GENERAL INFORMATION Management Board Mirosław Kochalski Rafał Pasieka Marek Trosiński Wojciech Wardacki Supervisory Board Grzegorz Miś Alicja Pimpicka Wiktor Cwynar Wojciech Fedko Dariusz Krajowski–Kukiel Registered Office ul. Powązkowska 46/50 01-728 Warszawa Poland Statutory Auditor Deloitte Audyt Sp. z o.o. ul. Piękna 18 00-549 Warsaw Poland 1 Ladies and Gentlemen, Events of the previous year proved that CIECH SA along with the Ciech Chemical Group is one of the leaders in the chemical market in this part of Europe. Auspicious recommendations of brokerage houses for the CIECH SA's shares quoted on the Warsaw Stock Exchange, increasing turnover and new marketplaces won over can be all viewed as positive signs. We do business in over 90 countries worldwide. Acquisitions made in 2006 considerably strengthened the Soda and Organika divisions ensuring income at PLN 3.5 billion annually for the Group. The Soda Division of CIECH SA integrated the Romanian company known as S.C. Uzinele Sodice Govora S.A. in December 2006. In terms of quality, this transaction brings us a new competitive position in the European soda marketplace and guarantees a strong leading position in Central Europe. Apart from the plant, CIECH SA also purchased the market and ancillary productive capacity. Takeover of S.C. Uzilene Sodice Govora S.A. is our first investment in a foreign production plant. On November 30th, 2006, in Bucharest CIECH SA and Romanian government agency, AVAS, signed an annex to the privatisation agreement concluding the purchase of the majority interest in the soda manufacturing plant Uzinele Sodice Govora S.A. entitling to the right of ownership of 93.14% shares in S.C.Uzinele Sodice Govora S.A. The project total value will amount to approx. EURO 60 million. As a result, the Ciech Chemical Group has emerged to become the second largest soda ash manufacturer in Europe and acquired a more competitive position in the Czech Republic, Slovakia, Hungary, Austria and the Balkan countries. Competitors from the Romanian soda market have slowed down in Western Europe (Great Britain, Germany), which makes it possible to exert more influence on the pricing policy. Pursuant to the concluded agreement, CIECH SA intends to perform an investment program in S.C. Uzinele Sodice Govora S.A. engaging approx. EUR 26 million. Investments entail the transfer of know-how, doubling in sales revenues and increases in manufacturing capacity to 530 thousand tonnes of soda annually. Forecast shows that a stable demand for soda ash will be continue not only until 2007 but also in the following years to come. On December 20th, 2006 CIECH SA finalised two important transactions with Nafta Polska S.A. We purchased 80% shares in ZACHEM S.A. in Bydgoszcz at PLN 80 million, under the warranty that we will invest PLN 176.12 million in the company. The second transaction is a purchase of 80% shares in Z.Ch. "Organika-Sarzyna" S.A. in Nowa Sarzyna at PLN 244.5 million. The guaranteed investments are estimated at PLN 130 million in five years. Thanks to these acquisitions, the Organika Division emerged among the first league players in Europe in terms of production of epoxy and polyester resins, TDI, EPI and plant protection agents. These investments will allow for a considerable increase in revenues and achieved mark-ups. In 2007 the Organika Division's share in the Group sales will increase from 20.6% to 41.7%. Furthermore, the Management Board of CIECH SA expects to have a new concept of growth evolved for the Foschem Division, which will include strengthening of the Group's positioning in the markets of products intended for farming, silicates and glass. Our last year’s forecast has been substantially exceeded. I am convinced that the next financial report on the activity of CIECH SA will be just as optimistic. President of the Management Board of CIECH SA Mirosław Kochalski 2 in thousands of PLN in thousands of EUR SELECTED FIGURES 2006 2005 2006 2005 Net sales revenue 2 174 330 2 209 545 557 654 549 193 Operating profit (loss) 146 319 143 555 37 527 35 681 Profit (loss) before taxes 151 776 143 001 38 926 35 544 Total net profit (loss) 150 434 117 853 38 582 29 293 Net profit (loss) of shareholders of the parent company 150 109 111 584 38 499 27 735 Net profit (loss) of minority shareholders 325 6 269 83 1 558 Net cash flow from operating activities 176 487 113 363 45 264 28 177 Net cash flow from investing activities (476 297) (117 430) (122 157) (29 188) Net cash flow from financing activities 346 032 67 847 88 747 16 864 Total net cash flow 46 222 63 780 11 855 15 853 Total Assets 2 729 513 1 635 132 712 443 423 631 Long-term liabilities 559 961 109 998 146 158 28 498 Short-term liabilities 1 032 334 506 003 269 454 131 096 Total equity 1 137 218 1 019 131 296 831 264 037 Equity attributable to equity holders of the parent 1 086 783 969 641 283 666 251 215 company Minority's share 50 435 49 490 13 164 12 822 Share capital 164 115 164 115 42 836 42 519 Profit (loss) per share (in PLN / EUR) 5.36 4.16 1.37 1.03 3 CONTENTS: REPORTTU ON THE ACTIVITY OF THE CIECH GROUP FOR 2006UT ...................................................................... 6 1TU UT DTU ESCRIPTION OF THE CIECH GROUPUT ............................................................................................................. 6 2TU UT MTU AJOR ACHIEVEMENTS OF THE CIECH GROUP IN 2006UT .................................................................................... 7 3TU UT CTU OMMENTS ON THE FINANCIAL RESULTS OF THE CIECH GROUPUT ...................................................................... 11 4TU UT CTU LARIFICATION REGARDING SEASON TYPE OR PERIODICAL TYPE OF THE CIECH GROUP’S ACTIVITYUT ..................... 18 5TU UT ETU XPLANATION OF DIFFERENCES BETWEEN THE FINANCIAL RESULTS AND THE FORECASTS PUBLISHED EARLIERUT ..... 19 6TU UT FTU ACTORS SHAPING THE CIECH GROUP’S FINANCIAL PERFORMANCEUT ................................................................ 19 7TU UT UTU SE OF THE ISSUER'S FUNDS COMING FROM ISSUE OF SHARESUT ....................................................................... 19 8TU UT TU MAIN PRODUCTS, GOODS, OR SERVICESUT ..................................................................................................... 20 9TU UT CTU HANGES IN THE MARKETSUT ......................................................................................................................... 20 10TU UT CTU HANGES IN SUPPLY SOURCES OF MANUFACTURING MATERIALS, GOODS, AND SERVICESUT .................................. 20 11TU UT CTU ONCLUDED CONTRACTS SIGNIFICANT FOR THE CIECH GROUP'S ACTIVITY (INCLUDING CONTRACTS CONCLUDED BETWEEN SHAREHOLDERS AND INSURANCE OR COOPERATION CONTRACTS)UT ..................................................... 20 12TU UT DTU ESCRIPTION OF TRANSACTIONS WITH AFFILIATESUT......................................................................................... 21 13TU UT BTU ORROWINGS, LOAN AGREEMENTS, AND SURETIES AND GUARANTEES GRANTEDUT .............................................. 21 14TU UT STU IGNIFICANT OFF-BALANCE SHEET ITEMSUT ...................................................................................................... 21 15TU UT ITU NFORMATION ON EMPLOYMENTUT ................................................................................................................... 21 16TU UT STU IGNIFICANT RESEARCH-AND-DEVELOPMENT ACHIEVEMENTS OF THE CIECH GROUPUT ......................................... 21 17TU UT ITU NFORMATION CONCERNING PROTECTION OF THE NATURAL ENVIRONMENTUT ....................................................... 23 18TU UT ITU NVESTMENT ACTIVITYUT ................................................................................................................................25 19TU UT CTU HANGES IN CORPORATE LINKAGE OF THE CIECH GROUPUT .............................................................................. 29 20TU UT DTU ESCRIPTION OF MAJOR EQUITY INVESTMENTS AND METHODS OF THEIR FINANCINGUT .......................................... 31 21TU UT ITU NFORMATION ON SECURITIES ISSUES IN CIECH SA.UT .................................................................................... 33 22TU UT PTU URCHASE OF TREASURY SHARES BY THE PARENT COMPANYUT ......................................................................... 33 23TU UT CTU HANGES IN THE BASIC MANAGEMENT PRINCIPLES OF THECOMPANY/GROUPUT ................................................... 33 24TU UT CTU HANGES IN THE MANAGING AND SUPERVISORY BODIES THE PREVIOUS YEARUT ................................................... 33 25TU UT RTU ULES OF APPOINTMENT AND DISMISSAL OF THE MANAGING BODIES AND AUTHORISATION OF THE MANAGING BODIES, IN PARTICULAR THE RIGHT TO TAKE THE DECISION ON SHARE ISSUE OR BUYOUTUT ................................... 35 26TU UT CTU ONTRACTS CONCLUDED BETWEEN THE ISSUER AND THE MANAGING BODIES, PROVIDING FOR THE REIMBURSEMENT IN CASE OF THEIR RESIGNATION OR LAY-OFF WITHOUT ANY JUSTIFIABLE REASON OR WHEN THEIR DISMISSAL OR LAY- OFF TAKES PLACE DUE TO THE ISSUER'S MERGERS THROUGH TAKEOVERSUT ........................................................ 35 27TU UT RTU EMUNERATION FOR THE MANAGEMENT BOARD AND THE SUPERVISORY BOARDUT ............................................. 35 28TU UT TTU OTAL NUMBER AND NOMINAL VALUE OF THE COMPANY’S SHARES AND SHARES IN AFFILIATES HELD BY MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIESUT............................................................................................... 35 29TU UT STU