Ciech. Hold. Good News for Soda, Not So Good for TDI. Chemicals. Current price PLN 29.2 Target price PLN Update. Poland. BRE Bank Securities

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1 8 April 2011 Update Chemicals Poland Current price PLN 29.2 Target price Market cap Free float Avg daily trading volume (3M) Shareholders* PLN 30.1 PLN 1479m PLN 936m PLN 5.49m State Treasury 36.68% Pioneer Pekao IM 12.85% OFE PZU 6.12% OFE ING 5.33% Others 39.02% *before the share offering Sector Outlook The current revival in the global economic climate has a direct impact on the demand for chemicals. Higher volumes facilitate earnings improvement, and the shrinking surplus of capacity over demand should help margins. For some products, the pressure from Chinese dumping is easing, as the country s internal demand rises. Company Profile is Poland s largest chemicals producer. It has a diversified business portfolio which consists of the Soda Division (second largest soda ash manufacturer in Europe), the Organic Division (TDI, EPI, epoxy resins), and the Agro Division (fertilizers, pesticides). runs operations in Poland as well as Germany and Romania. Important dates Q report H report vs. WIG 33.5 PLN WIG CECH.WA; CIE PW Hold (Downgraded) Good News for Soda, Not So Good for TDI s successful share offering and divestment achievements have changed the investors' sentiment to its stock, bringing about a considerable increase in price since the start of the year. At present, positive trends can be observed in the soda segment, which should be clearly reflected in earnings starting in Q1. In turn, TDI will weigh profitability down, due to pressure on its margins stemming from excess supply and high crude oil prices. As a result, greater optimism in earnings forecasts is not warranted at this time, which is why we are downgrading our rating for the time being from accumulate to hold, while increasing our target price to PLN 30.1 per share. It should be remembered that the stock price could get a boost from divestments, which should come at attractive prices in today's macroeconomic circumstances. Another important event could be the execution of the call option for the CHP plant supplying the German subsidiary, which could add over EUR 10m to the operating margin. Major improvement likely in soda, but not TDI In 2011, the macroeconomic environment will be more favorable for than in 2010, especially as far as its crucial soda segment is concerned. Price hikes, higher volumes and the low base of H (due to low capacity utilization and downtimes) should make a PLN 142m y/y improvement in adjusted earnings possible. Additional support should come from higher pesticide volumes and prices, as well as the fact that capacity will be fully utilized in resin manufacture in combination with slightly higher margins. TDI, in turn, will weigh profits down, due to pressure on margins, structural oversupply and technical problems at ZA Tarnów, which supplies mixed acids used in TDA manufacture. All told, the reported EBITDA (taking into account the divestment of Fosfory) will amount to PLN 420m (vs. PLN 382m one year ago, but this included PLN 89m worth of one-offs). Balance-sheet clean up, further divestment opportunities 's successful public offering and finalization of the sale of Fosfory will allow it to considerably reduce its debt (below PLN 800m and 2.0x EBITDA), which should eliminate the discount that is currently attached to its valuation. Moreover, in the second half of the year, once the new loan agreement comes into force, we can expect a lower cost of financing, not just because the banks margins will go down (by an estimated 100bps), but also thanks to an increased share of F/X loans. Taking into account commission fees, financing costs may be cut by some PLN 60m per year. We can also expect to divest further non-core assets, the most likely candidates being Alwernia (up to PLN 75m) and Polfa (PLN 15-22m). The silicate division could be sold as well if a strong bid is received (PLN m) Kamil Kliszcz (48 22) kamil.kliszcz@dibre.com.pl (PLN m) F 2012F Revenues EBITDA EBITDA margin 11.9% 9.7% 9.6% 10.5% 11.1% EBIT Net profit DPS P/E P/CE P/BV EV/EBITDA DYield 7.1% 0.0% 0.0% 0.0% 0.0% BRE 8 April Bank 2011 Securities does not rule out offering brokerage services to an issuer of securities being the subject of a recommendation. Information concerning a conflict of interest arising in connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report.

2 Q Results Supported By One-Offs s better-than-expected Q results were owed to one-time other operating gains totaling PLN 40.9m which included PLN 23m earned on a property sale (which was more than our expected PLN 8m, probably thanks to some earlier charge reversals), a PLN 23m settlement between Soda Deutschland and heat supplier Vasa, sales of emission credits (PLN 4m), an installment plan arranged for Govora s steam payables (PLN 9m), and a PLN 10m impairment loss on intangible assets. Stripped of the one-time gains, EBIT amounted to PLN 8.1m vs. our expected PLN 12.9m. A breakdown by business segment shows continued strong quarterly performance of the Soda Division (PLN 55.5m adjusted EBITDA). As expected, the Organics Division reported an operating loss of PLN 18.8m, marking an increase from the PLN 16.6m loss posted in Q caused by PLN 1.2m higher operating expenses. Given the drop in TDI prices observed in the period, this can be considered a decent result (the quarter-on-quarter margin shrinkage was offset by a higher output generated after a period of maintenance downtime). s financial operations in the fourth quarter generated an income of PLN 57.1m, which was less than our PLN 65m estimate, probably due to higher debt service costs. Reported vs. forecasted Q results (PLN m) Q4 10 Q4 09 change Q4 10F Actuals vs. Forecasts Consensus Actuals vs. Consensus change Revenue % % % % EBITDA % % % EBITDA margin 10.5% 2.7% - 7.7% % 9.7% - EBIT % % % Pre-tax profit % Net profit % % Source:, estimates by Divestments of non-core operations (PTU) and the old offices helped reduce net debt to PLN 1.4bn at year-end A positive impact on debt also came from operating cash flows totaling PLN 83m, achieved mainly thanks to reduced accounts receivable at the Organic and Agro Divisions. The current average collection period of 47 days represents a major improvement from the historical average of 73 days and is shorter than the average payment period of 54 days. This suggests potential for a working capital increase in 2011, though will probably opt to grant trade credit to its customers equivalent to that it receives from suppliers, leading to an increase in receivables by an estimated PLN 70-80m. That said, given that in Q the collection period was dragged out by the Agro Division, which is slated for a partial sale, the negative impact on cash flows may be much less severe. In Q1 2011, will be further reducing its net debt thanks to PLN 435m stock issue proceeds and a PLN 227m sale of GZNF Fosfory and other minor divestments (Polfa, transportation companies) expected to bring in an additional PLN 20-30m. Quarterly results by business segment 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 Revenue EBIT Soda Organics Agro Division Silicates Other One-offs EBIDTA EBITDA (adjusted) Source: 8 April

3 Soda the main driver of 2011 earnings Looking at strong market fundamentals, we expect the Soda Division to be the main driver of s profits in 2011, with an EBIT over PLN 70m higher than last year s figure which was inflated by PLN 79m one-time gains including from sales of caverns and emission credits). The soda business will be benefitting from increasing prices of soda ash, expected to appreciate 8%- 10% this year (the uptrend will accelerate in the latter part of the year), resulting in revenue growth by an estimated PLN m. This will be supported by rising prices of the Division s other products (salt, baking soda). One factor which may impede revenue growth is if the zloty strengthens relative to the euro (a possibility which we do not take into account in our valuation model). Benchmark soda prices vs. s sales prices (EUR/T), historical EBITDA generated by the Soda Division Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11F 0 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 's sales prices benchmark prices EBITDA - Soda Division EBITDA - adjusted Source:, estimates by In addition to higher sales prices, the profitability of the Soda Division this year will be fueled by higher (by about 10%) sales volumes. Volume growth will be achieved by s Romanian subsidiary Govora, which reported improved production stability in Q4 2010, as well as other plants (for example, s Polish producers utilized 82% of their capacity on average in 2009 and 2010 compared to 100% in the years ). Further, after a PLN 57m net loss posted in H due to plant failure costs, Govora is expected to be profitable this year. Soda sales volumes, gross profits vs. soda spreads* Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 SODA POLSKA GOVORA SWS soda spread quarterly gross profits of the Soda Division (PLN m) Source:, estimates by *difference between the price of 1 ton of soda and the costs of coal and coke After bottoming out in H1 2010, the soda market experienced a recovery in volumes and prices in the second half of the year. In the end, the price hikes did not take effect until 2011, meaning that they are yet to be reflected in 's earnings for the coming quarters. GIA analysts predict continued growth in soda consumption at an average annual rate of 2.4%, reaching 48.3 million tons in Others believe the future CAGR will be closer to 3%, fueled by organic market expansion combined with increasing glass manufacturing capacity expected to create additional soda demand of 0.6MT in Rising demand will go hand in hand with rising supply, especially of trona, a kind of natural soda which is cheaper to produce than synthetic soda. For example, the American producer FMC Chemicals is planning to restart soda ash facilities shut down in 2009, resuming operations at 50% of the 1MT capacity as of July. Turkish producer Eti Soda has also announced plans to increase production in the coming years. Increasing supply is going to temper soda ash prices, moreover, there is a risk that trona will push out the least effective synthetic soda producers. At the moment, however, imports to Europe are limited by high freight costs, and Chinese suppliers are keeping prices up for now to offset high costs of energy and ammonia. Meanwhile, s energy costs are kept low thanks to coal supplies bought at last year s lower prices. 8 April

4 Global soda consumption, soda capacity utilization rates in USA CAGR= +3.5% 2009/ % CAGR= +2.4% % 76% 76% 76% 77% 72% 73% 70% 71% 69% % % 75% 70% 65% 60% 55% global soda consumption Source: USGS, GIA, estimates by US soda production capacity utilization rates Finally, can improve the profitability of the Soda business by using the option to buy the CHP supplying heat to its German operations, and thus recovering as much as EUR 10 million in profit margins currently handed over to the plant's owner because of unfavorable price arrangements. In 2009, the heat bill reached PLN 178m. Considering that reversed PLN 23m allowances related to the purchase option, and adjusted leaseback payables to the current PLN 128m in Q4 2010, it seems that the deal with the CHP owner VASA is on the right track. The costs of the purchase can reach an estimated EUR 60-70m (including overdue payments to VASA which has questioned). Based on preliminary talks with lenders, the company has to cover at least 20% of these costs (i.e. EUR 12-14m). is looking for a partner to form a joint venture which will finalize the purchase. Organics TDI Will Weigh On Profits TDI * and epoxy resin spreads In the Organics Division, the main problem at the moment are TDI prices which are kept low by increasing supply (from Hungary s Borsodchemie which is scheduled to launch 200KT of new capacity in July, and Bayer s new 250KT factory in China) combined with rising costs of ingredients. The short-lived recovery in TDI prices observed in March was owed to the Japan earthquake which stopped shipments from Mitsui Chemical. Our 2011 forecast for TDI is a gross margin shrinkage by PLN 25m. The year-on-year profitability contraction will be particularly severe in H due to a high H base. The outlook for the TDI line is further worsened by the need to purchase more TDA from external suppliers due to a plant failure at ZA Tarnów which supplies acid mixes to Zachem (the failure will probably not be repaired until May). is trying to persuade its TDA supplier Air Products to lower prices, so far with no success. This will become more of a problem after the launch of the Hungarian facilities which include an inhouse TDA plant. That said, TDI accounts for about 34% of the total revenues of the Organic Division, and any lost margins it may cause should be offset by margins generated by the division s other products, for example the resins and pesticides produced by Organika-Sarzyna Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan TDI spread (EUR/T) TDI spread (PLN/T) Resins - propylene spread (EUR/T) Resins-propylene spread (PLN/T) Source: Bloomberg, ICIS-LOR, estimates by ; *spread relative to weighted cost of toluene and nitric acid Margins on epoxy resins are expected to increase this year thanks to near-100% capacity utilization (with output rising to 27.5KT from 24.8KT in 2010). Last year s margins achieved vis-àvis propylene (which is used in the production of epichlorohydrin, one of the resin ingredients) were at record highs, but only without factoring in bisphenol (ca. 20% of feedstock) which was in short supply and therefore expensive last year, and which drove resin prices (keep this in mind when looking at the diagram above). As a result, the real margin benchmarks are currently close to last year s averages. Note that Organika-Sarzyna incurred a major loss last year through a 8 April

5 costly panic purchase of substantial bisphenol quantities (resold in H at lower prices). In pesticides, the 2011 outlook looks good thanks to an expected increase in sales volumes (which contracted last year due to unfavorable weather) as well as prices (improved demand from the farm industry has facilitated price hikes by 15-20%). We estimate the effect of these positive trends at over PLN 10m, most of which will be recognized in the seasonally stronger first and second quarters. Financing Arrangements, Stock Issue, Divestments refinanced its existing bank debt by signing a new syndicated loan agreement in February which affords it financial stability for the next five years. The PLN 1.2 billion facility includes a PLN 739m term loan (of which 25% is denominated in euros), a PLN 100m revolving facility, a PLN 300m investment loan (EBRD), and a EUR 9.6m facility provided as a guarantee to a Romanian heat supplier. s German subsidiary owes an additional EUR 63m to Commerzbank. The EUR 300m investment loan from EBRD will be disbursed in December 2012 to enable to redeem outstanding bonds. One important clause of the new agreement is a commitment to increase the share of foreign-currency credit to offset the natural exposure to euro fluctuations. The agreement is scheduled to take effect in Q after registration of all necessary collateral and fulfillment of financial provisions. s debt-to-ebitda ratios Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11F 2Q 11F Net debt Net debt/ebitda Source:, estimates by s 2010 average debt of PLN 1.6 billion generated debt-service costs totaling PLN 146m, implying an effective rate of interest of 9.1% compared to an average WIBOR rate of 3.8%. This is especially surprising given the fact that about PLN 320m of the debt is denominated in euros (EURIBOR 0.7%), although s financial expenses last year included bank fees charged on a syndicated loan obtained in August 2010 (ca. PLN 20m). Debt service costs are expected to drop significantly this year, thanks mainly to debt reductions using the proceeds of the Fosfory divestment (PLN 227m) and stock issue (PLN 435m), resulting in lower credit margins (which should start applying after the entry into force of the new loan agreement in Q3 2011). Financing costs will be further reduced by an increased share of euro credit facilities at a lower lending rate. All in all, we expect s financial expenses to decrease by about PLN 60m. From the standpoint of investors, another important benefit of the new financing arrangements will be improved debt ratios which are the main reason behind the discount in s market valuation. completed most of its planned divestitures last year (PTU, ZA Tarnów, Elzab, a building property, Service), and used the PLN 206m proceeds to reduce debt. This year, the divestment process continues with the planned sale of GZNF Fosfory in Q for PLN 227m (including PLN 120m loan repayments). As a fully consolidated subsidiary, the sale of GZNF Fosfory is going to have a significant impact on s future earnings. In 2010, the fertilizer producer reported an EBIT under PLN 10m, which would suggest it made marginal contributions to the consolidated EBIT. The divestment would imply a relatively high EV/EBITDA ratio of 9.3. But s Agro Division generated margins from intercompany services provided to GZNF Fosfory (ingredient supplies, products, trademarks) which will probably be renegotiated once the subsidiary is sold to ZA Puławy. In the mean time, however, intercompany transactions with GZNF Fosfory will continue to generate handsome profits in H thanks to a favorable fertilizer market. We assume for forecast purposes that these profits will drop significantly in April

6 Past results of the Agro Division excluding GZNF Fosfory (PLN 000) AGRO DIVISION Revenue EBIT GZNF FOSFORY s potential divestitures Revenue EBIT OTHER AGRO OPERATIONS Revenue EBIT Source:, estimates by The Group of companies includes a few more non-core units slated for sale, some of which are already at different stages of divestiture. The phosphorus compound manufacturer Alwernia is rumored to have been targeted for acquisition by ZA Puławy. Alwernia s book value as reported by is PLN 55m, but it has liabilities to the parent company in the amount of PLN 21m. Because its business (manufacture of fertilizers and phosphorus compounds) is highly exposed to price fluctuations, it is hard to reliably assess its value based on available earnings data (EBIT was PLN 35m and only PLN 1.2m in 2009), but in the current market its sale at a price equal to the book value seems a realistic prospect. In case of pharmaceuticals exporter Polfa, the divestment process is likely to be finalized this year, but the proceeds will be much smaller than in case of Alwernia, not exceeding PLN 22m. s Management are also thinking about selling Vitrosilicon, manufacturer of silicates, glass lanterns, and glass blocks. Given that this unit has consistently delivered steady profits for many years, we reckon that it will be priced at a minimum of 5.0 EV/EBITDA. The question is whether can find a buyer for this niche business. Finally, would like to unload two chemical transportation companies, Transclean and Transoda, but looking at similar failed divestment attempts by many other chemical producers, finding buyers may prove difficult. We conservatively leave out the prospective divestitures from our valuation of data (PLN 000) Alwernia Polfa Vitrosilicon* Transclean Transoda Revenue EBITDA Net profit Book value Equity Loans payable to SA Estimated EV Source:, estimates by *available data for 2010 comprises the whole of the Silicate Division without singling out Vitrosilicon 8 April

7 Earnings Forecast and Valuation DCF Valuation Using DCF analysis and relative valuation, we set the nine-month price target for at PLN 30.1 per share. Weight Price Relative Valuation 50% 28.3 DCF Valuation 50% 27.1 Valuation assumptions price M Target Price s production outlook and economic fundamentals are as summarized in the following table P 2012P 2013P 2014P 2015P 2016P 2017P 2018P 2019P Sales (thousands of tons) Soda ash TDI EPI Resins Fertilizer Sales prices Soda (EUR/T) TDI (EUR/T) EPI (EUR/T) Epoxy resins (EUR/T) Average EUR/PLN exchange rate Average USD/PLN exchange rate Cash flows are discounted to their present value as of 31 March The valuation factors in PLN 227m proceeds from GZNF Fosfory divestment (including debt) after PLN 16m tax, and the present value of Soda Deutschland s cavern project (PLN 71m). At the same time, EBIT estimates are adjusted for the cavern proceeds. 4. The FY2010 ending debt amount is adjusted for PLN 440m stock issue proceeds. 5. When calculating FCF TV, we based terminal-value calculations on the sales growth rate and EBITDA margins projected for We assume that FCF will grow at a rate of 1% after The risk-free rate is 6.15%, and beta is April

8 DCF Model (PLN m) 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Revenue change 1.3% -0.3% 1.6% 0.0% 1.0% 1.7% 0.8% 0.8% 0.8% 0.8% 0.8% EBITDA adj EBITDA margin 10.3% 11.0% 11.8% 11.6% 11.9% 12.2% 12.5% 12.6% 12.5% 12.4% 12.4% D&A expenses EBIT adj EBIT margin 4.5% 5.0% 5.7% 5.5% 5.9% 6.4% 6.7% 6.6% 6.9% 6.7% 6.9% Tax on EBIT NOPLAT CAPEX Working capital Equity investment FCF WACC 9.5% 9.8% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% discount factor 89.1% 81.1% 73.4% 66.5% 60.2% 54.4% 49.3% 44.6% 40.4% 36.5% 36.5% PV FCF WACC 9.5% 9.8% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% Cost of debt 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% Risk-free rate 6.2% 6.2% 6.2% 6.2% 6.2% 6.2% 6.2% 6.2% 6.2% 6.2% 6.2% Risk premium 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Effective tax rate 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% Net debt / EV 37.0% 31.8% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Cost of equity 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% Risk premium 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Beta FCF growth after the forecast horizon 1.0% Sensitivity Analysis Terminal value FCF growth in perpetuity Present value of terminal value (PV TV) % 1.0% 2.0% 3.0% 4.0% Present value of FCF in the forecast horizon WACC +1.0pp Equity value WACC +0.5pp Net debt* WACC Minority interests 34.9 WACC -0.5pp Cavern project 71.7 WACC -01.0pp GZNF Fosfory Equity value Number of shares (millions) 51.0 Value per share (PLN) M cost of equity 8.6% Target Price 29.4 EV/EBITDA ('11) for the target price 5.5 P/E ('11) for the target price 30.2 TV to EV 47% *adjusted for stock issue proceeds 8 April

9 Relative Valuation We compared s P/E and EV/EBITDA multiples with the multiples of its peers estimated for 2011 through The peer group consists of European chemical manufacturers with business portfolios similar to s. They include international holdings with diversified profiles as well as specialized companies whose specialty areas match s business lines. Companies with large-scale soda manufacturing operations include Solvay, Dow Chemical, Tata Chemicals, Soda Sanayii, Sisecam, Tessenderlo, and Wacker Chemie. Companies whose business mixes include the same products as produced by, such as agrochemicals and organic chemicals, are Akzel Nobel, Croda, Rhodia, BASF, Dow Chemical, Tata. P/E EV/EBITDA Price F 2012F 2013F F 2012F 2013F Akzo Nobel BASF Croda International Dow Chemical Rhodia Sisecam n/a Solvay Soda Sanayii n/a n/a Tata Chemicals Tessenderlo Chemie n/a Wacker Chemie Maximum Minimum Median (premium / discount) 366.5% 121.7% 23.1% -0.3% -8.1% -9.1% -7.7% -13.2% Implied value Median Multiple weight 50.0% 50.0% Year weight 0.0% 33.3% 33.3% 33.3% 0.0% 33.3% 33.3% 33.3% Value per share (PLN) 28.3 EV/EBITDA based on FY2010 net debt * s net debt adjusted for GZNF Fosfory and stock issue proceeds 8 April

10 Income Statement (PLN m) 2007* F 2012F 2013F Revenue change 57.1% 10.9% -2.7% 7.5% 1.3% -0.3% 1.6% EBIT by business segment Soda Division Organic Division Agro Division Silicate Division Unattributed EBIT change -77.6% 473.9% -48.0% 12.4% 30.9% 8.8% 17.4% EBIT margin 1.3% 6.5% 3.5% 3.6% 4.7% 5.1% 5.9% Financial income/expenses Extraordinary income/expenses Other Pre-tax profit Tax Minority interests Net profit change % 32.2% 120.0% % 143.2% 122.0% 31.3% margin -0.9% -1.1% -2.5% 0.5% 1.2% 2.8% 3.6% D&A expenses EBITDA change -22.8% 102.4% -20.4% -15.5% 35.9% 6.9% 8.7% EBITDA margin 6.5% 11.9% 9.7% 9.6% 10.5% 11.1% 12.0% Shares at year-end (millions) EPS CEPS ROAE -2.9% -4.4% -11.1% 2.5% 4.7% 8.1% 9.7% ROAA -0.9% -1.0% -2.2% 0.5% 1.3% 2.9% 3.8% *Since changes its approach to segment data presentation in 2009, the 2007 data are our estimates 8 April

11 Balance Sheet (PLN m) P 2012P 2013P ASSETS Fixed assets Property, plant and equipment Intangible assets Goodwill Long-term receivables Other fixed assets Current assets Inventories Current receivables Accruals Overdraft facility Cash and cash equivalents (PLN m) F 2012F 2013F EQUITY AND LIABILITIES Equity Share capital Other equity Long-term liabilities Loans Other Current liabilities Loans Trade creditors Accruals Other Debt Net debt (Net debt / Equity) 106.9% 189.3% 187.9% 175.4% 58.8% 46.6% 35.3% (Net debt / EBITDA) BVPS April

12 Cash Flows (PLN m) F 2012F 2013F Cash flows from operating activities Net profit D&A expenses Working capital Other Cash flows from investing activities CAPEX Equity investment Other Cash flows from financing activities Stock issue Debt Dividend (buy-back) Other Change in cash Cash at period-end DPS (PLN) FCF (CAPEX / Sales) 7.2% 12.1% 6.8% 5.5% 7.7% 6.5% 6.6% Market multiples F 2012F 2013F P/E P/CE P/BV P/S FCF/EV -28.9% -11.9% 13.6% 19.7% 14.9% 8.3% 8.5% EV/EBITDA EV/EBIT EV/S DYield 7.2% 7.1% 0.0% 0.0% 0.0% 0.0% 0.0% Price (PLN) 29.2 Shares at year-end (millions) MC (PLN m) Equity attributable to minority shareholders (PLN m) EV (PLN m) April

13 Michał Marczak tel. (+48 22) Managing Director Head of Research Strategy, Telco, Mining, Metals Research Department: Kamil Kliszcz tel. (+48 22) Fuels, Chemicals, Energy Piotr Grzybowski tel. (+48 22) IT, Media Maciej Stokłosa tel. (+48 22) Construction, Real-Estate Developers Jakub Szkopek tel. (+48 22) Manufacturers Iza Rokicka tel. (+48 22) Banks Gabriela Borowska tel. (+48 22) Retail Piotr Zybała tel. (+48 22) Real-Estate Developers Sales and Trading: Piotr Dudziński tel. (+48 22) Director Marzena Łempicka-Wilim tel. (+48 22) Deputy Director Traders: Emil Onyszczuk tel. (+48 22) Grzegorz Stępien tel. (+48 22) Michał Jakubowski tel. (+48 22) Tomasz Jakubiec tel. (+48 22) Grzegorz Strublewski tel. (+48 22) Michał Stępkowski tel. (+48 22) Paweł Majewski tel. (+48 22) Foreign Markets Unit: Adam Prokop tel. (+48 22) Foreign Markets Manager Michał RoŜmiej tel. (+48 22) Jakub Słotkowicz tel. (+48 22) Jacek Wrześniewski tel. (+48 22) "Private Broker" Jarosław Banasiak tel. (+48 22) Director, Active Sales Jacek Szczepański tel. (+48 22) Director of Sales Dom Inwestycyjny BRE Banku S.A. ul. Wspólna 47/ Warszawa 8 April

14 List of abbreviations and ratios contained in the report: EV net debt + market value EBIT Earnings Before Interest and Taxes EBITDA EBIT + Depreciation and Amortisation P/CE price to earnings with amortisation MC/S market capitalisation to sales EBIT/EV operating profit to economic value P/E (Price/Earnings) price divided by annual net profit per share ROE (Return on Equity) annual net profit divided by average equity P/BV (Price/Book Value) price divided by book value per share Net debt credits + debt papers + interest bearing loans cash and cash equivalents EBITDA margin EBITDA/Sales Recommendations of A recommendation is valid for a period of 6-9 months, unless a subsequent recommendation is issued within this period. Expected returns from individual recommendations are as follows: BUY we expect that the rate of return from an investment will be at least 15% ACCUMULATE we expect that the rate of return from an investment will range from 5% to 15% HOLD we expect that the rate of return from an investment will range from 5% to +5% REDUCE we expect that the rate of return from an investment will range from -5% to -15% SELL we expect that an investment will bear a loss greater than 15% Recommendations are updated at least once every nine months. This document has been created and published by S.A. The present report expresses the knowledge as well as opinions of the authors on day the report was prepared. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. The present report was prepared with due care and attention, observing principles of methodological correctness and objectivity, on the basis of sources available to the public, which S.A. considers reliable, including information published by issuers, shares of which are subject to recommendations. However, S.A., in no case, guarantees the accuracy and completeness of the report, in particular should sources on the basis of which the report was prepared prove to be inaccurate, incomplete or not fully consistent with the facts. S.A. bears no responsibility for investment decisions taken on the basis of the present report or for any damages incurred as a result of investment decisions taken on the basis of the present report. This document does not constitute an offer or invitation to subscribe for or purchase any financial instruments and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. This document nor any copy hereof is not to be distributed directly or indirectly in the United States, Australia, Canada or Japan. Recommendations are based on essential data from the entire history of a company being the subject of a recommendation, with particular emphasis on the period since the previous recommendation. Investing in shares is connected with a number of risks including, but not limited to, the macroeconomic situation of the country, changes in legal regulations as well as changes on commodity markets. Full elimination of these risks is virtually impossible. It is possible that S.A. renders, will render or in the past has rendered services for companies and other entities mentioned in the present report. The present report was not transferred to the issuer prior to its publication. 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Individuals who did not participate in the preparation of this recommendation, but had or could have had access to the recommendation prior to its publication, are employees of S.A. authorised to access the premises in which recommendations are prepared, other than the analysts mentioned as the authors of the present recommendation. Strong and weak points of valuation methods used in recommendations: DCF acknowledged as the most methodologically correct method of valuation; it is based in discounting financial flows generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model. Comparative based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects the current state of the market; weak points include substantial variability (fluctuations together with market indices) as well as difficulty in the selection of the group of comparable companies. Previous ratings issued for Rating Buy Accumulate Date issued Price on rating day WIG on rating day April