Ciech S A : .PDF Management Board Report on activities of CIECH Group and CIECH S.A. in 2020

MANAGEMENT

BOARD REPORT

ON ACTIVITIES OF THE CIECH GROUP AND CIECH S.A.

IN 2020

We are providing a courtesy English translation of our Management Board Report on activities of the CIECH Group and CIECH S.A. which was originally written in Polish. We take no responsibility for the accuracy of our translation. For an accurate reading of our Management Board Report on activities of the CIECH Group and CIECH S.A., please refer to the Polish language version of our Management Board Report on activities of the CIECH Group and CIECH S.A.

MANAGEMENT BOARD REPORT ON ACTIVITIES OF THE CIECH GROUP AND CIECH S.A. IN 2020

LETTER FROM THE PRESIDENT OF THE MANAGEMENT BOARD OF CIECH S.A.

Dawid Jakubowicz

President of the Management Board of CIECH S.A.

Dear Sir or Madam,

Summing up 2020, on behalf of all Employees and the Management Board of the CIECH Group, I can proudly state that we overcame the challenges we faced in the previous 12 months. None of us expected to be faced with such a scale of economic uncertainty, sudden decisions to cease economic operations on a scale that had not been observed in modern history, or disruptions in global supply chains. Many of us had serious concerns for the health and life of our loved ones. Therefore, before I go on to present our achievements, I would like to express my appreciation and sincere gratitude to the employees of our Group. In this difficult period, also in personal terms for many of us, our team showed commitment and responsibility. Despite the complications and obstacles, we managed to complete or achieve significant progress in the implementation of our strategic projects and ventures. The fruit of this hard work will be shown in the financial and non-financial results of the CIECH Group in the near future.

Our financial results in this difficult year prove the fundamental strengths of our business:

• Net profit amounted to PLN 128 million and increased by approx. 17% compared to the previous year,
• (Adj.) EBITDA reached the level of PLN 613 million (from continuing operations, excluding the result of CIECH Soda Romania), slightly more than last year, despite unprecedented disturbances in the global economy for most of the year,
• In terms of expenditure response, we managed to maintain the (Adj.) EBITDA margin at last year's level of above 20%. We reduced our operating expenses by PLN 90 million or 12% compared to the previous year. We assume that some of these savings will be permanent.
• We managed to maintain high cash efficiency of our business - in 2020, cash flow from operating activities exceeded PLN 767 million, i.e. increased by PLN 232 million compared to 2019. This entails that we were able to finance almost all of our investments from the 2020 current operations.
• We managed to maintain the level of debt, calculated according to the definition under loan agreements, at a safe

level of 2.45 times EBITDA.

Achievement of such good results was possible due to our consistently implemented development strategy and business flexibility, as well as the decisive measures taken by us in the extraordinary circumstances of 2020. In the first place, we took care of the health of our employees, by introducing safe operating procedures in our production plants and equipping our employees with personal protective equipment. We manufactured some of such equipment ourselves - such as disinfecting fluid from our plant in Nowa Sarzyna or protective masks whose production began in Bydgoszcz at the end of the year. With the principles introduced by us we were able to maintain business continuity in each area, and despite the occurrence of infections, our production plants themselves did not become "infection hotspots".

At the same time, we took care of the financial stability of the Group and the quality of our results. Analysing the detailed information about our operating segments, you can observe healthy foundations that enabled us to achieve very good results in 2020, the foundations that constitute a solid basis for the growth of our business and the company's value in the near future.

In the soda segment, despite the very challenging market, we managed to maintain the sales level of our key product - our revenues from soda ash sales decreased only by approx. 2% year-on-year, which confirms our market position and the strength of our customer portfolio, in particular, if we compare this result with the sales volumes generated by our competi- tors.

Our revenues from the sale of sodium bicarbonate increased by 16% year-on-year, to PLN 193 million. This is mainly the result of the production from our new Stassfurt installation. Already on a full scale, in Stassfurt we produce the highest-quality pharmaceutical grade sodium bicarbonate, whose purity and other chemical and physical parameters have been confirmed, among others, by the GMP API certification.

The salt business saw a particularly difficult year behind it, due to the problems of the HoReCa industry, which is one of its main recipients. Sales in this business fell by 7% year-on-year, to approx. 184 million. However, the most important activity in this area was the construction of an effective, modern and automated evaporated salt plant in Stassfurt. It is our largest investment in history and one of the largest foreign investments of Polish companies in general. In spite of successive lock- downs, cross-border transfer difficulties and lengthened administrative procedures, we were able to continue construction work. When you read these words, the construction phase is being completed and individual installations are being commis- sioned. Any moment soon, we will obtain the first lump of high-quality salt from the production line. After full production

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MANAGEMENT BOARD REPORT ON ACTIVITIES OF THE CIECH GROUP AND CIECH S.A. IN 2020

capacity has been reached and all products have been launched for sale, including salt for pharmaceutical applications, the plant should generate an EBITDA of approximately EUR 25 million per annum.

In the segment of plant protection product sales, we recognised record increases. Revenues in this segment increased by almost 25% year-on-year, to approx. PLN 366 million, and (Adj.) EBITDA by as much as 37%, i.e. to PLN 41 million. This is the result of consistently introduced changes in the organisation and management of this segment, as well as better adaptation of our product offer to market requirements. At last, the sale of plant protection products is realising its potential and we hope for a further increase in its contribution to the Group's results. We continuously carry out intensive research work to ensure that our products respond to customer needs and regulatory trends. This gave rise, among others, to the development of an innovative and patented substance under the technical name of BGT®, which maintains effectiveness comparable to the most commonly used products, while reducing the dose of the active substance. We are continuously changing and modernising the market of plant protection products, digitising it and introducing automated solutions that facilitate collaboration with our distributors and users of our products. These activities are carried out with a view to improving the efficiency of planning and managing the availability of our products, which translates into maximising the generated results and our ability to take advantage of business opportunities, as well as improving communication with our end customers.

Our other businesses also had a successful period. EBITDA of the Foam business increased by over 22% y/y, to over PLN 37 million, while EBITDA of the Silicates remained at last year's level of PLN 26 million, and in Packaging it increased by 23%, to PLN 22 million. The sale of CIECH Resins should also be mentioned here - in the middle of 2020, we executed an agreement to sell this business to a Polish industry investor for around PLN 160 million and with an EV/EBITDA multiplier of

7.6. We finalised this transaction in the first quarter of 2021, and its finalisation is an element of our strategy that assumes building the Group's value through changes in its asset portfolio and focusing on businesses with the best prospects and a leading market position.

As one of the challenges for the future lying in the foreground, we see the need to accelerate the path to decarbonisation. The chemical industry we are a part of emits large volumes of greenhouse gases for technological reasons; thus we feel responsible to future generations to slow down and ultimately stop climate changes. We intend to reduce our CO2 emissions by approx. one-third over the next five years - the details of our commitments and the ways in which we plan to achieve them will be presented in the second quarter of 2021.

We are optimistic about the coming quarters. Although the global situation continues to be uncertain and some risks persist, we can see that our hard work from 2020 and previous years is paying off. The situation on the soda ash market is stable, and we expect growth along with the upward movement of the value chain, especially in the area of sodium bicarbonate, where the new installation will be operating all year round. The will begin the sale of the salt from the new plant, although of course, we will not be able to achieve the full scale of the contribution until next year. We continue to develop the plant protection product (PPP) business and we intend to continue harvesting the fruit of its optimisation and expansion, both in terms of products and geography. We observe favourable trends on the polyurethane foams market that will enable us to achieve record financial results. We are developing the silicate business - we assume that at the end of the year we will launch a new sodium silicate production furnace, which will rapidly boost our revenues and strengthen CIECH's position of a leader in the supply of sodium silicates for promising branches of modern and innovative economy. We will continue to maintain cost discipline and flexibly respond to any changes in the environment. Effects will also be achieved with organisational changes and the development of our corporate culture - incl. the implementation of an integrated performance management system, development and automation of business intelligence reporting and digitisation of subsequent processes. We are certain that it will bring benefits to all our stakeholders and increase the value of our company in the long term.

Once again, I would like to thank all our employees, customers, shareholders and all our who made it possible for the CIECH Group, despite the demanding environment, to record yet another optimistic year of development and make yet another step in its transformation into a modern and competitive chemical holding.

I hope reading our report proves pleasant to you all.

Yours sincerely,

Dawid Jakubowicz

President of the Management Board of CIECH S.A.

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Sebastian Kulczyk

Chairman of the Supervisory

Board of CIECH S.A.

MANAGEMENT BOARD REPORT ON ACTIVITIES OF THE CIECH GROUP AND CIECH S.A. IN 2020

LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD OF CIECH S.A.

Dear Sir or Madam,

2020 will be remembered mainly because of the COVID-19 pandemic and the global economic crisis related to it. Although we observed disruptions in global supply chains and deterioration of the economic climate, the CIECH Group managed to implement all its key strategic assumptions for 2019-2021. On behalf of the Supervisory Board of CIECH S.A., I would like to thank the employees and the Management Board for their extraordinary effort, engagement and hard work.

Responsibility and efficient management enabled the Group to quickly and flexibly adapt to the new volatile and unpredictable business conditions. CIECH plants, which have a crucial role in the operation of numerous industries, maintained their continuity of pro- duction, and most importantly, a high level of safety of their employees and employment stability. I am very pleased with the fact that in these demanding times, the Group proved to be a reliable and trustworthy partner for its customers, employees and local communities. At the same time, it showed a high standard of communication with the capital market and its shareholders, taking particular care of transparent information in the conditions of pandemic-related uncertainty.

We are entering the next step of implementation in the transformation of CIECH into a modern, competitive entity. Particular emphasis is placed on improving efficiency, using our in-house innovative solutions, developed together with the world of science, as well as building a friendly work environment and caring for natural resources and protecting the climate. The economic and epidemiological crisis did not manage to slow down the processes initiated before the pandemic, including the construction of the most modern European evaporated salt plant in Germany or the implementation of the Group's goals in terms of energy transformation and decarbonisation of production processes.

Business ought to be at the fore when it comes to the process of changing the world around us. Accordingly, as the Supervisory Board, we will continue to consistently support any initiatives and operations in line with the idea of sustainable devel- opment.

The Group's products make their footprint on each continent, finding application in numerous key sectors of the economy. Our everyday life would be rather difficult to imaging without the products provided by CIECH. At the same time, while professionally combining business and science, CIECH successfully implements its further development investments in Poland and abroad. Thus, it strengthens itself as the ambassador of the Polish modern economy and improves the rank of Polish private capital on the international arena.

All these positive trends have created the foundation for the further development of the entire Group. In this report you will find a summary of changes related to CIECH's transformation and their subsequent effects. I would like to invite you to read the Annual Report for 2020.

Yours sincerely,

Sebastian Kulczyk

Chairman of the Supervisory Board of CIECH S.A.

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2,976

583

585

128

3,415839604*

mln PLN

EBITDA (A)

KEY EVENTS IN THE CIECH GROUP IN 2020

• • Making a decision and launching the process of sale of CIECH Żywice Sp. z o.o.
    (finalization of sales in the first quarter of 2021).
  • Continuation of investment in the evaporated salt plant in Germany.
  • Review of options in the Group's asset structure.
• Aggregate data for continued and discontinued operations

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