Non-financial Report of the CIECH GROUP for 2019

Dear Sirs and Madams,

I sincerely invite you to read the non-financial report of the CIECH Group for 2019, presenting the impact of our company on its environment and initiatives we have taken in the areas of sustainable development, environmental protection or employee matters.

The CIECH Group is one of the most important chemical companies for the Polish economy, a leading Polish foreign investor and exporter. Our products, used to manufacture goods for millions of people around the world, are exported to about 100 countries around the world, on all continents. In Poland alone, the direct, indirect and induced effects of our business translate into many thousands of jobs, hundreds of millions of zlotys of income for the public sector and over a billion zlotys of value added to GDP. In addition, each of our Group's eight production facilities is an important player in the social and economic life of its region.

We are aware that we are an important link in the European economy, hence sustainable and socially responsible growth is an important aspect of the strategy adopted by the Supervisory Board of CIECH S.A. for 2019-2021. In addition to precisely formulated business plans, it also includes a number of measures aimed at reducing CO² emissions from our plants, responsible management of natural resources and harmonised cooperation with local authorities and local communities.

However, the foundation of the CIECH Group's future are its employees – 2019 was marked by profound changes in the area of improving working conditions and creating an environment of development for our employees. We have increased the extent to which senior managers participate in making decisions about the company, as well as changed the organisational structure, focusing on visibility, transparent information flow and the ability to focus on business objectives.

We have intensified processes aimed at responsible use of natural resources and reducing our carbon footprint. We have set up a team that prepares measures ranging from strategic and large-scale projects of abandoning coal as an energy fuel, through a number of upgrades of existing plants, to innovative solutions developed together with research centres. We have been implementing projects that contribute to the minimisation of pollution emitted to the atmosphere and, at the same time, we have been introducing solutions and procedures that affect not only the efficiency of production processes by optimising the use of raw materials, but also the safety of our plants.

Our campaign #dobrysąsiad (#goodneighbour) encompasses measures taken in the environments in which we are present. They include support for cultural, sports and educational initiatives. We intend to intensify such efforts in the coming years, focusing on education and improving the quality of life in the vicinity of our plants.

Hundreds of chemical products, manufactured every day in our plants, are vital for many sectors of today's economy which are crucial in these challenging times for the economic condition of the whole country. That is why we feel responsible not only for supporting economic growth and prosperity, but also for sustainable development with respect for natural resources, supporting important social initiatives and building partnership relations with our environment: investors, employees, counterparties and local communities.

We consistently build a modern chemical conglomerate that grows for the benefit of the world, its environment and the people who create it. This is the view we present in the Non-financial Report for 2019 which I strongly encourage you to read.

Kind regards

Dawid Jakubowicz President of CIECH S.A. Management Board

CIECH Group facts and figures

NON-FINANCIAL REPORT OF THE CIECH GROUP FOR 2019

CIECH Group facts and figures3
1. OUR GROUP 6
1.1 Characteristics of the CIECH Group 6
1.2 CIECH Group business model. 8
1.3 Operating segments 12
1.4 CIECH Group strategy 14
1.5 Management standards. 17
2. OUR BUSINESS 22
2.1 The supply chain 22
2.2 Product quality 25
2.3 Customer relations 27
2.4 Research & Development 29
3. OUR PEOPLE 32
3.1 Employment scale and conditions 32
3.2 HR efforts 33
3.2.1 Training & development 36
3.3 OHS in the workplace 38
4. OUR IMPACT ON THE ENVIRONMENT 41
4.1 Formal and legal status 41
4.2 Pro-environmental investments 41
4.3 Environmental data 42
5. OUR BUSINESS ENVIRONMENT 45
5.1 Our stakeholders 45
5.2 Support for culture, sport and local communities 47
6. ABOUT THE REPORT 51
6.1 Reporting approach 51
6.2 Content index according to GRI Standards 52
6.3 Accounting Act compliance table. 54
6.4 Contact details. 54
REPRESENTATION BY THE MANAGEMENT BOARD 55

NON-FINANCIAL REPORT OF THE CIECH GROUP FOR 2019

1. OUR GROUP

1.1 Characteristics of the CIECH Group

CIECH Group is one of the largest Polish chemical companies with global presence.

We make products which are used to manufacture items essential in everyday life of people all over the world. We deliver top-quality chemicals: sodium carbonate (2nd place in Europe), sodium bicarbonate, salt, polyester and epoxy resins, agro products, glass products and other chemicals. They are used in many industries: glass, detergent, furniture, automotive, construction, food and beverage, agricultural, pharmaceutical, chemical and consumer goods.

Figure 1. Key operating segments and major categories of CIECH Group products

	SODA SEGMENT	ORGANIC SEGMENT	SILICATES AND GLASS SEGMENT	TRANSPORT SEGMENT
COMPANIES	CIECH CIECH Soda Polska CIECH Soda Deutschland CIECH Soda Romania	CIECH CIECH Sarzyna CIECH Pianki Proplan	CIECH CIECH Vitrosilicon CIECH Soda Romania	CIECH CIECH Cargo
PRODUCTS SERVICES	soda ash evaporated salt baking soda energy	epoxy resins polyester resins saturated and unsaturated agro products polyurethane foams	lanterns and jars sodium and potassium silicates	transport services forwarding services transshipments siding operations railcar rental
CUSTOMERS	glass industry food detergent industry pharmaceutical households	agriculture furniture industry households	chemical food detergent industry paint industry households	major companies of the CIECH Group
MARKETS	global	global	global	domestic

The core sales market for CIECH Group is the European Union, including mainly Poland, Germany and Central and Eastern European countries. Our products are also shipped overseas, mainly to India, North Africa and the Middle East.

Figure 2. Geographical structure of CIECH Group revenue in 2019

The Group includes eight production plants, and trade and service companies. Four largest production plants (2 in Poland, 1 in Germany and 1 in Romania) operate in the soda segment and manufacture sodium carbonate, salt and soda derivatives; the plant in Romania produces glassy sodium silicate and sodium water glass. The other four plants are located in Poland and are dedicated to the organic segment, and to silicates and glass segments. Currently, soda production at the plant in Romania has been suspended (for more information, see Section 1.1 of the Management Board Report on Activities of the CIECH Group and CIECH S.A. in 2019).

* On 2 January 2020, the demerger of CIECH Sarzyna S.A., by separating the Resins area into CIECH Żywice Sp. z o.o., was registered.

We employ over 3,700 people, including almost 1000 in Germany and Romania.

The parent company of the CIECH Group is CIECH S.A. with its registered office in Warsaw, ul. Wspólna 62.

CIECH S.A. is listed on the Warsaw Stock Exchange and Frankfurt Stock Exchange. Our main shareholder (51% of shares) is an international investment group called KI Chemistry, a Kulczyk Investments group company.

For more information about CIECH S.A.'s shareholding structure, see the Management Board Report on Activities of the CIECH Group and CIECH S.A. in 2019, available at www.ciechgroup.com.

1.2 CIECH Group business model.

The CIECH Group consists of domestic and foreign manufacturing, distribution and trade companies operating in the chemical industry. In 2019, strategic and operational goals are implemented by an organisational structure based on business units and functional areas, including corporate, technical, supply chain management and support functions.

CIECH Group consists of 38 business entities. We operate in the following segments: soda, organic, silicates and glass, and transport.

Figure 4. Structure of the CIECH Group – companies consolidated and valued using the equity method

In 2019, the CIECH Group's business model was based on the Matrix Management model in which the heads of specific areas within CIECH S.A are responsible for their proper functioning in the entire CIECH Group.

Main assumptions of CIECH Group's business model applicable in 2019:

Concentration of a wide range of business and support functions at CIECH S.A. level.
For management purposes, establishment of so-called Business Units within segments, which are focused on product groups and responsible for product manufacturing and sales.
Focusing production companies on their production activity.
Clear division of competences and responsibilities (operational management of production companies by the holding company).
Reduction of positions related to overlapping business and support functions.
Centralisation of management of finance, IT, HR and legal area.

Management Board of CIECH S.A. – scope of responsibilities

Dawid Jakubowicz, President of the Management Board

Strategy Department
Legal Department
Compliance Department
Internal Audit Department
Controlling Department
Accounting Department
Finance Management Department
Logistics, S&OP Department
HR and Administration Department
IT Department
Corporate Supervision Department
Strategic Organisational Project Department
CIECH S.A.'s Branches in Poland, Germany and Romania
Independent position: Representative of the Management Board for Investor Relations, Public Relations Manager / Press Officer

Mirosław Skowron, Member of the Management Board

Investment/PMO Department
Power Engineering Department
Purchasing Department
Asset and Safety Management Department (including OHS)
Environmental Department
Quality Management Department
Strategic Investment Project Department
Operational Excellence
Risk Department

Members of CIECH Group Supervisory Board as at 31 December 2019

Sebastian Kulczyk, Chairman of the Supervisory Board,
Tomasz Mikołajczak, Vice Chairman of the Supervisory Board,
Piotr Augustyniak, Member of the Supervisory Board,
Marek Kośnik, Member of the Supervisory Board,
Mariusz Nowak, Member of the Supervisory Board,
Artur Olech, Member of the Supervisory Board.

Following the resignation of Mr Mariusz Nowak from the Supervisory Board of CIECH S.A. as of 22 January 2020, on 23 January 2020 the Extraordinary General Meeting of Shareholders of CIECH S.A. appointed Mr Łukasz Rędziniak to the Supervisory Board of CIECH S.A.

For more information on the composition of the Management Board and the Supervisory Board as well as changes in 2019, see the Management Board Report on activities of the CIECH Group and CIECH S.A. in 2019, available at www.ciechgroup.com.

Improving business operations – REORGANISATION CONCEPT OF THE CIECH GROUP

In March 2019 the Management Board of CIECH S.A. launched a new Business Operation Improvement Programme which included, among other things, the development of the Reorganisation Concept of the CIECH Group. The Concept provides for the division of competences within the CIECH Group among individual business areas and the Company. The adoption of the Reorganisation Concept is to serve the achievement of the key goal under the Strategy, i.e. the creation of an effective and diversified chemical holding generating long-term positive value for shareholders, as well as improvement of business and decision-making processes and improving the transparency of the operation of the CIECH Group. As part of the implementation of the Reorganisation Concept, activities have been envisaged which are aimed at separating independent entities within the CIECH Group that will constitute Business Units (BUs) or will be part of the individual CIECH Group BUs:

BU Soda;
BU Salt;
BU Agro;
BU Resins;
BU Silicates;
BU Packaging;
BU Foams.

CIECH S.A. will operate as the entity managing the CIECH Group, responsible, among others, for building the long-term and sustainable value of the CIECH Group for all shareholders, defining the strategy of the CIECH Group, including individual BUs, setting goals for the BUs as well as monitoring and accounting for their achievement, providing specified services to BUs, and building and maintaining the desired organisational culture within the CIECH Group.

The purpose of the planned activities is to create such a structure of the CIECH Group in which each BU will operate as a separate company or a sub-holding company. BUs will be responsible for the implementation of their strategy and their financial performance. All companies and sub-holding companies forming BUs will ultimately depend on the Issuer. In accordance with the assumptions of the Reorganisation Concept, there will be integration, consolidation and placing of the operational activity of the BU within such a BU. This will result, among others, in revenues and expenses from the BU's activities generated in such a BU.

In order to achieve the above, the adopted Reorganisation Concept involves a number of corporate activities, as a result of which the target structure of the CIECH Group is to be achieved through the division of companies or transfer of assets within the CIECH Group (i.e. contributions in kind, sale and liquidation of some companies, if applicable). Understandably, we do not rule out changing the reorganisation method with regard to activities arising from the Reorganisation Concept, depending on the progress in obtaining necessary approvals or any other legal or business issues. In addition, further simplification of the CIECH Group structure is planned through mergers or liquidations of other subsidiaries of CIECH S.A. with less significance for the Group.

Given the complexity of this process, the need to obtain numerous administrative approvals and decisions, and the need to implement intra-group processes, such as divisions, capital increases requiring registration by competent courts, etc., at this stage, the planned date of the completion of the process of implementing the Reorganisation Concept is the end of 2022.

The Reorganisation Concept has been prepared in consultation with renowned tax and legal advisors in order to ensure that its implementation is carried out, to the largest extent, in a transparent and safe manner, from both a legal and a tax point of view, and in particular, taking into account the legal environment, including applicable laws and their current interpretation as presented by tax authorities or administrative courts.

In 2019, as part of the reorganisation process, the first steps were taken with regard to CIECH Sarzyna S.A. which operates in two areas: BU Agro and BU Resins. In October, management boards of CIECH Sarzyna S.A. and CIECH Żywice Sp. z o.o. agreed on the demerger of CIECH Sarzyna S.A. by spinning off BU Żywice to CIECH Żywice Sp. z o.o.

The adoption of the CIECH Sarzyna S.A. Demerger Plan is aimed at achieving the key objective under the Strategy, i.e. creating an effective and fully diversified chemical holding company that generates positive value for shareholders in the long term. In the opinion of the Management Board of CIECH S.A., the demerger will ensure that each company will focus on a single business and increase its efficiency by focusing on the development of a given product category and specialisation in the respective area.

1.3 Operating segments.

In 2019, our operations are focused on four key segments: Soda, Organic, Silicates and Glass, and Transport.

Figure 5. CIECH Group revenues in 2019 by segment (including inter-segment transactions)

Soda segment

Soda is one of the basic semi-finished products (raw materials) of modern chemistry that has a wide range of industrial applications. CIECH Group develops a portfolio of high-quality soda-based products, including:

1. Soda ash one of the basic raw materials for glass production; it is also used for the production of washing and cleaning products, in metallurgy and chemical industry to produce certain types of mineral fertilizers, dyes and pigments, etc.
2. Baking soda (sodium bicarbonate) – used in the production of animal feed (as an acidity regulator), food (as an ingredient of baking powder and sparkling drinks, etc.), pharmaceuticals (as API or excipient), detergents and cosmetics, and for purifying exhaust fumes.
3. Evaporated salt widely used in the chemical industry (electrolysis, detergent and dye production), food industry, as well as in water treatment and softening.
4. Sorbeco used by medium CHP plants and by CHP plants fuelled with biomass; its high quality ensures very good efficiency of dry flue gas desulphurisation — it lowers SO² emissions by 90%.
5. Calcium chloride it is used commonly in road maintenance, construction industry, chemical industry, as well as coal, oil and gas mining.

CIECH Group is:

the largest producer of soda ash in the CEE region and the second largest in Europe,
the largest evaporated salt producer in Poland.

Organic segment

This segment includes:

1. Crop protection products the most famous trademarks of the company include AGRO brands, i.e. Chwastox, Agrosar, Sarox, Ekonom, and ZIEMOVIT, a Home and Garden brand. The product range in this group was significantly extended following the acquisition in 2018 of a Spanish company called Proplan, which has more than 100 product registrations in its product range.
2. Resins – used for the production of polyester and glass laminates, glass fibre reinforced products used to manufacture sports and tourist floating equipment, bathtubs, tanks, garden decorations, etc. They are also used in the production of powder paints, varnishes and glues.
3. Polyurethane foams used mainly in production of furniture and sleeping mattresses. They are used in the automotive industry (production of car seats and finishing elements), construction industry and textile industry.

CIECH Group is:

the largest domestic producer of crop protection chemicals and leader of the herbicides market,
the main domestic producer of resins available on European markets,
one of the largest suppliers on the polyurethane foams domestic market.

Silicates and Glass segment

1. Glass products a range of around 300 designs of lanterns, including lanterns for jar candles and custom designs, dedicated to individual customers, DZK-Komfort clasp jars and typical twist-off jars for the food processing industry.
1. Silicates used to produce precipitated silica, detergents and paper.

Transport segment

Transport segment operations are focused on domestic rail transport services, including rental of rail carriages, rail cargo transport services and maintenance of rail sidings. The main customers are CIECH Group companies but we are continuously increasing the range of transport services provided to companies from outside the Group.

Other operations

The other operations of the CIECH Group include goods and services out of the scope of our key segments. In addition to trading activities, this segment also includes companies that support Group operations in terms of real property sales and management, granting licences to CIECH Group companies for the use of trademarks and financing activities.

For more information about production processes, production capacities and key sales markets of each segment, see the Management Board Report on activities of the CIECH Group and CIECH S.A. in 2019 available at www.ciechgroup.com.

1.4 CIECH Group strategy.

The Management Board of CIECH S.A. analyses the market environment on an ongoing basis and identifies innovative solutions aimed at building the value of the CIECH Group. Therefore, the Management Board presented an update of the CIECH Group strategy for 2019-2021, approved by a resolution of the Supervisory Board on 6 December 2018. According to the adopted document, the strategic objective is to maximise the CIECH Group's value, primarily by increasing competitive advantages in the key soda business, continuous improvement of customer service, further investing in the development of specialist businesses in other segments, intensive use of innovations and the effects of R&D efforts to increase production efficiency and expand the product portfolio and value creation through changes in the asset portfolio.

The CIECH Group's visions and ambition is to create real value for all stakeholders.

Figure 6. CIECH Group's vision and ambitions for 2019–2021

Soda segment	Increasing the efficiency of the soda business, which will translate into an increase in customer satisfaction and enable the Group to increase its share in the sodium bicarbonate market, and growth of the salt business by, among other things: ▪ increasing production capacity of sodium bicarbonate and expanding the portfolio to include, among others, sodium bicarbonate for dialysis (soda), ▪ a programme of continuous production efficiency improvement, also through modernisation in the area of energy (soda and salt), ▪ a programme of increasing maintenance efficiency (soda and salt), ▪ commencing production and sales of products from the new plant in Germany with capacity of 450 thousand tonnes by 2021, which means +75% compared to the current capacity (salt), ▪ increasing the share of the Group's products in the specialist products market, including, among others, salt tablets, pharmaceutical salt and granulated salt (salt).
Organic segment	Consistent strengthening of the market position in the organic segment through, among other things: ▪ expanding the portfolio of active substances (increase by 40+) and new product registrations (increase by 200+) (crop protection chemicals), ▪ strengthening the position on key markets, i.e. Poland and Spain, and developing sales on other markets (crop protection chemicals), ▪ increasing the share of sales outside Poland to 40% (crop protection chemicals), ▪ development of specialist products (resins), ▪ maintaining current market position (foams).
Silicates and Glass segment	Selective strengthening of the market position through, among other things: ▪ taking advantage of the growing silicates market, ▪ maintaining current market position in glass packaging.
Organisational culture	The HR vision involves building an environment in which the best people can grow and create a culture of effectiveness, thus implementing the Group's strategy: ▪ building the best teams, ▪ creating a culture of continuous efficiency improvement, ▪ introducing state-of-the-art performance review and career planning tools.

Table 2. Key strategic activities completed in 2019

	▪ Increase of the share of sales to end customers,
	▪ Development of logistics and post sales services.
	▪ Taking advantage of the economic upturn and effective relocation of volumes,
	which resulted in increased prices.
	▪ Relocation of sales towards higher-margin markets.
	▪ Expansion of sales on the Polish feed and food market (sodium bicarbonate).
	▪ Inter-segment diversification through introduction of new, highly processed
	products into the product portfolio – implementation of an investment in
	pharmaceutical-grade soda.
	▪ Flexible reactions to production constraints in CSR (sodium carbonate) and CSP
Soda segment	(sodium carbonate and bicarbonate), active management of volumes between
	locations allowed to maintain continuity of supply to sensitive customers.
	▪ All these efforts are somewhat overshadowed by the situation of the Romanian
	plant affected by the mining disaster at CET's Alunu lignite mine which triggered
	a series of events with the final decision to hibernate CSR.
	▪ Improvement in salt-related logistics through the construction of a high-storage
	warehouse.
	▪ Expansion of the salt product range – licks and salt granules.
	▪ Work on the strategy of product portfolio expansion in the R&D – AGRO area. ▪
	Expansion of the existing product portfolio, a significant investment supporting the development of the CHWASTOX brand – obtaining full registration for all
	cereal crops in Poland, a significant extension of the registration in the field of
	weed control, essential for complete protection.
	▪ New strategy to reach key markets: CIECH Proplan SOLUCIONES in Spain, NEW
	AGRICULTURE SCOPE in Poland; new structure and division of markets in the
	Export Department.
	▪ Intense advertising campaigns in the Distribution Channel, targeted at the end
Organic segment	customers, i.e. farmers – supported by innovative loyalty programs.
	▪ Intensification of new product registrations in Poland (another 5 products based
	on CIECH's new active substances), several registrations on the very promising
	market in Romania, several new registrations in Spain and Mediterranean
	countries.
	▪ Close cooperation with suppliers of key substances and components in the most
	important markets in China and India.
	▪ Dynamic development of the R&D Department, obtaining GLP certificate for the
	CIECH laboratory in Warsaw.
	▪ In the first quarter of 2019, SaniGel®, a sanitary gelcoat, was released on the
	Polish market, enabling the production of high quality sanitary products, such as
	washbasins, shower trays and bathtubs. In less than a year since the start of sales,
	the new product has been so popular with customers that an increase in
	production capacity is being considered. ▪
	Increasing the production capacity of PUR foams, as well as elimination of production bottlenecks as a result of completion of a long block warehouse.
	▪ Implementation of OEKO-TEX® standard 100 class 1 certification and process of
	STeP by OEKO-TEX® certification (final stage) to consolidate the strong market
	position in the PUR foam industry.
	▪ Expanding the range of liquid silicates with new products dedicated to specialist
	applications: VITROCER, VITROTECH and VITROAGRO.

Silicates and Glass segment
	▪ Continued development of the R&D area to support the development of
	products responding to growing needs of the market. The CIECH Group also
	implements a number of R&D projects aimed at improving the efficiency of
	plants.
Optimisation and
development

1.5 Management standards.

CIECH Group aims at setting standards for modern management, innovation, high quality of products and co-operation with customers and business partners.

Our operations are compliant with the concept of sustainability according to which economic, social and environmental issues are critical elements of our business strategy, with special attention to the following areas:

employee relations,
corruption prevention,
environmental protection.

These rules are set forth in the CIECH Group Code of Conduct which describes in detail the standards of conduct for the Group and its employees in specific areas.

Activities undertaken by the CIECH Group are supported by implemented management system procedures based on international standards, ISO standards and numerous internal regulations.

Compliance System

In 2018, the Compliance System was implemented at the CIECH Group. It is a set of procedures and systems mitigating legal risks. The new system is supposed to extend the existing CIECH Group's regulations. It includes updated policies and procedures concerning employees, social issues, environment, human rights, and corruption prevention.

Table 3. Policies and procedures regulating non-financial areas in the CIECH Group

Employees	▪ CIECH Group Code of Conduct, ▪ CIECH Group Information Security Policy, ▪ Procedure: CIECH Group Ethics Committee Regulations, ▪ Procedure: Giving and receiving gifts and invitations in the CIECH Group, ▪ Procedure: Bullying and discrimination prevention in the CIECH Group working environment, ▪ CIECH Group Occupational Health and Safety Policy, ▪ Procedure: Managing inspections carried out by authorised authorities, services and offices, ▪ Procedure: Asking questions and reporting violations of laws, internal regulations and ethical standards applicable at the CIECH Group, ▪ Procedure: Detailed rules and procedure for employee sobriety obligation in the CIECH Group.
Social issues	▪ CIECH Group Code of Conduct, ▪ CIECH Group Competition Law Compliance Policy, ▪ CIECH Group Intellectual Property Protection Policy, ▪ CIECH Group Information Security Policy, ▪ CIECH Group Conflict of Interest Prevention Policy, ▪ Procedure: Managing inspections carried out by authorised authorities, services and offices.
Environment	▪ CIECH Group Environmental Protection Policy.
Human rights	▪ CIECH Group Code of Conduct, ▪ CIECH Group Intellectual Property Protection Policy, ▪ CIECH Group Information Security Policy, ▪ Procedure: Bullying and discrimination prevention in the CIECH Group working environment.
Corruption prevention	▪ CIECH Group Code of Conduct, ▪ CIECH Group Competition Law Compliance Policy, ▪ CIECH Group Conflict of Interest Prevention Policy, ▪ CIECH Group Fraud and Corruption Prevention Policy, ▪ CIECH Group Compliance Policy, ▪ Procedure: Giving and receiving gifts and invitations at the CIECH Group,

▪	Procedure: Asking questions and reporting violations of laws, internal regulations and
	ethical standards applicable at the CIECH Group,
▪	Procedure: Rules for Monitoring and Reporting Compliance Obligations at the CIECH
	Group,
▪	Procedure: CIECH Group Ethics Committee Regulations.

CIECH Group Code of Conduct

Each of the present and future employees is obliged to read and comply with the rules described in the CIECH Group Code of Conduct, Policies and Procedures of the CIECH Group Compliance System. In accordance with the regulations on ethical standards. Managers communicate the rules set out therein to employees. We also expect our business partners to comply with the ethical standards adopted in the CIECH Group. Managers and other employees can read the provisions of the Code of Conduct at any time via intranet.

The ethical principles are communicated in the CIECH Group to increase the employee awareness with respect to the need, nature and effects of the applied ethical system. We encourage our employees to:

continuously share their knowledge of ethical values,
promote ethical principles and conduct,
participate in cyclic trainings.

Based on a prepared set of key assumptions related to ethical principles, we have developed a CIECH Group employee ethical conduct model, which is a starting point of assessing behaviours outside standard ethical values effective in our Group.

The CIECH Group established an Ethics Committee which consists of members who have full trust of the employees and guarantee objectivity with respect to others and fair treatment. Members of the Ethics Committee are appointed by the Management Board. Employees of the CIECH Group, through dedicated tools, may ask questions and report violations of laws, internal regulations and ethical standards in force in the CIECH Group to the Ethics Committee.

Corruption prevention at the CIECH Group

In the CIECH Group, the issues related to corruption prevention are regulated by the following documents:

Trading Policy;
Procurement Procedures of the CIECH Group;
Rules for Awarding Contracts;
Rules for Ownership Supervision and Exercise of Ownership Rights;
Rules for CIECH Group Sponsorship and Donations;
Rules for CIECH Group Internal Control and Internal Audit;
CIECH Group Code of Conduct;
CIECH Group Compliance Policy,
Procedure: Asking questions and reporting violations of laws, internal regulations and ethical standards applicable at the CIECH Group.

Thanks to the measures taken, the above documents and procedures implemented, no cases of no corruption or fraud were reported at the CIECH Group in 2019.

Respect for human rights at the CIECH Group

In the CIECH Group, we focus on promoting ethical standards and actions oriented towards respecting human rights among our stakeholders, especially our employees and business partners.

We follow all applicable laws related to work time, overtime, salaries and other benefits provided by the employer. Salaries are paid on time according to the "Remuneration Regulations" in force.
Our employees are free to join or leave trade unions and/or employee representation bodies at their own discretion.
We value diverse, inclusive work environment; we don't discriminate or tolerate discrimination against people on grounds of sex, age, race, religion, disability, sexual orientation, ethnicity or any other feature protected by law.
We do not benefit from any kind of forced labour. Our employees have control over identity documents, and do not pay any fees related to obtaining and maintaining their jobs.

▪ Any kind of physical and/or psychological compulsion, including bullying, is prohibited.

Documents regulating respect for human rights at the CIECH Group are as follows:

CIECH Group Code of Conduct;
Internal Anti-Bullying Policy;
CIECH Group Compliance Policy;
CIECH Group Conflict of Interest Prevention Policy;
Procedure: Bullying and discrimination prevention in the CIECH Group working environment;
Procedure: CIECH Group Ethics Committee Regulations;
Procedure: Asking questions and reporting violations of laws, internal regulations and ethical standards applicable at the CIECH Group.

In 2019, no case of bullying was reported to the CIECH Group Ethics Committee.

"GDPR"

In connection with the entry into force of Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) ("GDPR"), the CIECH Group has taken steps to ensure compliance with the GDPR requirements.

A Data Protection Officer has been appointed at CIECH Group companies where such an obligation occurred. In the remaining companies, an entity providing continuous advisory services in the field of personal data protection has been engaged. All matters related to the processing of personal data are consulted on an ongoing basis with the Data Protection Officer (or the entity providing advisory services, as appropriate).

The organisation has adopted the necessary internal regulations specifying the rules of conduct in the area of personal data, in particular:

Personal Data Protection Policy;
Instructions for evaluation of processors;
Principles of cooperation with the Personal Data Protection Officer;
Procedure for assessing the impact on the protection of personal data;
Procedure for the management of personal data breaches;
Procedure for keeping a record of processing activities and a record of categories of personal data processing activities;
Procedure for granting authorisations to process personal data;
Procedure for the exercise of data subjects' rights;
Office Instructions;
Principles for including data protection at the design stage (privacy by design) and default data protection (privacy by default);
Procedure for reviewing privileges and access to data.

For the purposes of the CIECH Group companies, templates of information clauses, declarations of consent and entrustment agreements have also been prepared. These documents are updated as necessary. The companies keep the registers required by law. The mechanisms to ensure compliance with the TYPE also include training and audits in individual companies.

Delegation of Authority (DoA) Matrix

In 2019, the CIECH Group companies implemented a decision-making system using the Delegation of Authority (DoA) matrix.¹ The introduction of DoA is one of the key elements of building a BU-centric management system in the CIECH Group. In the BU-centric management system, decisions will be made in Business Units or companies which are not Business Units and are not part of Business Units, with the advisory and recommending participation of CIECH S.A. structures. The DoA procedure requires that, prior to making individual decisions:

1. recommendations be provided by the selected department directors in CIECH S.A.,
1. approval be given by the relevant committee functioning in the CIECH Group,
1. approval be given by the companies' statutory bodies,
1. approval be given by the Management Board of CIECH S.A. acting as a general meeting/shareholders' meeting or as the Parent Company.

¹ DoA – Delegation of Authority

The need to obtain a recommendation and approval depends on the nature and value of the legal and economic event. The DoA process is the process of obtaining formal recommendations and approvals immediately following the completion of the purchase/sale process.

The DoA process is regulated by the DoA matrix procedure. The procedure sets out, among other things, the deadline for giving recommendations and approvals, the order in which recommendations are received, the form of recommendations and approvals given, the effect of a lack of recommendations, the effect of a negative recommendation, the rules for delegating authority and obligations resulting from the DoA and deviations from the DoA. An IT tool designed specifically for the DoA process is planned to be launched in 2020.

Financial and non-financial risk management at the CIECH Group

The Risk Management System used by the CIECH Group is a supporting instrument for the Management Board and the Supervisory Board, and is supposed to provide a continuous growth of the CIECH Group's value to its shareholders.

Risk management is a continuous process which engages the Management Board, people responsible for specific risks and all our employees. The System is to identify potential threats and to properly safeguard the CIECH Group's strategic goals. Risk management is intended to decrease negative or increase positive effects of an existing risk at optimum cost.

Risk management model enables to:

determine an acceptable risk level used in strategy planning,
determine an acceptable level of managed risks and to monitor them,
specify the strategy for aggregated risk areas,
specify the risk metrics for the approved risk strategies.

The basis of the Risk Management System is the Quality Control System compliant with ISO 9001, and identified risks are associated with business processes executed by the CIECH Group.

Table 4. List of most important non-financial risks identified in the organisation in the reporting period.
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Non-financial issue	Risks identified in the Risk Management System at the CIECH Group
1. Social
1.1. Product related	▪ Risk of failures and unplanned downtimes. ▪ Risk related to changes in regulations concerning registration of crop protection products on target markets.
1.2. Related to external environment	▪ Risk related to the availability of raw materials. ▪ Economic risk. ▪ Risk of oversupply and decrease in prices of soda resulting from strong price competition and downturn in the glass production segment. ▪ Risk of strong price competition from large corporations and Far East producers in the area of crop protection chemicals. ▪ Risk related to more restrictive regulations concerning the use of the natural environment. ▪ Risk associated with court proceedings or other out-of-court procedures. ▪ Risk of changes in market prices of raw materials.
2. Employee-related	▪ Risk of failures and unplanned downtimes. ▪ Risk of failure to retain or recruit staff by the CIECH Group. ▪ Risk of personnel disputes.
3. Environmental	▪ Risk related to the availability of raw materials. ▪ Risk of failures and unplanned downtimes. ▪ Risk related to more restrictive regulations concerning the use of the natural environment. ▪ Risk of climate change resulting in decreasing demand for plant protection products.
4. Human rights	▪ Risk of personnel disputes.
5. Corruption prevention	▪ This risk is not present at the CIECH Group.

2. OUR BUSINESS

2.1 The supply chain.

TRANSPORTATION & LOGISTICS

The road transport market presents the organisation with further challenges. The exacerbating shortage of drivers, legislative changes or financial problems of carriers make cooperation in the field of transport more demanding. In addition, significant fuel price inflation and wage increases in all sectors translate into pressure on transport costs.

Despite the market challenges, the CIECH Group successfully implements the adopted objectives in the area of transport, focusing on high operating standards and cost optimisation as part of long-term cooperation with business partners.

In order to ensure a high level of service, the organisation attaches great importance to improving the standards of services offered. In 2019, the list of qualified suppliers was verified based on the results of the 2019 evaluation and cooperation with Carriers who failed to meet the CIECH Group's requirements was terminated. As a result, the number of carriers has been reduced by about 20% in order to be able to strengthen cooperation with proven partners. Standards were introduced in terms of payment deadlines and process and the procurement process was centralised so that additional synergies could be generated. The volume of transport under own carriage management has also increased. The greatest changes took place in soda transport, where this share increased by an additional 80 thousand tons.

In the area of rail transport, great emphasis has been placed on the modernisation and extension of railway infrastructure. As part of this initiative, the siding in CIECH Vitrosilicon S.A. was extended and tracks at the soda plants were modernised. Additionally, some investments were made in rolling stock. In 2019, CIECH Cargo Sp. z o.o. acquired a modern six-axle electric locomotive Dragon 2, designed to run heavy freight trains, and two heavy diesel locomotives of the BR 232 series, capable of transporting goods from/to non-electrified stations. The railway transport potential is systematically acquired and restored,

in the form of coal wagons and specialised wagons for transporting loose products, thus securing transport needs of the group and opening additional possibilities for providing transport services on the external market.

In response to market trends and the significant growth rate of intermodal transport, CIECH Cargo obtained permission for co-financing the purchase of 2 mediumsized locomotives and platform wagon assemblies.

Such equipment will make it possible to expand intermodal transport activities and contribute to greater diversification of rail transport.

In addition, measures are taken to increase operational efficiency within the company and optimise the rolling stock (e.g. decommissioning some of the 2-axle silo wagons).

In 2019, maritime transport sector saw a decrease in transport volumes, mainly in the soda segment. This is attributable to changes in the sales structure and reorientation on the domestic market. Shipments of other products (mainly silicates) remained relatively similar to those of the previous year. Moreover, as part of the tenders carried out, direct relations with shipowners were established, which resulted in more favourable sea tariffs. Greater involvement in the tendering process and the introduction of corporate standards in the Romanian market has contributed to a reduction in transport costs by several percent year-on-year.

In addition, many initiatives have been launched in the area of transport to improve quality, shorten transit times and optimise costs. Initiatives such as liner-bag loading, reloading on the road (rail to truck) or intermodal transport are worth mentioning here. Talks are also being held with customers with regard to increasing volumes in rail transport. Here, CIECH S.A. supports its customers with resources and expertise.

Most logistics processes, from planning to execution, are supported by state-of-the-art IT solutions. In 2019, along with the SAP S4HANA system implemented in January, interfaces with systems supporting logistic processes (weighing system, TMS – Transport Management System and WMS – Warehouse Management System) were launched in further plants of the CIECH Group (Inowrocław and Janikowo). With the automatic transfer of data between these systems in real time, the processes of ordering transport and handling loads inside the plant have been streamlined.

Another major project carried out in 2019 is the construction of a salt production plant in Stassfurt. This project involves the construction of a state-of-the-art warehouse with fully automated shipping processes. The solution will use stacker cranes for pallet transport, conveyor systems with sensors and advanced decision-making algorithms. The whole process will be supervised and managed by a WMS-class system of the latest generation. In addition, conceptual work is underway in the area of measuring the timeliness of deliveries and the effective handling of vehicles on site.

In addition to investments in railway infrastructure and IT solutions, the CIECH Group invests heavily in its plant infrastructure. In 2019, the modernisation of the loading terminals under the silos at soda plants was completed. Work in the area of packaging and storage of finished products is continued in order to increase the storage capacity of the warehouse and shorten the loading time of vehicles. These tasks include, among others: modernisation of equipment for packaging soda into big bags, or modernisation of sodium bicarbonate warehouses with a view to commissioning a high-storage warehouse.

The backbone of the decision-making process and the integration platform is the Sales & Operations Planning (S&OP) process whose implementation started in the CIECH Group in 2018. In 2019, work related to implementation was continued in subsequent companies. At the companies where the solution has been implemented, S&OP functions as a formal business process ensuring consistency between business plans, identification of threats and opportunities, and enabling the Management Board to make decisions based on the analysis of scenarios and financial performance. Owing to this process, many decision-making processes have been optimised and operational costs have been reduced. The process implementation in individual companies of the Group is scheduled to be completed at the turn of 2020/2021.

Implementing and stabilising the process will enable the development of a commonly agreed demand, production and supply plan for the next 18-36 months with agreed opportunity and risk scenarios and recommendations for the Management Board's business decisions, with particular focus on opportunities and proactive risk management.

Figure 7. Share of particular transport categories in sales in 2019.

Purchasing practices at the CIECH Group

The Purchasing Department of the CIECH Group is responsible for all procurement functions in the organisation and in 2019 it consisted of units responsible for:

Purchasing raw materials for the Organic segment,
Purchasing raw materials for the Soda and Salt segments,
Technical purchasing,
Administration and IT purchasing.

Table 5. Key purchasing categories at the CIECH Group

Area	Purchasing categories
Raw materials	▪ energy raw materials, ▪ raw materials for soda production, ▪ raw materials for salt production, ▪ raw materials for the production of crop protection chemicals, ▪ raw materials for resin production, ▪ raw materials for polyurethane foam production, ▪ furnace fuel, ▪ packaging, ▪ electricity.
Technical purchases	▪ purchasing of maintenance and ongoing repair services, ▪ investment purchases, ▪ purchasing of fixed assets and machinery.
Administration and IT purchases	▪ administrative and general purchases (including OHS and firefighting purchases, office supplies and services, security services, business travel); ▪ IT and telecommunications purchases (including licenses, hardware, telecommunication and IT services); ▪ professional service purchase (including tests, expert opinions, permits, marketing purchase, consulting services).

Documents regulating CIECH Group purchasing:

Procurement Procedure for the CIECH Group,
Integrated Management System procedure: Packaging Management at the CIECH Group,
Integrated Management System procedure: Selection and evaluation of goods and services vendors in trading activities,
Integrated Management System procedure: Review of RFQs, orders, quotes and business agreements.

Vendor selection criteria at the CIECH Group

At the CIECH Group, vendors are selected based on formal criteria and on trade and substantial evaluation criteria, e.g. price, quality, delivery time and warranty. For development and replacement investments of significant value, TCO (Total Cost of Ownership) analysis is also important. It is a sum of all costs related to a solution, from its purchase, through use, to disposal.

Depending on the purchased goods, vendors are verified each time for meeting formal criteria including, but not limited to, certificates, positive recommendations and compliance with applicable environmental standards.

Initiatives for developing good relationships with vendors:

Individual meetings,
Vendor visits to a plant,
Participation in industry conferences and fairs,
Vendor audits,
Continuous development and improvement of the purchasing platform,
Work on the implementation of a uniform ERP system throughout the CIECH Group, to standardise and simplify the rules of operational cooperation between Vendors and Group companies, and continued digitalisation of the P2P (Procure to Pay) process, improving its effectiveness.

At the end of 2019, changes in the Group's purchasing model were initiated, gradually departing from the transactional approach and moving towards the management of purchasing categories. The changes are intended to further increase the Purchasing area's contribution to the implementation of ambitious goals set for individual business units, as well as for the entire CIECH Group.

The key aspects of the changes to be implemented include:

increasing the degree of automation and computerisation of purchasing processes,
increasing the share of orders covered by framework contracts in total expenditure,
dividing roles within the combined Local Purchasing Teams between the execution of orders and carrying out purchasing processes,
introducing the role of a Category Manager, responsible for developing and implementing a long-term, optimal approach to the managed purchasing categories at the CIECH Group level.

2.2 Product quality.

In accordance with the CIECH Group's strategy for 2019-2021, activities of the Group's companies are focused on the implementation of four core values: increasing customer satisfaction, increasing innovation, continuous improvement of business and management efficiency.

These values are pursued in the quality area through:

continuous supervision over meeting the requirements of legal regulations and standards relating to the quality and safety of products and services provided,
providing an extensive product portfolio and adapting it to customers' needs and quality requirements,
building lasting relationships with customers, taking their needs into account and responding quickly to the feedback from business partners,
minimising costs of poor quality (complaints),
gradually reducing operating costs and risks,
implementing new quality management tools and policies supporting product quality and safety assurance,
ensuring adequate competence of employees in particular positions,
continuous improvement of the implemented management systems, in accordance with the CIECH Group's needs and customer expectations.

Management Systems at the CIECH Group

CIECH Group implemented management systems compliant with international standards. System implementation was possible by integrating (within one management system) basic requirements which are identical for all standards (based on ISO 9001 requirements) and including specific requirements (industry-related, product-related) with consistency and compliance with the assumptions and rules set forth in the organisation.

The basis for setting objectives and directions of action for processes covered by system requirements is the Quality Policy applicable at all companies of the CIECH Group.

The certified management systems implemented in particular companies are listed in the following table.

Company	Norms/standards
CIECH S.A.	ISO 9001; GMP+ B3; GMP+ B4; GDP API
CIECH Soda Polska S.A.	ISO 9001; ISO 14001; GMP+ B2; GMP API; FSSC 22000; KOSHER, ISO 17025
CIECH Sarzyna S.A.	ISO 9001; ISO 14001; PN-N-18001; ISO 50001; WSK, ISO 17025
CIECH Vitrosilicon S.A.	ISO 9001; ISO 14001
CIECH Soda Romania S.A.	ISO 9001
CIECH Soda Deutschland GmbH	ISO 9001; GMP+ B2; ISO 14001; ISO 50001; KOSHER
CIECH Cargo Sp. z o.o.	ISO 9001; ISO 14001; Rail operator safety certificate in parts A and B; ECM certificate
CIECH Trading S.A.	ISO 9001; GMP+ B3; GDP API
CIECH Pianki Sp. z o.o.	ISO 9001, preparation for STeP by OEKO-TEX ® certification

Table 6. Certified management systems at CIECH Group companies in 2019.

System supervision and improvement has been entrusted to employees of Quality Departements of individual companies who have required knowledge and competences.

All employees participate in mandatory trainings related to implemented policies and procedures corresponding to the scope of duties related to their position and responsibilities. Newly hired employees and partners participate in an initial training on the requirements of the Integrated Management System.

In 2019, the proper functioning of management systems at Group companies in relation to the implemented norms and standards was confirmed by audits carried out by independent, specialized certification companies.

Also, no cases of non-compliance with regulations and applicable codes related to Product quality that would result in a penalty, fine or warning was reported.

CIECH Quality Standard (CQS)

To support the implementation of quality-related measures at Group companies, the Group has launched the CIECH Quality Standard (CQS) programme comprising projects aimed at continued quality cost optimisation in the Group, continuous improvement of quality of finished products, reduction of the number of complaints submitted by key customers, organisational improvement and development of staff qualifications and skills.

The high standards were confirmed by the GLP ("Good Laboratory Practice") certification awarded to CIECH R&D laboratory for AGRO products, which proves not only the high quality of its research activities, but also their reliability and independence. This will ensure that the outcome of research carried out at this research centre will be recognised globally, by most international and national bodies responsible for the authorisation of chemicals.

Table 7. CIECH Quality Standard (CQS) benefits

For our customers	▪ Meeting the requirements of law, external and internal specifications, and safety standards, ▪ Better customer relations, faster complaint handling time, ▪ Product quality improvement.
For company growth	▪ Retaining talented people with valuable experience and skills and maintaining an optimal number of employees, ▪ Engaging all employees in company strategy execution – non-financial employee motivation, ▪ Labs as showcases.
For company finance	▪ Quality control cost optimisation plans,
	▪ Minimising costs related to bad quality.
For improved company	▪ Improved company image – a Group-wide Quality Management System based on ISO 9000,
organisation	▪ Information, knowledge and skill exchange between employees (on a local and global level),
	▪ Implementation of new quality tools and solutions in a systemic manner at the Group level.

Tasks for 2020

In 2020, in the Quality Management area, in addition to the continuation of previously initiated measures to support the pursuit of the CIECH Group's strategy, there are some new challenges related to system requirements and certification of new Group entities:

CIECH Żywice Sp. z o.o. business area spun off from CIECH Sarzyna S.A. (ISO 9001, ISO 14001),
newly built evaporated salt production plant in Stassfurt (Germany),

as well as to the implementation of new or revised standards in other companies:

CIECH Pianki Sp. z o.o. preparation for STeP by OEKO-TEX ® certification for suppliers and sub-suppliers in the textile production chain;
CIECH Soda Polska S.A. change of the certification standard in the fodder area to GMP+B1, transition to the new edition of ISO 17025 (accreditation of testing and calibration laboratories), EKO certification for salt licks;
CIECH Sarzyna S.A. transition to the new edition of ISO 50001 (Energy Management), transition to the new edition of ISO 17025 (accreditation of testing and calibration laboratories);
CIECH S.A. extension of the scope of activity of the Quality Management Department to include the Regulators area, coordination of supervision over compliance with legal requirements affecting the quality and safety of products.