GENERAL INFORMATION Management Board Ryszard Kunicki Robert Bednarski Marcin Dobrza ński Artur Osuchowski Supervisory Board Ewa Sibrecht-Ośka Jacek Goszczy ński Krzysztof Salwach Grzegorz Kłoczko Marzena Okła-Anuszewska Sławomir Stelmasiak Registered office of the Company ul. Puławska 182 02-670 Warsaw Poland Certified auditor Deloitte Audyt Sp. z o.o. Al. Jana Pawła II 19 00-854 Warsaw Poland WorldReginfo - 452b033f-e4e8-4f54-9de7-1cbc6e94f65a Dear Sirs and Madams, For the Ciech Chemical Group 2009 was a period of intense work in very tough market conditions, which proved to be a challenge for us and the chemical sector in general. The consequences of the world-wide financial crisis affected many businesses in Poland as well as the demand for our products at home and abroad. This gives us more reasons to be proud because despite the unfavourable environment, particularly in the chemical industry, Ciech managed to generate an increase in the value of its shares by more than 58% for the company’s shareholders. The unprecedented macroeconomic conditions required the Company’s Management Board to show flexibility and the ability to make tough decisions on many occasions. To minimise the downturn’s effects on the Group’s activities, we have reduced our operating costs and capital expenditures under a savings programme. Our actions focused on negotiating the terms of refinancing the Ciech Chemical Group’s loan liabilities, which allowed us to determine the terms of consolidation of debt for domestic and foreign companies in 2010. In the course of the entire process, the Group’s liquidity remained at a safe level. We were able to reduce our liabilities by more than 8%. At the same time, as part of its strategic operating measures, the Group agreed the terms of joint purchase of energy in the TPA system, procured funds from the sale of voids by Soda Deutschland Ciech and implemented modernisation and effectiveness-enhancing projects to increase the efficiency of its production facilities. We managed to finalise some of our investments, which allow the Ciech Chemical Group to make the most of the expected return of economic growth in international markets in 2010. We took full control over Soda Deutschland Ciech, Zachem completed the construction of a TDI facility, which is the largest real investment in Ciech’s history, and Alwernia started the second manufacturing line for granulated compound fertilisers. Despite the economic down-turn, our strategic processes – aimed at implementing solutions to consolidate the Ciech Chemical Group’s position as a responsible employer – did not slow down. We used EU funds to prepare a project for developing the ability to share know-how and experience: the Corporate Mentoring Academy. Our efforts in promoting the highest management standards were appreciated in the Stock Exchange and our institutional partners. The Ciech Group joined the prestigious group of businesses forming the RESPECT Index, a stock exchange index including socially responsible companies. Given the conditions present in the market, the Management Board considers maintaining sales at a level near to the record level of 2008 to be a success of the Ciech Chemical Group. The revenues reached nearly PLN 3.7 billion, which is only a 2.7% drop in comparison to the previous year. The Group’s results were affected by a number of unfavourable factors, such as increased pressure on the margins of soda and TDI products, a decrease in demand for fertilisers and the strengthening of the Polish currency in the second half of the year. However, once again our business model based on a diversified product portfolio proved to be successful. It allowed us to generate revenues in 2009 in the Soda Division, which was the strongest division at the time of the crisis, giving Ciech a good position as it waited for the return of positive demand and price trends in other production segments. I deeply believe that Ciech, together with the whole Group, is well-prepared to face more challenges and continue to strengthen its market position. In the Management Board’s opinion, the resolution of the privatisation procedure – in which we have actively supported the Ministry of State Treasury and Nafta Polska – will provide a new positive stimulus to continue the Group’s development strategy. For Ciech, 2010 will be a period of intense restructuring aimed at strengthening the Group’s financial position and its competitive edge in domestic and international markets. On behalf of the Management Board I would like to congratulate and thank all employees of the Ciech Chemical Group for their commitment, hard work and professionalism over the tough time in the previous year. I hope that in 2010 we will together continue our efforts to achieve the Group’s strategic goals. Ciech’s Management Board will undertake all efforts necessary to make the most of the Group’s growth potential, guarantee its sustainable development and thus maximise the value of shares for our Shareholders. Ryszard Kunicki President of the Management Board of Ciech S.A. WorldReginfo - 452b033f-e4e8-4f54-9de7-1cbc6e94f65a TABLE OF CONTENTS: MANAGEMENT REPORT OF CIECH S.A. FOR 2009 ...................................................................................... 4 1. CHARACTERISTICS OF CIECH S.A........................................................................................................... 5 2. MAJOR ACHIEVEMENTS OF CIECH S.A................................................................................................... 6 3. DESCRIPTION OF FACTORS AND EVENTS HAVING SIGNIFICANT INFLUENCE ON THE COMPANY’S ACTIVITIES .................................................................................................................................... 10 3.1 SIGNIFICANT RISK AND THREAT FACTORS AND CIECH’ S EXPOSURE .................................................................... 10 4. PRESENTATION OF CIECH S.A’S MAIN ECONOMIC AND FINANCIAL FIGURES................................ 11 5. CIECH S.A.’S SALES ACTIVITIES ............................................................................................................ 16 5.1 EXPLANATIONS CONCERNING THE SEASONAL AND CYCLICAL NATURE OF CIECH S.A.’ S BUSINESS ........................... 16 5.2 INFORMATION ABOUT BASIC PRODUCTS , GOODS AND SERVICES .......................................................................... 16 5.3 INFORMATION ABOUT CHANGES IN SALES MARKETS ........................................................................................... 23 5.4 INFORMATION ABOUT CHANGING SOURCES OF SUPPLY IN PRODUCTION MATERIALS , GOODS AND SERVICES ............. 23 6. INVESTMENT ACTIVITY AND DESCRIPTION OF THE MAIN CAPITAL INVESTMENTS AND METHODS OF THEIR FINANCING......................................................................................................................................... 24 6.1 INVESTMENTS IN FIXED AND INTANGIBLE ASSETS ............................................................................................... 24 6.2 DESCRIPTION OF THE MAIN CAPITAL INVESTMENTS AND METHODS OF THEIR FINANCING ......................................... 24 6.3 CAPITAL INVESTMENTS AND DIVESTMENTS PLANNED IN THE NEXT 12 MONTHS ...................................................... 25 6.4 FEASIBILITY ANALYSIS OF INVESTMENT PROJECTS ............................................................................................. 25 7. FUNDS MANAGEMENT IN CIECH S.A..................................................................................................... 25 7.1 LOANS , BORROWINGS , SURETIES AND GUARANTEES .......................................................................................... 25 7.2 INFORMATION ON THE ISSUE OF SECURITIES ..................................................................................................... 28 7.3 FINANCIAL INSTRUMENTS ............................................................................................................................... 28 8. FINANCIAL RISK MANAGEMENT IN CIECH S.A. .................................................................................... 29 8.1 METHODS OF SECURING MATERIAL TYPES OF PLANNED TRANSACTIONS IN RELATION TO WHICH HEDGE ACCOUNTING IS APPLIED ....................................................................................................................................................... 29 9. EXPLANATION OF DIFFERENCES BETWEEN THE FINANCIAL RESULTS AND PREVIOUSLY PUBLISHED FORECASTS................................................................................................................................... 29 10. EMPLOYMENT INFORMATION ................................................................................................................ 29 11. CHANGES IN CIECH S.A.’S ORGANISATION, MANAGEMENT AND FINANCIAL ASSETS................... 29 11.1 CHANGES IN THE BASIC PRINCIPLES OF MANAGING CIECH S.A. AND THE CIECH GROUP ........................................ 29 11.2 CHANGES IN THE ORGANISATIONAL AFFILIATIONS IN THE CIECH GROUP ............................................................... 30 11.3 INFORMATION ABOUT THE ACQUISITION OF EQUITY SHARES OF THE PARENT COMPANY .......................................... 32 11.4 DESCRIPTION OF THE USE OF ISSUE PROCEEDS BY THE ISSUER .......................................................................... 32 12. DEVELOPMENT PROSPECTS FOR CIECH S.A...................................................................................... 32 12.1 CHARACTERISTICS OF