annual report 2010 by TOMAMI

„Skonsolidowane sprawozdanie finansowe za okres 12 miesięcy, kończących się 31 grudnia 2010 roku”, sporządzone 8 marca 2011 roku zgodnie z wymogami Międzynarodowych Standardów Rachunkowości. Sprawozdanie rzetelnie i jasno przedstawia sytuację majątkową i finansową Spółki i Grupy Kapitałowej oraz wyniki finansowe. Pełny tekst raportu rocznego jest dostępny na stronie internetowej azoty.tarnow.pl oraz w siedzibie Spółki. Ponadto do niniejszego Raportu Finansowego dołączamy płytę CD, na której w celu poszerzenia zamieszczonych w nim informacji prezentujemy: Roczne jednostkowe sprawozdanie finansowe za 2010 rok Sprawozdanie jednostkowe z działalności Spółki za 2010 rok Roczne skonsolidowane sprawozdanie finansowe za 2010 rok Sprawozdanie Zarządu z działalności Grupy Kapitałowej za 2010 rok Consolidated financial statement for 2010 Report on Activities of Azoty Tarnow Group for 2010

www.azoty.tarnow.pl

Annual Report 2010

Zakłady Azotowe w Tarnowie-Mościcach S.A. ul. E. Kwiatkowskiego 8, 33-101 Tarnów, Polska, tel. +4814 633 07 81-85 PR /02/2011/1500

www.azoty.tarnow.pl

Annual Report 2010 Zakłady Azotowe w Tarnowie-Mościcach S.A.

Dear Shareholders of Zakłady Azotowe w Tarnowie-Mościcach S.A.,

It is with pleasure that I present you with the Zakłady Azotowe w Tarnowie-Mościcach S.A. annual report for 2010, a year in which we took further steps towards achieving our principal business objective – strengthening core operations. These actions constantly plan out the path for developing the Azoty Tarnów Group as the key player in the Polish chemical industry. At the beginning of last year we acquired a 100% interest in the German polyamide manufacturer Unylon Polymers GmbH, based in Guben. The effect of this acquisition is a significant advance for the Azoty Tarnów Group amongst integrated European polyamide producers. A subsequent event without precedence in the history of the Group was the purchase of a controlling stake in one of the largest chemical businesses in Poland – ZAK S.A. The consolidation of Azoty Tarnów and ZAK S.A. is particularly visible in the agricultural products segment, including trade and logistics. The effects of the subsequent growth strategy in the fertiliser sector were becoming apparent at the end of 2009 after start-up of a modern fertiliser granulation facility in Tarnów and the introduction of new products to the market. After acquiring 52.6% of shares in ZAK S.A. we observed an even greater increase in quality and volume. Economies of scale, efficiency and the complementary nature of our product and service portfolio in the manufacture and sale of mineral fertilisers within the Azoty Tarnów Group increased to a level not previously observed. Through continuing the investments declared in the issue prospectus of June 2008, Azoty Tarnów achieved a high growth dynamic in 2010. Last year we commenced implementation of another issue objective – construction of a hydrogen facility in Tarnów with production capacity of 8000 Nm3/h, connected with modernisation of the caprolactam plant to a total capacity of 101.3 thousand tonnes per year. This investment enables an increase in the use of natural gas from local sources, and as a consequence lowers production costs. The increase in production capacity of caprolactam is also significant in the context of acquiring the factory in Guben, which for a year has generated ample synergies within the Azoty Tarnów Group. The investment in ZAK S.A. also played a key role last year. In October the construction of a modern nitrogen fertiliser facility was completed. Aside from improving working conditions and saving on raw materials, this facility has become part of the Azoty Tarnów Group environmental policy by reducing harmful gas and liquid emissions into the atmosphere and lowering energy and material consumption by technological processes.

As the result of many months’ efforts, an industrial zone was established within the Azoty Tarnów site in 2010, aimed at enabling and facilitating business activity conducted in industrial and post-industrial areas. The zone is more than 231 hectares in area and means that businesses located there will have access to many significant benefits, including an attractive, fully equipped area with a convenient location. Furthermore, processes of employment optimisation at Azoty Tarnów Group companies are on-going. In July 2010 a single business unit was established – the Plastics Centre – on the basis of the Plastics and Caprolactam Departments. This was a subsequent phase of restructuring within the company aimed at business optimisation in the manufacture and sale of caprolactam and plastics into one natural chain. This year work will be continued on improving the organisational structure of the Group and its companies, together with the process of selling subsidiaries. These activities will certainly result in significant cost rationalisation in future years. Last year the Azoty Tarnów Group’s operations were recognised in many competitions and rankings. We are happy with the fact that we are a reliable and responsible business partner. Once again we were honoured by the Association of Polish Exporters and the Business Centre Club through being granted the titles “Polish Export Leader 2010” and “Ambassador for the Polish Economy” in the “European Brand” category respectively. Recently we have been nominated under the “Company of the Year 2010” category in the annual “Parkiet” Awards. Azoty Tarnów Group products also received a wide range of awards, amongst them fertilisers manufactured at the recently-opened mechanical granulation facility. Our new fertiliser – Saletrosan® 26 macro – was given particular recognition, receiving the European Medal for Products and Services. Confirming the appropriate direction of our development as a manufacturer of fertilisers, we were also awarded the title “Innovation of the Year” 2010 by Forum Biznesu for the new nitrogen fertiliser manufacturing facility. ZAK S.A. products have also been awarded – last year its fertilisers were presented with a Teraz Polska accolade and an award for Highest Quality. Azoty Tarnów was for the second time included in the group of 16 listed companies comprising the RESPECT Index – companies managed in a responsible and sustainable manner. We have proved many times that our place in this elite group is confirmation of our bond with the local community. We continue to be involved in many areas which are significant for the local community and remain their patron. Azoty Tarnów’s mission for the town and region is confirmed by our distinction in the Pillars of the Polish Economy ranking 2010, promoting key companies in their regions. This distinction is awarded by the opinion-forming business magazine “Puls Biznesu” and the “TNS Pentor” Research Institute.

Thanks to its operations and constant support for cultural and sporting initiatives, ZAK S.A. has for many years been named the foremost patron of culture and sport in the Opole region. The company’s Code of Ethics defines ethical standards and allows it to build partnerships with all of the company’s stakeholders. This constitutes a significant element in the company’s development and is aimed at creating a balance between economics and ethics. ZAK S.A. participated in and implemented many charity, sponsorship, ecological, scientific and sporting projects, placing emphasis on supporting chances for children and young people in the region.

in the “10 for 10” programme of the Association of Private Investors, which is aimed at optimising activities in this field. Proof that our actions are effective comes from an award presented by the business magazine “Puls Biznesu” for the company’s active participation in “Investor Action” – a platform for exchange of information between private investors and listed companies. We are convinced that with such a solid foundation for business we will witness further dynamic development of the Azoty Tarnów Group this year, with benefits for employees, current and future shareholders, our local community and the Polish economy.

As a socially responsible company we also care for the development of our employees. Last year we implemented a programme to raise staff qualifications in foreign languages. A wide range of Azoty Tarnów Group employees have begun or continue to study on post-graduate and specialist training courses. For many years we have worked with academic institutes and universities which are the basis for the development of industry. Last year we commenced cooperation with the Business College and our employees are taking courses in chemical and process engineering. 24 Azoty Tarnów employees began studying under this venture. In June we signed an agreement with Krakow University of Technology concerning scientific and research cooperation together with common teaching ventures. In the spirit of the agreement, our cooperation will be continuously expanded depending on the requirements of the Azoty Tarnów Group.

On behalf of the Management Board I would like to sincerely thank our employees for their hard work. Our successes and outstanding financial results are the effect of engagement on the part of Group personnel and their intellectual potential. Once again I would like to thank shareholders for the trust they show in Azoty Tarnów and our business partners for cooperation over the last year.

One of the main priorities for Group operations is to care for the environment, and all ventures are implemented with assurance of the responsible use of natural resources, decrease in the amount of waste and limitation of the emission of pollutants into the atmosphere. Care for the environment also brings notable economic benefits. Last year, as the first company in Poland to do so, Azoty Tarnów obtained funds from the sale of nitrous oxide emission units (ERUs) generated at the nitric acid facility under the first Polish-Japanese joint implementation project, executed by the Azoty Tarnów Group with Mitsubishi Corp. Reduction in nitric acid facility emissions of nitrous oxide were also achieved at a similar level by ZAK S.A.

Jerzy Marciniak President of the Management Board, Managing Director

IT services are successfully being performed and expanded with Hewlett Packard Polska Sp. z o.o. within the Group. This covers maintenance and development of IT systems, with particular consideration to SAP. During the period, HP ran several significant standardisation projects. The first and key project was the start-up of the Help Desk – the first point of call for all IT users at Azoty Tarnów. The IT outsourcing project was recognised as the “most interesting of the best implementations in industry”. HP also maintains and develops IT systems at ZAK S.A., simultaneously strengthening the company consolidation process within the Azoty Tarnów Group. Amongst the many priorities we remember that Azoty Tarnów is a public company listed on the Warsaw Stock Exchange and its primary obligation is effective communication with the capital market. Hence our participation

Management Board of Zakłady Azotowe w Tarnowie-Mościcach S.A. Composition of the Management Board as at 31 December 2010:

Jerzy Marciniak

President of the Management Board, Managing Director

Witold Szczypiński

Vice-President of the Management Board

Andrzej Skolmowski

Vice-President of the Management Board

Franciszek Bernat

Member of the Management Board

The competences and duties of the Company’s Management Board and its members are specified in the provisions of the Polish Commercial Companies Code, the Act on Commercialisation and Privatisation of 30 August 1996 as amended, the Act of 29 July 2005 on Public Offerings and the Terms and Conditions of Admitting Financial Instruments to an Organised System of Trading and on Public Companies, the Act of 29 July 2005 on Trade in Financial Instruments, the provisions of secondary legislation issued pursuant to the above acts and the provisions of the Company’s Articles of Association (§19 - §210). A detailed division of competences amongst members of the management board is governed by Resolution of the Company’s Management Board no. 190/VII/2009 of 8 April 2009. Management Board declaration on application of corporate governance In declaring operations compliant with the highest capital market communications standards and the principles of corporate governance, Zakłady Azotowe w Tarnowie-Mościcach S.A. observes the principles of “Best Practices of WSE Listed Companies”, developed by the Warsaw Stock Exchange. The document constitutes an appendix to Stock Market Council Resolution no. 17/1249/2010 of 19 May 2010.

It is the intention of Zakłady Azotowe w Tarnowie-Mościcach S.A. to abide by all of the corporate governance principles specified in the “Best Practices for WSE Listed Companies” with the exception of principle 8, section III concerning the obligation to ensure a majority of independent supervisory board personnel on the audit committee in accordance with Annex I to the European Commission Recommendation of 15 February 2005 on the role of non-executive directors.

Supervisory Board of Zakłady Azotowe w Tarnowie-Mościcach S.A. Composition of the 7th term Supervisory Board as at 1 January 2010

Marzena Piszczek

Chairperson

Małgorzata Rzążewska

Vice-Chairperson

Jan Wais

Secretary

Ewa Lis

Member

Joanna Kiełkiewicz

Member

Dariusz Maciejuk

Member

Krzysztof Pieńkowski*

Member

Armin Teske

Member

Katarzyna Wałęga

Member

*On 11 February 2010 Krzysztof Pieńkowski resigned from the Supervisory Board.

Composition of the 8th term Supervisory Board as at 4 January 2011

Marzena Piszczek

Chairperson

Ewa Lis

Vice-Chairperson**

Jan Wais***

Secretary****

Agnieszka Doroszkiewicz

Member

Tomasz Klikowicz***

Member

Jacek Lewandowski

Member

Jacek Obłękowski

Member

Zbigniew Paprocki***

Member

Mirosław Potulski

Member

**On 16 September 2010, pursuant to a resolution of the Supervisory Board, Ewa Lis was appointed as Vice-Chairperson of the Board. ***On 19 November 2010 the Extraordinary General Meeting appointed persons elected by employees to the Supervisory Board. ****On 4 January 2011, pursuant to a resolution of the Supervisory Board, Jan Wais was appointed as Secretary of the Board.

An Audit Committee operates within the Supervisory Board, appointed to streamline the work of the Board and improve control over the Company and Group. The Committee constitutes a consultancy body working jointly within the structure of the Supervisory Board. In January 2011 the Board delegated its representatives to the Committee, as follows:

Jacek Obłękowski, Agnieszka Doroszkiewicz, Tomasz Klikowicz.

Shareholding structure of Zakłady Azotowe w Tarnowie-Mościcach S.A.

Shareholding structure as at 31 December 2009 Shareholder

number of shares

shares %

number of votes

State Treasury of Poland

1 354 160

3.46%

1 354 160

Nafta Polska (in liquidation)

19 200 000

49.08%

19 200 000

Polskie Górnictwo Naftowe i Gazownictwo S.A.

4 000 001

10.23%

4 000 001

Ciech S.A.*

2 560 000

6.54%

2 560 000

Other

12 002 260

30.69%

12 002 260

Total

39 116 421

100.00%

39 116 421

*As a result of a transaction executed by Ciech S.A. in out-of-session block trading on 22 April 2010, 2 560 000 shares in the Issuer were disposed of, constituting 6.54% of the Issuer’s share capital.

Shareholding structure as at 31 December 2010 Shareholder

number of shares

shares %

number of votes

State Treasury of Poland

1 349 000

3.45%

1 349 000

Nafta Polska (in liquidation)

19 200 000

49.08%

19 200 000

Fundusz Emerytalny AVIVA BZ WBK**

3 000 000

7.67%

3 000 000

Polskie Górnictwo Naftowe i Gazownictwo S.A.***

4 000 001

10.23%

4 000 001

Other

11 567 420

29.57%

11 567 420

Total

39 116 421

100.00%

39 116 421

**On 22 April 2010 Aviva Otwarty Fundusz Emerytalny Aviva BZ WBK (Aviva OFE) increased its shareholding in the Company above the 5% threshold. ***On 15 April 2010 PGNiG S.A. executed a transaction to dispose of shares in the Company.

Shareholding structure as at 20 May 2011 Shareholder State Treasury of Poland****

number of shares

shares %

number of votes

20 549 000

52.53%

20 549 000

Fundusz Emerytalny AVIVA BZ WBK

3 000 000

7.67%

3 000 000

Other

15 567 421

39.80%

15 567 421

Total:

39 116 421

100.00%

39 116 421

****On 7 April 2011 the State Treasury of Poland acquired all 19 200 000 shares in the Company belonging to Nafta Polska S.A. (in liquidation).

Calendar of events in 2010 at Zakłady Azotowe w Tarnowie-Mościcach S.A. 28 January 2010

March

Azoty Tarnów received an award for the fertiliser calcium ammonium nitrate 27 macro at the “Polish Fertilisers” Awards organised by the editorial team of “Zielony Sztandar”, with the Ministry for Rural Development and Agriculture as patron. In addition, Azoty Tarnów was singled out for its brand development efforts and received an award from the National Cooperative Council for exemplary collaboration with Agricultural Producers’ Groups.

During the 16th “AGROTECH” Agricultural Technology Fair in Kielce, Azoty Tarnów received the main prize – the “Golden Fair Medal” for the fertiliser Saletrosan®26 macro.

21 February 2010 Azoty Tarnów was awarded with a “Golden Idea” statue, granted to persons and companies contributing to the development of Polish science and culture. The idea behind the award was developed by the Science and Health Foundation. February Acquisition of a 100% interest in Unylon Polymers GmbH in Guben. Acquisition of one of the leading non-integrated manufacturers of polyamides constituted realisation of one of Azoty Tarnów’s main issue objectives. The newly acquired entity changes its name to ATT Polymers GmbH.

Zakłady Azotowe w Tarnowie-Mościcach S.A. was invited to participate in the programme “10 companies for 10 years of the Association of Private Investors – effective communication”, a project aimed at improving the investor relations of Polish exchange-listed companies organised by the Association of Private Investors. The programme was initiated on 26 April. Azoty Tarnów joined in implementing the programme “Green Office”, which is aimed at limiting the negative impact of offices and buildings on the environment through efficient use of paper, water and electricity, the minimisation of waste and the promotion of ecological and modern technological solutions.

15 March 2010

July

The HP Helpdesk – a specialist help and information point – was initiated by the HP Azoty IT team and additional HP consultants.

The fertiliser Saletrosan® 26 received a special award at the 23rd International Agro-Tech Agricultural and Industrial Fair in Minikowo in the category “European Standard Product”.

31 March 2010 The District Court in Tarnów confirmed execution by the Company of an arrangement with creditors, while at the same time the Court acknowledged the proceedings for an arrangement as completed. April New nitrate fertilisers manufactured by Azoty Tarnów appeared on the market: ammonium nitrate 30 macro – a universal product which may be used both before sowing or planting crops and for principle crop fertilising. 6 April 2010 As the second of Poland’s key chemicals companies and the first company in the Tarnów region, Azoty Tarnów obtained an AEO certificate in Customs Procedures and Safety. This certificate, awarded at national level, is recognised throughout the EU. 17 May 2010 Azoty Tarnów was again awarded the title “Ambassador of the Polish Economy” in the “European Brand” category. The awards, organised by the Business Centre Club, took place under the patronage of the Minister ofForeign Affairs. 27 May 2010 The Council of the Town of Tarnów presented Azoty Tarnów with the prestigious award “Tarnów Patron of Culture”. The nomination for this award was submitted by the Tarnów Cultural Centre, Mościce Cultural Centre and the Society of the Friends of Mościce. The award was presented on 26 June. May Azoty Tarnów was a finalist in the “Best of Plastics” awards, announced by the website www.plastech.pl for the best plastics industry website. June The Association of Polish Exporters again awarded a medal and the title “Leader in Polish Export” to Azoty Tarnów. 15 June 2010 Azoty Tarnów and Krakow University of Technology executed a long-term agreement on R&D cooperation and joint teaching ventures, including the organisation of student internships and postgraduate studies. 1 July 2010 The operating structure of Azoty Tarnów was reorganised. This alteration concerned the Caprolactam Department and Plastics Department. Pursuant to a Management Board resolution, these two previously separate Business Centres were merged into a single unit – the Materials Centre. This was a subsequent phase in the process of restructuring the company.

23 August 2010 Azoty Tarnów began cooperation with the Business College (WSB NLU). This joint venture resulted in the start-up of a new field of studies at the Business College campus in Tarnów – “Chemical and Process Engineering”. September Acquisition of an additional 50% stake in Polskie Konsorcjum Chemiczne (75% in total) In recognition of the results achieved in improving working conditions, safety and personal protection in the working environment, the Central Institute for Working Conditions – National Research Institute – awarded the “Silver Award for Leaders in Occupational Safety” to Azoty Tarnów. October The Board of the Association of Polish Electricians awarded an “Honorary Gold Association Badge” for publicising the developing the association’s operations and for achievements in the development of electronics. The awards committee of the “Innovation of the Year 2010” awards and its host, Forum Biznesu, awarded the title Winner of the “Innovation of the Year 2010” Awards to Azoty Tarnów for the innovative 1200 tonne/day granulation facility. The awards’ patrons were the Minister for Regional Development and the FIRE Innovation Centre. 20 October 2010 Pursuant to an agreement concerning acquisition of new shares in ZAK S.A., Azoty Tarnów purchased 30 million series B shares of a nominal value of PLN 5 each. The transaction was valued at PLN 150 million. November Acquisition of a 30 million-share controlling stake in ZAK S.A. A Catalyser Production Facility was created at Azoty Tarnów, separated out from the Fertilisers Centre. This change was a subsequent step in restructuring the company, aimed at operational optimisation in the field of manufacture and sales of catalysers. 17 November At the 21st edition of the European Medal for Products and Services, Azoty Tarnów received a “European Medal” for the fertiliser Saletrosan® 26 macro. December An industrial zone was established within the Azoty Tarnów site, aimed at facilitating business activity conducted in industrial and post-industrial areas.

Azoty Tarnów Over the almost 85-year history of Azoty Tarnów, our philosophy has been to find an ideal balance between respect for tradition and the advancement of innovative technology. The company’s history has its roots in the interwar period – a time of great change and the creation of a country after decades of partitions and occupation. The dynamic development, euphoria and enthusiasm of this period became part of the company’s foundation. As Eugeniusz Kwiatkowski wrote, a great national achievement arose – a factory which changed the Tarnów area and the country and whose products revolutionised European and world chemicals markets. Today, Azoty Tarnów is one of the largest chemicals companies in Poland, selling a wide range of products including modern construction plastics: Tarnamid® (PA6), Tarnoform® (POM) and semi-finished products for their manufacture (caprolactam), together with mineral and chemical fertilisers. These products are well-recognised in many markets, thereby allowing Azoty Tarnów to continuously strengthen its position of industry leader, selling its products to more than 40 countries around the world. This is a result of many years’ experience, commitment and creativity in increasing its market share internationally. The drive towards achievement of strategic goals itself constitutes success. Azoty Tarnów stands firmly for innovation, inspiring constant change and internal excellence. All of this is achieved in order to make us an effective business partner in domestic and international markets.

Zakłady Azotowe w Tarnowie-Mościcach S.A. (trading as Azoty Tarnów) was entered into the register of companies of the National Court Register, entry number KRS 0000075450, on 28 December 2001 pursuant to the ruling of the District Court for Krakow-Śródmieście in Krakow, 12th Commercial Division of the National Court Register of 28 December 2001. The company’s share capital amounts to PLN 195 582 105 (one hundred and ninety-five million, five hundred and eighty-two thousand, one hundred and five Polish zloty) and is divided into 39 116 421 (thirty-nine thousand, one hundred and sixteen thousand, four hundred and twentyone) bearer shares, ISIN code PLZATRM00012, of a nominal value of PLN 5 (five Polish zloty) each, including 24 000 000 series AA shares of a nominal value of PLN 5 and 15 116 421 series B shares of a nominal value of PLN 5 each.

Mission and strategic objectives of Zakłady Azotowe w Tarnowie-Mościcach S.A. We are a company which constantly sets itself new ambitious goals to be achieved. Our updated Management Policy reflects the principles set out in the “Azoty Tarnów Development Strategy”. We establish clearly defined goals and detailed growth directions. In nurturing the development of Azoty Tarnów we have devised strategic goals which are imperative for the company’s operations, and over the space of several years cover various operational sectors; beginning with core business, where increasing economies of scale are expected, through the development and achievement of a situation in which the company will be less sensitive to changes in general economic cycles with consideration to natural gas and petrochemical commodities price volatility, to a lowering of the costs of manufacture, streamlining of organisational methods and unlocking intellectual capital. A particularly important goal and direction for the development of Azoty Tarnów is systematic adaptation of product and service quality to customer expectations, as well as creation of long-lasting, reliable and effective relations with partners. The integrated management system in force at the Company, which is compliant with international standards, provides workplace security. The key operational priorities of Azoty Tarnów, such as ensuring technical and environmental safety, are constantly supervised by the audit department together with independent certification institutions. This type of monitoring means that Azoty Tarnów enjoys the reputation of a solid and modern company where all safety guidelines and standards are observed. This is proved not only by numerous certificates but also by the innovative management system in force within the company, including: Quality Management System, Environmental Management System, Food Safety Management System, Occupational Health & Safety Management System.

Amongst others, the company fulfils the strict requirements of the Responsible Care Management System Certificate, ISO 14001:2004, ISO 9001:2008, a Management System Certificate of conformity with the ISO 22000:2005 standard (concerning the “manufacture and distribution of potable water”), a certificate under the programme “Responsibility and Care”, a PN-N-18001:2004 Management System Certificate and OH SAS 18001:2007 Management System Certificate.

Our experience and competences prove that chemistry is safe and useful for people. We strive to increase shareholder value through maximising synergies.

Development directions In implementing innovative technologies, improving service standards and increasing product quality we capture an ever greater market share. Azoty Tarnów constantly determines new directions for development under the adopted “Company Development Strategy 2007-2015” and objectives outlined in the issue prospectus, concentrating on: – the advanced materials sector, in particular construction plastics, – the organic chemicals sector, in particular caprolactam, – the agricultural products sector, in particular mineral fertilisers. Our objective is the most dynamic operational development, creating specific value in the form of profits from each sector. Improving service quality is also a particularly important field. We aim to strengthen our leading position as a manufacturer of caprolactam and construction plastics in European markets as well as to intensify operations in the agricultural products sector. This objective is also achieved through organic growth and as a result of strategic alliances and acquisitions. The company intends to play an active role in the consolidation of the chemicals sector. The principal goal of external growth is to create a large, integrated structure solidifying the company’s competitive position. In its operations, Azoty Tarnów strives to capitalise on the opportunities present

in the market environment. Furthermore we will strengthen our competences and reliability, with significant impact on our competitive position, in particular on: – increasing the scale of operations conducted in strategic areas, – reducing exposure to changes in the general economic climate and to natural gas and petrochemical commodity prices through extending product chains, – lowering the costs of manufacture through modernising key production lines, – creating stable and effective links with commercial partners and optimising distribution channels, – optimising organisational solutions, – improving the effectiveness of key processes and knowledge management, – achieving synergy in raw materials, logistics, organisation, etc., – adapting product quality to customer expectations, – moderating concentric diversification through maximising the effects of synergy with current product portfolio elements.

The Azoty Tarnów Group As at the end of 2010 the Azoty Tarnów Group comprised Zakłady Azotowe w Tarnowie-Mościcach S.A. (the Parent), together with 10 subsidiaries in which Azoty Tarnów holds 100% of shares or a majority interest and 1 associate (26.45% interest). The Group’s aim is to become the undisputed leader in the European chemicals market and achieve outstanding financial results and economic benefits.

Significant changes within the Group in 2010 Acquisition of a 100% stake in Unylon Polymers GmbH On 28 January 2010 the Management Board of Azoty Tarnów received confirmation, dated 27 January 2010, from a Notary’s Office in Berlin on fulfilment of all terms and conditions concerning acquisition of 100% of shares in Unylon Polymers GmbH, headquartered in Guben, in accordance with the provisions of the conditional agreement executed on 18 November 2009. Under the above agreement, executed between Azoty Tarnów and Unylon AG, headquartered in Hamburg, the latter disposed of and transferred the shares to Azoty Tarnów. Taking place on 12 February 2010 in Berlin, the General Meeting of Shareholders in the German company changed the company’s name to ATT Polymers GmbH pursuant to a resolution of the Owner, appointed a new supervisory board and introduced a representative of Azoty Tarnów to its management board. Consent for the acquisition by the Parent of 100% of shares in Unylon Polymers GmbH was adopted by the Extraordinary General Meeting on 15 December 2009 and constitutes fulfilment of the obligations contained in the Azoty Tarnów issue prospectus concerning an increase in polyamide 6 (PA6) production capacity. The acquisition of this company and its entry into the Azoty Tarnów Group is aimed at integrating the manufacture of polyamide 6. In this way both companies can maximise potential synergies in order to enhance their position in the European polyamide market.

Significant changes within the Group in 2010

Group companies

Acquisition of an additional 50% interest in Polskie Konsorcjum Chemiczne Sp. z o.o.

Zakłady Azotowe w Tarnowie-Mościcach S.A. (Azoty Tarnów) Group Parent

Pursuant to a resolution of the Management Board of 28 May 2010, the Parent conducted activities aimed at acquiring a majority interest in the share capital of Polskie Konsorcjum Chemiczne Sp. z o.o. through purchase of all shares belonging to Ciech S.A. As a result of the above, on 19 July 2010 Azoty Tarnów executed a “conditional agreement on sale of shares in a limited liability company” with Ciech S.A., pursuant to which the Parent acquired 1 000 shares from Ciech S.A., of a value of PLN 50 000, constituting 50% of the share capital of Polskie Konsorcjum Chemiczne Sp. z o.o. Ownership of the above shares was transferred on 1 September 2010. As a result of this transaction Azoty Tarnów currently holds 1 500 shares in PKCh Sp. z o.o. of a total nominal value of PLN 75 000, constituting 75% of PKCh Sp. z o.o.’s share capital. As of the date of transferring share ownership and transformation from an associate into a subsidiary, the equity method of accounting was replaced with full consolidation.

ZAK S.A. (formerly Zakłady Azotowe w Kędzierzynie) together with its group, comprising eight subsidiaries, is the largest subsidiary of the Azoty Tarnów Group. The company is one of the largest and most developed entities amongst Poland’s key chemicals companies. Its operations are mainly based on the manufacture and sale of chemical products used in agriculture, together with industrial plastics, paints and varnishes. ZAK S.A. has modern technologies at its disposal which enable efficient use of production facilities and effective operations, thus ensuring high product quality. Its most recognisable brand is the Salmagi® fertiliser family, Kędzierzyńska Saletra Amonowa® and urea. It is worth emphasising that the company is the only manufacturer of OXO alcohols in Poland and is a significant manufacturer of plasticisers in the European market. ZAK.S.A. boasts one of the most up-to-date, ecological nitric acid facilities (opened in 2010) and a water treatment plant. Both of these key facilities are an result of modernisation and intensification of the company’s development. Azoty Tarnów holds 52.62% of the company’s share capital.

PKCh Sp. z o.o. is to be a company used for conducting further restructuring processes with the Azoty Tarnów Group.

Acquisition of shares in ZAK S.A.

On 20 October 2010 an agreement on purchase of a controlling stake in ZAK S.A. was executed between Azoty Tarnów and ZAK S.A., having its registered office in Kędzierzyn-Koźle. After the increase in ZAK S.A. share capital, the number of shares held by Azoty Tarnów, amounting to 30 million, constitutes 52.62% of ZAK S.A.’s share capital, carrying 30 million votes at the General Meeting and constituting 52.62% of total votes at the General Meeting. The acquisition of 30 million new series B shares in ZAK S.A. constitutes the Parent’s long-term investment. On 31 January 2010 the Supervisory Board of ZAK S.A. appointed Mr Jerzy Marciniak as President of the Management Board of ZAK S.A., effective as of 1 February 2011. Mr Jerzy Marciniak simultaneously holds the position of President of the Parent’s Management Board. The acquisition by Azoty Tarnów of 30 million shares in ZAK S.A. was aimed at creating a competitive fertiliser product portfolio with an increase in production effectiveness, sales margins and distribution efficiency. The highly developed technical infrastructure at ZAK S.A.’s commodities division also allows for optimisation of ammonia and nitric acid production capacity throughout the Azoty Tarnów Group.

ATT Polymers GmbH This company concentrates on the manufacture and trade in construction plastics, including by-products and derivatives. It has 5 polymerisation lines with total production capacity of 47 000 tonnes of PA6 per year. The company can flexibly manufacture 4 types of polyamide simultaneously, ranging in viscosity from 2.4 to 4.0. Azoty Tarnów holds 100% of share capital. BIPROZAT – Tarnów sp. z o.o. This company deals with the design, document preparation and supply logistics for equipment and apparatus and conducts commercial, consulting and IT activities (Polish Classification of Business Activity (PKD) 7112Z). Azoty Tarnów holds 100% of share capital. ELZAT sp. z o.o. This firm conducts activity consisting of the creation of electrical installations, manufacture of mechanical tools and equipment, metal processing, technical research and analysis and finishing works (PKD 4321Z). Azoty Tarnów holds 100% of share capital. JEDNOSTKA RATOWNICTWA CHEMICZNEGO sp. z o.o. This company provides services covering decontamination, recycling, reclamation and storage of waste, sewage treatment, removal of the effects of accidents, water, air and waste analysis, training, transport of

hazardous materials, food testing, manufacture and trade in chemical products (PKS 9001Z), together with the manufacture of plastics (PKD 3700Z). Azoty Tarnów holds 100% of share capital.

Development, innovation and creativity

KOLTAR sp. z o.o. This company deals with loading, unloading and freight forwarding support for rail freight, the cleaning of tanks and wagons and their inspection, and maintenance of railway track connected with support for the on-site railway station (PKD 4920Z). Azoty Tarnów holds 100% of share capital. PROREM sp. z o.o. This company provides services and manufactures products relating to construction, installation, sanitary fittings, industrial, electrical, surveying and ICT services, repair and modernisation of specialist buildings and structures (PKD 3312Z). Azoty Tarnów holds 100% of share capital. ZWRI sp. z o.o. A company specialising in the manufacture and provision of services concerning construction, installation, sanitary fittings, industrial, electrical, surveying and ICT services (PKD 4120Z). Azoty Tarnów holds 100% of share capital. AUTOMATYKA Sp. z o.o. This company conducts business activity connected with mechanical engineering and consultancy relating to computer hardware and also manufactures equipment for controlling industrial processes, together with designing and implementing installations (PKD 3312Z). Azoty Tarnów holds 72.17% of share capital. POLSKIE KONSORCJUM CHEMICZNE sp. z o.o. This company provides financial holding services (PKD 6420Z) and activities of head offices and holding companies, with the exception of financial holdings (PKD 7010Z). Azoty Tarnów holds 75%* of share capital. NAVITRANS sp. z o.o. A company specialising in marine and road transport, broker support for freight forwarding and transport and freight forwarding consultancy services (PKD 6340C). Azoty Tarnów holds 26.45% of share capital.

*On 1 September 2010 Azoty Tarnów acquired 1 000 shares in PKCh Sp. z o.o. pursuant to an agreement executed with CIECH S.A., constituting 50% of the share capital of PKCh. In connection with this, the Parent’s share in the capital of Polskie Konsorcjum Chemiczne Sp. z o.o. increased to 75%. The acquisition was valued at PLN 50 000.

Azoty Tarnów Group product positioning in chemical markets:

Poliamide 6 (PA6) Tarnamid®, alphalon®

Nitrate fertilisers Salmag®, Calcium ammonium nitrate,

Poland

Europe

OXO alcohols 2-Etyloheksanol, N-butanol

Plasticisers Oxoplast® O (DEHP)

Saletrosan®

*Integrated PA 6

Azoty Tarnów is the only integrated manufacturer of polyamide 6 (sold under the brand name Tarnamid®) in Poland and one of several in Europe. This product is manufactured through the polymerisation of caprolactam produced in Tarnów. The Company is also the only domestic manufacturer of polyoxymethylene (POM), sold under the brand name Tarnoform®. It provides technical research and consultancy services, enabling optimum selection and use of plastics.

Operational areas of the Azoty Tarnów Group

The Azoty Tarnów Group is one of the key chemical sector holding companies, conducting manufacturing, service and commercial activity in construction plastics (polyamide 6, polyoxymethylene, modified plastics), raw materials for their synthesis (caprolactam), mineral fertilisers (calcium ammonium nitrates, ammonium nitrates, ammonium sulphates), together with OXO alcohols and plasticisers.

The Parent is also one of the largest manufacturers of nitrate fertilisers in Poland. Thanks to investments recently implemented in this field, it supplies fertilisers with two granulation types (milling and mechanical granulation), and specific types of fertilisers are adapted to the needs of end customers – “standard” (milling – smaller, varied granules) and “macro” (mechanical granulation – uniform).

A significant area of Azoty Tarnów’s operations is the manufacture of chemicals. The most important products in this group are concentrated nitric acid and nitrates. These products are used mainly as raw materials for the chemical and pharmaceutical industries. Specialised organisational units within the Parent provide laboratory services, including environmental analysis (physical and chemical analysis of water, sewage, waste and soil), physical and chemical analysis of organic and inorganic products and testing of plastics.

Principal Azoty Tarnów products by quantity

The process of strengthening the Azoty Tarnów Group in 2010 occurred in areas including the acquisition of 100% of shares in a German polyamide manufacturer (currently ATT Polymers GmbH). The company is a leading manufacturer of PA6 in Western Europe. Thanks to flexible manufacturing processes, it is capable of manufacturing 5 types of polyamides with various levels of viscosity. The increase in the scale of operations and the Group’s effectiveness in 2010 in the manufacture, sale and distribution of mineral fertilisers was possible due to the acquisition of a controlling interest in ZAK S.A. This company’s operations are conducted mainly in the field of manufacturing and selling organic and inorganic chemicals intended primarily for agriculture and the plastics industry, together with paints and varnishes. ZAK S.A. has a strong position in the domestic and international markets. This is due to a recognisable brand identity and an exceptional approach to customer service.

Item in tonnes Plastics Centre Total caprolactam* Tarnoform Natural Tarnamid Modified plastics Formalin

Fertilisers centre Calcium ammonium nitrate 27.+27B standard Calcium ammonium nitrate 27.+27B makro Ammonium nitrate AN 32 macro Saletrosan Ammonium sulphate AS 21 Total nitrates Carbon dioxide

Volume 2010

Volume 2009

% change 2010 / 2009

51 482.8 9 165.5 38 739.1 6 004.3 350.9

49 835.3 7 500.1 35 970.1 4 147.1 294.6

103.3 122.2 107.7 144.8 119.1

249 218.2

229 508.5

108.6

43 542.0

67 512.4

64.5

13 000.4 177 730.4 309 860.3 50 392.8 33 401.9

64 398.0 3 568.9 415 827.5 48 108.2 32 930.0

20.2 4 980.0 74.5 104.7 101.4

*Alongside sales. caprolactam is processed into natural Tarnamid.

Selected operational areas of specific Group companies

The Group’s objective is to ensure the highest quality of products and services offered by specific companies. One example of this is Koltar – a company responsible for maintaining the rail infrastructure and rolling stock at Azoty Tarnów. As one of only a handful of companies in Poland to do so, it holds the authorisations needed to perform comprehensive maintenance of the wagons and tank cars used to transport hazardous materials under RID. Many years’ experience in this field and the high quality of services on offer mean that Koltar is also able to successfully offer freight forwarding and maintenance services to external companies. The Group also includes a chemical emergency management unit (Jednostka Ratownictwa Chemicznego), which provides specialist emergency management services in particularly hazardous areas. Its operations also include the recycling and storage of hazardous waste and specialist services connected with the recycling of oxidant rocket fuels. Furthermore, the company is active in the market for accredited food testing and veterinary diagnostics. What makes Jednostka Ratownictwa Checmicznego unique is its experienced and highly qualified personnel, who are able to conduct training sessions for NATO military specialists and fire services.

A particularly important element of the Azoty Tarnów Group’s operations are the projects conducted by a qualified group of specialists from the company Automatyka. They successfully complete tasks in the field of designing surveying systems and the installation and commissioning of industrial systems, which are used as far afield as Iran, Romania, Slovakia, China, Turkmenistan, Hungary and Ukraine. Within the processes of development, modernisation and intensification of manufacturing at Poland’s key chemical companies, projects developed by Biprozat are used around the world. The experience and know-how of other specialist companies, including in the implementation of complete medium- and high-voltage electrical installations and the operational maintenance of electricity systems for industrial facilities (Elzat), the maintenance and construction of new buildings and production lines (Prorem), and the manufacture of chemical industry equipment and pipelines (ZWRI) are evidence of the qualifications of Azoty Tarnów in the field of comprehensive investment and modernisation project execution within the Group and for external clients.

2010 SALES REVENUE STRUCTURE

Revenue from sales of Group products at Azoty Tarn贸w by product group in 2010

Revenue from sales of Azoty Tarn贸w Group products -by product group in the first quarter of 2011

Semi-finished products for the manufacture of plastics

Base chemicals

Other products

Base chemicals

6% Nitrate fertilisers

OXO alcohols and plasticisers

33%

OXO alcohols and plasticisers

26% Nitrate fertilisers

33%

Semi-finished products for the manufacture of plastics

11%

Construction plastics

36%

25% Other products

21 21

SALES OF KEY PRODUCTS IN 2010

SALES MARKETS

Total revenues from sale of products, goods and materials within the Azoty Tarnów Group for 2010 amounted to PLN 1 901 784 000 and was PLN 687 146 000 higher in current prices than 2009 revenues, i.e. an increase of 56.57%. The highest level of sales was noted in the plastics segment at PLN 929 486 000.

Revenue from sales of the Azoty Tarnów Group in 2010 by operating segment

Azoty Tarnów Group products are mainly sold to countries of the European Union, in particular to Germany, Belgium, Italy and the Czech Republic. Export to the EU and Asia mainly covers plastics, OXO alcohols and plasticisers, while to Latin America the principal export is mineral fertilisers.

Azoty Tarnów Group sales markets in 2010 by region

Fertilisers

Plastics

Oxo alcohols and plasticisers

Other operations

45%

34%

7%*

14%

Other European Asia cauntries

8% Azoty Tarnów

Azoty Tarnów

ZAK S.A.

Calcium ammonium nitrate Ammonium nitrate Saletrosan® Ammonium sulphate

Caprolactam Tarnamid® (PA6) Tarnamid® modified Tarnoform® (POM) Tarnoform® modified

OXO alcohols 2-Etyloheksanol n-butanol izobutanol

ZAK S.A.

ATT Polymers Salmag Kędzierzyńska Saletra Amonowa Urea Chemicals Nitrates Ammonia Nitric acid (concentrated and technical) other * from 19 November 2010.

alphalon® Chemicals C-non C-nol other

Plasticisers Oxoplast® O (DEHP) Oxoplast® IB (DIPB) Oxoplast® PH (DPHP) Chemicals n-butanal Isobutyl aldehyde Maleic anhydride other

2% North America

Energy Services: design maintenance construction transport electrical repair environmental protection laboratory and others provided by the companies

0.4%

Poland

38%

0.03%

European Union

South America

Australia

49% Africa

Investments and achievement of issue objectives Investments implemented are an indicator of company development. The Azoty Tarnów Group is dynamic and constantly strives to improve the quality of its services and increase the scale of operations. Significantly, total expenditures on investments incurred by Azoty Tarnów alone in 2010 amounted to PLN 65 991 500, of which PLN 370 000 was invested in inventory. In order to strengthen the company’s competitive position, implementation of the largest on-going investment commenced in 2010 – construction of the Hydrogen Facility. This is also an element of one of the issue objectives – “Modernisation of the Caprolactam Plant together with construction of a new Hydrogen Facility”. The aim of this project is to: – increase the scale of operations, – achieve stable caprolactam production capacity at a level of approx. 100 000 tonnes/year, – decrease the unit costs of caprolactam manufacture. Construction of the new Hydrogen Facility with production capacity of 8 000 Nm3/h, which is closely connected with modernisation of the Caprolactam Plant, will increase the security of power supplies for the Plant, enable production costs to be lowered and increase the use of natural gas with higher nitrogen content from local sources.

Significant Azoty Tarnów investments completed in 2010 – protection of the cyclohexane oxidation installation in the event of a loss of circulating water, – use of vacuum pumps in the caprolactam crystallisation node, – modernisation of the copper and iron-chromium catalyst drying system, – construction of a heat exchange station in order to increase sales of heat in heating water for MPEC up to 30 MW, – intensification of the c-non purification system, – big-bag and palette warehouse.

Most significant on-going projects and investments – modernisation of the Benfield potassium wash station within the V RM installation, – modernisation of the A1 cooling system, – modernisation of the dolomite milling plant, – modernisation of the fertiliser packaging and dispatch station, – modernisation of the air compression system, – intensification of the Modified Plastics Plant – phases I+II, – construction of heat and energy measurement equipment, – modernisation of the selective phenol hydrogenation installation in the Palladium catalyst, – modernisation and Intensification of the Caprolactam Plant to 101 300 t/ year – Technical Project, – implementation of an integrated ERP-class management system within the Parent.

Research and development Thanks to its own research facilities, Azoty Tarnów is able to develop its technology and increase the quality of its products. Observing the need to continually seek out the latest technological solutions, the company has become a valued and sought-after initiator of and active participant in innovative R&D programmes run by national scientific institutes, including in the field of polymer nanotechnology and mercury biodegradation. Under improvement of existing products and the creation of new solutions, the Company cooperates with the Industrial Chemistry Research Institute, the Fertiliser Research Institute, Wroclaw University of Technology, Warsaw University of Technology, Krakow University of Technology, Lodz University of Technology, the Business College and the Polish Academy of Sciences – Branch in Lodz. Consistency and persistence in these activities means that Azoty Tarnów is perceived as a trusted and experienced partner in technological projects implemented worldwide, and a proven European supplier of patents and licences which – thanks to highly qualified technical personnel – sets new industry standards. In 2010 the Group generated PLN 14.9 million in licence sales. In 2010 Azoty Tarnów initiated many R&D projects aimed at achieving the adopted strategic objectives. The largest amount of funds was allocated to issues connected with the manufacture of construction plastics, caprolactam and nitrate fertilisers. Work was also carried out on further product diversification and new products. Work in the field of construction plastics focussed on the development of technology for the production of polytrioxane and on newly modified construction plastic variants. R&D work on caprolactam concentrated on improving economic ratios and enabling further intensification of the Caprolactam Plant. In turn, work on fertilisers was connected with expanding and developing the Azoty Tarnów product portfolio in the fertiliser segment.

An industrial zone was established within the Azoty Tarnów site in 2010, aimed at enabling and facilitating business conducted in industrial and post-industrial areas. The zone is more than 231 hectares in area and contains 276 plots of land. It covers the main area where production facilities are located. Thanks to this zone, businesses located there will have access to many significant benefits, including an attractive, fully equipped area with a convenient location. It is a significant chance for investors, since the Azoty Tarnów site is convenient area for the performance of various types of business activity.

Many projects implemented at Azoty Tarnów have been recognised and valued. Calcium ammonium nitrate 27 macro was presented with an award at the 7th Polish Fertiliser Awards, and Saletrosan® 26 macro received the “Golden Medal” at the “AGROTECH” Agricultural Technology Fair in Kielce as well as being recognised as a “European Standard Product” at the “Agro-Tech” Agricultural and Industrial Fair in Minikowo.

In the field of implementing new products: − feasibility study for coal gasification for the production of heating energy and electricity and syngas for the production of methanol, with detection, transport and storage of CO2, − application research on a new plasticiser, i.e. DIOCH – hydrogenated dioctyl phthalate and technical concepts for manufacture of DIOCH, − a feasibility study for manufacture of terephthalate dioctyl at ZAK S.A.

New technology was also introduced and R&D work was actively pursued at ZAK S.A. Here work was continued from previous periods and a wide range of research and development studies were drawn up. The company collaborates with numerous research institutes and engineering companies, counting the following as its most important achievements in 2010: In the field of chemical and energy process and technology assessment essential in determining further development at ZAK S.A.: − an inspection of technology used from the point of view of its development potential and technical level with regard to Best Available Technology (BAT) requirements through drawing up initial feasibility studies for the following complexes: acrylic, maleic, methanolic and LPC, − an energy audit of the facilities’ electricity systems, − use of coke-oven gas as a chemical raw material at ZAK S.A., − use of propene-propylene fraction as a raw material for the OXO alcohol installation.

New fertiliser products were introduced to the market as a result of the 2009 commissioning of the largest investment in recent years – the 1200 t/d Mechanical Fertiliser Granulation Installation. The new installation allows for the manufacture of mineral fertilisers with stable, homogeneous granulation, which is currently one of the key parameters required on the global mineral fertiliser market. Azoty Tarnów was also awarded “Innovation of the Year 2010” by Forum Biznesu for the innovative mechanical granulation installation.

Commodity and energy security

Development of IT infrastructure

The strategic commodities used by Azoty Tarnów for large-scale manufacture are natural gas, phenol, benzene and ammonia. We are the only company in the industry with diversified natural gas supply sources. Supplies are sourced from the national transmission network and from independent local sources of natural gas with high nitrate content located in the Tarnów region. The gas from local sources currently meets approx. 40% of the company’s requirements, which is significant in strengthening Azoty Tarnów’s security in the supply of raw materials. In the short-term Azoty Tarnów is also seeking new local sources of gas, which will cover up to 60% of the company’s requirements for this raw material.

IT activities constitute significant support for implementation of the development strategy and an increase in the company’s value. The “IT Strategy 2010-2015” was adopted, in line with the “Company Development Strategy”, together with the IT mission: “effective use of information and knowledge as a strategic resource”. For its implementation, an innovative IT outsourcing project has been in progress since 2010 in cooperation with Hewlett-Packard Polska.

To a large extent the Azoty Tarnów Group is supplied with commodities for manufacture, together with goods and services, from within Poland. Remaining requirements are met from EU countries (benzene, phenol, propene) and from Eastern markets (ammonia, methanol, propene). The stability and security of strategic raw materials is guaranteed through contracts based on commercial price formulae together with quantitative guarantees, both in the Group’s operations and in optimising the purchase and logistics process. This strategy allows us to minimise negative market phenomena and adapt the quantity of supplies to current production requirements. In order to further advance energy security, the existing on-site 65 MW CHP plant at Azoty Tarnów is undergoing modernisation. At the present time approx. 80% of Azoty Tarnów’s energy needs are met by the on-site, coal-fired CHP plant. In 2010 two large domestic companies supplied coal for power, deliveries of which were balanced 80-20. The largest supplier for the Azoty Tarnów Group is Polskie Górnictwo Naftowe i Gazownictwo S.A.

Environmental protection Thanks to implementation of the latest technological solutions, Azoty Tarnów takes active environmental protection measures which bring simultaneous balance sheet benefits. As one of the first Polish companies to do so, Azoty Tarnów is implementing the recommendations of the United Nations Framework Convention on Climate Change (the Kyoto Protocol) through a Polish-Japanese Joint Implementation Project to reduce greenhouse gas emissions (Emission Reduction Units, ERUs). Commissioned in 2009, the recycling catalyser at the nitric acid installation has led to a 93% reduction in nitrogen oxide emissions, the largest reduction of this gas in the world. Revenues to be achieved on this account over the period 20082012 are estimated at approx. PLN 135 million. The level of these revenues in 2010 amounted to PLN 27.9 million.

Covering supervision of the Azoty Tarnów IT system, HP simultaneously employed personnel from the former IT department, creating a Competence Centre for the Group. The aim of the project is to use IT development to streamline business processes and improve the quality of IT support. The project was presented with the “Most Interesting of the Best” award by the editorial team of PTWP Group – publishers of the business monthly Nowy Przemysł and the website wnp.pl. This award is presented to companies for implementation of the most interesting IT solutions in business – implementation of innovative solutions which significantly improve business and increase effectiveness and competition. Since commencing provision of IT services, HP has conducted several significant standardisation projects. The first and key project was the ITSM/ITIL-compliant start-up of the Help Desk – the first point of call for all IT users at Azoty Tarnów. Subsequent projects concerned issues including virtualisation of the equipment platform and applications used, supply and implementation of a Microsoft platform for e-mail and group work and data archiving. 5 key business projects were implemented, including creation of a Business Intelligence environment (including planning, budgeting and management information optimisation), introduction of electronic document and invoice circulation, management of investments and repair works and a cycle of advanced training sessions for SAP users. The aim of strategic cooperation in all fields of technology and ICT services expressed in the contract is systematically fulfilled through HP’s participation in analysis of the company’s subsequent strategic initiatives. Bilateral transfer of knowledge and joint development of IT solutions bringing the best business effects continuously add value to the outsourcing contract.

ATT a reliable capital markets partner

Azoty Tarnów debuted on the Warsaw Stock Exchange on 30 June 2008. Shares in the company, with ticker symbol ATT, are listed on the WSE primary market under a continuous trading system and are included in the WIG, mWIG80, WIG-Chemia and RESPECT indices. Acting in accordance with the highest standards for capital market communications and corporate governance principles, Zakłady Azotowe w Tarnowie-Mościcach S.A. provides all capital market participants, particularly its current and future shareholders, with in-depth and reliable information concerning events within the company and its group, presented in current and periodic reports. These reports are also available on the company’s website azoty.tarnow.pl. The Investor Relations section is updated with Azoty Tarnów share price information, and also contains the latest recommendations for Azoty Tarnów share target price, taken from capital market analysts’ recommendations, together with publication of results drawn up after each publication of a periodic report and presented during meetings with investors and market analysts, roadshows or investor conferences. Azoty Tarnów does more than merely abide by obligatory legal requirements in communications with investors. Wishing to live up to the high expectations of capital market participants, the company applies an open information policy. In April 2010 Azoty Tarnów joined the “10 for 10” programme of the Association of Private Investors, aimed at creating and optimising the highest standards in communication between listed companies and investors. Azoty Tarnów’s investor relations activities were distinguished by investors in the business weekly “Puls Biznesu” for the company’s active participation in “Investor Action”, thanks to which from August 2010 the Company has the honour of being able to use the “Responds to Investors” logo. Azoty Tarnów began 2010 with a share price of PLN 14.55, after which the price ranged, first rising to a level of PLN 18 and then falling to PLN 13.9 on 2 July 2010 (the minimum during 2010). From that point on, a long-term uptrend developed, closing the year at PLN 32.68. This growth gained pace in the fourth quarter of 2010, with the highest daily price in 2010 taking place on 27 December 2010 at a level of PLN 33.4 per share. The growth tendency continued into the first quarter of 2011 when the share price again reached a record high, hitting PLN 40.41 on 8 March 2011. The rate of return on investment in Azoty Tarnów shares in 2010 reached 119.48%, significantly outperforming the average ROI rate for the WIGChemia index, which over the same period was approx. 60%. However, investors who acquired ATT shares at the issue price of PLN 19.50 in 2008 could expect a 67.59% rate of return through selling shares on 31 December 2010.

Corporate social responsibility

Since its founding, Azoty Tarnów has contributed to the region’s social and economic development and is a trusted partner for the local community. It operates in a responsible manner and strives to integrate social, environmental and economic aspects. To date the company has taken a wide range of measures to raise internal standards to the highest international requirements. Such tasks include the implementation of integrated management systems. Azoty Tarnów completely fulfils the requirements of ISO standards regarding quality management, environmental management, food safety management and occupational health and safety. Furthermore, the company takes active part in programmes and initiatives such as “Responsibility and Care”, REACH and SPOT. The company is deeply involved in the development of local communities and cares for its employees, ensuring a safe working environment and countless opportunities for development. Employee benefits include the possibility to take advantage of various forms of subsidies in the event of continuing education or to take part in training courses, conferences and industry events. Numerous training courses are co-financed by the European Social Fund under the Human Capital Operational Programme. To date, training has been organised on topics including use of computer software, IT systems, the Internet and website design, together with English courses. Furthermore, employees have the opportunity to take advantage of the company’s support under a package of social benefits.

The company is a recognised and valued organiser and partner of projects aimed at environmental protection, integration and the development of the local community. Azoty Tarnów supports both large investments and small ventures. The list of institutions supported by the company includes educational facilities for disabled children, cultural centres and sports clubs. Azoty Tarnów is strategically and transparently involved in this type of activity and acts in accordance with the “Azoty Tarnów Strategy for Development of the Local Community”, which in 2010 was expanded to include the entire Group. The organisations and projects supported by Azoty Tarnów in 2010 include: The “Tarnów Film Award” organised by the Tarnów Cultural Centre – the largest film event in the region, supported by the Company for several years, Centrum Paderewskiego Kąśna Dolna – a significant organisation active in Tarnów’s cultural life and organiser of countless renowned classical music festivals and concerts, Mościce Cultural Centre – a cultural institution organising concerts, exhibitions, film showing, plays etc., The Educational Centre in Zbylitowska Góra, which conducts classes for sick and disabled children, including hippotherapy, therapy with dogs and light therapy, Schools from the Mościce municipality which are located in the company’s surroundings, The Tarnów Investment Forum – an event held during the annual Economic Forum in Krynica, a gathering of selected investors from Poland and Central and Eastern Europe as well as representatives of governments and parliaments, Edyta Ropek and Tomasz Oleksy – two of the best European and global mountaineers, Żużlowa Sportowa Spółka Akcyjna Unia Tarnów (sports), Kryterium Kolarskie im. Eugeniusza Kwiatkowskiego (cycling), Polskie Towarzystwo Gimnastyczne “Sokół-Świat Pracy” (gymnastics), The Voluntary Lifeguard Service. In order to maintain the transparency of its activities, Azoty Tarnów issues financial and environmental reports which provide up-to-date information on activities (available on the company website), as well as being subject to external audit. Azoty Tarnów’s involvement is also recognised by other organisations. An example of the value attached to the company’s contribution to Polish science and culture is the award of a “Golden Idea” statue (the idea behind the award was developed by the Science and Health Foundation in Krakow). Azoty Tarnów was also presented with the prestigious “Tarnów Patron of Culture” award, granted by Council of the Town of Tarnów.

In pursuit of sustainable growth Being aware of the impact on its surroundings, in 2010 the Company began preparations for the development of a comprehensive, long-term strategy for sustainable development and social responsibility. The objective of the strategy is to integrate activities undertaken in the fields of economic efficiency, responsibility towards employees and the environment and relations with the company’s surroundings. The document will demonstrate the means by which Azoty Tarnów wishes to create value for stakeholders, including employees, shareholders, business partners and local communities. The strategy will comprehensively address the actual needs of the community and will enable sustainable development for the company. The strategy is created on strong foundations and over seventy years of history, during which Azoty Tarnów has been involved in countless scientific, economic, sporting and cultural events.

Azoty Tarnów listed in the RESPECT Index Azoty Tarnów has been listed in the RESPECT Index without interruption since 19 November 2009, i.e. since the index’s formation. This index is organised by the Warsaw Stock Exchange and is the first index of socially responsible companies in Central and Eastern Europe. The objective of the RESPECT Index is to select companies managed in a responsible and sustainable manner and accent their investment attractiveness. To date Azoty Tarnów has successfully passed the external audits conducted by Deloitte, which has twice confirmed that the Company, as one of 16 in Poland, fulfils the rigorous index criteria.

SELECTED CONSOLIDATED FINANCIAL DATA

in PLN thousands For the period from 1.1.2010 to 31.12.2010 Revenue from sales

For the period from 1.1.2009 to 31.12.2009

For the period from 1.1.2010 to 31.12.2010

For the period from 1.1.2009 to 31.12.2009

1 901 784

1 214 638

474 924

279 832

Profit on operating activities

422 206

(14 353)

105 436

(3 307)

Profit before tax

417 007

(7 129)

104 137

(1 642)

Net profit

400 758

(3 740)

100 080

(862)

Total comprehensive income

400 849

1 042

100 102

240

39 116 421

9.99

(0.11)

2.50

(0.03)

Net cash flows from operating activities

115 161

(43 288)

28 759

(9 973)

Net cash flows from investing activities

(63 996)

222 648

(15 981)

51 294

Net cash flows from financing activities

(16 393)

21 792

(4 094)

5 021

34 772

201 152

8 683

46 342

Cash at the beginning of period

246 485

45 333

61 554

10 444

Cash at the end of period

279 450

246 485

69 786

56 786

Number of shares Net profit per ordinary share

Total net cash flows

As at 31-12-2010 Non-current assets

As at 31-12-2009

As at 31-12-2010

As at 31-12-2009

2 339 060

989 463

590 627

240 851

Current assets

974 347

591 855

246 029

144 067

Non-current liabilities

433 695

199 778

109 511

48 629

Current liabilities

929 610

268 245

234 732

65 295

Equity

34 34

in EUR thousands

1 950 102

1 113 295

492 413

270 993

Share capital

195 582

49 386

47 608

Non-controlling interests

447 926

2 163

113 104

527

AZOTY TARNÓW – SELECTED SEPARATE FINANCIAL DATA

in PLN thousands

Revenue from sales

in EUR thousands

For the period from 1.1.2010 to 31.12.2010

For the period from 1.1.2009 to 31.12.2009

For the period from 1.1.2010 to 31.12.2010

For the period from 1.1.2009 to 31.12.2009

1 549 753

1 137 699

387 013

262 106

Profit on operating activities

75 896

(26 860)

18 953

(6 188)

Profit before tax

77 138

(15 839)

19 263

(3 649)

Net profit

60 656

(10 997)

15 147

(2 533)

Total comprehensive income

62 313

(6 215)

15 561

(1 432)

39 116 421

1.55

(0.28)

0.39

(0.06)

152 591

(43 052)

38 106

(9 918)

Net cash flows from investing activities

(224 423)

229 417

(56 044)

52 854

Net cash flows from financing activities

8 373

25 392

2 091

5 850

Total net cash flows

(63 459)

211 757

(15 847)

48 785

Cash at the beginning of period

235 650

23 893

58 848

5 505

Cash at the end of period

172 191

235 650

43 000

54 290

Number of shares Net profit per ordinary share Net cash flows from operating activities

As at 31.12.2010 Non-current assets

As at 31.12.2009

As at 31.12.2010

As at 31.12.2009

1 092 527

915 980

275 870

222 964

Current assets

502 500

562 611

126 884

136 948

Non-current liabilities

161 200

156 612

40 704

38 122

Current liabilities

311 604

262 069

78 682

63 792

1 122 223

1 059 910

283 368

257 999

195 582

49 386

47 608

Equity Share capital

SALES OF AZOTY TARNĂ&#x201C;W GROUP PRODUCTS BY PRODUCT GROUP /in PLN millions/

2009

2010

Change

Poliamide 6

227

580

256%

Tarnoform

122%

Caprolactam

232

201

87%

Nitrate fertilisers, inc.:

459

587

128%

Calcium ammonium nitrates

268

406

151%

Ammonium sulphate

191

160

84%

OXO alcohols*

Plasticisers*

Cyclohexanone

0,1

56000%

200%

Nitrates

113%

Maleic anhydride*

Urea

Cyclohexanol

* from 19 November 2010.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2010 /in PLN thousands/

Share capital

As at 1 January 2009

Exchange diﬀerences from conversion of subsidiaries

Retained earnings

Total equity Non-controling attributable to interests owners of parent

Total equity

195 582

209 990

(7 870)

757 931

1 155 633

1 698

1 157 331

(1 768)

(1 687)

195 582

209 990

(7 870)

756 163

1 153 865

1 779

1 155 644

Total comprehensive income for the 12 months ended 31 December 2009

4 782

(4 249)

533

509

1 042

Dividend

(39 899)

(125)

(40 024)

Other

Error correction As at 1 January 2009 after corrections

(3 367)

As at 31 December 2009

195 582

209 990

(3 088)

708 648

1 111 132

2 163

1 113 295

As at 1 January 2010

195 582

209 990

(3 088)

708 648

1 111 132

2 163

1 113 295

195 582

209 990

(3 088)

708 648

1 111 132

2 163

1 113 295

Total comprehensive income for the 12 months ended 31 December 2010

1 657

390 953

391 044

9 805

400 849

Dividend

(454)

Non-controlling interests resulting from acquisition of ZAK SA Group

436 412

195 582

209 990

(1 431)

1 099 601

1 502 176

447 929

1 950 102

Error correction As at 1 January 2010 after corrections

As at 31 December 2010

Share premium

Provision for hedge accounting

(1 566)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period ended 31 December 2010 /in PLN thousands/

Note

For the period from 1.1.2010 to 31.12.2010

For the period from 1.1.2009 to 31.12.2009

Continuing operations Revenues

1 901 784

1 214 638

Cost of sales

(1 572 293)

(1 051 564)

329 491

163 074

Gross profit on sales Distribution costs

(82 123)

(64 713)

Administrative expenses

(123 834)

(99 720)

Other operating revenues

391 040

15 791

Other operating costs

(92 368)

(28 785)

422 206

(14 353)

Profit (loss) on operating activities Finance income

11 919

51 301

Finance costs

(17 282)

(44 110)

(5 363)

7 191

164

417 007

(7 129)

Net finance income (costs) Profit (loss) on shares in associates measured under the equity method Profit (loss) before tax Income tax

Net profit (loss) on continuing operations

(16 249)

3 389

400 758

(3 740)

Discontinued operations Net profit (loss) on discontinued operations

Net profit (loss)

–

400 758

(3 740)

836

(1 988)

Components of other comprehensive income Valuation of hedging instruments Settlement of hedging instruments Deferred tax on other comprehensive income

Exchange differences from conversion of subsidiaries

1 209

7 892

(388)

(1 122)

(1 566)

Total other comprehensive income Total comprehensive income

4 782

400 849

1 042

390 953

(4 249)

9 805

509

Net profit attributable to: Owners of the parent Non-controlling interests Total comprehensive income attributable to: Owners of the parent

391 044

533

9 805

509

Basic (PLN)

9,99

(0,11)

Diluted (PLN)

9,99

(0,11)

Basic (PLN)

9,99

(0,11)

Diluted (PLN)

9,99

(0,11)

Non-controlling interests Profit (loss) per share:

From continuing and discontinued operations:

From continuing operations:

CONSOLIDATED STATEMENT OF FINANCIAL POSITION for the period ended 31 December 2010 /in PLN thousands/

Assets

As at 31.12.2010

As at 31.12.2009

Non-current assets Property, plant and equipment Investment property Intangible assets Investments in subsidiaries Available-for-sale investments Other financial assets Non-current receivables Deferred income tax assets Other assets

2Â 038 415

902 639

26 338

12 135

182 954

22 219

7 651

596

12 633

12 653

737

3 501

1 355

66 706

37 829

125

2 339 060

989 463

269 787

180 874

1 908

340

5 394

Trade and other receivables

417 326

148 788

Cash and cash equivalents

279 450

246 485

5 751

9 361

125

613

974 347

591 855

3Â 313 407

1 581 318

Total non-current assets Current assets Inventory Other financial assets Deferred tax receivables

Other assets Non-current assets available for sale Total current assets Total assets

40 40

CONSOLIDATED STATEMENT OF FINANCIAL POSITION for the period ended 31 December 2010 /in PLN thousands/

Equity and liabilities

As at 31.12.2010

As at 31.12.2009

Equity Share capital

195 582

Share premium

209 990

Provision for hedge valuations

(1 431)

(3 088)

Exchange differences from conversion of subsidiaries

(1 566)

1 099 601

708 648

390 953

(4 249)

1 502 176

1 111 132

447 926

2 163

1 950 102

1 113 295

Liabilities due to borrowings

33 587

29 446

Provisions for employee benefits

71 235

45 087

Retained earnings, including: Current-period net profit (loss) Equity attributable to owners of the parent Non-controlling interests Total equity Liabilities

Other non-current liabilities

251

189

129 288

20 835

307

192 082

102 511

6 943

1 673

Total non-current liabilities

433 695

199 778

Liabilities due to borrowings

281 699

110 201

Provisions for employee benefits

8 176

5 389

Liabilities due to deferred income tax

2 763

591 233

143 372

39 803

7 937

Other provisions Government grants Deferred income Provisions for deferred income tax Financial liabilities

Trade and other payables Other provisions Government grants Deferred income Financial liabilities Total current liabilities

136

747

128

5 141

1 082

929 610

268 245

Total liabilities

1 363 305

468 023

Total equity and liabilities

3 313 407

1 581 318

CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31 December 2010 /in PLN thousands/

Cash flows from operating activities Gross profit (loss)

For the period from 1.1.2009 to 31.12.2009

417 007

(7 129)

129 634

57 233

Depreciation / amortisation

92 328

80 844

Creation (reversal) of revaluations

34 098

(4 186)

Profit (loss) on investing activities

806

(7 329)

(1Â 025)

(4 115)

Profit (loss) on shares in associates under the equity method

(164)

(33)

Corrections

Profit (loss) on disposal of financial assets

Interest, exchange differences

4 616

(10 278)

Dividend received

(544)

(180)

Profit (loss) on change in fair value of financial assets measured at fair value

(481)

2 510

546 641

50 104

Change in trade and other receivables

43 417

30 379

Change in inventories

18 121

(47 454)

(924)

(56 924)

Profit (loss) on operating activities before changes in working capital

Change in trade and other payables Change in inventory, accruals and grants Other adjustments Cash generated from operating activities Interest paid

For the period from 1.1.2010 to 31.12.2010

15 187

(15 117)

(491 681)

130 761

(38 932)

404

â&#x20AC;&#x201C;

Tax paid

(16 004)

(4 356)

Net cash from operating activities

115 161

(43 288)

For the period from 1.1.2010 to 31.12.2010

For the period from 1.1.2009 to 31.12.2009

Cash flows from investing activities Sale of intangible assets, PP&E and investment properties Purchase of intangible assets, PP&E and investment properties

34 647

31 222

(94 979)

(75 813)

Dividend received

546

2 646

Expenditures on acquisition of financial assets

(73)

(12 355)

Proceeds from sale of financial assets

1 825

271 880

Interest received

3 694

14 257

Other investment proceeds / expenditures

(9 606)

(50)

(9 189)

(63 996)

222 648

488

(42 459)

155 457

128 295

(161 792)

(58 711)

Interest paid

(7 605)

(4 540)

Payment of liabilities under finance lease contracts

(1 965)

(793)

(16 393)

21 792

34 772

201 152

246 485

45 333

Repayment of borrowings Net cash from investing activities Cash flows from financing activities Dividend paid Proceeds from loans and borrowings taken Expenditures on repayment of loans and borrowings

Net cash from financing activities Total net cash flows Cash at the beginning of period Eﬀects of exchange diﬀerences Cash at the end of period

(1 807)

–

279 450

246 485

Opinion of Independent Statutory Auditor DELOITTE AUDYT* To the Shareholders and Supervisory Board of Zakłady Azotowe w Tarnowie-Mościcach S.A.

We audited the accompanying consolidated financial statements of the Zakłady Azotowe w Tarnowie-Mościcach S.A. Group, for which the Parent is Zakłady Azotowe w Tarnowie-Mościcach S.A., with its registered office in Tarnów at ul. E. Kwiatkowskiego 8, consisting of: – consolidated statement of financial position as at 31 December 2010, – consolidated statement of comprehensive income, – consolidated statement of changes in equity, – consolidated statement of cash flows for the financial year 1 January 2010 to 31 December 2010 and notes to the financial statements, containing information on the adopted accounting policies and other explanatory information. The Management Board of the Parent is responsible for drawing up the financial statements and report on Group operations in accordance with the binding provisions of law. The Management Board of the Parent and members of its Supervisory Board are required to ensure that the consolidated financial statements and report on Group operations fulfil the requirements of the Accounting Act of 29 September 1994 (Polish Journal of Laws of 2009, no. 152, item 1223 as amended), hereinafter the “Polish Accounting Act”. Our task was to audit and provide an opinion on the compliance of the consolidated financial statements with the accounting principles (policies) adopted by the Group and on whether they clearly and reliably present the Group’s financial situation, asset position and financial result in all significant aspects.

tements, together with an overview of the statements. We consider that the audit provided us with sufficient basis to provide an opinion. In our opinion, the audited consolidated financial statements, in all significant aspects: – give a true and fair view of information significant for assessing the financial situation and asset position of the Group as at 31 December 2010, as well as its financial result for the financial year 1 January 2010 to 31 December 2010, – were drawn up in accordance with International Accounting Standards, International Financial Reporting Standards and associated interpretations published in the form of European Commission regulations, and where not governed by such standards then appropriate to the requirements of the Polish Accounting Act and secondary legislation issued on its basis, – are compliant with the provisions of law binding on the Group which impact the content of financial statements. The report on the Group’s operations for 2010 is complete in the meaning of art. 49, sec. 2 of the Polish Accounting Act and the Ordinance of the Minister of Finance of 19 February 2009 concerning current and periodic information provided by issuers of securities and the conditions for regarding information required by the law of a non-member state as equivalent, and the information contained therein, as sourced from the audited consolidated financial statements, is compliant with such statements.

We planned and carried out the audit of the financial statements in accordance with the following regulations: – section 7 of the Polish Accounting Act, – the national financial audit standards issued by the National Chamber of Statutory Auditors. We planned and carried out the audit of the consolidated financial statements in such manner as to gain the rational certainty necessary for us to express an opinion on the statements. In particular, the audit covered verification of the accounting principles (policies) applied by the Parent and subsidiaries and examination, mainly on a test basis, of evidence supporting the amounts and disclosures in the consolidated financial sta-

Marek Turczyński Lead Statutory Auditor conducting the audit reg. no. 90144 Warsaw, 8 March 2011

*DELOITTE Audyt Sp. z o.o., having its registered office in Warsaw, Al. Jana PawĹ&#x201A;a II 19, 00-854 Warsaw â&#x20AC;&#x201C; an entity authorised to audit financial statements, entered onto the list of authorised entities, reg. no. 73, held by the National Chamber of Statutory Auditors.

Contents Introduction from the President of the Management Board of Azoty Tarnów

Management Board of Zakłady Azotowe w Tarnowie-Mościcach S.A.

Supervisory Board of Zakłady Azotowe w Tarnowie-Mościcach S.A.

Shareholding structure of Zakłady Azotowe w Tarnowie-Mościcach S.A.

Calendar of events in 2010 at Zakłady Azotowe w Tarnowie-Mościcach S.A.

Azoty Tarnów

Mission and strategic objectives of Zakłady Azotowe w Tarnowie-Mościcach S.A.

Development vectors

The Azoty Tarnów Group

Fields of operations of the Azoty Tarnów Group

Azoty Tarnów Group sales revenue structure

Sales of key products in 2010 and sales markets

Investments and achievement of issue objectives

R&D

Commodity and energy security

ATT – a reliable capital markets partner

Corporate social responsibility

Selected consolidated Azoty Tarnów Group financial data

Azoty Tarnów – selected separate financial data

Sale of Azoty Tarnów Group products by product group

Azoty Tarnów Group consolidated statement of changes in equity

Azoty Tarnów Group consolidated statement of comprehensive income

Azoty Tarnów Group consolidated statement of financial position

Azoty Tarnów Group consolidated statement of cash flows

Opinion issued by independent statutory auditor Deloitte Audyt

Zakłady Azotowe w Tarnowie-Mościcach S.A. ul. Eugeniusza Kwiatkowskiego 8, 33-101 Tarnów PL www.azoty.tarnow.pl VAT number: PL8730006829 GPW ticker: ATT KRS: 0000075450 ISIN: PLZATRM00012 Investor Relations tel. +4814 637 35 31 fax +4814 637 47 25 ir@azoty.tarnow.pl

www.azoty.tarnow.pl

Annual Report 2010

Zakłady Azotowe w Tarnowie-Mościcach S.A. ul. E. Kwiatkowskiego 8, 33-101 Tarnów, Polska, tel. +4814 633 07 81-85 PR /02/2011/1500