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ANNUAL REPORT 01.01.2014 - 31.12.2014 SYNTHOS GROUP CONSOLIDATED ANNUAL REPORT FOR SYNTHOS GROUP FOR THE PERIOD FROM 1 JANUARY 2014 TO 31 DECEMBER 2014 Table of Content 1. INTRODUCTION ................................................................................................................................................................................. 1 2. RISK FACTORS ..................................................................................................................................................................................... 2 3. BUSINESS DESCRIPTION OF SYNTHOS GROUP ............................................................................................................ 23 4. OPERATIONAL AND FINANCIAL REVIEW .......................................................................................................................... 40 5. MANAGEMENT ................................................................................................................................................................................. 57 6. PRINCIPAL SHAREHOLDERS ..................................................................................................................................................... 63 7. STRUCTURE OF THE CAPITAL GROUP ................................................................................................................................ 64 8. CORPORATE GOVERNANCE ..................................................................................................................................................... 68 9. DEFINITIONS ...................................................................................................................................................................................... 75 INTRODUCTION 2 RAPORT ROCZNY 2013 1. INTRODUCTION The Group is one of the leading manufacturers of chemical raw materials in Central and Eastern Europe, headquartered in Poland with its main production operations located in Poland and the Czech Republic. The Group is the leading producer of synthetic rubber and the leading producer of expandable and extruded polystyrene in Europe, based on data provided by IHS Chemical. The Group’s upstream integration with a stable source of raw materials, including C4 fraction, butadiene, benzene and ethylene, which the Group sources mainly from regional crackers, has allowed the Group to achieve a leading cost position in the synthetic rubber industry. The Group has a broad and diverse customer base across a wide range of industries, including the automotive, construction and packaging industries, which accounted for approximately 38.2%, 30.6% and 11.3% of product volumes sold for the year ended December 31, 2014, respectively. The Group has developed long-term relationships with its key customers, which include market leaders such as Michelin and Goodyear, many of which have lasted over several decades. Over the years, the Group has successfully leveraged its key proprietary technologies and transformed itself into a modern synthetic rubber and styrenics producer with global operations. The Company’s shares have been listed on the Warsaw Stock Exchange since 2004, and the Company has been a member of the blue chip WIG20 index on the Warsaw Stock Exchange since 2012. As at December 31, 2014, the Company has a market capitalization of PLN 5,438.6 million. For the year ended December 31, 2014, the Group has generated consolidated revenues from sales of PLN 4,618.8 million and EBITDA of PLN 635.8 million. The Group’s business is divided into three main business segments: butadiene and rubber (the “Synthetic Rubber Segment”), styrene and styrene derivatives (the “Styrene Plastics Segment”) and dispersions adhesives and latex (the “Dispersions, Adhesives and Latex Segment”). Other sources of revenues include auxiliary operations related to the production and distribution of thermal energy from the Group’s own power plants, as well as revenues derived from the trading and distribution of electricity (“Other Operations,” including “Media,” which is reported as a separate segment in the Consolidated Annual Report). Other Operations also include income and costs not allocated to any segments. RISK FACTORS 3 RAPORT ROCZNY 2013 2. RISK FACTORS 2.1 Risks Related to the Group’s Business and Industry Disruptions in the global economy and the financial markets in which the Group operates may adversely impact its business The business of the Group is largely based on the sales of chemical products used as raw materials and intermediate products in a wide range of industries, including, in particular, the automotive, packaging and construction industries. Demand for the Group’s customers’ products is affected by general economic conditions and other factors, including conditions in the automotive and packaging industries, labor and energy costs, currency changes, fluctuations in interest rates and other factors beyond the Group’s control. As a result, the volume and profitability of the Group’s sales depend upon these fluctuations, as well as the economic situation in Poland, the Czech Republic, Europe and worldwide. The recent economic downturn in the Group’s end markets and the geographic areas where the Group sells its products, including the automotive industries in Europe, has substantially reduced demand for the Group’s products and resulted in decreased sales volumes. While demand for certain of Group’s products began to recover in 2010 despite the Eurozone crisis, the Group cannot assure you that events having an adverse effect on the industries and markets in which the Group operates, such as a downturn in the Polish, European or global economies, increases in interest rates, unfavorable currency fluctuations or other factors, will not occur or continue. Any significant downturn in the Group’s customers’ businesses or in Polish, European or global economic conditions could result in a reduction in demand for the Group’s products and could adversely affect the Group’s business, results of operations, financial condition or prospects. Price fluctuations in the cost of raw materials used to manufacture the Group’s products or disruptions in the supply of raw materials may adversely affect Group’s production costs The Group’s manufacturing costs may be directly affected by volatility in the cost of the Group’s raw materials and fuel, which are subject to global supply and demand and other factors beyond the Group’s control. The Group’s principal raw materials (C4 fraction, butadiene, benzene, ethylene or styrene) together represented PLN 2,41 billion, or 56,9% of the Group’s total cost of goods sold for the year ended December 31, 2014. As a significant portion of the Group’s cost of goods sold is represented by these raw materials, the Group’s gross profit and margins could be adversely affected by changes in the cost of these raw materials if the Group is unable to pass any increased costs on to its customers. The probability of such a risk may be greater if suppliers accumulate considerable stock and, as a consequence, temporarily limit their orders. Although in the long term, changes in the prices of raw materials will be reflected in product prices, in the short term, raw material cost volatility poses a challenge as the Group may be unable to manage passing cost increases on to its customers in a timely manner by adjusting its prices. The Group believes that rapid changes in pricing may also affect customer demand. In extraordinary cases, such as the notification of a force majeure event by a key supplier, the Group may find itself with insufficient materials to produce its products. Alternatively, if the availability of any of its principal raw materials is limited, the Group may be unable to produce some of its products in the quantities demanded by the Group’s customers, which could have an adverse effect on plant utilization and the sales of the Group’s products requiring such raw materials. In addition, the Group’s production process requires significant amounts of energy and fuel. The Group uses thermal coal and natural gas to generate electricity, operate its facilities and generate heat and steam for its various manufacturing processes. For the year ended December 31, 2014, the costs of thermal coal and natural gas accounted for 7% of the Group’s 2 cost of sales, compared to 6% for the year ended December 31, 2013 and 4,5% for the year ended December 31, 2012. Thermal coal and natural gas prices have experienced significant volatility in the past several years, and the Group may not be able to pass on any increased costs of production and distribution of its products to its customers. Any disruptions in the thermal coal or natural gas supply to the Group’s production facilities could severely impact the Group’s business, results of operations, financial condition or prospects. The chemicals industry is subject to cyclicality, which may cause fluctuations in the Group’s results of operations The Group’s operations are subject to the cyclical and, more importantly, variable nature of the supply and demand balance in the chemicals industry, and the Group’s future results of operations may continue to be affected by this cyclicality and variability. Historically, the chemicals industry as a whole has experienced alternating periods of capacity shortages leading to tight supply conditions and increasing prices and margins, followed by periods when substantial capacity was added resulting in oversupply, declining capacity

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