year. A high-income dynamics was also recorded in the Soda Division (mainly due to taking advantage of the market situation an increase in prices). At the same time, as part of its strategy CIECH S.A. reduced significantly its operations within the petrochemical segment in As a result of the mentioned actions, the Company's operating profitability increased significantly, which proves the development of CIECH S.A.'s core activities. The tables below show the main figures concerning financial results and profitability: Table Profitability ratios of the CIECH S.A. A. Item I-XII 2006 I-XII 2005 Net income from sales 1,640,918 1,588,892 Profit on sales 115,027 61,248 Operating profit 107,039 58,395 Net profit 166,739 41,900 Return on sales 7.01% 3.85% Profitability of operating activities 6.52% 3.68% Net return on sales (ROS) 10.16% 2.64% Total return on assets (ROA) 12.04% 4.64% Return on equity (ROE) 22.89% 7.17% Source: CIECH S.A. Ratio calculation principles: return on sales profit on sales for a given period / net income from sales of products, services, goods and materials profitability of operating activities operating profit for a given period / net income from sales of products, services, goods and materials net return on sales (ROS) net earnings for a given period / net income from sales of products, services, goods, and materials return on assets (ROA) net profit / assets as of the end of the given period return on equity (ROE) net profit / equity as of the end of the given period Evaluation of the liquidity of CIECH S.A. CIECH S.A. has the full capacity to settle its liabilities on time. In 2006, liquidity ratios decreased, mainly due to an increase in short-term loans (including the short-term portion of investment loans). This was intentional and aimed at the optimisation of using a financing source, which would be cheaper than equity, which are liabilities towards banks. Despite a decrease in the value, the quick ratio was close to the safety standard (1.0) and amounted to

132 CIECH S.A. Management Report for 2006 Table Liquidity ratios Item Current ratio Quick ratio Source: CIECH S.A. Ratio calculation principles: current ratio the ratio of the current assets to the total current liabilities as of the end of the given period; it reflects the company's ability to repay its current liabilities using its current assets quick ratio the ratio of the current assets less inventories to the total current liabilities as of the end of the given period; it reflects the company's ability to accumulate cash in a short time to finance its liabilities with a short due date Working capital and turnover ratios in CIECH S.A. The financing structure of the Company's operations is mainly due to its trading business. Trading entities finance most of their current assets with trade liabilities and the remaining part with short-term loans. At the same time, the amount of the working capital is influenced by the operations of CIECH S.A. as the parent company of the Capital Group. When acquiring new entities, the Company uses investment loans. At the end of 2006, the working capital was negative and amounted to PLN 69,000. The year before the working capital was equal to PLN 138,997,000. The decrease in 2006 was above all due to an increase in short-term loans (including the short-term portion of investment loans). The demand for current assets increased in 2006 to PLN 84,359,000. The increase by PLN 18,528,000 in comparison with December 31st, 2005 was mainly a result of an increase in receivables and to a lesser extent of inventories. This was an effect of a high dynamics of sales in the last quarter of 2006 mainly due to the development of the Organic Division. Table Working capital of CIECH S.A. (in thousand PLN) Item 1. Current assets 2. Cash and other short-term investments 3. Adjusted current assets (1-2) 4. Short-term liabilities 5. Short-term loans and other financial liabilities 6. Adjusted short-term liabilities (4-5) 7. Working capital (1-4) 8. Demand for current assets (3-6) 9. Net cash balance (7-8) Source: CIECH S.A , ,311 64,044 88, , , , , ,472 15, , , ,997 84,359 65,831-84,428 73,166 The extension of the cash conversion cycle in 2006 was mainly due to an increase in the share of transactions with a receivable repayment term longer than the liability repayment term in the sales by CIECH S.A. (mainly TDI). Table Turnover cycles for the main working capital items of CIECH S.A. (number of days) Item Inventory turnover 4 3 Trade receivables turnover Trade liabilities turnover Operating cycle Cash conversion cycle 11 8 Source: CIECH S.A. Ratio calculation principles: inventory turnover the ratio of inventories at the end of the given period to the operating costs for the given period, multiplied by the number of days in the period trade receivables turnover - the ratio of trade receivables at the end of the given period to the net sales income for the given period, multiplied by the number of days in the period trade liabilities turnover the ratio of trade liabilities at the end of the given period to the operating costs for the given period, multiplied by the number of days in the period operating cycle - total inventory turnover and trade receivables turnover 14

133 cash conversion cycle the difference between the operating cycle and the trade liabilities turnover Evaluation of the debt of CIECH S.A. CIECH S.A. Management Report for 2006 An increase in the assets of CIECH S.A. in 2006 (including mainly acquisition purchases) was financed chiefly with bank loans. As a result, debt-related financial ratios were optimised. An increase in ratios is evidence to the fact of taking advantage of the potential of financing acquisitions from external sources that the Group gained after its debut on the stock exchange in 2006 and that was announced in strategic plans. Debt ratios still maintain their safety levels. Table Debt ratios Item Debt ratio 44.9% 32.1% Long-term debt ratio 14.9% 2.1% Debt to equity ratio 85.3% 49.6% Equity to assets ratio 52.6% 64.7% Source: CIECH S.A. Ratio calculation principles: debt ratio the ratio of short and long-term liabilities to total assets; it reflects the share of external financing resources in the company's operations long-term debt ratio the ratio of long-term liabilities to total assets; it reflects the share of long-term liabilities in the financing of operations debt to equity ratio the ratio of total liabilities to equity equity to assets ratio the ratio of equity to total assets; it represents the share of own funds in the financing of the operations 2.16 Assessment of the possibility to implement investment assumptions compared to the funds held, taking into consideration possible changes in the structure of financing of such operations All planned investment expenses will be financed with own funds and only in the case of the implementation of a greater number of new equity investment projects (acquisitions) the Company intends to finance some long-term expenses with a long-term bank loan or issue of bonds CIECH's financial risk management CIECH S.A. actively manages its operating and financial risk, in an attempt to optimise cash flows and maximise the Company's market value. To provide constant risk monitoring, the Management Board of CIECH S.A. appointed the Risk Committee that implements procedures of the risk management system. In the course of work, the Risk Committee identified and evaluated financial and operating risks to which the CIECH Group is exposed. In the current operations, risk management lies with risk owners reporting periodically to the Risk Committee. The Risk Committee decides on management strategies as regards individual risks and submits quarterly reports to the Management Board of CIECH S.A. as regards efficiency of the risk management system. As for financial risks, the Company is exposed to the following: - FX risk - credit risk - interest rate risk FX risk FX risk is an inherent part of commercial transactions denominated in foreign currencies. CIECH S.A. faces FX exposure as part of its import and export activity. The exposure stems from significant predominance of export over import. Thanks to its internal security procedures, the Company is able to limit significantly its FX risk, thus increasing the stability of its core operations. CIECH S.A. systematically entered into hedge transactions to limit the impact of exchange rate fluctuations on its profit. The Company uses natural hedging, by balancing its import and export flows, and utilises derivative instruments to reduce the FX risk. The transactions used to hedge cash flows included the following hedge transactions: - Forward, allowing the Company to hedge its cash flow at a fixed exchange rate - Par forward - allowing the Company to hedge numerous petty cash flows at an average exchange rate for a given period - Average Strike Option - allowing the Company to hedge numerous cash flows effected in a short period of time 15

134 CIECH S.A. Management Report for Currency and interest rate swaps - aimed at eliminating the impact of FX risk on valuation of longterm loans taken by the Company Financial instruments are described in detail in Section of the additional explanatory notes to the financial statement. a) Credit risk CIECH S.A. is exposed to credit risk related to creditworthiness of its customers who are involved in the Company's sales transactions of products and goods. The risk is mitigated by applying internal procedures for managing customer receivables and for determining loan limits for customers. Risk assessment is made prior to conclusion of each agreement, and then periodically for each supply of goods, in accordance with the Company's applicable procedures. A profitability calculation is carried out for each contract, taking into account the credit risk related to the customer. The calculation serves as a basis for decisions to conclude the contract with the customer. Interest rate risk CIECH S.A. is exposed to interest rate risk entailed in its debt. In 2006, the Company concluded no hedging transactions against interest rate risk. The exposure to interest rate risk is described in Section e) of the additional explanatory notes to the financial statement. The Company does not apply hedge accounting. Application of hedge accounting would not materially influence the presented financial statements of the Company Changes in the basic management principles of the Company/Capital Group In 2005, there were no material changes in the management principles of the Company and its Group Information on employment at the Company In the period from January to August 2006 as a result of the employment restructuring carried out in 2005 the number of full-time jobs at CIECH S.A. remained stable. In September of 2006 the Management Board of CIECH S.A. intensified work aimed at the completion of the organisation project in the area of corporate governance and trading activity commencement of the operations by the Organika Division, which involved the need to increase the number of full-time jobs in these two areas. The employment at the end of 2006 was finally at of full-time jobs. The follow-up of organisation projects planned for 2007 provides for an increase in the number of full-time jobs at CIECH S.A Changes to the managing and supervisory bodies in the previous year As of January 1st, 2006, the composition of the Company's Management Board was as follows: 1. Mr Ludwik Klinkosz President of the Management Board 2. Mr Jerzy Golis Member of the Management Board 3. Mr Stefan Rojewski Member of the Management Board On July 24th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed Mr Ludwik Klinkosz President of the Management Board - and Mr Jerzy Golis Member of the Management Board - from the Management Board of CIECH S.A. On the same day, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed Mr Mirosław Kochalski as the President of the Management Board of CIECH S.A. and Mr Wojciech Wardacki as a Member of the Management Board. On August 2nd, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed Mr Stefan Rojewski from the Management Board. On August 8th, 2006 the Supervisory Board of CIECH S.A. delegated Mr Wiktor Cwynar to replace the dismissed Member of the Management Board of CIECH S.A. and to perform temporarily the duties of a member of the Management Board of Ciech S.A. until the General Shareholders' Meeting supplemented the Company's Management Board so that it would have the minimum number of members as determined in the Articles of Association of CIECH S.A. 16

135 CIECH S.A. Management Report for 2006 The Extraordinary General Shareholder's Meeting of CIECH S.A. on September 15th, 2006 supplemented the Management Board of CIECH S.A., appointing Mr Rafał Pasieka to the Management Board. As of December 31st, 2006, the composition of the Management Board of CIECH S.A. was as follows: 6. Mr Mirosław Kochalski - President of the Management Board 7. Mr Wojciech Wardacki - Member of the Management Board 8. Mr Rafał Pasieka - Member of the Management Board On January 31st, 2007, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed Mr Marek Trosiński to the Company's Management Board. On July 25th, 2006, the Management Board of CIECH S.A. revoked the joint proxy of Mr Kazimierz Przełomski. On November 27th, 2006, the Management Board of CIECH S.A. again granted Mr Kazimierz Przełomski a proxy, which authorises him to act jointly with a member of the Management Board of CIECH SA. As of January 1st, 2006, the composition of the Supervisory Board of CIECH S.A. was as follows: 1. Mr Edmund Pietrzak - Chairman of the Supervisory Board 2. Ms Elżbieta Boniuszko - Deputy Chairman of the Supervisory Board 3. Ms Magdalena Bąkowska Member of the Supervisory Board 4. Mr Zygmunt Bosiakowski Member of the Supervisory Board 5. Mr Andrzej Buczak Member of the Supervisory Board 6. Mr Dariusz Krajowski-Kukiel Member of the Supervisory Board 7. Mr Edmund Kozak Member of the Supervisory Board 8. Mr Ireneusz Król Member of the Supervisory Board On February 17th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. changed the composition of the Supervisory Board by: dismissing the following members of the Supervisory Board: 1. Ms Elżbieta Boniuszko 2. Mr Zygmunt Bosiakowski 3. Mr Andrzej Buczak 4. Mr Edmund Kozak 5. Mr Ireneusz Król appointing the following members of the Supervisory Board of CIECH S.A.: 1. Ms Krystyna Dziworska 2. Mr Maksymilian Klank 3. Mr Marek Konopczyński 4. Mr Zbigniew Markowski 5. Mr Wiesław Piosik 6. Mr Maciej Rudnicki On July 24th, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. dismissed the following members of the Company's Supervisory Board: 1. Mr Edmund Pietrzak 2. Mr Maksymilian Klank 3. Ms Magdalena Bąkowska 4. Ms Krystyna Dziworska 5. Mr Marek Konopczyński 6. Mr Wiesław Piosik 7. Mr Maciej Rudnicki On the same day, the Extraordinary General Shareholders' Meeting of CIECH S.A. appointed the following members of the Supervisory Board of CIECH S.A.: 1. Mr Andrzej Cwynar 2. Mr Grzegorz Miś 3. Mr Wojciech Fedko 17

136 CIECH S.A. Management Report for 2006 On August 2nd, 2006, the Extraordinary General Shareholders' Meeting of CIECH S.A. also changed the composition of the Supervisory Board by: dismissing from the Board: 1. Mr Andrzej Cwynar 2. Mr Zbigniew Markowski appointing to the Board: 1. Mr Wiktor Cwynar 2. Ms Alicja Pimpicka As of December 31st, 2006, the composition of the Supervisory Board of CIECH S.A. was as follows: 1. Mr Grzegorz Miś - Chairman of the Supervisory Board 2. Ms Alicja Pimpicka - Deputy Chairman of the Supervisory Board 3. Mr Wiktor Cwynar Member of the Supervisory Board 4. Mr Wojciech Fedko Member of the Supervisory Board 5. Mr Dariusz Krajowski-Kukiel Member of the Supervisory Board 2.21 Policies governing the appointment and dismissal of the management bodies and the powers of the management bodies, especially the right to decide on the issue or redemption of shares According to the Articles of Association of CIECH S.A., powers to appoint and dismiss members of the Management Board, including the President of the Board, lie with the General Shareholders' Meeting. The powers of the management bodies are specified in the Commercial Companies Code and the Company's Articles of Association. The management bodies have no specific powers to decide on the issue or redemption of shares Information on agreements between the issuer and the management bodies providing for compensation in case of resignation or discharge without good reasons or when dismissal or discharge is caused by the issuer's incorporation by acquisition If a person is dismissed from their position or if the employment contract is terminated due to reasons other than a failure to meet the basic obligations resulting from the employment, the employment contract of the Members of the Management Board provides for a one-off severance pay to the amount of the total remuneration due for the last six months of the performance of the function. The Non-Compete Agreement with the Management Board Members states that upon termination of employment, they are entitled to a 12-month compensation of 80% of the average remuneration paid during the 12 whole calendar months preceding the termination date Information on the value of remunerations, awards or benefits paid, due or potentially due, separately to each member of the issuer's managing or supervisory bodies at the issuer's company For details, see Section 10 of the additional explanatory notes to the financial statement of CIECH S.A Total number and a par value of all the shares in the Company and the shares and stakes in affiliates held by members of the managing and supervisory bodies The members of managing and supervisory bodies do not hold shares in CIECH S.A. or shares or stocks in its affiliates. 18

137 CIECH S.A. Management Report for Information on shareholders holding at least 5% of the total number of votes at the general shareholders' meeting of CIECH S.A. According to the information received by the Company's Management Board, the following entities hold at least 5% of the total number of votes at general shareholders' meetings of the Company: Kompania Węglowa S.A. - 10,270,800 shares constituting % of the share capital of CIECH S.A.; votes: 10,270,800 constituting 36.68% of the total number of votes at the General Meeting. Franklin Templeton Investments 2,000,000 shares directly constituting 7.14% of the share capital of CIECH S.A.; votes: 2,000,000 directly constituting 7.14% of the total number of votes at the General Meeting. Otwarty Fundusz Emerytalny PZU Złota Jesień 1,712,732 shares constituting 6.12% of the share capital of CIECH S.A.; votes: 1,712,732 constituting 6.12% of the total number of votes at the General Meeting. Commercial Union Investment Management S.A. (CUIM) Poland 1,504,961 shares constituting 5.37% of the share capital of CIECH S.A. votes: 1,504,961 constituting 5.37% of the total number of votes at the General Meeting. Pioneer Pekao Investment Management S.A. (PPIM) 1,410,325 shares constituting 5.04% of the share capital of CIECH S.A.; votes: 1,410,325 constituting 5.04% of the total number of votes at the General Meeting: including Pioneer investment funds managed by PPIM 1,443,379 shares constituting 5.15% of the share capital of CIECH S.A.; votes: 1,443,379 constituting 5.15% of the total number of votes at the General Meeting. On February 5th, 2007, the Management Board of CIECH S.A. received a notification that as a result of two transactions for the disposal of shares in CIECH S.A., carried out on the Warsaw Stock Exchange on February 2nd, 2007, Franklin Resources, Inc and its associates did no longer hold shares in CIECH S.A. After carrying out the transactions, Franklin Resources, Inc and its associates hold 0% of the share capital of CIECH S.A Information on agreements that may change the proportion of interest held by the current shareholders and bond holders The Company has no information about agreements that may change the proportion of interest held by the current shareholders Information on holders of any securities which give special rights of control over the issuer and their description There are no securities in CIECH, which give special rights of control over the issuer Information on all limitations on transfer of the issuer's ownership of securities and limitations on the use of the voting rights originating from the issuer's shares There are no limitations on transfer of the ownership of securities at the CIECH Company. There are no limitations on the use of the voting rights originating from shares of CIECH S.A Information on the control system of employee stock plans There is no employee stock plan at the CIECH Company Information on agreements concluded with the entity authorised to audit financial statements Table List of agreements with Deloitte Audyt SP. z o.o. concluded in Name of entity Agreement date Subject of agreement Review and audit of financial statements (6 months ending on June 30th, 2006 and 12 months ending on December 31st, 2006) Agreement value in EUR/ USD plus information on additional costs EUR 111, reimbursement of expenses up to 10% of the value of the agreement 19

138 CIECH S.A. Management Report for Material events that impacted the Company's operations and financial results in 2005 or may influence them in future periods Considerable growth of the operations and revenue of CIECH S.A. and the CIECH Group due to the purchase in the previous year by CIECH S.A. of: 80% of shares in the companies: ZACHEM S.A. and Organika-Sarzyna S.A. and 93.14% of shares in the Romanian soda company Uzinele Sodice Govora S.A. Continuation of the process of investment in inorganic product manufacturing companies in CEE countries in order to reinforce the existing Divisions. Continuation of the process of investment analyses of silicate manufacturing companies for example in CEE countries. Continuing prosperity of the European glass-making industry and construction industry, which are important target markets for Ciech S.A. (especially concerning the recently launched and planned new glass production lines in Central and Eastern Europe and in Eastern Europe). Plans for increasing the production capacity of soda ash in Russia, Ukraine, Romania, and Bulgaria in the next few years, the production being intended mainly to meet the growing demand of the markets in these countries. Plans for closing down some NPK fertiliser production installations in France (Grande Paroisse), which will make it possible to balance the market for these products in Europe and will improve the competitive position of the CIECH Group in this respect. Closing in August 2006 of the TDI system at the concern Dow Chemical, Italy (with production capacities of approx. 110,000 tons/year that account for a dozen or so per cent of production capacities of Europe), which will contribute to an improvement of the competitive positions of other European suppliers, including CIECH S.A. Soda ash price increases by European suppliers by approx. 2-3% on average for contracts for Lower volumes of supplies of competitive soda ash from USA to Europe expected for 2007 (yielding to exports to China). 3 GROWTH PROSPECTS FOR THE OPERATIONS OF THE COMPANY / CAPITAL GROUP Prospects of development for CIECH S.A. and the CIECH Group are related to both the pace of implementation of the assumed development strategy of the Company and the CIECH Group as well as external factors, which include: large potential for the growth in demand for chemicals in Poland (where their per capita use is slightly over EUR 300 and still remains approx. 4-times lower than in Western Europe) competitiveness of Polish chemical products on foreign markets, proved by high export dynamics CIECH S.A. believes that the positive macroeconomic trends and the assumed parameters of key investment projects of the Group will be the driving force for achieving the critical strategic targets, including in particular higher operating profitability in the next 2-3 years. A short-term goal of CIECH S.A. and the CIECH Group is to strengthen their current market position in their core business segments and key products. The range of products of CIECH S.A. also includes many mature products (soda ash, evaporated salt, baking soda), with an established market standing and stable growth dynamics. The activity of CIECH S.A. with respect to this product group will include: continuation of changes to cut manufacturing costs by enhancing operational excellence employment of market niches to develop the core portfolio of the Group's products acquisition of cheap raw materials to reduce unit costs of the manufactured products With respect to products with higher growth dynamics (such as glass hollow blocks, holders, TDI and resins), CIECH S.A. is planning to increase its sales of these products and their market share. The long-term strategy of CIECH S.A. and the CIECH Group will focus on: strengthening of the leading position in the core portfolio product markets vertical concentration of the manufacture (from securing cheap raw material sources to reaching the end consumer, using its own distribution network where it is economically sound) manufacturing of ultimately processed products with prospective application markets, defined as a core portfolio 3.1 Material risk factors and threats, and degree of the exposure of the Company / Capital Group 20

139 CIECH S.A. Management Report for 2006 Risk of reversal of the positive economic growth rate trends in Poland CIECH S.A.'s business is connected with many segments of the broadly understood chemical industry that are directly correlated with the general economic situation. Now, Polish economic growth in terms of GDP equals several percent a year. In spite of the fact that long-term forecasts generally indicate that the high economic growth will remain stable, the risk of a temporary economic slump in Poland cannot be ruled out (for instance due to slow growth of internal demand and the export slump). The chemical sector may suffer indirect consequences of a possible downturn in the economy. A weaker demand for chemical products may affect CIECH S.A.'s revenues and impair its financial performance. Risk of economic stagnation in Europe and worldwide CIECH S.A. s operations rely largely on chemical product exports, the level and profitability of which depend on the global economic situation in Europe and worldwide. A global downturn in the world economy can possibly affect the export trade volumes in foreign markets, thus reducing income in the individual segments of the operation of CIECH S.A. Risk of an increase of competition in the soda sector The main products of the CIECH Group include soda products manufactured in subsidiaries: JZS Janikosoda S.A., IZCh Soda Mątwy S.A., and SC Uzinele Sodice Govora S.A. The processes of concentration of production, which can be more and more often observed in Europe, contribute to the increase of competition from big, overregional chemical corporations that manufacture soda ash. Risk of a drop in demand in the segment of the consumers of toluene diisocyanate (TDI) As a result of the purchase of 80% of shares in the company Zachem S.A., CIECH S.A. became the main shareholder of the only domestic manufacturer of toluene diisocyanate (TDI) - a semi-finished product for the manufacture of polyurethane foams used mainly in the furniture and automotive industries. CIECH S.A. is also the sole seller of TDI from ZCh Zachem S.A. (a major product of the CIECH Group). The TDI market is global in nature, although in the European practice the majority of trade in this product is carried out on the continent. Bearing in mind the target segments of consumers (furniture and automotive industries); the situation in the sector of TDI manufacturers is closely related to the general economic situation. If this economic situation deteriorates drastically, the demand for TDI also falls. There is a possibility for suppliers to protect themselves against a downturn in the economy, at some regional markets only, by being constantly present at many global markets. CIECH S.A. also carries out such operations 3.2 Overview of internal and external factors significant to the growth of the Company External factors of a general nature Economic situation in Europe and worldwide CIECH S.A. s operations rely largely on chemical product exports, the level and profitability of which depend on the global economic situation in Europe and worldwide. A global economic slump could affect the demand for raw materials on global markets, thus reducing the exports turnover of CIECH S.A. It is estimated that in 2007 global economy will grow slower than last year (increase in GDP by 3.1% as compared to 3.9% in 2006 according to the European Chemical Industry Council - CEFIC). In the European Union (25) the dynamics will be even smaller (2.3% as compared to 2.7% in 2006). In Eastern Europe, the economic growth (also lower than last year) however will be more than twice as fast as in the EU. As for 2007, CEFIC predicts a decrease in the chemical production dynamics in EU25 (for chemicals without pharmacy to 2.2% from 2.5% in 2006). At the same time, it is expected that in the region of Central and Eastern Europe the demand growth rate will increase by 5-6% year-to-year in the next few years. Situation in the industries of the consumers of the Company's products in Poland CIECH S.A. supplies most of its products directly to the following Polish industries: the chemical and plastics industry and the glass-making industry. How those industries expand depends on the general economic situation in Poland. The industrial production at fixed prices recorded in the 12 months of 2006 increased by as much as 11.8% (in 2005 by 4.1%). The dynamics of the chemical industry was +11.0% (+3.3% in 2005) with regard to the manufacture of chemical products and +14.2% (+9.1% in 2005) with regard to the manufacture of rubber and plastics products. For 2007, very cautious forecasts predicted a slight slow-down in the economic growth of the country as compared to the 5.8% GDP dynamics in On the basis of the very good results of the economy at the beginning of this year, it is estimated that the GDP dynamics in 2007 will grow. This suggests that high dynamics of the sales of the chemical sector, which usually grows at a similar or faster pace than the whole economy, will remain stable. Financial standing of the agricultural industry 21

140 CIECH S.A. Management Report for 2006 CIECH S.A. derives a certain portion of its revenue, mainly on mineral fertilisers and plant protection chemicals, from the agricultural sector. CIECH S.A. estimates that the demand for its mineral fertilisers in Poland should remain stable, with a growing significance of multiple-compound fertilisers. The factors that contribute to an increase in the consumption of agro-chemical products and consequently, the demand for the products of the CIECH Capital Group are the processes aimed at improving the financial standing and profitability of agricultural production, including production quotas and direct payments. The above should translate into an increase in the revenues of CIECH S.A. If no significant purchasing-power improvement is recorded in the agricultural sector, the demand for fertilisers and plant protection chemicals will slacken, as will CIECH S.A.'s income from agro-chemical product sales. Situation in the raw material market An essential portion of the turnover of CIECH S.A. is generated from imports of chemical raw materials to Poland. Raw-material markets are characterised by high cyclicality, prompted by fluctuations in the world economy. On the one hand, growing prices of raw materials force the trading agents to lower their mark-ups and lead to lower customer demand. Declining prices, on the other hand, are usually a sign of lower demand and the onset of an economic slump. If the stable economic growth rate and steady prices of chemical raw materials continue, this will benefit the imports of raw materials by CIECH S.A. Large fluctuations in demand and prices, caused either by high economic growth rate or by an economic slump, may negatively affect CIECH S.A. s trade in chemical raw materials. Draft EU law on registration and evaluation of chemicals (REACH system) On December 18th, 2006, the European Parliament and Council adopted the draft REACH Regulation. According to the current calendar, the Regulation will come into force in June 2007, which means that the initial registration of substances in the system will probably begin in the autumn of Under Resolution of January 16th, this year the Management Board of CIECH S.A. appointed a REACH Task Team whose aim will be to supervise the preparation of CIECH S.A. and Companies in the CIECH Group for the implementation of the system and to minimise the related risk. PLN/EURO exchange rates The majority of export sales of CIECH S.A. are settled in EURO. A strong EURO means higher profitability of export sales, for both CIECH S.A. and other chemical industry players in Poland. It also increases CIECH S.A.'s trade volumes with other manufacturers. As a result, the EUR/PLN exchange rate affects CIECH S.A.'s return on sales. However, if the domestic currency becomes stronger against EURO, the profitability of exports will probably decline and CIECH S.A.'s export volumes will be negatively affected. Internal factors Implementation of the current technology investment projects such as: construction of a monohydrate system and development of a countrywide distribution system for evaporated salt The purpose of the technology investments implemented or planned at the CIECH Group is to increase the production capacity for high-yield products, enhance the quality and properties of its products (the monohydrate investment) and launch new products with the potential for becoming market leaders (feed phosphates). The evaporated salt project in turn is aimed at introducing the CIECH Group to the evaporated salt distribution market and allowing it to create its own brand. Completion of the salt project also results in increased opportunities of custom packing of salt, thanks to equity or fixed-asset investments. The projects will be crucial to maintaining the competitive edge and strengthening the market position in selected areas of the CIECH Group's operations. The CIECH Group expects that its technology investments will enable it to maintain its leadership of the Polish soda-ash market reinforce its standing in the agro-chemical sector and achieve a leading position in the evaporated salt retail market. Achievement of the project targets should also bring about an increase in revenue and in return on sales. Implementation of investment projects at the recently purchased companies: ZACHEM S.A., Organika- Sarzyna S.A. and Uzinele Sodice Govora S.A. In accordance with the obligations under Privatisation Agreements concerning Zachem and Organika-Sarzyna and plans regarding Uzinele Sodice Govora SA, CIECH carries out investment packages aimed at the modernisation and development of these Plants. ZACHEM S.A. the main investment trends include: Modernisation work for the basic production lines resulting from the present state of technology aimed at increasing production capacities and reducing manufacturing costs Building of new manufacturing units in order to balance the requirements for main raw materials and become independent of external sources and ultimately to lead to a reduction in manufacturing costs Completion of investment tasks that reduce the environmental impact and meet the requirements of the Environmental Protection Law, at the same time the main investment task in this area is the building of a modern electrolysis system for chlorine manufacturing. Organika-Sarzyna S.A. development plans cover the following trends: New investments whose implementation will enrich the current market offer of the Company Expansion of the current production capacities for products that are attractive for the market Reconstruction of the production assets of the Company technological modernisation and modern control systems 22

141 Environmental-protection related investments CIECH S.A. Management Report for 2006 Uzinele Sodice Govora S.A. development plans cover the following trends: Expansion of the current production capacities for soda ash Modernisation of the existing production assets of the Company Environmental-protection related investments Effective internal consolidation of the soda segment The project of consolidation of the soda segment consists in: (i) acquiring 100% of shares in both soda companies by purchase of the remaining shares from minor shareholders, (ii) integration of the Division by a merger of the soda companies and (iii) continued cost streamlining. A decision has already been made that the integration of the Soda Division will begin and according to the plan, by the end of the second quarter of 2007, Janikowskie Zakłady Chemiczne Janikosoda S.A., Inowrocławskie Zakłady Chemiczne Soda Mątwy S.A. and Elektrociepłownie Kujawskie Sp. z o.o. will have formed one company with production capacities of 1,200,000 tons of soda a year. The execution of this project and implementation of operational excellence projects will allow for further cuts in the Division's operating costs, leading to an increase in the CIECH Group's competitive edge in the soda segment. Growth strategy advancement opportunities, with a focus on new division building A new organisational unit of CIECH S.A. - Organika Division - was appointed at the beginning of It was formed on the basis of the companies Zachem S.A. and Organika-Sarzyna S.A. and a part of CIECH S.A. In January 2007, formal efforts were also undertaken to update the growth strategy for the CIECH Capital Group and Organika Division that would allow for all synergies expected as a result of the integration of the above plants with the CIECH Group that has already started. As part of its growth strategy, the CIECH Group plans to build two other divisions (complementary to the existing Soda and Organika Divisions) to handle the Group's other key areas of the chemical sector: agro-chemical products and inorganic products. 3.3 Anticipated development of the Company / Group The CIECH Group's strategy aims at maximisation of the Group's goodwill by creating a strong chemical concern of a regional character, focused on some specific market segments, namely on products which offer high added value, considerable potential for market growth and complementary nature. In January 2007, formal efforts were also undertaken to update the growth strategy for the CIECH Capital Group and Organika Division that would allow for all synergies expected as a result of the integration of the CIECH Group with the newly acquired entities: ZACHEM S.A., Organika-Sarzyna S.A., and Uzinele Sodice Govora S.A. that has already started. Once the strategic vision is fulfilled, the CIECH Group will be transformed into a chemical concern composed of separate divisions handling the Group's key areas of the chemical sector. Through each division, the Group will manage a specific product portfolio with parameters, which will provide the Group with an income of over EUR 1 billion a year and EBITDA of more than 12% in a short period. The current growth strategy advancement involves the following: increasing of the added value in the soda sector by means of further internal consolidation of the soda sector (establishment of one company based on Janikosoda S.A., Soda Mątwy S.A. and Elektrociepłownie Kujawskie Sp. z o.o.), technology investments (monohydrate) and acquisitions (integration of the company US Govora with the Soda Division) development of the Organika Division based on ZACHEM S.A., Organika-Sarzyna S.A. and a part of CIECH S.A. achievement of a strong position in the Polish agro-chemical market due to the development of the agrochemical division through fixed-asset investments in subsidiaries: GZNF Fosfory Sp. z o.o. and ZCh Alwernia S.A. and due to future equity investments development of the inorganic division through fixed-asset investments in Vitrosilicon SA, a subsidiary, to increase its manufacturing capacity and through future equity investments Ultimately, the CIECH Group's operations will comprise almost exclusively the manufacture and sale of the products of the core portfolio meeting the market position and added-value requirements. The process of reorganising the portfolio is being carried out on two levels: one the one hand, the share of non-core products and goods (e.g. petrochemical products) in the CIECH Group's portfolio is gradually decreasing, and, on the other hand, the portfolio is being enriched with attractive non-group products (e.g. TDI, foams, polyester and epoxy resins and plant protection chemicals). At the same time, the CIECH Group's members are implementing their own investment schemes to increase the volumes of core-product manufacturing (organic growth - e.g. glass hollow blocks and evaporated salt). While gradually abandoning the non-core portfolio, CIECH S.A. is making divestments from selected manufacturing and trading companies in the Group. The divestments are intended, first, to be able to focus on the core business (core portfolio), and, second, to gain funds to finance further acquisitions and investments. CIECH S.A. is also gradually withdrawing from its current trade in non-core low-yield products. 23

142 CIECH S.A. Management Report for ANNEXES 4.1 Information on main products, goods or services at CIECH S.A. Table Structure of sales of goods and materials in the period from to Name of product, product group, goods or service Quantity in thousand tons Net sales value Share % Dense soda , % Light soda , % Fertilisers , % EPI , % PVC , % Dry salt , % Phosphorites , % TDI , % Other 527, % TOTAL 1,640, % 4.2 Information on changes in the market Table Geographical structure of sales of goods, materials, and services Net sales value in thousand PLN goods and materials products and services Poland 779,013 10,075 export: 816,532 35,298 -European Union 694,530 11,221 -Other European countries 49, Africa 1,980 9,720 -Asia 60,537 13,207 -Other 9,

143 CIECH S.A. Management Report for 2006 Table CIECH S.A.'s largest customers Name of customer Net sales value share Affiliation with Ciech S.A. GZNF Fosfory S.A. 61, % subsidiary Owens-Illinois 55, % none Alwernia SA 58, % subsidiary Interore SA 54, % none Landhandel 30, % none Procter and Gamble 28, % none Guardian 27, % none Cheman 27, % subsidiary Other 1,295, % Total 1,640, % 4.3 Information on changes in suppliers of manufacturing materials, goods and services Table Geographical structure of purchases Net purchase value in thousand PLN goods and materials products and services Poland 1,123,786.1 import: 232, European Union 60, Other European countries 5, Africa 48, Asia 29, Other Table Suppliers accounting for more than 10% of total supplies Name of supplier Net purchase value share Affiliation with Ciech S.A. Soda Mątwy S.A. 316, % subsidiary Janikosoda S.A. 325, % subsidiary Other 714, % Total 1,356, % 25

144 4.4 Information on sureties and guarantees granted CIECH S.A. Management Report for 2006 Table Sureties and guarantees granted Obligee's name Amount of loans covered in full or in a specific part with the surety Surety period Financial terms of sureties, including surety fee due to the company Principal Affiliation between CIECH S.A. and the borrower currency in thousand PLN KREDYT BANK S.A. Sieradz Branch 4,500 until Payment to CIECH S.A. equal to 1% of the surety value Cheman S.A. - Warsaw Subsidiary KREDYT BANK S.A. Sieradz Branch 3,750 until payment to CIECH S.A. equal to 1% of the surety value Cheman S.A. - Warsaw Subsidiary PKN ORLEN S.A. 1,200 no fixed date BANK PKO S.A. 1st Branch in Warsaw BANK PKO S.A. 1st Branch in Warsaw LokalBanken - Denmark DKK 1,000,000 Total CIECH S.A. 14, until ,000 until payment to CIECH S.A. equal to 1% of the surety value Payment to CIECH S.A. equal to 1% of the surety (of PLN 2 million) + PLN 10,000 on increase + PLN 4,000 + PLN on extension Cheman S.A. - Warsaw Cheman S.A. - Warsaw Cheman S.A. - Warsaw Payment to CIECH S.A. equal to 1% of Danske Unipol A.S. the guarantee value Denmark + reimbursement of banking costs subsidiary subsidiary subsidiary subsidiary Warsaw, March 19th, 2007 Mirosław Kochalski - President of the Management Board of CIECH S.A. Rafał Pasieka Member of the Management Board of CIECH S.A... Marek Trosiński Member of the Management Board of CIECH S.A. Wojciech Wardacki Member of the Management Board of CIECH S.A. 26